Donald Trump Is Underowned

It’s often been said that the most dangerous words in the investment business are “it’s different this time.” To be sure, few good things happen after uttering those words, but I’ve found more immediate pain meted out by the markets when I say “the market is wrong.” One would imagine such thoughts sometimes occur to the cottage industry of political punditry, but if one looks at the phenomenon that has become Donald Trump’s bid for the Presidency, it seems few see the irony. If Donald Trump were a stock (need you ask what the symbol would be?) it would be hitting new highs despite a series, maybe even as a result, of analyst downgrades and downward earnings revisions. Since Trump’s speech announcing his candidacy (perhaps one of the most interesting if not the most hilarious political speeches of all time), a series of political pundits have continued to write his political obituary, always after the latest shocking thing he has to say. Never has anyone in modern political life been so insistent on sticking his thumb into the eyes of political correctness and not been destroyed by it. As a result, nearly three months after the IPO, TRUMP is hitting new highs, large institutional investors are underweight in their positioning, and the shorts are finding it hard to borrow the stock. In essence, all the “experts” are saying the “market” is wrong, with predictable results. (Click here to read...

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Do You See What I See? Do You Hear What I Hear?

A Layman’s Plea for Tolerance of Catholics And so we’ve entered the Christmas season, a beautiful and wondrous time of year in which people of all faiths try to be a little nicer to one another, meet up with old friends and distant family, and engage in some nostalgia, both happy and sorrowful, for times gone by.  It has also, sadly, become a time when militant atheists, nihilists, and a variety of other “ists” feel compelled and comfortable in mocking Christianity, and most specifically and brutally, the Catholic Church.  It might seem presumptuous for a 44-year old man to attempt to defend a great faith that has existed for two millennia.  But if there is something I sense as a layman that perhaps the leaders of the Church may not, it’s the need, in the political patois of the day, for a better “ground game” to defend Catholics against a continued and intensifying onslaught of secular bigotry.  Catholics need help and inspiration for as famed writer Andre Dubus once said “belief is believing in God; faith is believing that God believes in you.”   What follows is not an airtight academic defense of the Church, the nuances of the faith, or its more controversial precepts.  Catholics have had St. Thomas Aquinas, St. Thomas More, John Henry Cardinal Newman, and hundreds of other geniuses to do that.  This is simply a humble plea for those disposed to have an aversion to the Church and the faith upon which it is based to see it through the eyes of the faithful. Regretfully, in today’s world, describing oneself as “spiritual” is about as far as one can get without being labeled at best, a hopelessly superstitious rube, and at worst, a misogynistic and homophobic bigot with secrets to hide.  The great irony in all this, of course, is that those calling most loudly for tolerance in society are often the most aggressively intolerant of Christians in general and Catholics in particular.  It has become the pabulum of certain anti-Catholic voices among the political left, Hollywood, and the mass media to claim that the Church has done more harm than good throughout history, completely ignoring its past and present contributions to charity, art, science, and scholarship.  Of course, those interested in the truth would be hard-pressed to find another organization so committed to helping and educating others.  While modern Catholics recognize that hasn’t all been achieved without controversy or scandal, we also wonder why we are so often the subject of ridicule and scorn. More than twenty years ago, the late President of Georgetown University and later, The New York Public Library, Father Timothy Healy, S.J., was quoted as saying that “anti-Catholicism is the one allowable bigotry”  to of all places The New York Times.  Modern Catholics often find it difficult to see how the much vaunted plea for tolerance is ever extended to them. There is no denying that the Church’s unpopularity lies, at its core, with its views on human sexuality and the sins, past and present, of the institution of the Church.  While it can be argued whether the Church’s views on sex are out-of-step with modern society, those unfamiliar with the faith should understand that the sentiment behind them lies with what we see as a simple and incontrovertible...

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Il Cavaliere Inesistente in un Giardino in Versilia, un Piccolo Ue (Italiano)

Come il presidente di una societa’ di analasi dell’andamento economica di Wall Street, e’ difficile per me evitare le notizie quotidiane della mia terra materna.  Negli ultimi anni, i miei soggiorni in una piccolo citta’ sul mare vicino a Lucca sono diventati una fonte importante di riposo e di un ricupero della mia prospettiva della vita.  Non sono mai sicuro se e’ il fatto che sono in vacanza o se e’ la natura deglia italiani che mi mette a mio agio ma credo che due mila anni di sfiducia della classe politica hanno dato agli italiani un grande senso delle cose importanti nella vita – la famiglia, il cibo, gli amici, il mare, il sole – cose che tanti noi, nel nostro tenativo frenetico di arricharsi, spesso diamo per scontato.  Nonostante il costo del questo modo di pensare degli italiani porti forse un super-svillupato scetticismo, molti americani direbbero che e’ un giusto equilibrio.  Benche’ sono cresciuto in una casa molto italo-americana e stavo studiando la lingua e la cultura per 30 anni, la prova piu’ difficile per il mio italiano avvene quando devo leggere un menu in Italia – ironica dato la mia dieta a New York.  Fino alla fine del diciottesimo secolo, l’Italia ha avuto piu’ di 250 forme diverse di pasta.  Forse come un piccolo ommaggio alla modernita’ e efficienza, la terra unificata di Garibaldi ha adesso solamente 55 o 60 parole diverse per la pasta dipende sulla persona con cui si parla, abbastanza numerosi di confondere tutti che che non parla la lingua correntemente.  Mi ricordo l’esasperazione di Charles DeGaulle quando si ha domandato, “come si puo’ governare una nazione che ha 246 tipi diversi di formaggio?”  Per dieci giorni, l’unica fonte delle notizie e’ stato il Corriere della Sera nella mattina con il mio caffe’ e una mezzora  del telegiornale prima di cena.  Il fuoco maggiore di questi fonti limitati non resta sulla sfida politica ma sull’informazione.  Ho evitato i dibattiti finti della televisione Americana con “esperti indipendenti” e ho reso conto, nel processo, come meno estenuante e come piu’ efficiente quest approccio di raccogliere le notizie importanti possono essere.  Purtroppo, il mio tentative a restuarare il mio prospettivo aveva sconfitto di un crollo di 8% del Mibtel il momento in cui ho atterrato sulla terra italiana.  In una balena, dovevo affrontare la questione se il “conto” stava arrivando per 50 anni di spreco nel mondo occidentale. La bellezza di visitare un posto per un peso di tempo e’  l’abilita’ di sentire un senso dei suoi ritmi e rituali.  Forse la parte piu’ bella e indemticabile della nostra vita in Versilia sia stato la nostra abbitudine di guardare i ragazzi che giocavano nel giardino dell’albergo ogni notte dopo cena.  Nel contesto della tempesta presente nei mercati finanziari non potevo evitare di pensare che questo piccolo gruppo di bambini da tutta l’Europa (i miei ragazzi sono  stati gli unici americani) ha rappresentato un piccolo versione della UE.  Ogni notte un gruppo di ragazzi francesi, italiani, e tedeschi si riunivono presso il bar – i genitori bevando i loro cocktail e combattendo le zanzarelle, i fanciulli correndo felici e trionfalmente nel giardino.  Pochi dei piaceri della vita vengono senza un costo, e questo rituale notturna e’ diventato   qualcosa che evoca l’Unione Europea in un altro modo –...

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The Wall Street Journal: Treasurys and the Danger of Short-Term Debt

You’ve probably heard that the federal government is facing budget deficits that are larger as a percentage of GDP than at any time since World War II. But did you know that Uncle Sam is using capricious short-term funding to satisfy its long-term liabilities? One wonders how Treasury Secretary Timothy Geithner can sleep soundly at night with the knowledge that more than 60% of America’s sovereign debt is set to mature within the next three years. To be precise, $5.2 trillion of U.S debt comes due in the next three years out of $8.3 trillion outstanding. The weighted average cost of U.S sovereign debt is an astoundingly low 1.21%, about the same as the current yield of the five-year Treasury note. But if the Treasury had to pay the equivalent of the 10-year average of five-year government yields of 3.77%, it would incur additional interest costs of $133 billion annually. A rise in five-year yields to the 20-year average of 4.87% would increase the additional interest expense cost by 43% or an additional $190 billion annually. Some might ask why the U.S. should increase the deficit at all. But the time to secure long-term funding is when you can and it is mildly expensive, not when you have to and the costs are exorbitant. The U.S. government’s financial flexibility is both a blessing and a curse—a blessing because it allows the country to use deficit spending to smooth out business cycles, a curse because this has only reinforced government profligacy. America’s deficit problem, as everyone knows, is not pretty. Treasury debt issuance increased by a remarkable $1.9 trillion in fiscal year 2009 and the deficit is projected at $1.3 trillion (9% of GDP) and $1.1 trillion (7% of GDP) for fiscal years 2010 and 2011, respectively. While some may claim these deficits are cyclical and are inflated by the Troubled Asset Relief Program and other supposedly short-term fiscal programs, it is difficult to describe deficits approaching 10% GDP as anything other than structural. Ultimately, if America is going to dissave to this extent, there are only a few ways to make the equation work—we will either need to accept a lower level of investment or rely on an increase in personal savings, higher levels of retained earnings by corporations, or greater foreign purchases of our debt. And so we are left with the question we started with, why is the Obama administration content to use short-term borrowing to fund its long-term liabilities? There are only two plausible explanations for this precarious funding plan—one cynical, one practical. On the cynical side, the choice to keep the average maturity short may be an attempt to keep interest expenses, and consequently the current budget deficit, as low as possible, regardless of the danger this could present for the long-term fiscal health of the country. More practically, short-term funding may simply be a function of the fact that the marginal buyers of America’s debt are growing uneasy with its profligacy. The Treasury Department announced last month that China reduced its holdings of U.S. Treasurys for the second straight month through June. While the chances of China completely walking away from our debt markets are low given its dependence on the American consumer, there is little question that the U.S. is surrendering a portion...

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The Wall Street Journal: Remembering the Reagan Bull Market

For economic historians and defenders of the Reagan revolution, this week will forever be seen as the anniversary of one of the greatest bull markets in history. It was on Aug. 12, 1982, that the Dow Jones Industrial Average dropped to its 1980-82 recession low of 776.92—almost precisely where the Index had closed in January 1964. Starting as a trickle, the decline in inflation and long-term interest rates picked up speed that summer, and investors in common stocks began to have confidence that they were being liberated from the shackles of double-digit inflation and interest rates, an innovation-sapping regulatory regime, and a tax code that was antithetical to capital formation. During that lazy summer, institutional and individual investors came to the conclusion that the back of inflation had been broken. Not insignificantly, they also believed that they had a friend in the White House. When Henry Kaufman of Salomon Brothers said that Treasury yields had reached their highs in a note to clients on Aug. 17, 1982, stock prices exploded. This provided free-market optimists with desperately needed evidence that their principles would provide a path forward. The simple—yet difficult to achieve—strategy of getting the government out of the way and turning the economy over to free enterprise set the stage for a period of tremendous economic growth and wealth creation. Here we are today, 27 years later, after a nearly 50% increase in the Dow from its March 9 low. Many investors are starting to wonder whether incipient signs of economic growth will form a foundation for a new bull-market phase. Given the Sturm und Drang surrounding the economy and the financial markets over the past two years, it is tempting to believe that we are yet again on the edge of such a happy occasion. Unfortunately, unlike 1982, no such springboard for outsized market returns exists today. The prime rate (the interest rate at which banks provide their best customers with credit) reached 17% in April 1982. The unemployment rate reached a high of 10.8% that year, exceeding the rate experienced in 1974. Nearly two decades of wayward fiscal policies of both Republican and Democratic administrations in the 1960s and ’70s locked the Dow in a trading range of 578 to 1052 for 18 years. The ineffectual monetary policies of Chairmen Arthur F. Burns and G. William Miller at the Federal Reserve just made matters worse. The only good news at the time was that America’s economic leadership, in the form of President Ronald Reagan and Fed Chairman Paul Volcker, were deeply committed to fiscal, monetary and regulatory reform. Put simply: business regulation, the tax code, inflation and interest rates were all at such dizzyingly high levels that they had room to improve in 1982. Today, interest rates and inflation are so low that they are unlikely to do anything but go higher. Current headline inflation is near zero. Ten-year Treasurys are at a historically low level of 3.7%. Taxes on income and capital are low and are poised to go higher, while common valuation metrics for the market are hardly cheap. No investor should blame the current administration for what are likely to be lackluster market returns in the next few years. But it does seem fair to worry about the future of equities in an environment...

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