No Wrench

Having just finished Michael Pollan’s “The Omnivore’s Dilemma” I’ve been thinking a lot about the nature of food and the benefits that accrue from eating locally. There is the obvious benefit of reducing carbon emissions, since there are massive amounts of fossil fuels burned to transport all the different foods to the odd ends of the world. There are also benefits that accrue from destroying the industrialization of food production, such as the reduction of groundwater pollution and decreased used of antibiotics in our food.

However I do not think it is necessary or even desirable to destroy the global food chain. There are great advantages in the quality of life in having different sorts of food available year round. While it might not be natural to be eating green vegetables in the middle of a North East winter, it is certainly much more healthy and enjoyable to consume a balanced diet throughout the seasons. Obviously steps need to be taken to reduce the carbon footprint of transferring goods around the world, but that is true in general and really applies to all expenditures of energy. The amount of energy consumed by humans is not going to drop; we just have to find cleaner and renewable ways of generating it

To get back to the food chain issue, it is a commonly held belief that eating locally is going back to the “good old days” of pre-industrial farming. So it was somewhat amusing to discover, as I started plowing through John Ferling’s massive history of the American Revolution “Almost a Miracle”, the following quote:

He thought Boston was attractive and its climate good, at least until his first New England winter set in. The food was superb. There was an abundance of seafood, including turtle soup, which he relished. Madeira and tropical fruit, also among his favorites, were consistently available.

Even in the late 1700’s, food was being shipped from the Caribbean up to the Northeast, setting the patterns now followed by fruits and vegetables migrating up from Latin America. There will always be a human desire for the exotic and the nonseasonal food; it has always been satisfied to the best of technology’s abilities. Tropical fruit might barely survive the sailing ship voyage up the American coast, but these days a freighter can have it here in plenty of time while a plane takes only a few hours.

Eating locally is a good, and probably a necessary, thing, if we are going to improve the health of both people and the land they live on. But advocating an absolutist position like a ‘hundred-mile diet’ is both unpopular and contrary to human desire. It is also contrary to all prevailing notions of world trade and exchange. Assuming our society (not American, but human society) does fall into absolute rack and ruin, international commerce will continue to broaden and grow. This is undeniably a good thing, assuming the associated environmental risk is both properly assessed and offset (the externalities of shipping goods around the world needs to be factored into their cost, as does the environmental impact of countries with overly permissive standards). A balance needs to be found that allows ecology to be preserved and even promoted, whilst still allowing us in the frigid north a taste of mango.

This is the post that helped inspire me to write about investment strategies:

I have no idea what’s going on with any of my equity investments, because that is not short term money that I need to keep my eye on.

If you look you will get upset, and you will be tempted to do something stupid. I can’t guarantee that the market won’t drop further and you won’t regret having held on. But as a general rule, selling into a massive liquidity crisis is a pretty bad idea. Selling in a panic because your assets just dropped 30% is almost certainly a bad idea.

Since that was posted the Dow has dropped from 9447 to 8046, a loss of almost 15%. So if someone followed her advice and didn’t sell in early October, they’re even farther down. And since it looks like an economic revival is doubtful at the moment, the losses will probably just get even worse.

Completely hands-off management is never the answer.

I’ve got three different things I’m working on right now.

• A series of posts of DRM and the future of transactions/media. I’ve been mulling this over for a while and I think I’m ready to post on it.
• One or two big posts on financial issues. I’ve seen a lot of people lately advocating buy-and-hold or dollar-cost averaging as investment strategies and I want to layout why these are terrible ideas for anyone who actually wants to retire at a meaningful age. I’m writing some simulation code to run different scenarios to demonstrate the problems with these approaches.
• Getting back to the literature blogging. I never managed to blog about my favorite 5 from last year and this year is almost over. oops.

I’ve got the next week reasonably free besides seeing friends and family. So hopefully at least some of this will happen.

One of the reasons I am not rushing to jump back into the market is that it is clearly unhealthy. When 4% intra-day swings happen multiple times in a week and we see 10% intra-day moves there is clearly something wrong. If you assume that markets are supposed to price in most conditions, such rapid moves ought to reflect major intra-day changes in the news. But they don’t.

Even if we consider that markets are far from perfect at pricing in reality (and they are), unmotivated moves of this sort should not be occurring. What is happening is that people are momentum trading, trying to game the system and wring profit out of each little hitch. All this churn is exacerbating every swing, while just clouding the actual movements of the market. Bonddad see this as a consolidation period and haven’t seen anything to indicate that he is wrong, for the short term. But, to me, this more resembles the throes of agony than an orderly consolidation. Which is why I’m still keeping my money on the sidelines waiting for things to shake themselves out.

MyDD has picked up the story floating around the mainstream media (which I appear to be completely oblivious to) that Hilary Clinton is getting consideration for the Secretary of State position. While I think she would be an amazing Secretary of State I really hate this move. I just do not see the path that Hilary takes from that position to continue her run in politics.

If she takes the cabinet post, she is out of Congress. Most likely won’t run again. She could run for the presidency in 2016, but I find it unlikely she will (running for president is increasingly becoming a young person’s job given the incredibly taxing demands of modern campaigns). NY Governor isn’t impossible, but the next election is 2010, meaning Hilary would only spend one year as SecState which seems unrealistic. So she’d have to wait till 2014 to run which could happen, especially if Paterson blows it this time around. But is that really what we want from Hilary? Four years as SecState and then nothing for two years and then maybe running for governor?

Clinton still has a chance to be one of the most amazing Democratic leaders the party has ever know. I want her on the Supreme Court, a place where she could leave an incredible mark on the next hundred years of American history. If the plan is for her to serve as Secretary of State until Obama appoints her to the Court, then lets rock. Otherwise, I think we are better served with 12 years of her in the Senate than with 4 years of her as SecState.

A lot of people have been talking about a bottom lately. Barry Ritholtz over at The Big Picture has actually been seen making the occasional bullish call. Jon Taplin started buying back in to GE and CVX. Now I like both of those stocks a lot for the long term. But less than 10 days after the big 8% rally in GE that Jon was excited about, GE broke its 52-week low and looked like it was flirting with dropping below $16 a share today. Now GE with a P/E under 8 is a fantastic deal. There is no question about that.

However we are not at the bottom. There has been no (zero) good economic news coming out of any part of the world right now. US consumers are tapped out just as we’re about to enter the most important month of our economic year. There are lots and lots of companies who have to have a really positive Christmas to stay in business. That isn’t going to happen. Walmart may pull out a positive Christmas. Everyone is probably fucked. That means fewer jobs, a nasty kick-in-the-balls to the GDP, and the entire world drifting further down the recessionary spiral. Think that is priced in? I severely doubt it. No one is sure how bad it is going to get and while you can look at historic models, the old adage that “past performance is no indication of future returns” applies here in spades. This is not the Great Depression or the crash of the Internet bubble. This is new and different.

I want to come back to this in more depth later, because I don’t have the time to do this justice right now. But to put it simply, there are no reasons for stocks to go up now, except that they are underpriced with regards to traditional models of value. But right now those traditional models don’t apply. Which means there are not any good reasons for stocks to move positively right now. So why buy?

Gods damn it people. We went through this with the Vice-President pick. Weeks of people, on both sides of the aisle, working themselves up into a lather over who is was going to be or ‘WHO IT ABSOLUTELY COULD NOT, MUST NOT BE.” And in the end, Obama made the choice he wanted, who happened to be just about the perfect pick for the office. He’s going to do the absolutely same thing for his Cabinet. I’ve definitely got my preferences and my guesses on who he is going to choice, but I’m not losing sleep or tearing out my hair over it. This is the guy who just ran a picture-perfect presidential campaign, after running a perfect primary campaign and then healing a divided Democratic party. He’s earned our trust in his decision making, just a little bit. So everyone just needs to calm down, take a deep breath, and go back to laughing at the Republican disarray.

Remember:

The list is impressive. Most of the members are not surprises. I must admit to being incredibly glad to see Robert Reich’s name on there. This is a man who understands better than anyone the destructive potentials of capitalism and the need for a strong hand from the government to mitigate those effects. Certainly better than Robert Rubin (ugh) who is one of those left-brain capitalist types that Jon Taplin is talking about over here. There are no easy fixes to our problems, but this team might actually figure out some of the hard but necessary steps we’re going to need to take.

The pick of Rahm Emanuel for White House COS should be sending nervous shivers down the spines of the Republican minorities in Congress. For all that Obama has talked about bi-partisanship and the need for a new politics, it is clear that he regards these new politics as being his way or the highway. For his entire campaign he has done it his way, spitting into the wind of political tradition and the heaps of advice offered by those ‘in the know’ to become one of the most unlikely presidents in American history. And he did it with a smoothness and a grace that few other candidates have ever matched. I do not expect his presidency to be any different.

Obama has an agenda: he wants to save this country, even if large parts of it do not currently recognize that it needs to be saved. His pick of Rahm says that he is going to emphatically pursue that agenda, to the detriment of those Republican (or Democratic) members of Congress who attempt to stand in his way. One thing that the primary should have taught people about the Obama team is that they are very good at calculating risk vs. reward. Obama made the most of his cash and time by investing in the exact places he needed to win to capture the momentum that ended with his nomination. I suspect he will be investing time and political pressure upon recalcitrant Senators in exactly the same way. And Rahm is going to be the sharp end of the wedge. You almost feel sorry for them.