POLITICAL ADS | Obama v. McCain

July 31, 2008–Blake Fleetwood has posted a sharp take on the last two elections, arguing that Karl Rove succeeded in painting a picture of:

• Al Gore as an egghead with delusions of grandeur (Image: Jerry Lewis as the mad professor) and
• John Kerry as lying about his bravery under fire (Image: Pinocchio).

Both images were travesties but they played their part in bringing Dubya to the White House.

Using Blake's flashlight we can read the first McCain and Obama ads as similar snapshots:

• McCain announces in the "Celeb" ad that Obama is the biggest celebrity in the world, up there with Britney Spears and Paris Hilton. Message? Obama's popularity is not based on anything but appearance and that being opposed to new offshore drilling means he is responsible for higher oil prices. Image: Obama as empty-headed star.

• The Obama "We Believe" campaign ad starts with an image of McCain with Bush and Cheney, then goes to Obama's uplifting "we believe" followed by enthusiastic applause. Image: A vibrant challenger, facing up to the nation's economic problems, subverted priorities.

McCain's proposed "drill and nuke" solution to the energy crisis is not likely to have any effect on balancing energy supply with needs during the next eight years. A real solution to the energy crisis requires changing the incentives and behavior of the American people, which is Obama’s focus. That's why the Sierra Club has endorsed Obama.

Misery Index Climbs

Wall Street indexes rise and fall but the economic misery index goes on forever as a single-number summary of what is happening on Main Street. I therefore think it is well worth watching as a measure of how the economy is doing. The index (simply the sum of unemployment and inflation rates) rose in June to 10.5, the highest level in 15 years, i.e., since January 1993, the month President Bill Clinton was inaugurated and President G.H.W. Bush left office. Under Clinton the index improved but it has recently climbed back to what it was when he took over.

Misery Index in the Last Month in Office of Recent Presidents:
Carter: 19.3
Reagan: 10.1
Bush 41: 10.6
Clinton: 7.9
Bush 43 (as of June 2008): 10.5

More (Huffington Post)

DOWN DOWS | Cognitive Dissonance 2

July 11, 2008–On Nov. 8 last year, in DOWN DOWS | Cognitive Dissonance  and then on  Nov. 8 in  Huffington Post, I noted that Bob Janjuah of the Royal Bank of Scotland had raised the upper end of his estimate of cumulative subprime write downs. His estimate was $500 billion at a time when losses of just $50 billion were acknowledged by institutions. Now Janjuah looks like an optimist:

1. Bridgewater Associates, the world's second-largest hedge fund, has estimated likely asset writedowns at $1.6 trillion, i.e., a 6 percent overvaluation of $26.6 trillion of risky credit-based U.S. assets (mortgages, credit receivables and credit-card receivables). Some bankruptcies are predicted.

2. David Rosenberg, Merrill's Chief North American Economist, argues in a July slide show that more bad news is in store:
- A recession? We're in it. Just a question of how bad it gets and for how long.
- Asset values? Not yet priced low enough to reflect the recession.
- Housing prices? Could fall another 20 percent.
He therefore believes that while stagflation is the problem today, tomorrow it will be deflation and Fed policy must therefore remain accommodative.

Recent declines in the Dow are closing the disconnect I noted on Nov. 8 between the debt and equity markets. But the months ahead will be challenging for private investors and government officials at all levels.