Euro break up?

This video is well worth watching.   Hendry lays out a highly plausible scenario, with the PIGS (Portugal, Italy, Greece and Spain) finding the devastation in their economies caused by the euro discipline to be unsustainable.

The problem is, God only knows what would happen if the euro broke up.  Years ago, right after the euro went into effect, I asked a Brit what he thought were the odds that it would fail.  He didn’t really get my question, and so I had to clarify–what were the odds that the member countries would shortly abandon the euro and return to their own national currencies.   Mind you, something very like that had happened with an earlier, less drastic attempt at European monetary union, based on a managed mutual peg.

The Brit said it was impossible for this to happen with the Euro, he said that the result of a country attempting to leave the Euro would be war to force the departing country back onto the Euro.  Yes, this is what he said!

If the PIGS leave the Euro, would the Euro appreciate or depreciate against the dollar?  Unfortunately, there is no way to know,without supposing the monetary policy that would be undertaken by the rump ECB, and by the central banks of the PIGS.  Surely, in the short term, the value of the Euro against the dollar would be crushed, due to the intense economic and political agony that this event would herald.  The volatility of currencies, debt valuation and interest rates would be mind-boggling, in the run-up to such an event, and in the immediate aftermath.   If one were to position oneself to profit on such an event, betting on volatility would be the way to go.

Steven Hotze betrays conservatives

This is truly nauseating:  a picture of Steven Hotze holding a hatchet with the scumbag Rick Perry.  The only place this hatchet should be buried is in Rick Perry’s skull.

Perry is a lying sack of shit.  He and his co scumbag David Dewhurst rammed through the gross receipts tax in the last lege, an idiotic, criminal act which is going to devastate small and medium businesses in Texas.  Under their “leadership,” the state government, totally dominated by the GOP, failed to take any meaningful corrective action to address the public school funding crisis, which, by the way, is the ONLY SIGNIFICANT DUTY of the state executive and legislative branches  of government.

I suppose Steven Hotze calculates that Kay Bailey Hutchinson is even worse than Rick Perry.  She is widely tipped to oppose Perry for the GOP nomination for governor.  This is the kind of marginal, incremental thinking that resulted in the death of the Whig Party in the run-up the Civil War.  Conservatives need to think about the correct long-term strategy, not about the next election.  Supporting a sack of shit like Rick Perry cannot possibly be any part of the correct long-term strategy for Texas conservatives.  We’d be much better off supporting the ratsocrat candidate until and unless we can field a true conservative candidate.

Obviously, one cannot believe a word Rick Perry says.  How can Steve Hotze believe that he can trust this despicable person to follow through on whatever promises he thinks Perry has made?

I am baffled by the meaning of the word “is”

As the WashTimes reports, Fellatio Boy is up to his old tricks, carefully parsing the meaning of seemingly ordinary words.  “Disclose?”  What on earth does THAT mean?   “Donation?”  Hmmm, not sure I’m FAMILIAR with that word.

I think Secretary Fellatio Girl better put Fellatio Boy’s penis in a blind trust.  In fact, maybe ALL of Fellatio Boy should be put in a blind trust, and a gagged and bound trust, while we’re at it.  He’s an unusually good liar.

The Poisonous Dwarf gets steamrolled

Larry Kudlow has the Poisonous Dwarf on TV right now talking about the Treasury Secretary tax cheat Geithner and about the brain-deadness of the ratsocrat “stimulus” package.  The Congressional Budget Office has just released its scoring of the ratsocrat package and says that, in its estimation, the stimulus package will result in zero incremental employment in 2009.  The Poisonous Dwarf concedes the point, but says we will still be in recession or even depression in 2010.  Wait a minute, didn’t we just hire a magic negro?

The PD also says that even though Geithner is a tax cheat and really ought not be considered for any responsible position, he is so brilliant and indispensable that we best all overlook his larcenous heart and confirm him anyway.  I think this is the most evil and most pervasive ratsocrat posture, freely applied to Fellatio Boy, that the brilliant and sensitive psychopathic criminals in the ratsocrat party need to get a pass for all their atrocities because they are so brilliant and we need them so much.

I don’t normally care for these programs which mainly feature people shouting at each other, but i can make an exception for shouting at the Poisonous Dwarf.  That would make a great “reality” show.

I don’t understand why the Poisonous Dwarf agreed to go on Larry Kudlow’s show in the first place, unless he really enjoys being yelled at.

Thain was a dead man walking from the get go

John Thain is out at the Skank of America.  As anyone who has followed large scale North Carolina oriented bank “mergers” knows, John Thain was a dead man walking the minute the papers were signed.  The classic was David Coulter, who apparently sincerely believed Hugh McColl was going to allow him to run the company, and who looked like a cattle-prodded steer when it finally dawned on him that he was marked for deletion.

Now, CNBC is running footage of Thain’s $87,000 area rug, and his George IV toilet, reminiscent of the footage of Saddam Hussein’s opulent palace, mixed in with scenes of the former dictator cowering in his Y fronts.

Domino #1

Spain’s sovereign debt has been downgraded from AAA  to AA by Standard & Poors. Enrico has long speculated that Spain would ultimately be  revealed as one of the European nations hardest hit by the asset bubble and global financial crisis.

The immediate tangible effects of this downgrade are limited, as Spain, by virtue of its memberships in the EC and the currency union, has no monetary or exchange rate policy of its own.  But the circumstances behind this downgrade, namely skyrocketing deficit spending, are going to have to come home to roost eventually.  Spain is going to be in violation of its undertakings to limit its deficits and national debt.  What will the EC do?  They have no good options.  They will have to do nothing and pray.

If Spain were an isolated case, the range of possible responses by the EC would be expanded.  But Spain is merely the first in a line of dominos, soon to be followed by Italy, Portugal, Greece, and Ireland.  The UK is also on its knees, but of course they are not a member of the Eurozone.

What does this mean for the US?  It should just reinforce the notion that continued caution in allocating investments in the stock market is the way to go.  Crisis and lockup in Europe will infect our markets, and will force other ostensibly US companies and institutions to the wall.

Life on Mars!

This is VERY exciting!  It seems so obvious that something like the panspermia or exogenesis theory must be true.  With all the cosmic mayhem that has transpired just within our solar system, the various planetary bodies must have exchanged materials fromt their crusts more promiscuously than a 1970s era Baghdad-by-the-Bay fudge packer.

Surely we will find the same basic biological mechanisms and living organisms on many bodies within our solar system.

Uh, Dave, can I have a word?

I really like Dave Ramsey’s radio show.  I subscribe to the podcast, and I listen to his show almost every day.  His basic message is potentially transformative for so many people in our country who have failed to pay attention to their money, and who have failed to make discipline and forethought a cornerstone of their lives.

But, he’s not ALWAYS right, and I wish devoutly that he would stop saying one particular thing that could easily prove to be devastating to his most devoted followers.

Dave often tells callers that they can and should count on making 10% a year from their stock market investments.  I’ve heard a conversation like this more times than I can count (ok, if I had to make an honest estimate, I would say at least 6 times, so maybe I CAN count the times):

caller:  Dave, I have $1mm which I got as insurance proceeds when my husband suddenly dropped dead.

Dave: [extensive condolences and spiritual guidance]

caller:  Thank you.  What should I do with the money?

Dave:  Do you have any debt?

caller: Yes, [names amount and type.  Let’s pretend the caller has debts of $150k.]

Dave:  Pay off the debt.  Invest the rest in the stock market.  Then, you’ll have an annual income of $85k from your stock market investments.  Can you live on $85k per year?

caller: [ecstatic noises of joy and relief]

OMG, this is SUCH terrible and dangerous advice!

It is true that the stock market’s long term average return is somewhere north of 10%, depending on the period you choose.

It is also true that $1mm invested in the broad S&P 500 in January 1998 would today be worth about $911,000, counting ALL returns, including dividends.

It is true that if you invested $1mm in the stock market in January 1998 and took out 10% of your portfolio each year at the end of the year, today you’d have about $286,000 left.  That poor caller would now be looking at trying to live on $28,000.

The safe rate of withdrawal from a stock market portfolio is certainly no higher than 6% or so.

Several years ago, Enrico was contemplating leaving his job.  He had accumulated some capital, and he wanted to answer the question, “assuming I never earn another dime in my life by actually working, can I live on the earnings on my capital?”  He read all the stuff that he is now quoting, saying that you can’t take out more than about 6% and have a reasonable shot at not running out of money.  But Enrico didn’t believe it.  Mind you, this was in the 90s, the LATE 90s, when the stock market laughed to scorn at measly annual returns of 10%!

Enrico read up on Monte Carlo simulations, and he built one to try to answer this question.  He loaded in the past 70 years of actual annual total stock market returns, and he plugged in a figure for earnings from a theoretical bond portfolio, and he built his simulation to try a broad range of allocations to stocks and bonds.   He wrote the thing in Quickbasic, if you must know.

The simulation started with a given amount of capital, remarkably similar to Enrico’s little pile of capital, and each year, it randomly selected an actual annual stock market total return, applied it to the capital, applied the rate of withdrawal to be tested, and moved on to the next year.  He ran 30 year simulations, and he ran about 100,000 trials.  The simulator kept track of whether, in a given trial, the capital balance ever dropped below zero.

He tried two different ways of applying withdrawals:  a withdrawal set based on a given percentage of the starting capital amount, and fixed for the entire 30 year period, and a withdrawal recalculated each year, applying a given percentage, but based on that year’s ending capital.   The latter method was a complete disaster.  The former method provided a modicum of possible survival.

God damn it, the fucking financial pundits were right.  The best scenario was a 50/50 mix of stocks and bonds, 4% virtually guaranteed not running out, 5% was pretty damn close to a guarantee, and 6% was a noticeable risk.  7% exposes you to, like, a 25% chance of running out of money.  Anything over 7% was like flipping a coin.

Enrico did not quit his job.  He did not have enough money yet.

The other really sobering thing Enrico had to face up to is the effect of inflation.  The real purpose of stock market investments over the long haul is to hedge against inflation.  The 5% at the outset method, never adjusted for the changing value of the portfolio, really gives you a royal inflation raping.  In reality, I think this method is impractical as an inflexible rule.  Enrico didn’t model this, but I suspect that a withdrawal based on applying 5% to the multi year retrospective average portfolio value would probably be prudent.

Dave, PLEASE stop telling people to spend 10% of their stock market portfolio every year!