A New Year Begins ...

Krypto Fund returned 21.56%, beating most hedge funds according to FT. Krypto Fund uses a simple asset allocation model on Excel to invest the long term money among asset classes: cash, TIPs, bonds, US stocks, Foreign stocks, real estate and precious metals. The fees are dog biscuits, paid to the manager, Krypto, my dog, who pushes a button on the computer to re-allocate. Who needs beefers ?

What do we know now that we did not know one year ago ?

First

The big banks all repaid TARP in 2009. Losses, while large, were not the industry-wide monumental tidal wave that the bomb throwers proclaims so stridently in 2008. That means that "most" of the collapse in the financial markets in 2008 truly was a simple panic, not the incurable end of the world proclaimed.

How did the panic get so bad ?

Simple: huge money pools of hedge funds sloshing around worldwide making huge "bets" on collapse through short selling (often naked) and credit defaults swaps. The simple answer is, "The beefers did it."

Don't overstate or understate this. There was more than smoke. There was a modest fire that the Fed was controlling. But then the beefers threw on the gasoline.

The TARP investments in the big banks helped stop the panic, which was truly out of control as a run on the bank in money market funds was incredibly dangerous. Note: only one major money fund broke the buck, due to excessive investment in Lehman paper.

Second

This means that the Republicans in Congress were completely wrong in causing the initial defeat of TARP. After that defeat, the stock market fell 20% and the retirement assets of a generation were gutted. The market has "almost" recovered that, but not quite. The pure libertarian philosophy, while so attractive in theory, proved again to be inadequate in a dynamical world.

Third

The public was NOT right, either in its opposition to the TARP or in its belief that housing was a retirement asset that could not go down. That belief led millions upon millions of them to commit to pay too much of their income for housing, thinking it would go up in value to let them repay that huge debt burden. This was a "greater fool" bubble by the PUBLIC. The group thinking of the people was WRONG.

Book of the Week

"Public Opinion" by Walter Lippmann. This excellent book was written in 1922 by the man who became the first nationally syndicated columnist and wrote a hugely influential column for forty years. The main point of the book is that the public and most governmental leaders have insufficient information to make truly informed decisions about modern, complex issues. I state part of his thesis thus: "polls based on ignorance are meaningless". They are useless for making informed, correct decisions.

It's remarkable to me that this book and its arguments seem foreign to modern journalists. They blather endlessly about what the people think about some issue yet Lippmann almost 90 years ago knew, and showed, that the people mostly are ignorant of even the simplest facts or theory to base a truly informed opinion. Lippmann had personal experience in the World War I propaganda machine and knew both its power and the difficulty informing the people.

He also was one of the rich and powerful and recognized the power of his class. He recognized how they often used their power to gather more power and wealth.

I haven't yet finished the book, but so far, it's a jewel.

PS: The new edition with the introduction by Lippmann's biographer, Ronald Steel, is best.

Word of the Day

"Scry" - verb, intransitive [$10]
Scry means to divine by crystal gazing.
Sentence: Bunkerman did not scry to learn the conclusions in today's blog; they came from the application of simple principles and ruthless logic to events in the public press.