Thursday, July 30, 2009

How to become unpopular: Become President!

Approval minus Disapproval: Blue: Inauguration Red: Six Months in office
Difference in Net Popularity: Inauguration to Six Months in Office

President's Popularity during Entire Term

Data Source: The American Presidency Project

Much ado has been made regarding President Obama’s current decline in the polls. Health care, racial profiling and a host of other issues has resulted in the President’s decline in various opinion polls. Is this a rare occurrence seldom endured by other chiefs of state? Apparently not! The graphs depict the rise or most commonly the waning of a President’s popularity as reality sets in during the first six months in office. It is exceedingly rare that a President’s popularity rises during this period. George W. Bush’s popularity was declining rapidly until September 11th 2001 when the attack on America caused a surge of patriotism resulting in the Bush White House popularity to soar. Gerald Ford's popularity took a nosedive after he assumed office. (his statistics are not included since he was never elected after a campaign.) Even Ronald Reagan's numbers declined as the 1981-1982 recession became reality. George H.W. Bush's popularity actually rose during the first 6 months but this was larger due to the fact that at the time of his inauguration there was a significant undecided aspect to his polling numbers. All Presidents since Truman, except Clinton, were less popular at the end of their term than when they took office.

The platforms that are presented during the election campaign are usually met with enthusiasm—hence the victorious outcome for the President-elect. However, once the legislative process begins debating campaign promises the bi-partisan nature of the legislative process begins to take its toll on the public opinion.

Reminiscent of President Clinton’s first six months, health care has had an adverse effect on the Obama White House. Health Care has proven to be a extraordinary divisive policy that incites emotional debate on all sides and is exaggerated by the obsession the media has with the issue. This is not to say that the media should ignore such a fundamental issue concerning the American people, but partisan hyperbole and political gamesmanship only exasperates the dissension and causes both opponents and proponents to become further polarized—however—it apparently is very effective at selling media advertising.

Tuesday, July 28, 2009

Adam Smith’s Invisible Hand or Wall Street’s Slight of Hand?

Most traders are well aware of the current ruckus taking place concerning ‘flash orders’ which is a subset of HFT or high frequency trading programs. Flash orders essentially allow a party to execute marketable orders in-house when that market is not at the national best bid or offer, instead of routing those orders to rival markets.

Opponents of the practice claim that flash orders create a two-tiered market, giving professionals receiving the flashes a significant advantage over other investors. Getco, a market maker firm, states that non-public quotes could "negatively affect the broader market, including retail investors who rely on the NBBO (National Best Bid & Offer) to ensure that their orders obtain the best, reasonably available price,"

Proponents of the trading strategy such as William O'Brien, CEO of Direct Edge counters the criticism claiming that the ELP (Enhanced Liquidity Provider) program gives participants a choice about how they want their order flow handled, and enables customers to lower their market-impact and transaction costs. O’Brien also asserts that the strategy effectively democratizes access to dark liquidity sources by enabling retail customers to choose to interact with that liquidity to seek larger-size executions and potentially better prices."

Several years ago Robert Greifeld President and Chief Executive Officer of The NASDAQ Stock Market, Inc. stated:

“Quality of execution is the measure by which we judge a market… We believe investors want to have a say in what constitutes best execution, which can mean different things at different times to the same investor. Best execution can at varying times be about speed, price, certainty of fill or market impact… Technology is not an end in and of itself but a vehicle that allows us to provide not only speed, but transparency. Technology allows all buying and selling interest to be displayed globally – at multiple levels. It means buyers and sellers in all markets are visible to all interested parties all the time. The markets were traditionally closed, but over time they have become completely open."

The controversy hinges on the notion of transparency in the market place. Several questions are raised:

  • Is there a two tiered system at work in today’s markets, giving advantage to firms with the technology to unfairly manipulate markets?

  • Conversely, is high frequency trading yet advancement in trading that technology has brought to the market place?

  • Is the practice the same as 'front running' a stock?

  • Are firms like Goldman Sachs and Direct Edge merely pursuing their self–interest consequently resulting in a fairer market place due to the power of Adam Smith’s famous ‘invisible hand’?

  • Is 'Flash Trading' a legitimate enhancement to market liquidity or is it an furtive arbitrage strategy?

  • Is this strategy a Wall Street ‘slight of hand’ that will result in unfair advantage and inequity in the free market paradigm?

  • Is this an area where more market regulation is warranted inorder to protect the investing public?

  • Does the individual retail trader, trading for his own account, stand a chance in todays high-tech market place?

Tuesday, July 7, 2009

Charity in Truth

On June 29 2009 Benedict XVI issued his third encyclical focusing on the economy. It is the position of the Church that economic activity is not something that is fundamentally opposed to society although the instruments of economics and finance can have deleterious effects when the individuals who are in command are motivated solely by avarice. It is not the instruments of finance that is the basis of the harm but it is man’s fallacious reason that is the root cause of destructive and socially destabilizing consequences. The men and women who manage financial matters must take ownership of their actions by demonstrating both responsibility and accountability.

These views put forward by Pope Benedict XVI should not only be heeded by followers of the Catholic faith, which incidently I am not, but should be embraced by all who concur that virtue and excellence play an important part in morality.

Republican Response
Bloomberg comment on Democrats
"Caritas in veritate" - Encyclical Letter of His Holiness Benedict XVI

On The Market Economy

"In a climate of mutual trust, the market is the economic institution that permits encounter between persons, inasmuch as they are economic subjects who make use of contracts to regulate their relations as they exchange goods and services of equivalent value between them, in order to satisfy their needs and desires. The market is subject to the principles of so-called commutative justice, which regulates the relations of giving and receiving between parties to a transaction. But the social doctrine of the Church has unceasingly highlighted the importance of distributive justice and social justice for the market economy, not only because it belongs within a broader social and political context, but also because of the wider network of relations within which it operates. In fact, if the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires in order to function well. Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function. And today it is this trust which has ceased to exist, and the loss of trust is a grave loss. It was timely when Paul VI in Populorum Progressio insisted that the economic system itself would benefit from the wide-ranging practice of justice, inasmuch as the first to gain from the development of poor countries would be rich ones. According to the Pope, it was not just a matter of correcting dysfunctions through assistance. The poor are not to be considered a “burden”, but a resource, even from the purely economic point of view. It is nevertheless erroneous to hold that the market economy has an inbuilt need for a quota of poverty and underdevelopment in order to function at its best. It is in the interests of the market to promote emancipation, but in order to do so effectively, it cannot rely only on itself, because it is not able to produce by itself something that lies outside its competence. It must draw its moral energies from other subjects that are capable of generating them."

Note: It is interesting to compare this position to Milton Friedman's philosophy expressed in The New York Times Magazine, September 13, 1970.

On Ethics and Finance

"Striving to meet the deepest moral needs of the person also has important and beneficial repercussions at the level of economics. The economy needs ethics in order to function correctly — not any ethics whatsoever, but an ethics which is people-centred. Today we hear much talk of ethics in the world of economy, finance and business. Research centres and seminars in business ethics are on the rise; the system of ethical certification is spreading throughout the developed world as part of the movement of ideas associated with the responsibilities of business towards society. Banks are proposing “ethical” accounts and investment funds. “Ethical financing” is being developed, especially through micro-credit and, more generally, micro-finance. These processes are praiseworthy and deserve much support. Their positive effects are also being felt in the less developed areas of the world. It would be advisable, however, to develop a sound criterion of discernment, since the adjective “ethical” can be abused. When the word is used generically, it can lend itself to any number of interpretations, even to the point where it includes decisions and choices contrary to justice and authentic human welfare.
Much in fact depends on the underlying system of morality. On this subject the Church's social doctrine can make a specific contribution, since it is based on man's creation “in the image of God” (Gen 1:27), a datum which gives rise to the inviolable dignity of the human person and the transcendent value of natural moral norms. When business ethics prescinds from these two pillars, it inevitably risks losing its distinctive nature and it falls prey to forms of exploitation; more specifically, it risks becoming subservient to existing economic and financial systems rather than correcting their dysfunctional aspects. Among other things, it risks being used to justify the financing of projects that are in reality unethical. The word “ethical”, then, should not be used to make ideological distinctions, as if to suggest that initiatives not formally so designated would not be ethical. Efforts are needed — and it is essential to say this — not only to create “ethical” sectors or segments of the economy or the world of finance, but to ensure that the whole economy — the whole of finance — is ethical, not merely by virtue of an external label, but by its respect for requirements intrinsic to its very nature. The Church's social teaching is quite clear on the subject, recalling that the economy, in all its branches, constitutes a sector of human activity"

On Globalization & Corporate Social Responsibilty

"Today's international economic scene, marked by grave deviations and failures, requires a profoundly new way of understanding business enterprise. Old models are disappearing, but promising new ones are taking shape on the horizon. Without doubt, one of the greatest risks for businesses is that they are almost exclusively answerable to their investors, thereby limiting their social value. Owing to their growth in scale and the need for more and more capital, it is becoming increasingly rare for business enterprises to be in the hands of a stable director who feels responsible in the long term, not just the short term, for the life and the results of his company, and it is becoming increasingly rare for businesses to depend on a single territory. Moreover, the so-called outsourcing of production can weaken the company's sense of responsibility towards the stakeholders — namely the workers, the suppliers, the consumers, the natural environment and broader society — in favour of the shareholders, who are not tied to a specific geographical area and who therefore enjoy extraordinary mobility. Today's international capital market offers great freedom of action. Yet there is also increasing awareness of the need for greater social responsibility on the part of business. Even if the ethical considerations that currently inform debate on the social responsibility of the corporate world are not all acceptable from the perspective of the Church's social doctrine, there is nevertheless a growing conviction that business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference. In recent years a new cosmopolitan class of managers has emerged, who are often answerable only to the shareholders generally consisting of anonymous funds which de facto determine their remuneration."

Friday, July 3, 2009

Visa, Debt and Cycles.

Click to enlarge chart

Four charts encapsulate the state of the economy from the standpoint of the consumer's position to sustain consumer growth. The first BankAmericard (now Visa) bank credit card was introduced in 1958, shortly after American Express issued their first card earlier that year. Since that time consumers have learned to use their credit card as WMCs. (Weapons of Mass Consumption). Without the fuel to keep the engines of consumption purring, the WMCs could easily become WMDs. Incidentally, Visa had its initial public offering in March of 2008, just as the vanguards of Wall Street were beginning to crumble. You cant say that some dont know how to time the markets accurately!!!!!!!
Visa (V: NYSE) is at an interesting price-time juncture from a technical perspective. Monitoring the behaviour of this corporation's 'chart' may serve as an excellent harbinger of future events for the economic recovery--or lack thereof.
Chart : Bigcharts,com

Wednesday, July 1, 2009

Dany Heatley & The Loss of Excellence in Sport

The bottom line with regard to the ‘Heatley Affair’ is that Dany Heatley epitomizes the spoiled brat attitude that many of the NHL’s superstars seem to have acquired since professional sports salaries became exponentially more ridiculous. Mr. Molloy’s apologetic musings in The Ottawa Citizen concerning Mr. Heatley does little to quell the indignation felt towards the ‘superstar’. The people Mr. Molloy is attempting to convince to cut Heatley a little slack are, by and large, hard working individuals who find it next to impossible to take their families to professional hockey games due to the prohibitive expense involved. Granted, this onus does not fall entirely towards the players since the owners and the league executives must also bear responsibility for the restrictive environment that asinine salaries have created.

However, aside from the purely economic grievances expressed, many fans are becoming increasingly troubled by the lack of responsibility and commitment that athletes exhibit when they sign multi-million dollar contracts.
Gone are the days of dedicating oneself to achieving the common goal shared by both parties, especially if one’s fragile ego is bruised in the process. True aficionados of athletic competition recognize and appreciate both the physical abilities that make an athlete great as well as the excellence of character that differentiates a truly great athlete. Mr. Heatley has done himself a disservice by failing to pursue a career that is defined by excellence of character—failing to practice the virtues of loyalty, integrity and dedication to a common cause. The ‘Heatley Affair’is an unfortunate example of a truly skilled player succumbing to the selfishness that afflicts a individual's chosen craft when it is not enhanced by an accompanying quest for excellence. Ironically, Mr. Heatley’s participation in the Olympic Games should have familiarized him with the notion of athletic excellence envisioned by, the originators of the Olympic Games, the Greeks of The Golden Age.