I Thought That One Of The Benefits Of Carrying A Smartphone Is That You No Longer Needed A Watch

I stopped wearing a watch about ten years ago. I don’t even remember whether it was because the battery on my watch failed or because I forgot how to adjust the watch for Daylight Savings time.  I moved on. The only task I needed a watch for was recording my runs and it did not take to long for me to enjoy running with my smartphone. So if I am a happy camper with my smartphone, why do I need an Apple or Google watch that does the same things as my smartphone but on even smaller screen?

Celebrate National Churchill Day

My friends at Hillsdale College are celebrating “National Churchill Day” with a special three day offer in which you can download the eight volumes of the Kindle eBooks of the Official Biography of Winston S. Churchill, by Randolph Churchill and Martin Gilbert for free. I am probably most fascinated with Churchill in the time before World War II since there are a lot of similarities to the problems we face today. There offer expires on the 11th so if you are interested in the life of Winston Churchill now is the time to get your copy.

Are There Any Shovel Ready Water Projects In California?

In the land of Apple, Facebook, Google, and Tesla the idea that Gov. Jerry Brown on Wednesday ordered mandatory water use reductions for the first time in California’s history is kind of embarrassing. It begs the question what have these socially responsible firms been doing over the last ten years. Physician, heal yourself! When did space travel and electric cars become more socially responsible than running water? If the Romans successfully implemented running water in every major Roman city 2,000 year ago then California should be able to do it today without rationing! It is a sign of insanity to use the equivalent of band-aids on water usage and expect the problem to fix itself. Time to grow up, California!

If Reducing Nuclear Proliferation In The Middle East Is The Goal Then Why Is Israel and Saudi Arabia Not At The Table With Iran?

If the Administration’s goal is to prevent Iran from developing or getting a nuclear weapon then you have to wonder why the countries with the most to lose are not at the table with the Iran. If the United States is abandoning their traditional role as the world’s cop then who cares what the United States thinks anymore? The omission of Israel and Saudi Arabia is intriguing. Even though Israel maintains that they “would not be the first country to “introduce” nuclear weapons to the Middle East”, there are plenty of rumors about how close Israel was to using nuclear weapons when they thought their forces were about to be over-run. So you would have to think that a “limited nuclear war” is still part of their war plans today. Saudi Arabia is concerned if not panic stricken over Iran’s desire for nuclear weapons.  Once upon a time they could afford to sit idly on the sidelines while the victims of terrorism was Israel or the United States but with Sunni-Shiite wars to the North and South of them. The idea that Iran might either attack them or black mail them is now a real threat. If we use the Camp David Accords as the model, then Israel, Iran, and Saudi Arabia have to be the major players in reducing nuclear proliferation negotiations.

First Quarter GDP Is Beginning To Look A Lot Like Last Year’s Dismal First Quarter GDP

I was looking at the third estimate for the fourth quarter 2014 GDP by BEA when I decided to take a gander at the GDPNow forecast for this quarter. Yuck! It reminds me of the first quarter of 2014 which started out modestly positive and quickly went negative when the BEA estimates for health care spending were too high. Here is the 2015 GDPNow chart.

gdpnow-forecast-evolution20150402

It should be interesting to see what the health care spending contribution is for the first quarter in 2015. In the fourth quarter of 2014 the percent change in Personal consumption expenditures(PCE) was 2.98% and health care spending contributed 29% to that gain(.88%). Historically PCE is strongly correlated(.90) to the consumption of Goods and you could model PCE gains with a linear equation based solely on Goods consumption. From 2000 until the beginning of 2014, we can reasonably say that where Goods consumption goes, PCE will follow. Over this same period we find that health care is loosely correlated(.29) to PCE. In 2014 things changed and health care spending became the driving force of PCE. Here is a graph from the BEA site and you cannot help but notice that in 2014 the gains in PCE looks to be strongly correlated to health care spending and goods consumption is now loosely correlated. Considering how important health care spending has become to PCE and GDP gains and the weak Goods numbers reflected in the GDPNow forecast, if health care spending comes in weak or negative like it did in 2014 then we are going to see some really ugly GDP and PCE first quarter numbers.

beachart

Questions I Have From Currency Wars

Last week I finished listening to the audio book version of Currency Wars: The Making of the Next Global Crisis. The part of the book talking about the financial war game he participated in was entertaining. His discussions of the history of the Federal Reserve and currency wars was both very dry and important. I could not help but try to apply some of his ideas to today’s events. Here are some of my questions.

  1. If the Federal Reserve is concerned with US economic weakness then why did the Federal Reserve allow the dollar to appreciate so much compared to the Euro? When you look at the drop in the price of oil and the appreciation of the Euro, it is not hard to see weak US earnings. The latest GDPNow forecast from the Atlanta Federal Reserve is forecasting a GDP growth of less than 1% for the first quarter. So why is the Federal Reserve talking about raising interest rates when this would likely slow the economy even more and increase unemployment?
  2. The second question is how does the Federal Reserve unload its mortgage bond and long-term Treasury notes portfolio and not go broke? I understand why it makes sense for the Federal Reserve as the lender of last resort to not mark their securities to the market price since they have the financial wherewithal to hold the securities to maturation. The Federal Reserve can publicly ignore the mark-to-market value of their portfolio but at some point somebody inside the Federal Reserve is going to have a panic attack that the size of the long term bond portfolio is impacting the Fed’s ability to manage the financial markets with talk. Eventually the Fed will have to back up its talk by acting more like a bank and rebuilding its capital or risk expediting the decline of the dollar as the world’s reserve currency. The recent enthusiasm for the Asian Infrastructure Investment Bank (AIIB) among American allies not just in Asia but in Europe has to be worrisome for the Fed. Mr. Rickards framed this problem nicely in a recent article on the Daily Reckoning, “6 Major Flaws in the Fed’s Economic Model“.

    5) The Fed is now insolvent. By buying highly volatile long-term Treasury notes instead of safe short-term treasury bills, the Fed has wiped out its capital on a mark-to-market basis. Of course, the Fed carries these notes on its balance sheet “at cost” and does not mark to market, but if they did they would be broke. This fact will be more difficult to hide as interest rates are allowed to rise. The insolvency of the Fed will become a major political issue in the years ahead and may necessitate a financial bail-out of the Fed by taxpayers. Yellen is a leading advocate of the policies that have resulted in the Fed’s insolvency.

Roberts Choice

Once again the Supreme Court will rely on Chief Justice Roberts to craft a political decision in the King v. Burwell case that no one likes but allows the federal government to subsidize health insurance in states that did not set up exchanges. In this case I would not be surprised that he leans with the conservative side. It is obvious that this bill needs to go back to Congress to fix and deferring to the IRS to authorize billions of dollars of subsidies without the very, very clear intention of Congress is just too big a step. Somewhere along the way the judicial system is going to remind Congress that there are consequences in writing ambiguous laws. The obvious choice is to make a Sophie’s Choice type decision and allow the people in those states that did not setup exchanges to avoid the individual mandate penalty and for companies to avoid the employer mandate penalty.  That is what the plaintiffs want. This decision would be the natural sequel to Roberts’ previous political decision on the Affordable Care Act. Like Sophie who had to send one of her children to the gas chamber, Justice Roberts may choose to send the subsidized exchange system to the gas chamber so that the subsidized health insurance lives. This decision has political value in that it allows each side to claim they won something. For the Affordable Care Act supporters they get federal subsidies for health insurance. For the Affordable Care Act critics they get out of the hated mandates and America gets another chance to see if exchanges are sustainable or just the most recent example of cronyism in health care leading to higher costs. If the Affordable Care Act supporters are right that both the individual and employer mandates are necessary for sustainable exchanges then they can make their case to the American people. If the critics are right then they can make the case that we should replace the exchanges with something that is more efficient and sustainable. The exchanges are dead! Long live the exchanges!

Kennedy’s Dilemma, Is Deferring To The IRS A Wise Decision?

Nicholas Bagley highlighted the primary dilemma confronting the Supreme Court in the King v. Burwell case. I do not think anyone will argue that the Affordable Care Act is a fatally flawed bill. So how do we fix it? Here is what Justice Kennedy asked:

Well, if [the statute is] ambiguous, then we think about Chevron. But it seems to me a drastic step for us to say that the Department of Internal Revenue and its director can make this call one way or the other when there are, what, billions of dollars of subsidies involved here? … And it—it seems to me our cases say that if the Internal Revenue Service is going to allow deductions using these, that it has to be very, very clear.

Mr. Bagley argues that it is appropriate to defer to the agencies best judgment when it confronts big, difficult questions that arise in the course of administration. He argues in an amicus brief that:

It is then that the agency’s expertise and political accountability are most essential—and where the structure of the federal government most forcefully counsels judicial restraint.

If I follow his logic correctly then the agency’s expertise and political accountability must be beyond reproach if this is to work.  We recently learned that despite President Obama’s admonition that there is not “even a smidgen of corruption” in the IRS scandal, Ms. Lerner’s Lerner’s e-mail records were “right where you would expect them to be.” A year ago, the IRS claimed after two months of looking that the e-mail records were irretrievably lost so it is not surprising that the Inspector General is looking at a criminal investigation of the IRS for its role in obstructing an ongoing investigation.  Recently I looked at the Form 990 for the Clinton Foundation and for kicks I decided to compare it to one of the organizations that was targeted by the IRS, True The Vote. I was shocked to find out that True The Vote raised only $64,687 in 2010. This amount would be a round-off error on the transportation budget for the Clinton Foundation so I find it incredulous that the IRS decided to pursue them. Regardless of the legality it shows that the IRS was incredibly short-sighted politically. They gave their professional credibility away for nothing. Were there any adults in the room for that decision? So the Supreme Court justices are stuck with the dilemma of how to fix the Affordable Care Act if most of the people view the IRS as an incompetent if not corrupt organization? Are we comfortable with letting an organization who says it cannot find Ms. Lerner’s emails make a decision involving billions of dollars of subsidies? If you agree with Mr. Bagely’s argument that deferring to the IRS is okay, then you have to address the question under what circumstances should the Supreme Court send fatally flawed bills back to Congress to fix if billions of dollars of subsidies is not sufficient cause? If expediency is our only concern then the easiest solution is to send a box of blank paper to the IRS and tell them to fix the flawed legislation. Unfortunately the IRS cannot fix this bill or any other bill without input from Congress and their adversarial relationship with Congress should immediately disqualify them from this special task. To restore a less adversarial IRS-Congress relationship, Congress has to be very, very clear on the parts of laws involving the IRS. If we are to learn anything from the many mistakes made by the Affordable Care Act supporters, we need some adults in the room to craft bipartisan agreements that actually reform health care. As long as the American people want laws that work, the importance of the legislative process is not dead.

A Couple More Reasons Why Hillary Clinton Should Not Use A Private Email Server For Official Correspondence

I was pondering whether anyone could be stupider than the IRS with handling emails when I learned that Ms. Clinton ran her own computer system for her official emails. Which part of violating government document retention requirements of the Federal Records Act, impeding an ongoing investigation, and potentially leaking sensitive government information does she not understand? They just threw the book at General Petraeus over leaking sensitive government information! I immediately came up with a bunch of questions like:

  • How did she read top secret emails?
  • Were any of the Benghazi emails on her server confidential or secret?
  • Which Inspector General signed off on this email server fiasco?
  • Is she deliberately sabotaging her 2016 presidential election?

Then I decided I should give her the benefit of the doubt till I did a little more research. With a little more time to ponder the AP report,  Clinton ran her own computer system for her official emails, I have to say that of all of the bone-headed things for a Secretary of State to do, running a mail server from your home is at the top of my list. I am an IT professional who ran a mail server from my home and I can say unequivocally that it is a pain in the butt. In addition to the hardware requirements you have to be concerned about security, backups, and disaster recovery. To top it off it is particularly difficult to get the Domain Name System settings correct so that your emails do not end up in everyone’s spam folder. Even if you have to pay Google, Microsoft, or Yahoo, let them do it. You will be much better off. It is not worth your time and money to run a mail server from your home!

I cringe thinking about this but if we assume the AP report is correct then what can we say about her email server setup. My first check found out that her email is filtered from spam and protected from viruses by Mxlogic. This matches the claim in the article but it begs the question what did she do before she signed up with Mxlogic in 2013? I know Mxlogic was protecting my company email back in 2008. Did she run a naked email server? Then I checked for TXT records. I did not find any. This is the part of the DNS that email providers check to see if you are who you say you are. In my day job I manage a newsletter with over 80,000 subscribers. To keep in the good graces of the email world we include TXT records for SPF and DKIM so the major email providers know that we really are the one sending the email and not a spammer. At the very minimum you should have a static IP for the mail server and the DNS should have a TXT record for SPF, an A record for the sub-domain pointing to the IP of the email server, and a reverse PTR record for the sub-domain. So how did a person getting an email from this server know it was Ms. Clinton and not someone impersonating her? I don’t think I want to know  any more. Ms. Clinton running an email server is far worse than anything that General Petraeus did!