MarketVVizard's Market Thoughts

» SouthPacific - Moyers interview with Peter Peterson

9/26/03

MOYERS: Those of you who are faithful to NOW will recognize this clock, the deficit clock, just a few blocks from our office here in New York silently measuring how fast the United States government is spending money it doesn't have. Standing there you get the impression you're looking at the digital Doomsday deficit clock and you have the urge to talk to Peter Peterson.

So here he is. Mr. Peterson is chairman of the Federal Reserve Bank of New York as well as of his own investment firm, the Blackstone Group. He's a lifelong Republican who served as Secretary of Commerce in Richard Nixon's cabinet.

A dozen years ago when the deficit clock was also going haywire he helped to found the non-partisan Concord Coalition whose members, like the minutemen of old, set out to alert their fellow citizens to a crisis in the making. Now he's back, déjà vu, all over again. Welcome to NOW.

PETERSON: Thank you, Bill.

MOYERS: What do you see when you look at that clock?

PETERSON: Well, I see both a fiscal economic crisis in the making. I also see a moral crisis. And maybe that doesn't come very convincingly from an investment banker. But let me explain that to you. The fiscal crisis is both domestic and foreign. We are now facing a situation during a decade when we should have been saving for the Boomer revolution that's coming and the retirement costs. Instead of saving during that decade we're squandering it. The Concord Coalition, Goldman Sachs, the Committee for Economic Development predict that over the next ten years we're going to be adding $5 trillion of deficits. So we have a domestic fiscal crisis. Much less understood, Bill, is the foreign deficit, what we call the Current Account Deficit, that's caused by the biggest trade deficit we've ever had.

MOYERS: We're buying a lot more overseas than they're buying from us.

PETERSON: Precisely. And we have a lousy savings rate, the lowest in the world. And we are now going to be importing something like 5 to 6 hundred billion dollars in foreign capital. We've become hooked, we've become addicted to foreign capital.

MOYERS: You mean they are paying for our deficit?

PETERSON: They're paying for our deficits, our various deficits.

MOYERS: Somebody watching says, "But why don't we want them to pay our debt? The foreigners, why don't we want them?"

PETERSON: Well, because at some point we're going to have to pay it back. And in the meantime they end up owning a great deal of America. And the interest costs get to be very terrific.

One of the crisis scenarios, of course, is we have this mammoth debt. The foreigners lose confidence in us. The dollar fall, the stock markets fall, the bond markets fall, the interest rates go way up. Then the debt burden goes up astronomically.

And the foreign deficit, Bill, is at five percent of the GDP heading towards six. And the previous record during the Reagan Years was only 3 1/2. So we have this fiscally speaking, we have this dual crisis in the making.

MOYERS: The deficit and the foreign deficit.

PETERSON: And the foreign deficit. Now the moral crisis. There's a German philosopher named Bonhoeffer who said the ultimate test of a moral society is the kind of world it leaves to its children.

When we sit around here and talk about all these tax cuts and we say it's our money, your money and mine, I think we ought to be honest with the American people. In the first place, it's also our debt and it's our children's debt.

But secondly, a tax cut isn't really a tax cut long-term unless you reduce spending. Because then it becomes a tax increase on your children. So we're inflicting this awful bill not simply on ourselves but most importantly on our kids. And it is that phenomenon that is very troublesome when we have to consider that ten years from now 77 million Boomers are retiring.

All of those liabilities are not funded. The Trust Fund is one of the ultimate fiscal oxymorons of our time. There's nothing in it that's not funded and you shouldn't trust it. And whether you had it or didn't have it, you'd still have to go out and do the same thing. Increase payroll taxes to pay for Social Security and Medicare.

You realize, Bill, at the present time, the Social Security Administration believes that my children and grandchildren will have to pay between 25 and 35 percent of payroll to fund these programs. So when we say you and I, fat cats that we are, are getting tax cuts, I prefer to think of it as a tax increase on my own kids and grandkids. And I find that a fundamentally unacceptable immoral proposition.

MOYERS: The national debt could increase by the Year 2013 to $14 trillion. That's a tripling of the debt today. What does that mean in practical terms?

PETERSON: That number is roughly correct for the so-called official debt. But we have not told the American people is there's $25 trillion of unfunded liabilities for Social Security and Medicare. $25 trillion--

MOYERS: That we don't know about.

PETERSON: And it's off the books. We don't even talk about it. So that's a gross understatement of the amount of liabilities that we now have.

MOYERS: You know, these are breathtaking numbers Pete Peterson. Help us to translate them into their impact on my team here in the studio, on the people watching, on our individual lives.

PETERSON: I want to present a picture to you. There's 77 million Boomers we're talking about. A doubling of the elderly. Half of the people getting Social Security make less than $20,000 and they depend enormously on Social Security as part of that. It's over half of it. Unfortunately, our country has staggering amounts of elderly that have no savings at all, about 20 percent.

Imagine politically 77 million Boomers. They don't have savings. They depend on Social Security and somebody's saying to them, "Sorry, folks, we're out of money. You're not going to get your benefits."

And they've been told — they've been misled by politicians all their lives — that this Trust Fund is going to take care of them. My father went to his deathbed thinking that there was real money there. And he said, "My son, I don't know what you're talking about because it's like a savings account."

And I kept saying, "Dad, there's nothing in there. It's just liabilities." So I think that political implications would be devastating. But more than that, the social implications. It's the richest nation in the world. And you're going to sit there and tell me we're going to throw tens of millions of Americans into a destitute situation without advanced notice? I don't think so.

MOYERS: And what about tax increases? I mean don't we have to cancel President Bush's tax cuts to the wealthy?

PETERSON: I think we ought to look at an entire package, Bill, that includes spending and...

MOYERS: Oh, I agree with that. I agree...

PETERSON: You see in private...

MOYERS: I thought George W. Bush I felt the first President Bush did a brave thing when he unzipped his lips and called for taxes.

PETERSON: Yeah, but at that time, they put in spending caps. You see, the dirty little secret is neither party is not talking. They're all talking about tax cuts. What they're not talking about is they have permitted a major increase in spending during this period of time.

MOYERS: And these tax cuts are not pulling the economy out of this recession.

PETERSON: Well, you see, I don't wanna sound as though I didn't think under certain circumstances a tax could be a good idea. But why don't we do the following:

#1) Don't make it long-term. We should not add to the long-term problem. It's already serious. #2) Give the money to the people who are going to spend it.

MOYERS: Middle class, working class.

PETERSON: And now look at what's happened here. They're now advocating, not only these tax cuts, a lot of which does not go to the people who spend it, but they're greatly adding to the long-term problem, and they further insist, they further insist that they be made permanent, you see.

MOYERS: So that if you make tax cuts permanent when this big baby-boomer crisis hits...

PETERSON: You're making it much worse.

MOYERS: You'll not be able to pay for it.

PETERSON: You're making... it was already unsustainable. You're making it worse.

Now, the other thing that bothers me about the tax cut business is the following: We are told we have a war in Iraq. We're told that the transcendent threat to America, and I agree with this, is the terrorism threats at home, the possibility that people could bring in to our ports, you know, or our tunnels or wherever weapons of mass destruction.

Every time we state a priority, it seems to me the tax cuts win out. For example, Warren Rudman chaired a great taskforce at the Council on Foreign Relation. It showed we're $100 billion short at least on what we're doing to prepare the first responders. We've done...

MOYERS: Here in this country. Homeland Security.

PETERSON: And we've done very little on ports. And they're highly, highly vulnerable. Well, if that is a national threat, and I believe it is a serious national threat and we are at war, why then shouldn't we be willing to sacrifice to meet those threats?

PETERSON: The President does not ask and me to sacrifice.

MOYERS: No. Hardly. The main sacrifice is accepting another tax cut at the moment. Did you need the big tax cut President Bush gave you?

PETERSON: I think this is... I'm really almost embarrassed by the idea. I've got nine grandchildren and five children. That some guy... I'll include you in the category.

MOYERS: I've got...

PETERSON: You and I are going to be getting tax cuts, so that my six-year-old, nine-year-old, five-year-old, etcetera, grandchild can pay bigger taxes in the future. I just find it unthinkable a proposition.

What is morality about it after all, if it doesn't include fairness to the future and fairness to our own children and grandchildren? And I think we're being unfair. You know, I hear these people say that Social Security is a social contract. And therefore, we must pay everything to everybody, including you and me. We can't consider any changes.

The Democrats in particular are do-nothing guys. I only had one course, Bill, in commercial law, and the assumption was that you didn't have a contract until you have a meeting of the minds of the parties.

I'd like to say to these people, have you talked to my six-year-old grand daughter, Chloe? And does she understand how much debt you're passing on to her? And does she understand how much her taxes are and has she agreed to do it, so that her relatively well-off grandfather and father can be sure they get all their benefits? I don't think so.

MOYERS: So, what do we do, Pete Peterson?

PETERSON: Well, we're going to have to reform these programs.

MOYERS: You mean Social Security...

PETERSON: The entitlement Godzilla. It's the Godzilla. And the fascinating thing about this, Bill, is Bill Clinton formed a commission on entitlement. Twenty Democrats... I mean, 20 Senators and Congressmen and ten of us from the private sector. None of these people have not really looked at the numbers. We had a bi-partisan staff.

By the time they looked at the numbers, these entitlements for the senior citizens consumed the entire budget. So everybody said it's unsustainable. Well, Herb Stein, who's a Nixon humorist... you probably find that an oxymoron.

MOYERS: No, no, I like Herb Stein. He was the chairman of the Council of Economic advisors.

PETERSON: Now I chaired with, I was in the White House with Herb. He's a great guy. Used to say, "If something's unsustainable, it tends to stop." So they signed a unanimous report, all of those 20 guys, that said, "It's unsustainable."

Now, I asked Lady Thatcher who is the only person of the big country leaders who made major reforms in the 1980s and faced the music and now Great Britain in this respect is in much better shape than anybody. And I said, "Lady Thatcher, what do you guys talk about at these G-7 meetings? Do those leaders know that this problem is unsustainable," because your Europe's bill is in far worse shape than we are, because they had many fewer babies than we did.

MOYERS: France is in crisis today over their health and unemployment.

PETERSON: And Italy has the lowest birth rate in the world. So, she said, "Oh my yes, Mr. Peterson, they all understand this." Well, I said, "Why don't they do something about it?" And she says, "Well, their theory is it isn't going to hit on my watch, and why should I take pain for somebody else's gain?" So make no mistake about it, the changes are going to involve giving up something.

MOYERS: So, let's hear specifically. You would reform entitlement. That is--

PETERSON: I'll give you several possible suggestions. A menu. Very gradually increasing the retirement age, because we're living much longer. If we had indexed retirement to the way life spans have gone up, we'd be getting Social Security now at 73, not at 65.

A second thing is what I call an affluence test. I don't like the word "means test," because it sounds mean. And Bill Moyers and Pete Peterson would lose some of their benefits, because we don't need them.

A thing Lady Thatcher did that I find very promising, she said, "How do we be fair to the current retirees and to our children? How do we do that?" And she came up with the idea of indexing benefits only to inflation. And that meant that my kids would get the same benefits in dollar, real dollar terms, but they wouldn't grow.

Now those are the kinds of things we're going to have to seriously look at.

PETERSON: It's going to take Presidential leadership. It's not going to happen in an election year. It's going to take some bi-partisan commitment of some sort. It may take some leading citizens to step up to the plate and tell the American people the truth.

You see the problem I have with this lack of truth-telling is that the American people keep getting told the trust fund is going to keep this thing solvent till 2037. Why should we expect them to get worried about this problem or concerned about it? So, somebody has to stand up and explain to them the magnitude of this fiscal crisis that's about to hit us. That's all.

MOYERS: Peter Peterson, thank you very much.

PETERSON: My pleasure, sir.

http://www.pbs.org/now/transcript/transc...

-- posted by SouthPacific

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» Jas_Jain - Biederman (TrimTab)Turns Bullish

I don't recall if it is this thread or Kirk's that posts TrimTab comments from time to time.

Anyway, Biederman had a quickie with the Money Honey on CNBC, towards the mkt close, during which he said that he turned bullish "as of yesterday" from neutral.

I can't think of a better time to turn bullish. November begins in a few days and the coast is clear for a while for the market to keep going up. There is nothing to derail the market, is there?

Jas

-- posted by Jas_Jain

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» MarketVVizard - Re: Biederman (TrimTab)Turns Bullish

In response to message posted by Jas_Jain:

Jas, I posted on Sunday that a spike higher this week was likely, but I didn't expect today's dramatic action. I don't know how you can be anything but bullish based on today alone.

Yea, I am a huge TrimTabs fan. They have been pretty much wrong all year and bearish like me I guess I'm not surprised by the big about face -- mainly because of the huge recent rash of takeovers. Although the fact is most of these big takeovers are not all cash deals (they are stock or mix of stock and cash). Also, a LOT of new paper is scheduled to hit the market soon. I'm wondering if TT has become a contrarian indicator? I remember Kirk posting that he was waiting for you to turn bullish as his ultimate contrarian indicator Uh oh! Heh.

Seriously though, I have no idea... tape certainly seems to be saying we are going higher. We probably need to go parabolic in one last big move up to finally kill all those annoying money losing shorts

-- posted by MarketVVizard

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» Kirk - Insider Buys

.
How often do you see tech companies where the majority of the insider action is buying?

I own Agilent so I am biased but....

I know Bill Sullivan as I worked (many layers) under him. We used to talk about investing over lunch and in the hallway often and how it applied to running a major company. He was working up the management chain and sometimes bounced some of his ideas off me that he was learning or considering for his staff. Anyway, I know he is very conservative with his money and yet he just bought $105,845 of Agilent's stock with his own money at $24.49. Now I see a director of the company bought $61,000 again with his own money.

If you look back at the insider transaction list http://finance.yahoo.com/q/it?s=A you see that the CEO bought and sold some of his options that had a nice 70% gain but most of the other transactions are buys or option exercises without sells.

Pretty impressive, no?

It seems this director Robert Herbold has bought twice in the past 14 months with his own money http://biz.yahoo.com/t/50/518.html
Directors get paid to be on the boards, but nobody tells them they have to buy stock.

It does say
Acquisition (Non Open Market)
http://biz.yahoo.com/t/92/3946.html
so I wonder if this could be part of a new pay package where they get a bump in pay to buy stock at the market price so there is no options reported?

I know people who were laid off who still won't sell any of their shares even after a doubling from the bottom.

-- posted by Kirk

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» hairie31 - Biederman Bullish on CNBC

In response to message posted by MarketVVizard:

In that interview on CNBC yesterday, Biederman gave his main reason for turning Bullish was that inflows to Mutual Funds were at record highs and that with CD rates so low and the stock market on a six month+ roll, investor are willing to come back in the Stock Market.

Maria B.... pointed out that Mutual funds inflow haven't been this high since Febrary 2000, one month before the market peaked. She asked Biederman; "Don't peaks in Mutual Fund inflow usually happen just when the market is about to peak?"

Biederman agreed that is usually the case, but is still willing to follow the trend.

What Maria B.....failed to ask and Biederman failed to mention was his last major call was on August 11, 2003, when he went Short the QQQs at $ 30.41.

The QQQs actually went up 12½ % between August 11th and his buy signal on October 27, 2003.

So if he had held on to that trade, he would have underperformed the market by 25 % ( If he said he went from neutral to bullish..I assume he actually must have already sold that losing trade)

This shows most Market Timers are really Trend Follower. Not that there is anything wrong with going with a hot trend.

I feel a real Market Timer sticks with a dicipline, even when the trend is obviousy against him. (like yours truly, Hairie31)

Biederman is stopped using inflows/outflows as a contrary indicator. He shorted the market going up and now with inflows near a peak, he's issued a buy signal.

He may be a good contrary indicator!

-- posted by hairie31

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» MarketVVizard - Re: Biederman Bullish on CNBC

In response to message posted by hairie31:

If you are suggesting that Bidderman has lost his edge, well I might agree, don't know yet. But he is certainly not a sheep. If inflows have peaked, he will go bearish again, but he will certainly miss the top and probably lose more money. And I agree with you that he isn't real transparent with his results when he is down. Last year he did fantastically well, up about 80% (I THINK, I know it was more than 50%) and he pretty much let us know how the model was doing at the end of each newsletter. This year he has been wrong for most of the year and while he definitely makes reference to the fact that he is down, I have not once seen a percentage. He also has obviously NOT found a mechanical system yet, inflows have been big all year and he waits till now to justify that as a reason to go long?

Don't get me wrong, I think he has a lot to offer, and I think the indicators he tracks are valuable. Just doesn't seem like he has really put all the pieces together yet in a Hussmanesce kind of way.

-- posted by MarketVVizard

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» Jas_Jain - Re: Re: Biederman (TrimTab)Turns Bullish

In response to message posted by MarketVVizard:

"I remember Kirk posting that he was waiting for you to turn bullish as his ultimate contrarian indicator Uh oh! Heh. "

I am posting reply on Kirk's Mkt..

Jas

-- posted by Jas_Jain

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» MarketVVizard - GDP

Everyone was expecting a big GDP number. Most also realize GDP has just peaked. If we gap up >20 points on the NAZ as futures indicate right now, there's probably a good chance of selling the news from there. Don't know, I was wrong the last time I faded a big open like this, so I won't do it again today. But the fact that gold is up $3 to $390 right now is a little hint of this potential coming fade.

Interestingly, this morning someone mentioned a quote of the Dallas Fed Chief saying, "We will know inflation is a problem when gold hits $400."

-- posted by MarketVVizard

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» Normxxx - Re: GDP

In response to message posted by MarketVVizard:

Interestingly, this morning someone mentioned a quote of the Dallas Fed Chief saying, "We will know inflation is a problem when gold hits $400."

WIZ-- Check out: Normxxx ruminates ...

-- posted by Normxxx

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» MarketVVizard - Shorting NVLS at $40.42

I think its a good entry. SOX showing relative underperformance today. NAS Up/Down Vol % is bearish. Stop at $41.

-- posted by MarketVVizard

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