Judge Redden

The Seattle Times‘ editors showered praise on retiring federal judge James Redden. Among the accolades:

U.S. District Judge James Redden has been a good and demanding steward of the Endangered Species Act and the protection of Columbia River wild salmon.

It depends.

To be sure, he rejected several biological opinions he thought flawed, mostly for not doing enough to preserve salmon, a Northwest icon and food.

Here’s the strange part. The salmon were listed as “endangered,” so urgent, critical steps were made necessary to make them less so. To what end? Well, to be eaten.

Remember, save for habitués of Tennessee hollers, we don’t serve Spotted Owl for Thanksgiving dinner. It, too, is an endangered species, and a whole lot of lumber firms and their workers were mad as hell when the courts declared huge swaths of forest off limits to logging.

Efforts to save salmon qua food have not been cheap. For Bonneville Power customers the costs are in the billions of dollars. If one were to factor those costs into the price of fish, salmon would also be off limits for the Rest of Us—we simply couldn’t afford them. But those costs are borne by electricity consumers in the form of higher rates.

I’m not here to argue the merits of saving fish for our diets. I only wish to point out that preservation hasn’t been free.

Salmon for dinner? Enjoy.

Religious extremism

Via Neflix streaming I am engrossed in episodes of the BBC series MI-5, subtitled “spooks.” It’s an intelligent alternative to, say, 24. The acting is superb, the characters interesting, and the writing brilliant. That’s what the Brits like to say—brilliant. The series began in 2002 and is still going, I think, although I’m just now finishing up season 3.

While England lacked its own 9/11, it has suffered numerous bombings and serious threats, placing the country on a state of high alert, clearly manifest in the telecasts. The real MI-5 has had its hands full trying to foil would-be attacks, much as our FBI-cum-Homeland Security apparatus does here. England has an awful lot of CCTVs, too.

I’ve just watched a couple of episodes dealing with Muslim terrorist bombings and close calls. The BBC, in a nod to equal opportunity, engages Christian fundamentalists in similar attacks.

Indeed, there are true believers in nearly every sect bent on a holy war to settle things once and for all. I’m appalled by such extremism and the rationalization of violence in furtherance of a greater cause. (To be sure, MI-5 carries out the same calculus, at least on TV, with the agency’s head instructing a subordinate to “kill him,” on more than one occasion.) One reason for my revulsion is that I am generally a peaceful man, eschewing physical violence and abhorring state-sponsored murder—capital punishment. I don’t care much for war, either.

Moreover, I simply cannot fathom the primacy of religious beliefs in savage behavior. MI-5 will have a Muslim cleric tell an ardent follower to bomb the hell out of a train station and himself to boot. It’s all in a good cause, you see, because the martyred follower is promised celestial virgins, or some such crap. So the Muslims run around saying “Allah” while killing innocents. “Death to infidels.”

Christianity, of course, is no stranger to these attitudes. A very nasty bunch down through the ages: the Crusades, Protestants against Catholics, Catholics purging other Catholics, and so on.

Nearly every religion can be called upon to sacrifice, murder, maim, or imprison others or their own. There are few exceptions that come to mind, perhaps the Amish or the Quakers. But Nixon was a Quaker, so what the hell.

I was baptized and raised in the Roman Catholic church. Through my childhood I was a dutiful member, confessing my sins and then taking holy communion. (It’s really, I mean really, the body and blood of Christ Jesus. Okay.) One good thing about being an adult Catholic is that you could drink, unlike, say, the Mormons and the Muslims. I’ve witnessed a few drunken priests in my day. Heck, you can even drink wine during Mass.

The church has come in for a lot of deserving heat of late. It seems that far too many young men enter the seminary so that they can later fool around with boys, permanently damaging their pubescent psyches.

Nor is the church hierarchy timid in issuing directives to the faithful, although I’ve yet to hear “death to infidels.” In addition to the biblical commandments, there’s a seemingly endless list of don’t dos.

But my biggest disappointment in the Vatican and its direct reports (cardinals and bishops) is their failure, if they’re even wont to try, to loudly and publicly condemn wars and violence. Hell, they even have priests in the barracks. Yes, there is the just war doctrine. That is, it’s okay to slaughter provided you follow the rules.

Here’s what I’d like to see from Rome, although I certainly won’t hold my breath. It would be in the form of a proclamation, something like this:

Henceforth, it shall be a grave mortal sin to kill another human being, regardless of circumstances!

There are an awful lot of Catholics in the military and in public office promoting the use of force and the stealing of precious resources from the Rest of Us. I have in mind Eisenhower’s speech wherein he said: “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.”

Why couldn’t those words emanate from the mouth of the Pope?

In the final analysis, however, John Lennon said it best: “Imagine no religion.”

A philosopher doing economics

I share one thing in common with Matthew Yglesias, now at Slate: we both studied philosophy in college, although he got his degree from Harvard and I received mine from California State University East Bay, formerly Hayward—I also earned a bachelor’s degree from Berkeley in history, which qualifies me for not all that much. At any rate, Yglesias has obviously acquired a lot of economic knowledge since leaving Cambridge, and he dares to proffer analysis and prognostication alongside those of Krugman, DeLong, Stieglitz—all heavyweights in their professions. I find his comments insightful and informative, products of deep thinking, as is the philosopher’s wont.

This post is no exception. He’s talking about the risk of Eurozone contagion inflicting significant harm on the U.S. economy.

But a different kind of analysis suggests that the United States could face catastrophe if the Eurozone tanks.

This terrifying possibility is suggested in a Nov. 7 lecture by Princeton professor Hyun Song Shi, “Global Banking Glut and Loan Risk Premium” (PDF). The starting point for his analysis is the fact—well-known to financial practitioners, unknown to the public, and perennially rediscovered by the economics profession—that a very large share of the world’s dollars are held in non-American accounts. Indeed, for several years in the late aughts the total dollar assets of non-American banks actually exceeded the total assets of the U.S. commercial banking system and even today the ratio is close to 1:1.

These foreign dollars—mostly held by European-headquartered global conglomerates—are not isolated from the American economy. Just as U.S. firms and households deposit money in American banks and take loans from the banks, European global banks intermediate between savers and spenders of dollars. A 2010 Bank of International Settlements survey (PDF) revealed that as of 2009, 161 foreign banks were operating 226 branches in the United States that raised more than $1 trillion in wholesale funding, largely through money markets. Dollars raised in the United States tend to ultimately work their way back to the United States (which, after all, is where you can use dollars to buy things) through the shadow banking system. European banks aren’t the only ones in this game, but they are the largest player. The upshot is that decisions made in Europe about how much leverage to take on play almost as big a role in determining American credit conditions as do decisions made in the United States [my emphasis].

The plausibility of this argument is underscored by what happened following the collapse of the U.S. housing bubble and the near meltdown of Wall Street banks. Our contagion spread across the pond, engulfing Europe big time. As the financial sector has come to dominate the U.S. economy, so, too, Europe and Asia. The dominoes are truly global. The precariousness of our current predicament is manifest almost daily in stock volatility; the least sign of negativity sends shares plummeting.

It works in reverse, as well. Today the Federal Reserve and foreign central banks announced a cooperative effort to east the debt crisis. As a result, the stock market “soared.” As I write the Dow is up 3.6%. Under current circumstances, that qualifies as “soaring.”

Yet, we’ve seen this movie before—again and again. What everyone hopes for—again and again—is for sustainability, preferably in a positive direction. Instead of a single-day stock movement, the financial sector and, by default, the Rest of Us want days turning to weeks becoming months of upward economic growth. That will require the Rest of Us to spend money that we don’t really have, since we’re trying to pay down our debt or boosting our savings.

This ain’t over. Tomorrow could yield a bout of bad news, sending stocks downward. As I said, the situation is precarious at best. But you didn’t need a philosopher to tell you that.


A Dowd smackdown

Maureen Dowd is at her Pulitzer best this morning with her column. She’s taking on Newt Gringrich, in particular, but one can’t help expanding the focus to his competitors. This pithy excerpt alone speaks volumes:

Republicans have a far greater talent for hypocrisy than easily cowed Democrats do — and no doubt appreciate that in a leader.

America at her whacky best. Too bad we’re mired in serious shit these days.

Sounds like a good argument

Extend the payroll tax, if not increase it, while imposing a modest surcharge on incomes above $1 million. I like it. The Rest of Us should like it. But the Republicans don’t. So, the GOP would prefer to coddle the rich at the expense of everyone else?

Should this be a winning electoral strategy on the part of McConnell, Boehner, et al., we can be certain that America has lost its collective head.

Read more here. An excerpt:

Are Republicans going to deny the average working family a $1,500 tax break in order to spare millionaires a modest increase? That $1,500 or so, multiplied by every paycheck in America, would have a huge effect on economic growth next year, widely estimated as between 1.5 and 2 percentage points. The tax increase would affect only a tiny fraction of small businesses with employees, despite the endless Republican claims that it would stifle job creation.

It’s “ludicrous”

This interview pays dividends to the reader. So, read it, if you’re a reader and you like dividends.

A few tantalizing excerpts:

There are clear-cut things that you do if you’re in a liquidity trap. A liquidity trap is simply defined as when the private sector is in a deleveraging mode, or a de-risking mode, or an increasing savings mode all of which you can also call deleveraging phenomena because of enduring negative animal spirits caused by legacy issues associated with bubbles. In that scenario, the animal spirits of the private sector are not going to be revived by a reduction in interest rates because there is no demand. It’s not the price of credit driving the deleveraging. It’s “I took on too much debt during the bubble. I have negative equity in my home. I don’t care what the price of credit is, I already have too much outstanding. I am paying down credit!” That can be entirely rational for an individual household. It can be rational for an individual firm. It can be rational for an individual country. However, in the aggregate, it begets the paradox of thrift. What is rational at the microlevel is irrational for the community, or at the macro level, and I’m amazed that this is not assumed as a given description of what we’ve got going on right now. The paradox of thrift and the liquidity trap are fellow travelers that are functionally intertwined.

I’ve touched on these topics here and here and here. Another excerpt from the McCulley interview:

You mean that cutting federal spending in a liquidity trap, like we’re in, is absolutely counterproductive?

Yes, it’s ludicrous and I don’t use that word too often.

And, finally, this excerpt:

There obviously are a lot of inconsistencies that we have to deal with in a democratic society. But what really puzzles me is how the concept of public investment is being perceived as an oxymoron. That’s just wrong. The notion that if we just would quit subsidizing idleness, that the unemployed would go to work, is another thing that is just ludicrous. I don’t know a lot of people who want to be subsidized in idleness. Nor do I know a lot of people who want to subsidize it. But there are just no jobs out there. There aren’t jobs because we had a bubble in housing. We went from 2 million housing starts to half a million housing starts. The notion that you could monetize equity in your home with a second mortgage is an oxymoron. Nonetheless, we had a housing sector bubble and everything that goes with it. Actually, if housing starts were our only problem, that wouldn’t be a big deal. But the house became the magic genie that made up for the fact that we’ve had stagnant real wages in our country for a long time and then the genie died.

Groceries vs. Apple

Supermarket profits fell to .98 percent of sales in 2010, down from 1.2 percent a year earlier, according to the Food Marketing Institute.

That quote from a Seattle Times article took me by surprise. I knew that supermarkets had low margins, but not this low.

I take some comfort in supporting the men and women who work at the local QFC, from whence we fetch most of our groceries. The weekly bill is way too high, but, what the heck, we like our food; besides, we’re contributing to health care benefits and vacations.

So what about my favorite company? Apple’s stock is currently trading at around $378 a share, down from its peak a few months ago of  $425. Many “analysts” (whatever they are) believe that Apple is extremely undervalued. (By the way, this linked article contains a far more detailed analysis, in a good sense, of Wall Street’s mysterious take on Apple’s fortunes than I have provided here.)

Let’s look at Apple’s profit margin (net profits as a percentage of net sales).

The year Steve Jobs returned to Apple (1997) the company’s profit margin was a negative 15%, down from the previous year’s -8%. Apple didn’t exceed its previous high of 10% until Fiscal Year 2007, in which Jobs introduced the iPhone. Since then, Apple’s profits and margins have skyrocketed.

Apple’s market capitalization has also dramatically increased. For a few days this year it was actually the most valuable company in the world, briefly surpassing Exxon.


In several consecutive quarters Apple’s profits have been dramatically higher than the previous years’. As the most valuable technology company, one might not expect the company to register such year-to-year increases.

This last graph makes plain all the hype about Jobs’s accolades. Before his second coming, Apple was within 90 days of going bankrupt, according to Isaacson’s biography. We can see that in 1996 and 1997 the company was losing money big time—over a billion dollars in 1997. In its last fiscal year Apple earned $14 billion in net profits.

Here’s Apple’s adjusted share price over time.

The aforementioned “analysts” typically use a price-to-earnings ratio (P/E) to advise investors—share price divided by earnings per share. Today that figure is 13.48. What about other companies’ P/E?

What, then, does P/E measure? I found this quote from “Investopedia“:

If a company has a P/E higher than the market or industry average, this means that the market is expecting big things over the next few months or years. A company with a high P/E ratio will eventually have to live up to the high rating by substantially increasing its earnings, or the stock price will need to drop.

A good example is Microsoft. Several years ago, when it was growing by leaps and bounds, and its P/E ratio was over 100. Today, Microsoft is one of the largest companies in the world, so its revenues and earnings can’t maintain the same growth as before. As a result, its P/E had dropped to 43 by June 2002. This reduction in the P/E ratio is a common occurrence as high-growth startups solidify their reputations and turn into blue chips.

That Apple has such a relatively low P/E to, say, Amazon, may cause eyebrows to raise. John Gruber, who has a blog he calls ‘Daring Fireball,’ has this to say:

I think it’s psychological. Wall Street, collectively, can’t wrap its head around just how big Apple has gotten and how fast it continues to grow. Ten years ago Apple traded at $10 a share, five years ago $65. That’s the Apple Wall Street remembers, and thus today’s Apple at $400 seems like it’s had a really nice run to reflect its last five years of success. The stock is weighed down by old impressions of Apple as a smaller company with niche appeal.

Do analysts actually believe that Amazon is going to grow faster than Apple over the next few years? At the end of 2006, Amazon recorded a profit of $190 million. Three years later profits reached $902 million. Its most profitable year was 2010, when it earned net revenues of $1.15 billion. However, as of September 2011, the profits fell back to $870 million.

Maybe Apple is like the universe: it’s huge and growing larger at ever faster rates.

We’ll check back in a year to see how things are going between Apple and Amazon. I’d put my money on Apple. (Disclosure: Both companies get a share of my money, but I own no stocks.)