Cheap Marble

I was telling my friend Tony Blankley about the depressed state of the stock market these days, and my belief that some stocks, already “bargains,” will be unprecedented investment opportunities when the economy does turn around at some unspecified in the (far?) future.

“There was a lot of cheap marble available after Rome fell," Tony replied with his usual wry wit.

“Yes,” I then said to Tony, “ but many years later, your former countryman Lord Elgin (and many others from several other countries) found that “cheap” marble so valuable they acquired as much as they could and carted it back to their home countries.”

Each of us has a point.

Tony is right that, no matter how high the current dividend and how low the current earnings per share, the “real” value of a stock investment made today depends on the dividend being maintained, and the prospects of the company making profits ahead.

I am reminded of my first class in an economics course I took at the Wharton School of Economics many years ago. The professor, who had also written the course book we used, began the class by saying, “You’re going to hear and read a lot about finance and investments in the next few years here, but I am going to tell you something in one sentence that you should always remember.”

We all held our breaths.

He then said: “The price of a stock is the anticipation of future earnings.”

As I remember, many of us students looked at each other with anticlimactic frowns, disappointed that some arcane and mysterious truth had not been given to us.

And yet here I am, many decades later, repeating his words with the experience of not a little investment of my own that has borne them out over the years, and made them particularly appropriate just now.

My point is that there are some stocks out there paying huge dividends (12% or more), selling at very low earnings per share multiples (five times earnings or less), AND holding cash that is near (or even in excess) of their current capitalization (or total value of the stock). How can you go wrong with a stock like that?

Tony’s point is that you could go wrong if our current economic straits don’t improve because the current “stimulus” and “bailout” strategies being legislated by the Congress at the urging of the Obama administration don’t work. (I for one don’t think they can.) Then earnings would fall, dividends would be lowered or eliminated, and cash would be devalued by accompanying inflation. (Inflation happens when the government prints lots of money to pay for stimulus projects and to bail out banks, failed investors and industries.)

There is a lot of neo-socialist rhetorical nonsense going around these days asserting that the current crisis demonstrates that capitalism has failed. Nothing could be further from the truth. In fact, it was the free market which finally blew the whistle on the phony mortgage banking system and caused it to crash. It was not capitalism that collapsed, it was a corrupted banking system that employed unintelligible instruments such as derivatives poorly understood by most of those who managed and invested in them; and enabled a few scoundrels and charlatans to steal money from trusting investors. Incompetence, lack of diligence and greed has abounded, but it was not a whistleblower who broke the news to the public, it was the free market system itself through the stock market and other institutions which did so.

Mr. Harry Markopolous of Erie, Pennsylvania did warn about the Madoff fraud years in advance, but no one with power over the stock market (in both the Clinton and Bush administrations) paid any attention to him. It was only after the stock market declined and individual investors needed cash that the fake scheme was revealed. (Similar but smaller frauds are now being revealed worldwide.) Many “whistleblowers” (and even some elected officials) warned for years that Fannie Mae loans were unsound, but it took the stock market correction and the economic downturn to demonstrate in concrete terms that this was so.

While we can’t be critical enough of the incompetent government, banking and investment bureaucrats who allowed the current state of affairs to happen, we cannot avoid placing a fair and proper responsibility in the current crisis on the public at large which took easy money, reckless credit and cheap promises uncritically and at face value.

A free market has no emotions. The failures and emotions are supplied by individuals, the small number in charge and the many who invest. Our economy is still the most vital in the world, and our system is the best yet devised. We must fix its shortcomings and defects, punish wrongdoers, and protect the public as best we can. I think the Obama administration wants to do the right thing and help people, but the current stimulus and bailouts strategies actually make the economic crisis worse. The free market is already telling us this, and eventually the president and the Congress will have to listen to it.

Meanwhile, there is plenty of cheap marble around. I’m skeptical about the short term, but my inherent optimism tells me a time for positive new investment and growth will return. Meanwhile, caution and skepticism needs to replace blind trust if the system which brought us to prosperity is allowed to repair and revive itself.

C.P.A.C. Start to Finish

The recently-concluded Conservative Political Action Conference (CPAC) in Washington, DC began brilliantly and ended with a thud. The organizers deserve the credit for the former, but have only themselves to blame for the latter.

I attended all three days, and heard many of the speeches. A distinguished number of conservative leaders, commentators and thinkers were invited to come and to speak. Much of the discussion was upbeat, inspired by recent expressions of voters at the polls, a trend which gives Republicans and conservatives considerable optimism for the upcoming national elections in 2010 and 2012.

One of my favorite parts of CPAC is the large exhibition hall where conservative groups, institutions and publications reach out to the thousands of conservatives attendees (most of whom are under 30) with books, tapes, brochures, pamphlets, buttons, bumper stickers, other souvenirs and personal interaction to advance their causes and products.

Apparently, the Conservative Union (which funds and produces CPAC) has been applying less and less control of this part of the program. I have attended CPAC three times now (but not last year), and I have noticed more and more fringe groups exhibiting. I am not speaking of the Tea Party and its supporters which I consider a genuine grass roots conservative movement, and whether you agree with it or not, deserving of praise for their efforts. On the other hand, the movement led by Congressman Ron Paul, for example, has actively insinuated itself into the Republican Party for several years now. This is, at base, a libertarian movement which goes over the deep end in its ideas about foreign policy. Ron Paul, who once was the Libertarian Party's candidate for president, won a congressional seat as a Republican. Many thoughtful and sincere libertarians feel that Mr. Paul distorts many true libertarian ideas. Other groups and individuals exhibiting at CPAC expressed extreme views, many of them obsessed by conspiratorial theories and whacked out ideas.

The Ron Paulites and the others, of course, have every right to hold their views, speak their minds, and to organize lawfully as a political force. Every presidential election year in New Hampshire and Iowa, "weird" candidates show up running for president. It IS a free country, and they have the right to do so. But the rest of us have every right to regard their ideas as wrong headed and extreme.

During most of the three days of CPAC, many brilliant and inspirational speakers addressed the serious issues of our time, offering creative ideas and thoughtful strategies for fixing the nation's serious problems. They were all conservatives, although some disagreed with other conservative viewpoints. Potential presidential candidates also spoke, and gave attendees and those watching across the nation by television a glimpse of their priorities and personalities.

At the very end, however, CPAC held a presidential straw poll. Less than a third of those who attended the conference voted, and less than ten per cent of those who attended voted for the straw poll winner, Ron Paul.

Liberal opponents of conservatism, and Democrats, understandably seized on this poll result to suggest that CPAC was an out-of-the-mainstream extremist event. Who can blame them for doing so? I think the Conservative Union and CPAC organizers should think long and hard about discontinuing the straw poll in future conferences. If they do not, they will likely again face what happened this year, namely that their hard work will be remembered by an inconsequential
event that will be magnified and exaggerated, and the accomplishments of their conference will be lost in the public perception as a result.

A Last Chance to Reform Debate Format

Two years ago, we put forward a reform proposal for the presidential debates in the 2008 campaign.

Rather than just offer an abstract plan, we decided to present a real format by scheduling a dialogue that included Speaker Gingrich and former New York Governor Mario Cuomo at the Cooper Union in New York City with the late Tim Russert as the moderator. We chose Cooper Union because it had been the site of Abraham Lincoln's great speech that probably made him president, as well as the site of many important speeches and debates since it was built in 1858, and continues to be so to the present day.

There is no doubt that the American public and voters are very interested in this year's presidential and national elections.

A number of haphazard debates were held during the extended primary season which concluded in early June. These debates, without a cogent and effective format, were mostly unsatisfactory, even as they were tuned in by large number of voters eager to learn about the candidates and their positions on the critical issues of our day. But the result, surveying the published and other public assessment of these debates, was that the public who tuned in were mostly turned off.

As we approach the final phase of the presidential election, with the nominee of each party known, and the traditional nationally-televised series of debates of the presidential and vice presidential candidates now being organized by the formal debate commission, we renew our call for a new debate format. There is not a lot of time to do this.

The bad news is that the commission, meaning well, is beset by inertia and lack of of willingness to try something genuinely new.. To change the format would require not only new ideas, but the consent and enthusiasm of the candidates themselves. And it is not only the commission which is overly cautious, but the campaign organizations themselves which are inherently unwilling to take any risks with the entire electorate watching.

The good news is that both the putative nominees, Senator John McCain and Senator Barack Obama, are political figures who have embraced the unconventional in their successful campaigns so far, and have personally practiced and advocated the general format we are supporting.

Senator McCain has made the "town hall" format his trademark, and Senator Obama has repeatedly said he favors a "Lincoln-Douglas debate" format. Although these formats have some differences, they more importantly share the characteristic of an open dialogue or discussion of the issues, open in that the format is not overwhelmed by rules, conditions, limits and caveats, all of which have increasingly diminished the presidential debates of the past, and made them less and less useful to voters (and to the candidates themselves).

The key to any change in the debate format is the willingness of the candidates to recognize that an open format is in their interest, and serves their communication purposes. Senators McCain and Obama each have their own strengths, and we think an open format, negotiated by the two campaigns, offers each a great opportunity in the political competition which will conclude in November.

The number of debates, their location, the kind of live audience, all are open to that negotiation. Tim Russert became a champion of an open format demonstrated by the 2007 Cuomo-Gingrich dialogue at Cooper Union when he served as moderator of it. He played his role perfectly, keeping the conversation moving and orderly, but remaining in the background and allowing the dialogue to bloom on its merits.

Senator Obama has now accepted three conventional debates as proposed by the commission, but left open the possibility of additional debates in a "Lincoln-Douglas" format. Senator McCain has not yet agreed to any debate format, not to a specific number of debates. There is still time, then, to negotiate at least one or more debates in a new format.

What greater tribute to Tim Russert's memory could there be than to reform the present debate system for the 2008 campaign ahead (as he advocated), and give American voters an opportunity to watch and hear the candidates in a genuinely competitive format as the critical decison is made to choose out next president?

-Speaker Newt Gingrich & Barry Casselman

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-This Op-Ed was first published in Real Clear Politics on August 10, 2008.

Minneapolis' Bridge to Somewhere

Almost everyone remembers the bridge that collapsed a year ago in Minneapolis. It was the number one story in much of the world for a few days, and a major political story for weeks and months afterwards in the U.S.

Like most events of this kind, public interest in this story faded, to be replaced by other national and international disasters, events and controversies.

I have not been able to forget it, however, because I live only three blocks from where the I-35 bridge once stood, a bridge I had used several times a day for years, and a bridge I would want to be replaced as soon as possible to avoid a severe long-term dislocation of my ability, and the ability of hundreds of thousands of other Minnesotans, to move about this large metropolitan area.

Today, and for the past several months, workers have been toiling around the clock to build the new bridge. Much of this new bridge is now visible, with only the section in the middle, the part over the Mississippi River, not yet constructed and in place. But even that final part should begin to be seen soon.

When the bridge collapsed, many opinions were expressed about how it happened, and how its replacement should be built. The conservative Republican Governor Tim Pawlenty and his administration were attacked for neglecting the problem by local Democrats, especially those in the legislature and who control both houses of that legislature. The public, however, was cheered by the generally quick and professional response by the governor, other state and local officials of both parties, and the federal government which pledged to pay for a new bridge.

Some disagreement about the design of the new bridge arose, particularly about whether to spend an additional $50 million to make the new bridge capable of having a future light rail train cross it in addition to automobile traffic. At the same time, Democrats also advocated raising state gasoline taxes to pay for other infrastructure repair. At first, Governor Pawlenty agreed to these tax increases, but others joined the debate, suggesting that the traditional notion of raising taxes, put forward in the emotions of the disaster, were not necessarily wise. Even Newt Gingrich wrote an op ed in the St. Paul Pioneer Press calling for the governor to eschew new taxes, and to employ the private sector to build the replacement bridge promptly, using cash incentives for getting the job done ahead of deadlines. I also wrote an op ed on
these pages suggesting that higher taxes was not the priority, but that getting the bridge replaced was. I even suggested in that op ed that if the bridge design and contract process were done quickly and well, it might be possible to have the new bridge open in time for the Republican National Convention which will take place in St. Paul the first week of September, 2008. This latter point was received with some skepticism if not derision because it was felt by many that such a large project could not be finished in such short a time.

From my close vantage point I can report, however, the such a target date is now not out of the question. The company overseeing the bridge construction was given significant incentives to finish the job ahead of schedule,and the current target date is the middle of September, only about two weeks after the convention begins. It is at least reasonably possible that construction work could pick up those two weeks.

A lot of persons were responsible for this. Not only Governor Pawlenty but local and state officials streamlined the process after it threatened to bog down in recriminations and elaborate new bridge proposals. Both Democratic U.S. Senator Amy Klobuchar and Republican U.S. Senator Norm Coleman, and their staffs, worked closely with each other to speed up federal funding. President Bush and the Democratic Congress responded quickly and generously.

This is the way public projects can work well. Yes, it takes money, sometimes lots of it, to respond promptly and and effectively, but unless the contractural arrangements allow for incentives for better-than-expected results, and penalties for results that fail to meet quality and deadlines, the market place cannot do the job the public expects and deserves.

Public officials of both parties, from the president of the United States to the mayor of Minneapolis, whose job it was to get the bridge replaced quickly did effectively use the business market place and the cooperation of organized labor, and the result is one more, but lately too rare, example of how things can work best, and with accountability.

We can argue about how much is necessary to spend on public works, and how we pay for them, but there always will be those projects almost everyone will agree need to be done. Unlike that now-cancelled "bridge to nowhere" in Alaska, we are going to have a bridge to somewhere in Minneapolis soon.

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-This article first appeared in The Washington Times on May 23, 2008.

A New National Political Realignment?

The prolonged spectacle of the Obama-Clinton contest in 2008 may seem finally to be a caricature of the former first family's incorrigible attempt to regain executive power.

I suggest that it may also signal an imminent political realignment of U.S. presidential politics.

At the outset of this campaign, virtually all political commentators, myself included, were thinking in terms of the now established paradigm of the so-called "red" and "blue" states. This color code seemed operative for 2008, and the election seemed certain, as it had been in 2000 and 2004, to be determined by s handful of Midwestern and Border states.

Recently, my friend Michael Barone has offered a canny analysis suggesting that Democratic voters may be partially divided into "academics" (educated white collar liberals) and "Jacksonians," (blue collar workers and moderates), with the former inclined to vote for Senator Obama and the latter to support Senator Clinton. He also points out that demographically the academics live mostly in a few areas of each state, those areas most intensely urban and suburban. There is much meat in Mr. Barone's analysis that I will not discuss here, but if accurate, it has significant consequences for how the various states will vote in 2008. Since the election is determined by the electoral college vote, which is by state, it is much more useful to focus on this than the popular vote (and thus national polls).

In the recent past, the Democratic Party has been composed of a coalition of the academics and Jacksonians, as well as black voters. That was the New Deal coalition. Republicans came to win the presidency much more often, beginning in 1952, when their presidential candidates began to attract independent and centrist voters with the candidacies of Eisenhower and Nixon. In 1980, Ronald Reagan began also to draw conservative blue collar workers from the Democratic Party. President Bill Clinton won two terms by coaxing back many straying Democrats.

In 2000, GOP strategist Karl Rove fashioned a presidential campaign that won electoral votes throughout the South, West and Midwest in what became popularly known as "red" states, conceding the West Coast and the Northeastern states, popularly known as "blue" states to Al Gore. Bush lost the popular vote in 2000, but won a majority of votes in 2004 against John Kerry. The electoral college map was very similar in both 2000 and 2004.

John McCain is a maverck Republican, and associated with several reform issues that have upset the more conservative base of his party. This has caused a conservative revolt that has been critical of McCain, and explicitly has threatened to sit out the election, as many did in 2006.

McCain's appeal to independents and conservative Democrats, however, became apparent in the primaries this year.

The right wing revolt, and McCain's reform/maverick appeal to the political center, enables the Arizona senator to run, if necessary, an unorthodox campaign in 2008, one that can win even if the far right of his party stays home. For example, Pennsylvania and New Jersey and some other past blues states are now in play, while Ohio, Texas and Florida seem more secure.

The prolonged and bitter campaign between Obama and Clinton could enhance such a McCain strategy if a relatively small number of disappointed Clinton voters, including women over 50, decide to vote for McCain, as more than 20% (in polls) now threaten to do. I don't think that many will defect, but even 5-10% would probably balance off the conservative defection from McCain, and make him a winner in November (with the help of independent and centrist voters).

The irony of this is that voters have, in the primaries, given strong evidence of their desire to elect a Democratic president in 2008.

Republican voters, however, selected the one person in their party who could win this year, and the Democrats are divided roughly in two. "Jacksonian" Democrats, especially because of foreign affairs and national security issues, might desert the Democratic nominee.

The Republican Party, at least for the time being, could become a national center-right party.

All of this, of course, is speculative.

But the ingredients are already there. The nation is tired of war, but wary of letting down its guard in the face of continued threats from Islamofascist terrorism.. The nation is worried about the economy, but wary of raising taxes and spending as a solution to its economic problems. The nation wants health care, energy and education reform, but knows it must somehow pay for them.

A national centrist party almost came about once before. Weary of war, still wary of the Depression, America faced a presidential election in 1944. Very ill, President Roosevelt wanted to retire. He met with Wendell Willkie, who had been his surprise opponent in 1940. Willkie lost that election, but was planning to run again in 1944. At their meeting, they outlined forming a new centrist party. But early in 1944, Willkie died. Roosevelt then dumped his leftist vice president, Henry Wallace, and picked Harry Truman to take his place. Only months after the 1944 election, and merely days after his fourth
inauguration, Roosevelt also died.

We know the rest of that story.

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-This article first appeared in The Washington Times on April 11, 2008.