Sign Sonia Sotomayor's cast!

The DNC has set up a Website for people to virtually sign Sonia Sotomayor's cast. Talk about turning lemons into lemonade! Sign it here.

Quote of the day

"Sarah Palin, governor of Alaska and GOP "It" girl, can warm up the Republican base like a hot toddy in a duck blind."

-Kathleen Parker, in the WaPo. Parker goes on to explain that the good governor of Alaska seems to be coming up a little short in the competency department, not being able to answer her mail competently, among other things. Somehow not surprising.

Best. Colbert. Report. Ever.

Stephen Colbert spent the week in Iraq. He interviewed General Ray Odierno, the four-star general, who told him that he needed a haircut. But Stephen didn't want to take orders from some four-star general.

So the CINC stepped in. That would be the Commander in Chief. The President. You gotta love a President who can score these kinds of style points.

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Obama Orders Stephen's Haircut - Ray Odierno
colbertnation.com
Colbert Report Full Episodes Political Humor Stephen Colbert in Iraq

Sotomayor and DADT

Sonia Sotomayor's nomination to be a Supreme Court justice looks like it's in good shape. There are a few fanatics out there attacking her, like Rush Limbaugh, but I think most conservatives are coming to terms with the fact that, barring something bizarre, she's a slam dunk. GOP senators in the southwest have to be nervous about voting against her and possibly alienating large chunks of the Hispanic vote. That would not be a good idea in places like Texas and Arizona.

I think this is potentially good news for repealing the Don't Ask Don't Tell policy (DADT). Why? They don't seem to be related. Bear with me.

Obama is currently spending a lot of political capital. He has been spending it for several months now. That's normal for a president early in his term. But what is also normal is that they don't get much of a return on spending that political capital until later.

Obama is spending massive amounts of political capital. He needs to spend massive amounts more, particularly on solving the Israel-Palestine problem. But he hasn't gotten any return on any of this spending of political capital yet. We don't know if the stimulus is working. GM and Chrysler are bankrupt, and we have no idea if they will be able to come back. We are still in Iran and Afghanistan. We are running huge deficits.

Putting Sonia Sotomayor on the Supreme Court will require spending very little political capital on Obama's part, but will deliver great returns. He doesn't really have to spend any political capital. Hispanics will be forever grateful to him for this. She will probably be on the Court for decades.

But changing DADT will be the exact opposite political equation: it will require large amounts of political capital, and will deliver good, but probably not great, returns. Gays and lesbians are mostly already in his court. They will be disappointed if he doesn't deliver on repealing DADT. OTOH, some moderates and conservatives will be upset about it. Obama is going to have to spend not just a fair amount of political capital changing it, but a fair amount of his time, as well. He is going to have to lay the groundwork. He is going to have to make it a priority.

Before he can spend that kind of political capital, Obama needs a return on the investment of political capital that he has already spent. Which is where Sotomayor comes in. Putting her on the Court will be one of his first major victories, a very early return on spending political capital.

More importantly, Sotomayor represents a victory over the obnoxious idiots dominating the conservative mediaspace right now. Newt Gingrich, a man who was washed up 10 years ago, is making headlines. He is spending some of his own political capital opposing Sotomayor and Obama.

Let's imagine that Sotomayor gets 80 votes in the Senate. Not an unreasonable supposition. That's a solid victory for Obama. Now let's suppose she gets 90 votes, because, honestly, there's really not much reason to oppose her. That's a decisive victory for Obama. Moreover, it's embarrassing for Gingrich and other conservative activists, because they will have spent time and energy on a hopeless and futile cause. And a black guy with a funny name, and a Hispanic woman, will have achieved a historic victory over some stupid white guys. That will marginalize Gingrich and Limbaugh, and make Republicans in the Senate slightly more wary of taking on Obama on social and cultural issues.

I don't know how much political capital Obama will spend on repealing DADT after Sotomayor's confirmation. He does have to take it on at some point. But I am fairly confident that he won't even get seriously started until that vote is taken to put the first Hispanic woman on the Supreme Court.

The Idiocy of the Efficient Market Hypothesis

In the NY Times today is a great article about challenges to the Efficient Market Hypothesis (EMH), a theory of academic financial research about how the stock market operates. EMH, in this version, says that all information that is relevant to the price of a stock is always available to all parties. Therefore, the price of a stock always reflects a judgment about its worth based on this totality of information. Therefore, the markets are efficient, because the price of a stock always reflects a perfect understanding of its current situation.

I don't know why anyone takes this idea seriously, because I think it's complete nonsense. Hogwash. Garbarge. Worthless trash.

The first problem is this idea that all information about a company is always available to every investor. That's not physically possible. There is vastly more information about a company, available in a veritable cornucopia of formats, than one human being could possibly synthesize. The information that is available in an SEC report is the tiniest shred of a sliver of the totality of information about that company. And that's true of just about any company.

Even more important than the information about a company that the company can provide is the information that it cannot provide, particularly about two key groups: its competitors, and its customers. Few companies really know what their competitors are up to, until the information becomes public. Same thing with their customers.

But what really bugs me about EMH is this idea that decisions about investments are made based on information that the investor has access to. This is just an incredibly stupid idea. No one makes investment decisions based strictly on the information they have at hand. They make investment decisions based on what that information tells them about the future.

Every investment decision is a decision about the future. Will this stock go up or down? That will be determined in the future. The events that determine whether a stock goes up or down will take place in the future. It is not physically possible to have access to that information.

Every investment decision is based on a prediction, not knowledge. Investors use their knowledge to try to refine their predictions, but they are still estimates and guesses.

The last contradiction that exposes the inadequacy of EMH is the simple fact of the stock market's existence. Every time a security is traded, there are two sides to the transaction - a buyer, and a seller. Each has the exact opposite opinion of what will happen in the future. The buyer thinks the stock will go up. The seller thinks the stock will go down. That's a shade simplistic; the seller may think that the stock is going to go up, just not as much as she would like. But the point is that each has a different idea about what is going to happen to the particular security. If there were not that difference of opinion, there would not be a transaction. If information about a security were truly complete and perfect, we could not have a stock market, because everyone would agree about the value of the security, and everyone would be on the same side of the transaction. But we do have markets for financial products, because we do have differences of opinion about what will happen in the future.

I understand that there are different versions of EMH, and I may very well be attacking a straw man. But this has been bothering me for years. I heard about EMH a long time ago, and haven't really had a chance to vent about this until now. So I feel better now.

Quote of the day

“You have no idea how many women are disappointed by me."

-Bob Woodward, responding to an interviewer's question about what it was liked to be played by Robert Redford in All the President's Men.

Rush Limbaugh wants to boycott GM

This has to be the stupidest idea Rush Limbaugh - a very stupid man - has come up with in a long time. He wants his listeners to boycott GM, because he wants Obama's policies to fail.

The mind boggles. This is capitalism in its purest form. Limbaugh only wants Obama's policies to fail because that would make him, Rush Limbaugh, look good. This argument has absolutely nothing to do with any kind of ideological purity or even any kind of vague, tenuous connection to reality. It is strictly about what is in Rush Limbaugh's best interests.

This argument isn't even about what is in his listeners' best interests. As American taxpayers, they have an interest in GM succeeding, so they can get back the money that they have invested in GM. Many of them drive GM cars, and would presumably want to have a relatively easy time say, having their cars fixed. That would be much more difficult if GM fails. There are probably a number of Rush Limbaugh listeners who work for GM, are related to someone who does, or who live in a town dominated by a GM plant.

But Rush Limbaugh does not care about any of those people. He only cares about himself. Self-interest in its rawest form.

What is truly stupid is a headline from a Website driving this: "BOYCOTT OF GM PRODUCTS UNTIL PRIVATE OWNERSHIP IS RESTORED."

Seriously? Um, guys, I don't know if you've noticed, but if you successfully boycott GM products, then it will go bankrupt, and there will not be any private ownership of GM, because there will be no GM. This sounds like the logic of that commander in Vietnam: we had to destroy the village in order to save it.

The only way to restore GM to private ownership is to make it profitable, because then the government will sell it. Because the Obama administration wants to sell its GM stock at a profit. Like the good capitalists that they are.

This may be what is driving Rush Limbaugh and his friends completely off the deep end: Obama is trying to save a major capitalist institution. And he is trying to do it through capitalist means: imposing market discipline, for one thing, and making hard but necessary choices about resource allocation, for another. So far, Obama is a better capitalist than anyone who has been chairman of GM for decades. The Obama administration is cutting dealerships and brands. That is called "making tough decisions." It's what great CEOs and other leaders are supposed to be good at. But which, alas, Rick Wagoner and his predecessors were not all that good at. People in Detroit have known for years that GM had too many brands and too many dealerships. Among other problems. But no one CEO was powerful enough to kill off the unwanted brands or dealers. It took a POTUS to do that. But he did it.

Keep it up, Rush. Keep tying yourself in knots. Keep alienating large sections of your core constituency. Refusing to admit that you're wrong has this tendency to wreak havoc on a person's ability to understand reality. And reality, Rush, is stronger than you.

HSX: Week of June 6, 2009

We've got three comedies opening this weekend, although they are very different kinds of comedies.

First up is Will Ferrell doing what he does well, playing a ridiculous buffoon, in Land of the Lost (LANDL). I like Will Ferrell, but I am not optimistic about this movie. Variety's review calls it a "laborious mess." The stock is at H$65 and change, down H$6 1/2 - at one point it was down H$8. Whoa, not good. It's at 18% on rottentomatoes.com. I'm not even going to bother to check on the screen count. The strike price is H$30, with the call at H$4.47, down H$1.38, and off a high of H$5.90. The put is at H$2.78, and up more than a half today. That means that lots of people were buying the hype up until today, and now everyone is bailing on it. I vaguely remember the TV show in the 70's. I asked my Mom if she remembered me and my siblings watching it way back then. She had no idea what I was talking about. So she obviously has no interest in seeing this whatsoever. I think she's one of the lucky ones this time around. This looks like a total bomb. I think it will be lucky to crack $20 million at the box office.
Stock: Short, and short now
Call: Short
Put: Long

Only slightly more sophisticated, but with better prospects, is The Hangover (HNGOV), about three guys at a bachelor party in Vegas who lose the groom and have to find him. I find this intriguing, if not necessarily my style. Not a completely original idea, but unusual enough to grab my attention. Sounds like there are myriad opportunities for chaos, mayhem, misunderstandings, and the accompanying jokes. The stock is at H$79.65, only down H$1 1/2 today. If LANDL bombs as badly as I think it will, this should benefit from some overflow. Strike price is H$30, which strikes me as a tad optimistic, but not overly so. The call is at H$4 and change, down H$1 today. That also strikes me as a tad optimistic, but I'm going to go long with it, because it's dangerous to short a call on something that is demonstrating potential like this one. The put, however, is also strong, at H$3.43, up 3/8 today. It's at 83% on rottentomatoes.com, which is just about unheard of for a movie like this. There also isn't really any competition. I think the world needs some good laughs right now. Let's aim high. $35 million.
Stock: Long
Call: Long
Put: Short

Finally, counterprogramming rather strongly but still within the comedy genre is My Life In Ruins (MLFRU). Nia Vardalos, she of "My Big Fat Greek Wedding" fame, returns to the land of the ancients, only this time literally. She's an American tour guide, out to reconnect with her soul, or whatever it is that she lost in her divorce. Light, fluffy, and utterly safe, as long as it's not terrible, I'm sure it will attract a fair number of people in a certain demographic. That would be the demographic that has absolutely no interest in either LANDL or HNGOV. Stock is H$11.48, only down 1/2 today, and mostly up of late. Strike price is H$5, because that is about as low as they can set it. Still, the call is only at H$1.61, down 1/2 today. Not great, but not unexpected. Even that low of a price on the call predicts a stock price of H$16. The put is H$1.74, unchanged, because, honestly, there isn't really that much room for the put to go to. This movie, after all, should make at least $4 million, even though the reviews are harsh (9% on rottentomatoes.com) Vardalos does seem very nice, and she does have lots of goodwill left over. I'm cautiously optimistic.
Stock: Long
Call: Long
Put: Short

Update Friday morning: MLFRU is down H$0.52, and I am getting nervous. Short. LANDL is up H$4, but I think that's because it was down so far yesterday. Keep the short.

Update Sunday night: This was a good weekend, I nailed all three adjusts. I forgot to adjust my predictions for the MLFRU options after I changed my mind about the stock, but that's a minor detail. Actually, I basically broke even on MLFPU, so I really only lost about H$20K on MLFCA. Since I made well over H$2 million on the three stocks, and about H$200K on HOVCA, I'm feeling good. HNGOV is, in fact, a bona fide hit, and LANDL is, in fact, a bomb. MLFRU came in at the low end of fairly minimal expectations, but Nia Vardalos will probably see herself on Lifetime a few times.

Why We Love Kobe

GM, bankruptcy, the self-referential problem, the Red Wings, and brains vs. brawn

General Motors has declared bankruptcy. I'm not going to link to any of the zillion of articles on it, because it's too depressing to have to read about it yet again.

Except for Dan Neil's article. He has a great take on it, recounting GM's glorious couple of decades, the '50's and 60's. He has an intriguing idea as to what was the turning point for GM:

I have my own theory. In 1999-2000, GM had a golden opportunity to right its ship by backing Democratic presidential candidate Al Gore. This might seem counter-intuitive. . .

Yes and no. It is counterintuitive in the immediate sense, because Al Gore wasn't really a Detroit kind of guy. He is quite the egghead, very cerebral and sensitive. The quintessential liberal intellectual type. But he was in favor of universal healthcare, which, as Neil points out, could have saved GM a bundle.

I think Neil is capturing something here, although he doesn't quite put his finger on it.

Something else happened in Detroit over the weekend, much more trivial, but a reason for celebration: the Detroit Red Wings won the first game of the Stanley Cup playoffs. Neil's colleague on the sports pages, Helene Elliott, put it this way:

the Red Wings on Saturday withstood the young Pittsburgh Penguins' energetic middle period by using their brains as much as their brawn.

Brains vs. brawn. The classic human dilemma. Whether to conquer with brute force or win through better planning and strategy. Hands vs. head. Football players vs. computer geeks. White collar vs. blue collar.

Pickup truck vs. sedan. Gas-guzzling but macho vs. small but efficient.

The Big Three have spent the last few years making oodles of money off of pickup trucks and big cars. I think the reason for this may be found in the ranks of their employees. GM, Ford and Chrysler have something like a million retirees. They have several hundred thousand current employees. Their dealers and parts suppliers employ another several hundred thousand. Throw in their retirees, and you easily have at least another million. Most of those employees and retirees have families, spouses, wives, kids, parents, brothers, sisters, etc.

Almost all of those people get a discount when they buy a new American car.

Then there are people who have other reasons to buy American cars, like politicians. If you are an elected official in Michigan, and you want to keep your job, you drive an American car.

I'm guesstimating here, but let's say that there are somewhere between 6 and 7 million people in this country with a direct economic interest in buying an American car. At least two million employees and retirees of the Big Three, their dealers and suppliers. Each of those has an average of two family members who buy a car. That's another four million, for six million. Then another million miscellaneous. 6 to 7 million. Most of them with some kind of discount. Let's say each one buys a new car every three years (Big Three executives used to be famous for getting a new car every year). That's two million cars a year going to this customer base. Until recently, cars were sellling at an annual rate of about 16 million a year in the US. If the Big Three were selling half of that, they were selling 8 million cars a year. 2 million of those would be a quarter. So a quarter of the Big Three's cars were being sold to people with a direct economic interest in buying American cars. People, in other words, who were already sold on them, and needed very little convincing.

Talk about insular. Most of those cars were being sold to blue collar workers, or retired blue collar workers. In other words, old white guys with little education beyond high school. How many black lesbians with advanced degrees do you think there are among the Big Three retirees? Not a whole lot.

Sound familiar? Big Three employees, retirees, and, effectively, customers, were and are the same constituency as the Republican party. It is no coincidence that the GOP and the Big Three are collapsing at the same time. It is, on the other hand, intensely ironic that Obama is the instrument of destruction of the one, and yet the savior of the other. Irony is 9/10th of the law.

Brawn vs. brains. The GOP and the Big Three represent brawn. Muscles. It is also no coincidence that Dick Cheney has emerged as the face of the Republican party these days, after being so invisible during the Bush administration. It is also no accident that Bush, his father, and Cheney were all in the oil business. They represent the "brute force" school of capitalism (although maybe "school" in the wrong word). Men (and it's almost always men) make money by the application of brute force - drilling for oil, mining, making steel, or, as (I think) Alfred Sloan put it, "bending metal and thereby adding value to it."

It is no coincidence that Cheney is the most forceful advocate of torture, the ultimate application of brute force to try to get something done, and that he is spending so much time attacking Obama. Obama represents brains. Obama represents the triumph of the intellectual, the egghead, the geek. But at this moment in history, he also represents a repudiation of the "brute force school," essentially because he has already begun to expose the flaws of that approach to life.

GM has failed in part because its employees believed their own hype, that there was something special about American cars. There are special American cars, sure - the Corvette, the Mustang, the Jeep. Those are arguably the three most iconic American cars ever - each has been made for decades. And each is a very macho car.

My family history is deeply intertwined with that of Detroit and the automotive industry. One of my great-grandfathers was the construction foreman on Henry Ford's mansion. My paternal grandfather started out life as a coal miner, moved up to the assembly line at Ford, went to trade school at Ford, and became an engineer. He only finished eighth grade, but all four of his kids went to college, and three of them have Master's degrees. I was going to be the first one in the family to earn a Ph.d.

My grandfather worked hard on the assembly line. But he also worked hard to make sure that that was exactly the kind of job that I would never have to have. I disagreed with my grandfather on just about every topic in politics, but I am forever grateful to him.

The old white guys whose world is disappearing are scared and angry because they don't understand this new world, and they don't feel like they have a place in it. What many of them don't appreciate, and what the rest of us should be grateful for, is their role in creating it.

Brains has triumphed over brawn because that is what brawn has been working towards. Not just in America, but all over the world, and not just in the last few years, but forever.

History always marches on, but sometimes it tramples. Conservatives celebrate capitalism because it holds people accountable. But they don't like the process of being held accountable any more than the rest of us.