The Era of Hope, Change, and Immunity from Criticism

(Guardian image)

Why it's better for America's standing in the world that Barack Obama is President and not Mitt Romney:

America can bomb hospitals and no one cares.

(It happened on October 3rd.)

I Got It Almost Right

From November 8th, surveying the "superiority" of the big-data tools that the President used to demolish Governor Romney's campaign:

Holding the Presidency confers an enormous advantage. The incumbent party--whether Democrat or Republican--will have access to oceans of data not necessarily available to its opponent. It is nigh impossible to enforce privacy rules, especially since enforcement is done largely through self-policing.

The error was in thinking that the access to and misuse of big data applied to future campaigns.

Big Data Wins the Biggest Prize

When Rush Limbaugh made fun of the Obama campaign dinner at Sarah Jessica Parker's townhouse, I laughed right along. It was the apotheosis of the Hollywood love-in for President Obama, ripe for mockery. It turns out that the Democrats were playing chess while the Republicans thought the game was checkers (the way things turned out a cute dog might have helped). Key to the President's re-election was

a massive data effort that helped Obama raise $1 billion, remade the process of targeting TV ads and created detailed models of swing-state voters that could be used to increase the effectiveness of everything from phone calls and door knocks to direct mailings and social media.

The dinner with Sarah, and its West Coast counterpart dinner with George Clooney, were not affectations but part of a well-thought-out strategy [bold added]:

For the general public, there was no way to know that the idea for the Parker contest had come from a data-mining discovery about some supporters: affection for contests, small dinners and celebrity. But from the beginning, campaign manager Jim Messina had promised a totally different, metric-driven kind of campaign in which politics was the goal but political instincts might not be the means. “We are going to measure every single thing in this campaign,” he said after taking the job. He hired an analytics department five times as large as that of the 2008 operation, with an official “chief scientist” for the Chicago headquarters named Rayid Ghani, who in a previous life crunched huge data sets to, among other things, maximize the efficiency of supermarket sales promotions.

Michael Scherer's article in Time is a fascinating read. Comments:

1) The Republicans undoubtedly will create, if they haven't done so already, a similar big-data operation.

2) The first important step, which began shortly after 2008, was the 18-month-long project to create a "mega" file that unified the many disparate Democratic databases. This means that work on 2016 has already begun (sigh).

3) Holding the Presidency confers an enormous advantage. The incumbent party--whether Democrat or Republican--will have access to oceans of data not necessarily available to its opponent. It is nigh impossible to enforce privacy rules, especially since enforcement is done largely through self-policing. [Flashback: Big Data is the new Plastics.]

Forecasting is Uncertain, Especially About the Future

The Election
Monday night's debate was the least disputatious of the three debates between President Obama and Governor Romney. The consensus seems to be that the President won the debate but not enough to change the minds of Romney supporters.

For what it's worth, your humble observer thinks that Mr. Obama may still eke out a win, but the likelihood is that Mitt Romney will be the next President, and a good chance that he will win by a significant margin. There is no possibility that President Obama will get even 300 electoral votes (he won 365 in 2008, and 270 are needed to win).

iPad Mini
Tuesday's announcement of the iPad Mini initially triggered disappointment because of its high price relative to the competition:

The iPad Mini tablet, which starts at $329, is a cousin to the original iPad, whose screen is about a third larger. But Apple's smaller tablet is priced well above Amazon.com Inc.'s Kindle Fire HD and Google Inc.'s Nexus 7—two tablets which are similar in size and some specs. Those devices cost $199 or $249 depending on the amount of memory.

Apple also announced upgrades to existing products that were understandably overlooked in the hoopla over the Mini. Macintoshes (Mac-minis, iMacs, and MacBooks) and the regular iPad all have become faster under the hood without a price increase. Our household already has ordered a couple of the new Mac offerings.

As for the iPad Mini, critics would do well to remember how the iPhone 4S took off after an underwhelming reception. It could become the hot new gaming platform or be just the right size for the distaff set--the iPhone screen is too small for many applications, yet the regular iPad is too big to fit in a handbag. Besides, Apple still has room to drop the price later to push sales.

World Series
Please, not another post about the Giants, you say, but after tonight's game how can we not comment? The Giants were heavy underdogs in Game 1 to Detroit and its otherworldly pitcher Justin Verlander.

Three home runs in one World Series game by third baseman Pablo Sandoval---a feat matched by only three other players (Babe Ruth, Reggie Jackson, and Albert Pujols) in history---and a superb performance by supposedly washed-up pitcher Barry Zito added compelling drama to a game that an 8-3 final score would normally belie. Some over-the-top sports reporters are completely reversing their original predictions and calling the Series "over" because the Giants beat the Tigers' ace in one game.

Whoa, the ball takes funny bounces, political sentiments can shift overnight, and tech dross can turn into gold and vice versa. Forecasting is uncertain, especially about the future. © 2012 Stephen Yuen

Numbers The President Can Brag About

During President Obama's term all indices are much higher - Dow +68%, S&P +78%, NASDAQ +113%

The Republicans have been barraging the airwaves with numbers, e.g., $16 trillion national debt, $5 gasoline, and 8% unemployment, and it appears from the latest poll numbers that the Obama campaign is withering under the onslaught.

But there's one set of numbers that the President can brag about. The stock market has moved substantially higher during his term.

It's surprising that Democrats haven't publicized this more. Perhaps the omission is because of the mistaken belief that only fat cats in the top 1% care about equities (vilifying the 1% is part of the Democratic strategy). But the majority of American households now holds stock market assets through 401(k) plans, IRAs, and regular brokerage accounts and has benefited from the Obama market.

If, for example, a household had $100,000 in stocks and mutual funds when President Obama entered office, that amount now is likely to be worth at least $200,000, assuming reinvestment of dividends and no withdrawals. This appreciation would have gone a long way toward mitigating the effects of the recession and fall in home prices.

Under most measures we wouldn't want the next four years to look like the last four....unless we're talking about the stock market.

If President Obama would give us a plausible reason that the Dow Jones Industrial Average would be another 68% higher when he leaves office in 2016, many disillusioned investors-voters would give him another look. © 2012 Stephen Yuen

Let's Vote Already

I watched parts of the second Presidential debate, read the transcript, and listened to some of the post-debate spin by supporters of each who said their candidate won. Both men got their points across, and neither said anything that would hurt their candidacy.

I wish we could vote already--yes, we can cast an absentee ballot by mail, but going to the polling place is part of the American civic experience--since I find it hard to believe that there are many Americans who truly haven't made up their minds. Let's get on with it.

Further thoughts:

The instant-polls seem to be saying that President Obama won, but not overwhelmingly. That result is okay, I suspect, even to his detractors. As President he represents everyone, and another embarrassingly bad performance wouldn't help the national self-esteem.

Debating is a specialized skill that doesn't have much to do with good decision-making, the leadership of the armed forces, the selection of competent people (especially judges), or getting legislation passed. Neither, for that matter, is fund-raising.

Political junkies can recite the history of changes to Governor Romney's health care positions or to the Obama Administration's statements on Libya, but the rest of us, probably sensibly, don't choose to spend our lives that way. It's probably unfair that our votes count just as much as those who spend their lives studying issues, but that's the system we've got.

Two quotes from Winston Churchill:

The best argument against democracy is a five-minute conversation with the average voter.

It has been said that democracy is the worst form of government except all the others that have been tried.

America's First CFO

On Saturday morning Mitt Romney announced that Paul Ryan will be his running mate. Already there has been a lot of ink spilled about Paul Ryan's background, the personal compatibility of the two men, what his selection means for the race, the pros and cons of the "Ryan budget" and other policy positions. Whether or not they support him, everyone seems agreed that Paul Ryan is a serious individual.

Reflecting his business background, Mitt Romney seems to this observer to have picked Paul Ryan to serve as his Chief Financial Officer. He needed someone who was comfortable diving deeply into the numbers but who could also maintain the big-picture perspective necessary to craft 30-second soundbites that would explain economic strategy. The Executive Branch positions of Treasury Secretary and Office of Management and Budget, important as they are, are too limiting for what Paul Ryan will be asked to do.

He could have picked other running mates who would appeal to the diversity demographic or who might hail from larger swing states. His selection of Paul Ryan becomes more understandable if one thinks of Mitt Romney as a CEO who needed a CFO who knows the numbers better than anyone else. © 2012 Stephen Yuen

Using Your Time Wisely

Ever since I was a whippersnapper, authority figures have entreated us to "get involved" with politics. Involvement is not only good for democracy, they tell us, it's also our civic responsibility.  Political campaigns can be fun to follow: it's interesting to talk about the horserace,  the strategic maneuvers, the details of the candidates' biographies, the crazy relatives they're stuck with, and the candidates' errors of elocution. Follow politics for its entertainment value, but don't delude yourself into thinking that your vote matters.

This is not to say that there will not be a big difference if Mr. Obama or Mr. Romney is President.  Also, if Republicans or Democrats control Congress, there should be a big difference to our futures.

But I have already decided whom I will vote for in November; the expenditure of many millions of dollars, oceans of ink and plethoras of pixels is very unlikely to change my mind, and I suspect that is probably true for you, too, dear reader.  Think of all the time and money that will be spent over the next six months, all that for just ten minutes in the voting booth that for most of us may as well occur today.

The silver lining for us who live in California: the candidates will be here in person to raise funds but we won't have to listen to too many ads. In February Mr. Obama led Mr. Romney in the Field poll, 55 - 35%. The gap may close a little by November,  but Mr. Obama should win here handily.  Plan the use of what you pay attention to accordingly.

Capital Gains

The lower tax rate on long-term capital gains has entered the national conversation. Last year Warren Buffett called for higher taxes on the "mega-rich."

The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes.....The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 [with the most reported income] was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains.

Mitt Romney's tax returns showed that the bulk of his income is also derived from capital gains, and the argument raged anew. President Obama staked out his position in the State of the Union address:

Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett pays a lower tax rate than his secretary....But in return, we need to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes....Tax reform should follow the Buffett Rule. If you make more than $1 million a year, you should not pay less than 30 percent in taxes.

The taxation of capital gains raises issues of public policy (e.g., incentives for business investment, differential treatment of capital versus labor) and fairness (e.g., tax-rate progressivity, taxing the same income twice).

Clarity of the debate isn't helped by the inclusion of payroll taxes, which are a combination of tax, medical insurance, and savings plan, like an IRA or 401(k), for which one receives benefits later. There are even problems if we limit the discussion to the pure Federal income tax, where partisans either through ignorance or willful mischaracterization confuse marginal tax rates with effective rates. For example, in 2011 a family of four with no itemized deductions would pay Federal Taxes of $10,656 (14.5%) on Adjusted Gross Income of $100,000:

Adjusted Gross Income  $100,000
Standard Deduction      (11,600)
Exemptions  (4x$3,700)  (14,800)

Taxable Income          $73,600

Tax per Tax Tables      $10,656

The family's tax bracket is 25%--that is, the next dollar of income is taxed 25 cents--but its effective rate is 14.5%, which is lower than Mitt Romney and Warren Buffett's effective rate, excluding payroll taxes.

However this discussion plays out, one thing is certain: it's better for everyone, rich or poor, to have capital gains than not. My January 7th portfolio is performing extraordinarily well, thanks to Netflix. If these prices persist or even continue to rise during the next year, we'll have a nice long-term gain that we'll be happy to pay taxes on.

Mitt Romney's Taxes: Quick Take

Mitt and Ann Romney have released their tax return for 2010 and a detailed estimate of their 2011 taxes. Here's my 30-minute take on a 200-page document (obviously I might have missed a few items).

Their annual Adjusted Gross Income--approximately $20 million--puts them in the same league as top entertainers and athletes.

The Romneys donate over $3 million per year to charity, well above the Biblical standard of the tithe, and also pay a little over $3 million per year in Federal taxes.

More than half their income is derived from long-term capital gains. Long-term status inures to assets held over one year and is subject to a reduced tax rate, the source of recent political controversy. Whatever one's position on capital gains tax rates, there is much to admire in how the Romneys have arranged their financial affairs.

Because of the one-year-or-more holding period requirement, one may well conclude that the Romneys are not short-term traders and recipients of privileged information, unlike other politicians and their staffs. Furthermore, their investments have not been sure things: the gains in 2010 were partially offset by a $4 million capital-loss carryforward, which means that the Romneys suffered significant losses in previous years.

Nearly all of the gains are pass-throughs from family trusts, and more than half of those amounts are in "blind" trusts over which the beneficiaries have no control. The Romneys will therefore not profit directly from information Mitt may obtain or decisions he may make, except for changes in the tax law under a Romney administration.

In 2010 there was a so-called 83(b) election, which is generally used to afford capital gains treatment to investments in startup companies.

I like that the super-wealthy Romneys: 1) continue to make investments subject to real risk (no crony-capitalism guarantees against loss); 2) wall-off the bulk of their investments from a temptation to use political influence; 3) donate a sizable amount to charity.

I'll likely take a closer look if he becomes the Republican nominee.