I have been watching Intrade's betting system for the 2012 election. Betting systems - although illegal in the U.S. - have proven to be more accurate than polling.

The following chart suggests his reelection is not based on unemployment rates. It is very correlated to the stock market. And there seems to be a bias of a few points in favor of Obama. This is likely due to the "closet Obama" vote I have posted about before. Namely polling is off by 3 to 5% because there are people that are going to vote for Obama but don't want to tell anyone else.

Feel free to play the Intrade vs. S&P 500 game yourself. There are two things to watch over the next six months - The S&P 500 Average and whether the "closet Obama" bias remains or is squeezed.

If the image does not load, please click on the hyperlink.

I have posted repeatedly that the creation of the Euro was dumb. I have also posted why saving the Euro is dumb. The following is a simple narrative why saving the Euro is not only dumb, but threatens Europe's sovereign governments the longer the charade goes on - 

Europe's crisis to date is a series of supposedly "decisive" turning points that each turned out to be just another step down a steep hill. Greece's upcoming election on June 17 is another such moment. While the so-called "pro-bailout" forces may prevail in terms of parliamentary seats, some form of new currency will soon flood the streets of Athens. It is already nearly impossible to save Greek membership in the euro area: depositors flee banks, taxpayers delay tax payments, and companies postpone paying their suppliers -- either because they can't pay or because they expect soon to be able to pay in cheap drachma.

Some European politicians are now telling us that an orderly exit for Greece is feasible under current conditions, and Greece will be the only nation that leaves. They are wrong. Greece's exit is simply another step in a chain of events that leads towards a chaotic dissolution of the euro zone.

When Greece quits the euro, its government will default on approximately 121 billion euros of debt to official creditors, and about 27 billion euros owed to the IMF.

More importantly, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro zone). This includes 110 billion euros provided automatically to Greece through the Target2 payments system -- which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.

Between Target2 and direct bond purchases alone, the euro system claims on troubled periphery countries are now approximately 1.1 trillion euros. This amounts to over 200 percent of the (broadly defined) capital of the euro system. No responsible bank would claim these sums are minor risks to its capital or to taxpayers.  

Once it dawns on people that the ECB already has a large amount of credit risk on its books, it seems very unlikely that the ECB would start providing limitless funds to all other governments that face pressure from the bond market.  

A disorderly break-up of the euro area will be far more damaging to global financial markets than the crisis of 2008. In fall 2008 the decision was whether or how governments should provide a back-stop to big banks and the creditors to those banks. Now some European governments face insolvency themselves. The European economy accounts for almost 1/3 of world GDP. Total euro sovereign debt outstanding comprises about $11 trillion, of which at least $4 trillion must be regarded as a near term risk for restructuring.

For the last three years Europe's politicians have promised to "do whatever it takes" to save the euro. It is now clear that this promise is beyond their capacity to keep -- because it requires steps that are unacceptable to their electorates. No one knows for sure how long they can delay the complete collapse of the euro, perhaps months or even several more years, but they are moving steadily to an ugly end.

It is time for European and IMF officials, with support from the U.S. and others, to work on how to dismantle the euro area. While no dissolution will be truly orderly, there are means to reduce the chaos. 

In other words, the Euro must be dismantled sooner than later.

Don't confuse two differrent parts of the Catholic Church.

There is the light side: its members, charities, and volunteers that work with the sick and the dying. And there are its national network of schools that essentially subsidize public education. 

But there is and always has been a dark side. It starts in Rome and extends itself to its territories.

The light side comes from faith. The dark side comes from politics.

The Church since Constantine has recognized that the light side could be used as an instrument of power and wealth.

Most people don't remember that for most of the Church's history - even after the Roman Empire fell - there was always a Pope and an Emperor. When the Pope in Rome was ever in trouble he would request help from powerful European Emperor's. Charles the Great and Otto come to mind. Both came to the Pope's aid and were crowned Holy Roman Emperors. With that came wealth and power. With that came the ability to unite all of Europe. It was not until Vatican I that the modern papacy stood on its own.

But that political, power and wealth mentality in Rome has survived to this day. It still uses bishops across the world to use faith as a means to collect it.

The news this week of the arrest of the Pope's butler for leaking secrets on the Vatican bank is hardly a new revelation.

People forget that John Paul I was a pope for only a month. During that month he started to look into the dealings of the Vatican Bank. Within a month he just happened to have died. However he died is subject to speculation. But the investigations of the Vatican Bank ending at the same time are not subject to speculation.

The Vatican has publically been committed to "opening" up its bank and being accepted by the world's banking system. But it is obvious that the layers of secrecy - even if there is the right intention - have to be pulled back methodically like some onion that has been centuries in the making.

Those onion layers root's in the soil come from the history of the dark side: politics, wealth and power.

Until the Vatican is transparant - don't confuse Catholicism with the Vatican and the hierarchy of bishops around the world.

Nail that to the Church's door.

Romney is starting on a course for the general election.

With Congress digging in their heels on reducing spending and lowering the deficits. With Obama digging in his heels on lower taxes for the middle class. Romney this week has shown he is opening up a third battle front.

First some perspective. According to the non-partisan Congressional Budget Committee; federal spending increases under Obama have been the lowest since Eisenhower. After adjusting for inflation, federal spending has actually decreased from 2009 to 2012.

Romney's strategy is based on two positions - massive tax breaks beyond Obama's plans or even the Bush Tax cuts - and not lowering spending.

As to the latter, the following is what Romney had to say about federal spending -

If you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%.  That is by definition throwing us into recession or depression.  So I’m not going to do that, of course. 

As to the former, the following is what Forbes (not exactly Obama friendly) had to say about Romney's tax plans - 

What Romney is proposing is a credible economic stimulus package. It takes into consideration lessons learned for the Great Depression in 1936/37: when you try to balance the budget, when times are bad, it results in disaster. 

Believe it or not, but FDR - using conventional wisdom of the times - raised taxes and lowered spending in 1936/37, due to fears of an increasing deficit.

Romney's attack is certainly bold. It has the advantage of being popular to independent swing voters. It also has the disadvantage of causing a revolt within the Tea Party and Congress.

But I think this strategy maybe a game changer. Most states are either Red or Blue. Even if the Tea Party riots over his plans - increasing the deficit to pay for economic stimulation - Red states are still going to go his way.

What Romney has done this week is a brilliant plan to appeal to Blue leaning states.

By reminding the GOP Congress and the Tea Party he is the alternative to Obama; he is telling them, who the boss is now. By not going nuclear on spending cuts and promising to lower taxes he is going to appeal to a lot of independent pragmatic voters.

Governor Romney. Nicely played. Despite my feelings of apathy for your candidacy; you have moved me into the "undecided" column.

Why does democracy succeed in some countries and not others? Why does Muslim Turkey have a thriving democracy and countries like Egypt don't. Why does Poland have a thriving democracy and Russia doesn't?

Well the lessons come from the 18th century Enlightenment period. 

There are three forces in societies: government, family and a thriving civil society. Democracy does not succeed without a thriving civil society.

What is a civil society? 

The literature on relations between civil society and democratic political society have their roots in early liberal writings like those of Alexis de Tocqueville.

Civil societies identify the role of political culture in a democratic order as vital. The term civil society was coined to describe the activities of private businesses, an independent force that existed between the government and the family. Middle East countries like Egypt and Eastern European countries like Russia have strong families and strong governments, but everything in between is underdeveloped.

Underdeveloped civil societies are stunted by long histories of qausi-capitalism that can only thrive by government cronyism. Underdeveloped civil societies are also stunted by long histories of a lack of separation of Church and State.

Ironically the latter - seperation of Church and State - was first codified in America. That is why Alexis de Tocqueville's formidable writings came from visiting the U.S. in the early 19th century. These same writings influenced later European revolutions such as the French revolution.

These lessons help the reader, by providing a lens to predict, which revolutions will lead to democracy and which will not.

They are ironic because the very birth of seperation of Church and State in America is now under attack. They are also ironic because the U.S. economy is becoming more and more dependent on crony capitalism with tighter links between commerce and the federal government.

Where does democracy not succeed? In countries like Egypt and Russian. And unfortunately increasingly in America.

Kentucky and Arkansas Protest Vote Obama

Skipped it. These two states lead the nation in pet insurance. I could be wrong; but I also believe they mistakenly let their slave insurance lapse.

Pakistan Sentences Doctor Who Helped Find Bin Laden

Skipped it. Do you know what's the capital penalty for crimes in Pakistan? Being made to live in Pakistan.

Prominent U.S. Attorney In Chicago Stepping Down

Skipped it. The case load for corrupt Chicago politicians is just too damn long. We need new blood to keep up with it.

Romney Promises Unemployment To Be Reduced To 6% By End Of His First Term

Skipped it. It was 4% before. Now it is 6%. Check out net new jobs added under Obama. At the current rate, unemployment is sinking 0.1% per month. A two percent drop in unemployment? 20 months from Obama and 48 months for Romney? President Romney will be in good company. His Tea Party friends can't add either.

Colin Powell Trashes Romney's Neo-Con Advisers

Skipped it. Tragically we are simply running out of geography for neo-cons to attack. Although I have to admit that the neo-cons DO have an employment plan. It is just happens to be high risk/low reward jobs.

Romney's Speech To Hispanic Leaders Ignores Big Issue

Skipped it. By the way, do you know what Romney's biggest issue with Hispanics is? Hispanics.

Colin Powell: I Have No Problem With Gay Marriage

Skipped it. But that's it Colin! You need to turn your Republican card in right away. Its one thing to be against more wars. But supporting gay rights? The GOP has a name for that. Be discreet. And if you get caught; get your butt to the nearest vodoo doctor who specializes in removing the devil from your soul.

BP Agrees to a $400 million Settlement In Government Suit

Skipped it. But it does beg the question - where in the hell is BP supposed to come up with that kind of dough?

There is a funny moment in Ghostbusters. Upon seeing a ghost in a library, Bill Murrey asks Dan Ackroyd "to think up a plan". Dan Ackroyd shouts "lets get em". They are left in a pile of green goo. Murrey mocks Ackroyd by saying "that was your whole plan - 'get em"?"

I was curious yesterday about Mitt Romney's plan. I hadn't heard it. So I looked it up on his site - 

Mitt Romney will rebuild the foundations of the American economy on the principles of free enterprise, hard work, and innovation. His plan seeks to reduce taxes, spending, regulation, and government programs. It seeks to increase trade, energy production, human capital, and labor flexibility. It relinquishes power to the states instead of claiming to have the solution to every problem.

Any American living through this economic crisis will immediately recognize the severity of the break that Mitt Romney proposes from our current course. He is calling for a fundamental change in Washington’s view of how economic growth and prosperity are achieved, how jobs are created, and how government can support these endeavors. It is at once a deeply conservative return to policies that have served our nation well and a highly ambitious departure from the policies of our current leadership. In short, it is a plan to get America back to work.

That's not an economic plan. That's a pledge using run on sentences.

Seriously. If I were being interviewed for a CEO job  - and was asked what my plan would be -  do you think I could answer it with some generalized motherhood and apple pie pledge?

If I were interviewing Mitt Romney I would want to clarify his remarks - 

• Mr. Romney, exactly how as President are you personally going to make people work harder and be better innovators?
• Mr Romney, most economists would say that cutting government spending during a lackluster recovery is the wrong medicine. But if you cut spending, where will you cut it?  Most of the spending is on Defense, Medicare and interest on the debt. But seriously Mr. Romney, eliminating the Labor, Housing and Education departments (or what I like to call the Rick Perry Mentally Challenged Troika)? That won't make a dent in lowering spending.
• Mr Romney, cutting taxes is the right medicine during a lackluster recovery. Are you prepared to explain to the American public that we have to run deficits for awhile to get out of this economic hole we have dug? 
• Mr. Romney, do you really believe you can cut spending and return the power over to the states? You do know that states are heavily subsidized by the Federal Government. Cut federal spending and you cut the amount of money the states have to work with.
• Mr. Romney, speaking of returning power back to the states, are you aware the 21st century "war" is an economic war being fought by marshaling whole countries? While I applaud your nostalgic notion of state's power, do you really think the U.S. would be more competitive if 50 states individually battled other national economies? Can I safely assume, you are basically advocating a weak European-like "Union Light" with 50 "countries" on their own.
• Mr Romney, you are right. Americans are living through an economic mess. But are you espousing the same policies of the Bush 43 administration? Did you prosper within those eight years? You and I did. But most of the other 300 million or so citizens would have a different answer.
• Finally, Mr. Romney you are saying you can get America back to work. Exactly how can a president make that happen. 

Interview ends.

Interview notes - Impressive presence. Nice thick hair. Ambitious. Low on specifics. Not particularly likable. But I would hire him in a second; yet for one thing. His shtick and leadership skills are more apropos for the 1950s; not 2012.

Behavioral economics is the counterpoint to Adam Smith's "invisible hand" of rational economic thought.

Classical economics use mathematical models for predicting micro-economic decisions such as price, supply and demand. Classical economics on a macro-economic level predicts that the price of a stock at any given time is rational; that it is the entire sum of all rational investors knowledge of the stock.

Behavioral economics would take many pages to explain. But in a nutshell, behavioral economics says that buyers and investors are more influenced by anecdotes and filters to simplify complexities.

A classic economist would say - all things being equal - the lowest cost shampoo will always be picked over a higher priced shampoo. A behavioral economist would say that with enough advertising; a buyer can be influenced to choose the higher priced brand.

Which brings me to Facebook, their IPO and Americans.

Americans are uniquely behavioral in four ways and it comes from our perceived exceptionalism. The first, is even though we make irrational decisions, we cling to them being rational. The second is American investors are too optimistic no matter the odds. The third is Wall Street loves American irrational investment; it makes it easy to manipulate. And finally as a corollary, Americans are a trusting people and they want to believe Wall Street is telling them the truth, when in most cases they aren't.

Now I will put my rational economic hat back on.

If it can be said that banks are "too big to fail" because they have trillions in hard assets, hundreds of billions in assets and huge leverage with the Fed and Treasury.

Than Facebook is "too big to succeed". 

The cash value is now in the pockets of the insiders who are cashing out with the IPO. The real “value” is in the minds of a billion friends, which is still a collective illusion that must be kept alive with future cash.

If Facebook is valued at $100 billion, its valuation would be 33 times its advertising revenue, compared with 5.5 times for Google. To sustain its value, Facebook would need to grow its revenues by 41% percent per year for the next five years. That is very hard to do for any company, especially one of Facebook’s size.

Bottom line:

1. Facebook's IPO was mispriced.

2. Wall Street Investment bankers and insiders won

3. Irrational behavioral investors were the dumb money.

4. Facebook will continue to drop in value

5. Facebook will eventually be a worthless company.

Facebook Stock Plummets Below IPO Price

Skipped it. See previous Facebook and IPO posts below. Number one rule in valuing a business - what is the ease OR barrier to entry? If this is still confusing; just go and ask MySpace. Or better yet, download one of the many do-it-yourself social networking software that is on the market. They all do the same things as Facebook. The future is in micro-social networking. The future is never going to be one site. All of my children and their friends have stopped using Facebook. Why? TMI. Too much information.

Hawaii Responds To Arizona Secretary of State's Birther Request.

Skipped it. By the picture I assume he only wants to see the short form.

Obama Doubles Down On Bain

Skipped it. I assume he was holding two aces, he split them and doubled down on a blackjack dealer named Bain.

Krugman: Romney's JPM Stance "Completely Clueless"

Skipped it. Krugman is an economist. Romney is a businessman. Why would Romney not defend a business plan where deposits don't cost any money, they are insured by the federal government and can be used to make bets on someone else's dime? 

Tea Party Rep Quite As Constituent Calls Obama A Nazi Socialist Communist

Skipped it. First of all, Nazism and Communism are oxymoron's. Nazi's joined free-market political forces to quell a communist takeover. Communism was viewed by many Germans as a panacea to combat hyperinflation and economic depression. Second, Tea Party constituents must read the memo again - "Obama Is A Radical Socialist Muslim". Now say it one hundred times until you get it right. We can't beat Obama unless we are singing from the same hymn book. Lets get our sh*t straight for God's sake. And we're not talking Allah.

Three Dead On Mount Everest

Skipped it. Do you know why some people die climbing Mount Everest? Because it is Mount Everest.

Palin Robocalls Wrong State

Skipped it. She must have just said "its that state that begins with an 'A' I think". Robocallers. Just a bunch of gotcha questions.

The running of the Triple Crown, is one of my favorite times of the year.

As a child, I thought any year could produce a Triple Crown winner. Secretariat in 1973. Seattle Slew in 1977 and Affirmed in 1978. 

I always thought I was weird, because Triple Crown finishes - the Kentucky Derby, Preakness and Belmont - always made me emotional. That was until I heard a great story about many people, including the great Jack Nicklaus, watched Secretariat win the Triple Crown, and wept.

Men and women. People who never betted. Even stone-cold gamblers have said Triple Crown races - especially Secretariat and the Triple Crown - meant more than money.

http://www.youtube.com/watch?v=k-KvaeuIIsw

I have heard many theories why these races invoke emotion. None has satisfied me. Why should a two-minute horse race make people emotional?

So much goes into Triple Crown horse racing. The breeding. The training. The ownership. The choice of races. And the choice of jockeys. 

But I think, as a parent, I find that the horses that race are really surrogate children. I know I was not emotional in the 1970s. I don't even remember horse racing in the 1980s and 1990s. But I do remember the disappointments of Triple Crowns this century; a special time when I had all my four children living with me and my wife. We both watched and weaped for over a decade.

Taking a step back; we have really been in engaging in a reality show. A child/horse is born. A child/horse is mentored. A child/horse is picked by their "parents" to be outside mentored. A child/horse finally has to be tested in the real world. 

I think that is why people like my wife, myself and others get emotional during Triple Crown races. Everything comes down to a test. You put everything you have prepared behind you. Then there is a time to let go. The child/horse either is up to the test or is not. As to the former; I can't think of anything that is more emotional to a parent.

Three potential child/horses seemed perfect during this century. 

We lived and died with Funny Cide. We fell tragically in love with Smarty Jones. Both seemed worthy inheritors of the Triple Crown; only to to lose at the Belmont. 

Then there is Barbaro. The best horse we had seen since Secretariat. Barbaro had it all. Not only talent but a great personality. I think a lot of us lived and died following Barbaro's recovery. No other horse was like him. We all wanted to see him as the next Seabiscult. It would not happen.

Then there was physically - one of the most impressive horses - we have ever seen. Big Brown. If there was every a horse to be the next Triple Crown winner; he looked like the one. It was also not to be.

When "I'll Have Another" won the Kentucky Derby I didn't see a horse with impressive physical skills; but I thought he had a big heart. At the Preakness, I thought he could not beat Bodemeister because the track was shorter than Kentucky. Bodemestier was not caught until the last seconds of the Kentucky Derby. With a shorter track - the experts, bettors and myself - thought it would be Bodemeister's race to win.

But "I'll Have Another" beat him by a nose. Again the horse showed a great heart that belays his physical form.

I am writing this post - to let everyone know - I am going to be setting myself up to be disappointed at the Belmont Stakes. A lot of Kentucky Derby favorites were purposely rested during the Preakness; and should be more fresh than "I'll Have Another" at the Belmont's mile and a half race.

I have been looking for a Triple Crown winner for a long time. I have been searching though a lens that has been biased by a horse's looks and personality. 

"I'll Have Another" does not pass the "horse look" test. Instead of beng deep brown and muscular; he is spotted, heazalnut and looks more like a stable horse. There is no personality story. There is not a perticularly emotion arc for this horse.

But perhaps we have all been looking for the wrong horse. In a horse racing field - that is more competitive due to breeding - perhaps we have missed the real story.

"I'll Have Another" has something diffirent than other horses. Something the odds makers have missed. Something we have all missed. He seems to want it. His jockey seems to want it.

IHA. I am willing to risk my dissappointment to put my heart and soul into you. I don't have to see you win. Like my children you have matured and have be well trained.  You have passed your entrance exam into both H.S. and College. That is good enough for me. But if you can get into an exclusive graduate school - one that has not accepted a child in thirty four years - you will be immortal.

And it will be not because you were physically special; it will becuase of your heart and will to win. Just as any parent would be proud to say.