HILLARY OUT -- CAN THE MOST LIBERAL SENATOR WIN THE GENERAL?

So far, this has been a most remarkable election. Among the amazing stories is that the most conservative republican candidates split the vote of the republican base and thus nominated the most moderate of the republican contenders. On the democratic side, the most moderate of contenders split what little moderate vote there was a few ways and no moderate ever won significant support. The democratic contest quickly became a battle among the most liberal contenders. John Edwards bashed the corporate world to an extreme and the final contest was between Hillary and Obama. The US Senator who scores as having the most liberal voting record has all but won this nomination. Another way of looking at this contest is that the anti war vote trumped the big government universal health care vote. Hillary is still in the contest but unless she can win both Texas and Ohio by strong margins on March 4, she is toast.

STOCKS ARE UNDERVALUED

So far, 2008 has been a time of political and other "noise" getting in the way of market success. Stocks are cheap. A major part of the reason stocks have gotten so so cheap has been attitude. Investors have hunkered down. As a result, a mountain of cash has been deposited to short term money market accounts. After adjusting for taxes and inflation, his money is earning negative returns and much of it will flow back into stocks after they have soared in value. In this time of fear, the public has become more concerned for the return of their money than the return on their money. As a result, the US economy is be de-levered. The velocity of money has slowed faster than the FOMC has been able to pump up growth in the money base. Investors should remember that the more cash the FOMC deposits behind the dam, the bigger the ultimate flood will be.

STEADY PROGRESS

If the situation in Iraq was going the wrong way, it would be realistic to believe that the anti war fervor would carry Obama to victory in the fall. However, the situation in Iraq continues to improve. Obama has suggested that the war in Iraq has diverted resources from the war against the terrorist in Afghanistan. The reality is that tens of thousands of terrorist came to Iraq to fight and to lose their lives. All the while the leadership has been being picked off one by one. Today, tens of thousands of insurgents have come to the realization that they have been on the wrong side. Thousands have returned home and thousands more have melted back into the mainstream population of Iraq. This is a dangerous situation in the short run but it is nothing more than the repeat of history.

LOYALIST IN AMERICA

When America, in 1776, declared its independence from the oppressive government of Great Britain, approximately 30 to 40% of the population of the colonies remained loyal to the crown. WOW! 700,000 to 900,000 people were opposed to breaking away as an independent country. You may remember the pictures in your 4th grade history book of the Tories who were tarred and feathered for not joining the cause, but you should be wise enough to discern that these pictures have been used to make the point that there were divisions among the American people while glossing over the magnitude of that division. People were not just tarred and feathered. Many individuals were murdered. Land and property was seized. In more than one incidence, groups that tried to remain neutral, which included groups of Germans, Quakers and Indians, were forced to take up arms against militias. In one incidence, more than 100 Indians were slaughtered. One of the reasons the estimates vary from 30 to 40% is because many loyalist understood that they had to talk in terms of freedom from oppression at least until the British Troops came.

The problem for many of these loyalist was that they "showed their stripes" after the British captured their city only to receive retribution once the city was lost or abandoned. You see, the British did not send enough troops to hold the territories they had captured. Does this sound familiar?

The British tried to do a "troop surge". They hired German soldiers; they successfully recruited blacks by promising freedom; they successful recruited Indians by promising "ownership of native lands"; and, they organized loyalist militia. One trouble the British ran into was that some of the recruits turned out to be enjoying the pay while serving as spies for the Continental Army. Again, does this not sound familiar? Another problem the British had was the help given to the colonies by the French and the Spanish. Even India chipped in by seeking its own independence which diverted British troops to India, where French troops supported India. In the case of Iraq, the combination of the Pakistani on the one side and NATO on the other has kept terrorist in the mountains of Afghanistan busy.

Those who oppose the Iraq war are quick to suggest that America has no business being in the middle of another countries civil war. This attitude leaves out a lot of points, including the fact that the terrorist have been hijacking and blowing up American airplanes for better than 30 years, America is not in Iraq just to help Iraq, we are also there to "take out" one more pillar of support for terror. The escalation from holding passengers for ransom to flying planes into inhabited sky scrapers is a result of allowing the "class bully to get away with the little kids lunch money". The class bully grows up to be the hardened criminal if he is not confronted early and often. It gets tougher and tougher to turn the tide as the "class bullies from Yemen join the ones from Libya and the ones from Iran, Saudi Arabia, Afghanistan, Syria, Egypt, etc. A telling story is that Iran stopped one program to build a nuclear bomb immediately after the US invaded Iraq. Another point is that Americans can never fully repay the debt we owe to those who helped us win freedom. Furthermore, it is our responsibility as good citizens of the world to help others.

Again, we forget just how tough it was for us to break away from oppression. At the end of the revolutionary war, 70,000 Americans moved to British North America (Canada). Another 7,000 or so went back "home" to Britain. Seventeen thousand settled on Caribbean Islands. Thirty-two thousand moved to Nova Scotia. Countless others, who had remained loyal to Britain to the end decided to stay here. From 1783 to 1796, many of these folks suffered through legal and illegal persecution. Some were able to regain property but others lost their families or their lives. Even many who fought against the British were accused of being loyalist by those who had seized their property while they were off fighting. In 1795, 12 years after the end of the war, the Jay Treaty was passed to return legal right to confiscated property. The legal battles continued for years after the treaty was made law.

Last week, the Iraqi government passed a budget, set up local elections to be held in October and passed legislation to allow members of minorities to serve in the government. In contrast to the American experience, the progress has been swift. We should remember that once the British had success in recruiting black slaves to serve the British army in exchange for freedom, George Washington had similar success. Promises were made to slaves and Indians by both sides. At the end of the war, the promises to the blacks and to the Indians were generally broken. The point is not to bash America but to say that the Iraqi's are doing well despite making a few mistakes along the way.

Another "complaint" is that the Iraqi war is a religious war between the Sunnis and the Shiites. Where is the news here? During the American Revolutionary War, the religious splits were in every direction. Anglicans tended to include a higher than average percentage of loyalist, Quakers tended to have a higher percentage who sought to remain neutral. Several new arms of protestant denominations were formed as the offshoot of divided congregations.

During the war, the number of British seaman swelled to 171,000. Of these a high but unknown number were "pressed" into service. These means that young men were kidnapped by "commissioned recruiters" or they were sold into service by their parents. These parents knew or should have known about the "cat of nine tails" including metal flesh tearing barbs that were used on seaman. The parents of Sunnis who have sent children on suicide-homicide bombing missions committed a more humanitarian act than did the parents of these British citizens. Sometime between 1760 and 1770, John Newton, who had been sold into service by his father, a British Navy Commander, wrote Amazing Grace. Newton had felt the whip of nine tails and he had applied it to others. This wonderful song, a blessing to millions, was partly a response to the atrocities committed by those who will do what ever it takes to win. Newton sank pretty low before writing the song and coming back to England to serve as a minister. His sinking low was the process of working his way up from a conscripted deck hand to the Captain of a slave ship. He was one of many who knew they were committing great sin while doing what was expected.

Another interesting side story to this tale is in regard to Canada. Just prior to the Declaration of Independence, Quebec was invited to join as the 14th colony and there was considerable support among the people. To seal the deal, Benedict Arnold lead the continental army into battle against British forces. Had Arnold prevailed at the Battle of Vanour Island, Quebec would be one of the United States of America.

OBAMA'S MILITARY PLAN

Obama plans to withdraw from Iraq within 16 months, no matter what. Many Americans , who think believe this war was a mistake, understand that pulling out unilaterally would embolden those who would blow up innocents. The great "silent majority" of Islam believe terror is wrong. Attitudes are gradually moving our way. The bullies need to be confronted. Surely the majority of Americans will reject Obama's plan.

Rejecting Obama's military plan will also be a rejection of his economic plan. The irony about his economic plan is that the actions he would take to "help the little guy" would serve to hurt the "little guy" in the long run. As we should have learned from our experience in the 1970's, when we dramatically increase the cost to do business and use the power of government to misallocate resources, we end up with a poorer nation.

DR. PHIL TO THE RESCUE

Phil Gramm has been speaking on behalf of McCain in regard to economic policies. Phil has his doctorate in economics and he clearly understands the truths discovered by Milton Friedman and George Stigler. These truths include the concept of limited government being best. John McCain has expressed his understanding that given the opportunity legislators will always be inclined to build brides to the most remote parts of their home states as long as they can use "other peoples money". The truth is that the money wasted on these "bridges to nowhere" pales in comparison to the sum of all the small amounts spent other ways.

RESPONSE TO EDUCATION REFORM

A number of readers responded to my post about the need for education reform. Apparently the big misunderstanding about school choice is about who it helps the most; which is the "children left behind". The example of Florida tells the story well. A number of measures show that the students who received vouchers to attend other schools got a "better" education. Test scores improved a little, drop out rates declined a little, students were slightly more likely to attend college and both parents and students were generally glad they made the move. What is often forgotten is that the schools threatened by the loss of students and those schools that actually lost students changed their programs in significant ways. The test scores at these schools went up a little, teaching practices changed, drop out rates were lower and student and parent attitudes tended to improve.

Drew Cary has posted another good video at reason.tv. He tells the story of conversion of an LA school to a charter school. Around the country one can find example after example of school improvement when more choice is available. McCain correctly believes that allowing the student and the funding for the student to move to the school chosen by the student will generally result in better educations.

BOOM, BOOM, BOOM

The kind of reform to education mentioned above does not require new taxes. America all ready spends a lot of money on education. All we need is to allow the free market to allocate those resources to the best use.

HOPE is a word repeated time and again by Obama. For me, the nomination of the Senator with the most liberal voting record gives me HOPE that moderate, sensible policies will be adopted in the years ahead. The stock market will respond well.

The total sum of expenditures of a McCain government will be small relative to the expenditures of an Obama government. Of course, congress will attempt to push the expenditures of either government higher. There is no end to the idiocy of congress. John Dingell, Chairman of the Commerce Committee made my point last week when he said, "the president's idea for 'improving' the (medicare prescription drug) program is to stick the beneficiaries with more of the bill". Duh! Why shouldn't the beneficiaries of a new "collective buying program" be the ones to pay for it.

The bottom line is that McCain will real in the "spend, spend, spend" congress, save the tax payers a lot of money and increase the asset value of American companies.

BUY, BUY, BUY

It is believed that Air France-KLM will buy shares in the new DAL-NWA airline. It is also believed that Lufthansa will buy shares in the new CAL-UAUA airline. Lufthansa and UAUA are members of the Star Alliance. The plan is that alliance partners will arrive and depart from the same terminals at major airports. For example, a massive renovation to London's Heathrow Airport will allow Star Alliance partners to share the same terminal. The benefits to passengers who arrive on Lufthansa planes and depart on CAL planes and vice versa are obvious. The airlines will save money while the passengers enjoy a better over all experience.

HAPPINESS IS A FUNCTION OF IMPROVEMENT

Studies show that once a basic level of comfort is achieved, wealth does not correlate to happiness. What does correlate to happiness is the increase of ones wealth. The funny thing is that we often fail to realize if there has been increased wealth or not. We are constantly being told that prices are going up. We might be tempted to retell the story that our parents paid $2,400 for a brand new deluxe car in 1956. In the telling, we forget that the car did not have air conditioning, anti skid brakes, rust protection, GPS, automatic transmission, automatic locks or cruise control.

Between now and the November elections, "times" will have improved. The public will be feeling better about themselves, the economy and the state of the world. Smart investors will buy now before the euphoria lifts the price of shares.