Or at least his financial advisers can.
Kiplinger’s, via MSN Money, are [reporting that Dick Cheney is betting that the economy is going to tank][cheney-invest]. When you take a look at the numbers: the deficit, the state of the dollar, the price of energy, stagnant wages, and the way that the economy is only being propped up by consumer spending, it’s hard to be optimistic about the economy. And apparently, despite what he says, Cheney’s not betting his own money on the success of he and George’s economic policies.
[cheney-invest]: http://articles.moneycentral.msn.com/Investing/Extra/CheneysBettingonBadNews.aspx
He’s put *at least* 10 million in a municipal bonds fund that will only do really well if interest rates keep rising; at least another mil in a money market fund that also depends on rising interest rates; and at least 2 million in “inflation protected” securities. Inflation protected securities are basically bonds and bond-like securities that pay a low interest rate, but that are structured to ensure that the principal grows with inflation. They’re really on only a good investment if you believe that inflation is on the rise and the dollar is going to sink.
Overall, our vice president has somewhere between 13 and 40 million dollars invested in things whose performance is based on interest rates and inflation rising, and the dollar tanking.
According to the same public disclosure documents from which this information was originally taken, his net worth is somewhere between 30 and 100 million. What that means is that it looks like the majority of his fluid money is solidly bet against the success of the policies of the government he is a part of.
Not pretty. But what did you really expect from a corrupt, power-hungry
asshole who considers the government to be a great big racket for rewarding
his buddies?
(See also [Attu sees All][attu]’s take on this.)
[attu]: http://attu.blogspot.com/2006/07/cheneys-betting-on-bad-news.html
Good Math/Bad Math
The beauty of math; the humor of stupidity.
Isn’t Cheney’s money managed by a blind trust during his term of service as VP? So, no matter how big an asshole he may be, I don’t think he gets much choice where his money goes, and it must be his trust fund mangager that is betting against America.
bilib:
Cheney (and in fact the current crop of Republican leadership in general) hasn’t shown a lot of concern for the rules about blind trusts. He kept various properties, including stock options from Halliburton, because it would have been “unfair” for him to divest of them for the price he could have gotten on taking office. (Of course, he sees it as perfectly fair for Halliburton to receive generous no-bid contracts from the government while he had the halliburton options whose value was affected by it…)
Given his attitudes about executive power and his prior financial dealings with the stock options, I absolutely do not believe that he has a true blind trust with no intervention on his part.
Divestiture of property need not be required in order to move the property into a trust. I don’t know if it’s a truly blind trust or not, but I guarantee that plenty of folks would be all over him if there was even a hint that Cheney was managing his finances day-to-day.
billib:
Moving property into a blind trust may not require divestment; but the case is question is a huge block of property which is specifically tied to a company that does government contracting.
I don’t say Cheney does day to day management of his blind trust. But that doesn’t mean that significant movements are made in the trusts’ investements without his knowledge/approval. And as for the “imagine the uproar” kind of thing: look at what happened to Bill Frist when he got caught doing day-to-day management of his blind trust.
Testing.
Man, this is such a ignorant distorted hatchet job. First, as others said the money is in a blind trust. Second a money market fund and a short-term tax-exempt bond fund hardly constitute an investment that “will only do really well if interest rates keep rising”. Ever think that with a flat yield curve where one is not getting paid to take duration risk the Trust’s manager might elect to invest in short term funds? If the value of the Chaney’s financial assets are $96 million, $2 million in a TIPS fund is hardly a bet that inflation is going to rise, rather it is simple diversification.
As I said before: in this administration, the idea of a hands-off blind trust is not one that I’d put a lot of faith in. We saw the reaction when the senate majority leader was caught doing *day to day management* of his supposedly “blind trust”; and we know that Cheney has *admitted* to violating the blind trust rules wrt his Halliburton options.
I also like how you take the *low* end of the estimates of his investments; and the *high* end of the estimate of his net worth.
How much of an average persons assets are liquid? Most of us have our money relatively locked up – in property, or in long-term investments that are off-bounds for some period of time. He’s putting somewhere between 15% and 60% of his net worth into investments that will have a very poor yield unless interest rates rise and the dollar falls. That’s a *huge* hunk of his liquid assets, gambled against the economy.
“He’s putting somewhere between 15% and 60% of his net worth into investments that will have a very poor yield unless interest rates rise and the dollar falls. That’s a *huge* hunk of his liquid assets, gambled against the economy.”
Every diversified portfolio has money in bonds and cash and most now have some small allocation to TIPS. This is what the Vanguard funds in question are. Is 15% to 60% in bonds and cash out of line for a 65 year old man? If the economy and the markets chug along like they have been, he will make 5% or so on this money. Last I checked, owning a money market fund or a bond fund is not “gambling against the economy”.
“How much of an average persons assets are liquid? Most of us have our money relatively locked up – in property, or in long-term investments that are off-bounds for some period of time. He’s putting somewhere between 15% and 60% of his net worth into investments that will have a very poor yield unless interest rates rise and the dollar falls. That’s a *huge* hunk of his liquid assets, gambled against the economy”
Is 15-60% in cash and bond funds excessive for a 65 year old man? These investments will return 5% or so if the current economic conditions do not change. Your statement that their will be “a very poor yield unless interest rates rise and the dollar falls” is not supported by the facts there. And since when is owning bond funds and money market funds “gambling against the economy”?
What, am I banned now?
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It is almost irrelevant who is managing the Cheney momey. If it is Cheney, this is bad. If it is not Cheney, then presumably it is someone Cheney thinks is very good with money, and that person-who-is-very-good-with money is betting against continued economic growth.
The concept that elderly people should have a lot in cash and in bond funds is based on the notion that such people cannot afford to take risks, lest a temporary downturn in the market leave them strapped for cash when they need it the most. That does not apply to Cheney. He could loose 90% of his money and still be rich.
Right. Only poor people shouldn’t lose 90% of their wealth; it’s right and proper for rich people to lose theirs.
If you’re a scientist, stick to science.
Who said anything about it being OK for him to lose his money?
The point is that we have a guy who’s involved in making the economic policy of our country, who vehemently defends those economic policies as being good for the country, who insists that those policies will not harm our economy. That person, who is going around telling us how much good the economy and economic policy is, has *his* *personal* *wealth* invested based on the assumption that his economic policies are going to do the opposite of he’s telling us.
There’s nothing wrong with the fact that he wants to invest his money safely. *Everyone* wants their own money to be safe. But Dick Cheney isn’t just another average person. He’s the vice president of the US. He’s directly involved in setting economic policy; part of his job is talking about the economic policies of the administration that he’s a part of, and why that policy is correct, and what its effect is going to be.
The point is that there’s a huge conflict of interest in the difference between his public and private actions. In public, he’s saying “the economy is great, deficit spending is not a problem, we’re going to see great economic growth”; in private, he’s betting his own personal wealth on the opposite: deficit spending harming the value of the dollar, increasing inflation, etc.
Rising real interest rates tend to be associated with a strong economy, not a weak one. Even if 4 or 5% of his money is in inflation-protected securities, I’m inclined to agree that this looks like a little bit of just-in-case diversification, not like a big bet on rising inflation. I’m not really sure I’d say that short-term and money-market investments “only do well if interest rates go up”, though they certainly do better that way. Finally, the clear majority of my own net worth is in liquid investments, and I would certainly think this would be true of most people who don’t own their own homes; it surprises me to see the assertion that a lot of people have a lot of their money locked up in illiquid assets other than their houses.
It seems easier to me to construct a story simply around the VP betting against the stock market (by not investing enough there); the “rising interest rate” bit confuses your story. And the case for this doesn’t seem overwhelming based on your data, though it is plausible.
Incidentally, the bulk of the economy is always consumer spending; I don’t know whether you simply mean us to infer arguments that consumer spending is likely to weaken, but the fact of the economy “only being propped up by consumer spending” does not per se worry me.
The bit about rising real interest rates is a red herring. In fact, the MSN link specifically mentions an increase in both interest rates and inflation. That combination (particularly when compared to increasing interest rates and decreasing inflation) is more likely an indication that real interest rates would remain flat.
And the numbers quoted in the article goes farther to suggest this is more than “just-in-case diversification.” The Cheney’s total net worth is estimated at $95 million. The article estimates that they have between $13 and $40 million in short-term cash. That’s something north of 13 to 40% of his net worth.
An argument could be made that the cash investment is a reasonable one for a man of his age who was nearing retirement. At that point of my life I expect to be moving out of buy and hold stock investments and into more liquid investments that will allow me to pay my bills while reducing the risk that I am forced to sell some undervalued investment.
Of course, that explanation loses credibility when you consider that his net worth is nearly $100 million. He simply doesn’t have the same liquidity needs as 99.99% of the American public.
Whoever is managing his investments is clearly taking a significant bet against stocks in the short term.
The other, and to my eyes more intersting, tidbit is that he has 9.5 to 24% of his net worth in foreign currency investments (96% of 10-25%). THAT is a heavy bet against the dollar.
Taken together these two indicate that whoever is managing Cheney’s assets believes that in the short to mid-term:
* interest rates and inflation will increase,
* US stocks will underperform, and
* The dollar will decline in relation to foreign currencies. (Further supported by the increase in US interest rates.)
All in all, its a rather bearish assessment of the US economy for the next several years and that is certainly at odds with the VP’s public statements.
Personally, I find it very unlikely that he is managing his own assets. Yet he is certainly managing his investment managers, knows what drives their investment decisions with his money and tacitly agrees with those decisions on a high level. That is, he is not aware of (and may not agree with) any individual investment, but he is certainly on the same page as his investment managers when it comes to something as basic as asset allocation.
“Right. Only poor people shouldn’t lose 90% of their wealth; it’s right and proper for rich people to lose theirs.
If you’re a scientist, stick to science.”
Posted by: Greifer
Incorrect; please review Finance 101 and try again. The point being made was that having 90% of one’s wealth in stock, for example, leaves one exposed to liquidity problems in the even of a market downturn. One might have to cash in stock at a time when stock prices are low.
However, with $50 million in assets, leaving 5% in cash-equivalent assets would leave Cheney with $2.5 in easily -tappable assets. That would, of course, be in addition to whatever pension/benefits he gets from Halliburton, his Senate pension/benefits, his civil service pension/benefits, and the ‘benefits’ that a person with his connections always seems to have.
Whether or not Cheney violated the rules on blind trust (is mentioning your personal expectations for the economy to your trustee a violation?), it is a reasonable bet that he chose a trustee who shares his economic perspective, and who will make investments on a similar basis to what he would make himself.
Three of these investments are in government paper of some sort. VWSTX has a current yield of about 3%, up from about 2% when the ten year bond yield was at its lowest. I don’t know what the current yield on VMSXX, but I’d guess it’s pretty low. VIPSX has a current yield of 8.3% or so, which doesn’t look too bad until you consider that during the last year (while interest rates have risen significantly) an investment in VIPSX has lost about .8%. Hardly a great hedge against rising interest rates, I’d say. A hedge against inflation, yes, but this investment only represents maybe 2% to 10% of the total.
These are not the sorts of investments that I’d expect to see being made by someone with inside knowledge and an expectation that the “economy is going to tank.” I don’t think I’d consider investments in government bonds as evidence of betting against the economy at all. Looks like extremely conservative (stodgy?) investments designed primarily to avoid controversy — after all, how can somebody be considered as a corrupt and greedy money-grubber when most investments are in low-yielding government paper?
As for the investment in the EURO bond fund, I don’t know what to make of it. Average yield over the last three years has been a little less than 6%, which, it seems to me, is not the sort of return that would justify much risk. Of course, whoever made this investment decision had to have a reason, but it’s really not evidence, as far as I can tell, of serious pessimism with respect to the U.S. economy.
Overall, I think the MSN story is a much better example of media misuse of math than it is an example of Cheney’s corruption.
“Given his attitudes about executive power and his prior financial dealings with the stock options, I absolutely do not believe that he has a true blind trust with no intervention on his part.”
I don’t really understand the argument here. Wouldn’t it be in Cheney’s interest to have a blind trust since he has no special expertise in investments? Are you trying to say that Cheney just enjoys breaking rules for the sake of breaking rules. It seems to me that a smart person would simply hire a very good trustee with an extremely good track record and leave him alone. Only an idiot would try to make his own investment decisions.