Monday, February 27, 2017

Digging Gold

Well I don't really know her
I only know her name
But she crawls under your skin
You're never quite the same

Continue to dig the action in gold and silver. Many metal proxies quietly approaching their 200 day moving averages.

Let's see how they address this level of technical resistance.

position in gold, silver

Sunday, February 26, 2017

Vermont Model

Matt Farrell: What are we doing?
John McClane: It's a little thing they invented back in the Sixties call 'jogging.' You're gonna love it. Come on.
--Live Free or Die Hard

Mas Ayoob notes that New Hampshire, the 'Live Free or Die' state, recently enacted a law that allows law-abiding citizens to carry loaded, concealed handguns without a permit. This makes 12 states that permit individuals to carry with few restrictions. In addition to NH, those states include Maine, Vermont, West Virginia, Mississippi, Arkansas, Missouri, Kansas, Wyoming, Arizona, Idaho, and Alaska. Three more that allow carry with slightly more restriction are Oklahoma, New Mexico, and Montana.

Ayoob refers to permitless carry as the 'Vermont Model.' Vermont has the longest standing tradition among the states of not requiring a permit to carry a concealed gun. It has restricted carry only to certain people including convicted felons and those adjudicated as mentally incompetent.

Vermont consistently ranks among the lowest violent crime rate states in the union.

Saturday, February 25, 2017

Caterers On the Run

Fred Flintstone: Now listen, you, I got two big parties to book and I can always take my business elsewhere.
Caterer: Well, you can try. But I'm the only caterer in town. That's why I'm such a wise guy.
--The Flintstones

Of the many life lessons conveyed by the Flintstones, a memorable one comes in Season 5 Episode 4 when Fred books two parties, an adult one with dancing girls for his Water Buffalo lodge and a clown and favors for his daughter Pebbles' birthday party.

The caterer who takes the business is arrogant and clumsily mixes up the orders, sending the birthday party clown to the lodge and the dancing girls to Pebbles' party. When confronted with his mistake, the caterer is unapologetic. After all, he says, he's the only caterer in town.

The lesson: no competition promotes low productivity and lack of responsiveness to customer needs. It also fosters holier-than-thou hubris in those who believe they hold monopolistic positions.

For many years mainstream media outlets enjoyed a similar monopolistic position. Outlets were relatively few, particularly with the advent of radio/television and decline of traditional newspapers.

At the same time, ideologies of journalists were becoming more homogenous, leaving interpretation of events increasingly susceptible to slanted reporting, whether intentional or not. The nature of 'news' being what it is, it is difficult for consumers of news to assess the accuracy of reporting because they are not there to witness the event themselves. Journalists in such a situation become less accountable and are likely to exploit their only-caterer-in-town' position.

In competitive markets, the problem of slant should vanish over time because entrepreneurs will recognize opportunity to provide more accurate reporting for information consumers (assuming, of course, that unbiased information is actually desired). Fox News and talk radio, while certainly not unbiased in the content they provide, exemplify entrepreneurial responses to provide consumers with alternative perspectives on events compared to the entrenched media establishment.

However, it has not been until the advent of social media, and, most recently, the recent election cycle, that the media caterers have really started to lose their grip on the news markets. Thousands of alternative venues (many of which mainstream media sought to recently label as 'fake news'--an smear op that has completely blown up in the establishment's face) convey alternative perspectives of events. Slant, such as that revealed during the recent presidential campaign coverage, becomes much more apparent to information consumers.

Couple that with an entrepreneurial president who comfortably takes his message directly to the people (thus reducing effect of journalistic distortion) and has no problem calling out journalists for what he believes to be inaccurate or unfair coverage, and you have caterers on the run everywhere.

Friday, February 24, 2017

Tire Tariffs and Jobs

You could have a big dipper
Going up and down around the bends
You could have a bumper car, bumping
This amusement never ends
--Peter Gabriel

President Trump's loud protectionist rhetoric may be crowding out memory about interventionary trade policies of his predecessors. The fact is that no president in the past 100+ years has operated in the White House as a totally free trader (Coolidge was probably closest to the ideal). All had protectionist policies, sometimes huge ones, en force.

Going back further to the Party of Lincoln and beyond, protectionism has been a central political plank nearly since the country's founding.

Prof Williams takes us back to the early days of the Obama Administration's initiative to protect jobs in the domestic tire industry. Beginning in 2009, the administration oversaw the imposition and enforcement of various tariffs and taxes on tire imports, particularly those from China. When it couldn't realize adequate relief via the WTO, China retaliated with trade sanctions of its own.

In his 2012 State of the Union speech, Obama boasted that his administration's policies were responsible for saving over 1,000 tire industry jobs. However, this situation is a classic case of that which is seen and that which is not seen.

A subsequent study sought to evaluate the total cost of the tire industry protection program. The researchers concluded that tire trade restrictions forced Americans to pay about $1.1 billion more for tires. Moreover, each of those tire industry jobs, with average salary of about $40k/yr, would up costing about $900,000 per job saved. That's an ROI that only a bureaucrat would love.

Protectionism is always and everywhere a failed strategy. What people often see in support of protectionism are highlights of the few jobs saved. What they don't see are higher resulting product costs and the many jobs in other industries eliminated as a result.

Thursday, February 23, 2017

Hedge Funds Misrepresented

Amanda Jones: So, do you always bring an extra girl when you go out?
Keith Nelson: I like to cover my bets.
Amanda Jones: That's very cute. I'll have to remember that.
--Some Kind of Wonderful

WSJ article today touts a $1 million bet that Warren Buffett made 10 yrs ago that index funds would outperform hedge funds over a decade long period. The article suggests that, unless markets crash this year, then Buffett will win the bet.

But it is precisely during those periods of market turbulence that hedge funds outperform. The primary purpose of hedge funds, classically defined, is to 'hedge' bets with positions that move in opposite directions.

The article, which reads like an advertisement for Warren Buffett with graphics like the above, ignores the hedging purpose of hedge funds in what has transpired during the period of the bet.

Am pretty sure that the basket of hedge funds employed in the bet significantly outperformed Buffett's Vanguard S&P Index fund during the first two years of the bet. After all, this was the period during which the credit market collapse brought major stock indexes down by more than half.

Since then, however, markets have gone straight up with little correction, with many stock indexes more that quadrupling from their March 2009 lows. Major indexes currently rest at all time highs.

Basic market axiom: Long/short funds will generally under perform long-only funds in trending bull markets.

Yes, hedge fund fee structures are higher than passive index fund alternatives. But those fees have been declining due to competition. Moreover, the gains obtained from hedge funds during periods of market turbulence have far exceeded the fees.

We can be confident in this: If the last decade resulted in eight down stock market years and only two up (rather than the opposite), then Buffett would be the one getting ready to write the check.

Wednesday, February 22, 2017

Bubble Blindness

"And the beauty of the deal: no one is responsible. Because everyone is drinking the same Kool Aid."
--Gordon Gekko (Wall Street: Money Never Sleeps)

Q: When do people broadly recognize financial market bubbles? A: Afterwards.

As demonstrated here, warning signs continue to flash. Unfortunately, they make no nevermind to people as long as prices march higher.

When it all comes crashing down, it is then that people will 'see' the bubble.

Tuesday, February 21, 2017

Liberating Tolerance

"That's right. Brantley is Whitfield. Whitfield is Brantley."
--Brantley Foster (Secret of My Success)

In the 1960s, cultural Marxist Herbert Marcuse developed the concept of 'liberating tolerance.' Drawing from Freudian theories of psychological oppression, Marcuse posited that many 'correct' ideas are repressed by dominant coalitions that would not benefit if those ideas became widely known. In order to get the 'truth' out there, those dominant coalitions and their associated institutions must be overthrown.

Marcuse proposed that one way to do this is thru 'liberating tolerance.' Liberating tolerance means tolerating all ideas coming from the 'correct' sources while tolerating no ideas coming from sources deemed 'incorrect.'

Let's be clear. Tolerance does not mean accepting something as right or truthful. It means being able to live with something that one doesn't like. For example, I may find someone who espouses cultural Maxist ideals as distasteful, but, if I am tolerant, then I do not seek to forcibly remove that person from my environment. I can try to explain or persuade why that person's ideas or approach may be wrong or misguided, but I cannot seek to forcibly suppress the person's views. If I did so, then I would be intolerant.

The notion of 'liberating tolerance' is clearly oxymoronish in nature.

Then again, attempts to turn the meaning of words upside down is another trademark of socialist movements.

Monday, February 20, 2017

Credit, No Credit

Welcome to your life
There's no turning back
Even while you sleep
We will find you
--Tears for Fears

Ironic statement coming from someone who advocated a monetary system steeped in credit money and backstopped by central banks.

btw, the Federal Reserve Act was signed into law one year later.

position in gold

Sunday, February 19, 2017

America First

You mention the time we were together
So long ago 
Well, I don't remember
All I know is that it makes me feel good now
--The Motels

Some people have treated Donald Trump's statements about focusing political energies internally (e.g., his campaign slogan "Make America Great Again") as something new and dangerous.

They are nothing new, as demonstrated by the picture below borrowed from renowned Coolidge expert Amity Shlaes' Twitter feed. I suspect that such 'America First' platforms were common and in fact largely implied before the progressive era when the globalism mindset first gained widespread traction.

They are also not inherently dangerous. Putting America first does not necessarily imply some nationalistic, xenophobic fervor as progressives often suggest. Instead, it means prioritizing scarce political resources internally toward issues affecting everyday Americans.

Putting America first does not necessarily mean isolationism either. In order to advance standard of living, America (nor any other country for that matter) cannot be independent and self-sufficient. Instead, as Trade Theory 101 tells us, America should specialize its production and engage in robust trade with other nations.

Paradoxically, one of the best policies for putting America first is to let its citizens trade freely (no trade agreements necessary) with people from other countries.

Saturday, February 18, 2017

Causes of Political Division

I though the pain and truth 
Were things that really mattered
But you can't stay here
With every single hope you had shattered
--Big Country

These pages have discussed many factors that lead to political division over time. One is socialism. The more property is taken out of the hands of individuals and put in the hands of the state, then the more divisiveness is likely to grow between those who have property and those who want to appropriate it by force.

Exacerbating the problem is another factor, democracy. When control of the strong arm of government is captured by majority vote, then various factions will band together, likely into two opposing groups over time per Duverger's Law, to become the first past the post. The larger the stakes, the more the two opposing groups will seek to win the election and destroy the each other.

Another factor that Lew Rockwell reminds us about is state size in terms of population. Axiomatic to the human condition is diversity and variation. People have different preferences, including preferences related to politics. It stands to reason that as the size of a country grows, then it will be less likely that there will be agreement in terms of how the country should be governed.

A straightforward solution to the size problem is secession. Break up the big country into smaller ones so that people can associate according to their political preferences.

One group that may be catching on here is the left. Although they have long claimed that secession was a racist or treasonous initiative, leftists, because of the current state of political affairs, now seem to be grasping the merits of a break up.

Here's hoping that debates on the merits of breaking big into small escalate.