Thursday, September 29, 2016

Why We Get Deplorable Candidates

"What difference does it make if a few political extremists lose their rights? What difference does it make if a few racial minorities lose their rights? It is only a passing phase. It is only a stage we are going through. It will be discarded sooner or later. Hitler himself will be discarded--sooner or later. The country is in danger. We will march out of the shadows. We will go foward. FORWARD is the great password."
--Ernst Janning (Judgment at Nuremberg)

Jacob Hornberger reminds us that having nothing but 'deplorable' candidates run for top political office is no accident in a democratic state where authoritarianism is on the rise. The people (voters) create a system that values deplorables in office.

JH cites the work of Hayek, who discussed this phenomenon in his seminal The Road to Serfdom. In the book, Chapter 10 was entitled 'Why The Worst Get On Top.' Hayek refutes the argument that there can be a 'good' totalitarian regime with a benevolent dictator. Moreover, people who think that they are just one good leader away from filling a totalitarian seat in a benevolent manner are delusional.

Because authoritarian regimes require, by definition, force to enact, they attract people who are willing to employ aggression to accomplish state, and by extension personal, objectives. Those with high moral and ethical standards naturally find such conditions repulsive.

As Hayek observes:

"Yet while there is little that is likely to induce men who are good by our standards to aspire to leading positions in the totalitarian machine, and much to deter them, there will be special opportunities for the ruthless and unscrupulous. There will be jobs to be done about the badness of which taken by themselves nobody has any doubt, but which have to be done in the service of some higher end, and which have to be executed with the same expertness and efficiency as others. And as there will be need for actions which are bad in themselves, and which all those still influenced by traditional morals will be reluctant to perform, the readiness to do bad things becomes a path to promotion and power. [emphasis mine] The positions in a totalitarian society in which it is necessary to practice cruelty and intimidation, deliberate deception and spying, are numerous."

Per Hayek, "the readiness to do bad things" as a "path to promotion and power" aptly describes the primary job qualification that we have institutionalized for senior political positions.

Wednesday, September 28, 2016

Filling Gaps

"Now what?"
--John Finnegan (Deep Rising)

In technical analysis, it is said that all gaps are meant to be filled. Nice example here with...Gap (GPS).


Three gaps (2 down, 1 up) in last six months. recent price action filled the gap up in early July.

Now what?

no positions

Tuesday, September 27, 2016

Global Container Volume

It was thirty days around the horn
The captain says it's thirty five more
The moon looks mean
The crew ain't stayin'
There's gonna be some blood
Is what they're all sayin'
--Jay Ferguson

Global container volume is down, as are associated shipping rates. The benchmark price is shipment of a 20 ft container from Shanghai to Northern Europe. 


Since July, rates have fallen from $1200 to below $800. YOY % change in global container volume is near zero. 

Another data point pointing to slower global growth. Also suggests problem ahead for leveraged shippers and their financiers.

Derivative Deja Vu

"Well, you can be wrong a million times. You only gotta be right once."
--Doug Carlin (Deja Vu)

On the back of yesterday's DB post, ponder this graphic:


Discussions about derivatives may soon become popular once again.

Monday, September 26, 2016

DB and the Lehman Analog

"The mother of all evil is speculation--leveraged debt."
--Gordon Gekko (Wall Street: Money Never Sleeps)

Deutsche Bank (DB) is in the spotlight as shares hit 20 yr lows on the back of concerns about adequate capital.


DB has been the target of US probes into the 2008 credit collapse Moreover, it has seen money-making opportunities decline as interest rates have declined.

Equity is shrinking, but market cap still stands at ~$15 billion which, given DB's leverage, suggests to me that it can still fall a long way.

The Lehman analog still seems appropriate, particularly given that it was 8 yrs ago this month that LEH disappeared.

Plausible Reasons for Trump's Popularity

Alice Russell: As someone sooner or later is bound to say, "Politics makes strange bedfellows."
William Russell: I was hoping it wouldn't be you.
--The Best Man

A popular progressive narrative is that Donald Trump is where he is in the polls primarily because of a 'white riot.' White supremecist racists who do not want to lose their positions of social dominance are banding together and elevating Trump into competitive position in the polls.

Although there may be a group of Trump supporters that fit this demographic, is this the primary reason for Trump's surge? Let's list, as is done here, some plausible rival hypotheses for Trump's popularity:
  • Trump is self-funding his campaign and thus is less subject to manipulation by buyers of political influence.
  • Trump possesses business acumen which many Americans admire. They also suspect it could helpful in the Oval Office.
  • Instead of carefully following a script developed by a group of political handlers, Trump often shoots from the hip. Many people find this refreshing and human.
  • Many Americans see the economy as weakening and want an administration unaffiliated with the party that has governed during this period of economic malaise.
  • Many see Obamacare as deeply flawed and getting worse. Trump has stated that he will fix it, which is attractive to many people.
  • Many Americans are appalled by the degree of media bias in the coverage of the presidential candidates and are causing some to throw their support toward Trump as an expression of procedural justice.
  • Trump is a celebrity in a celebrity culture.
  • Trump's campaign rhetoric has become more inclusive which is attracting a broader group of supporters.
  • People are concerned about safety and are drawn to the candidate with an aggressive position on national security.
To be intellectually honest, those who claim that Trump's success is driven by a group of racists need ask what else could it be? They then need to reasonably refute those plausible rival hypotheses.

By doing so, of course, they risk upsetting the narrative. As such, they are likely to avoid honestly pursuing the truth.

Sunday, September 25, 2016

Harvard and Yale Endowments

"Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep. And sheep get slaughtered."
--Gordon Gekko (Wall Street)

Because fiscal years for university endowments often end in the summer (consistent with the academic calendar), year end results are just now making their way to the news. Two of the largest endowments are Harvard ($35.7 billion) and Yale ($25.4 billion).

This year, Yale reported a 3.4% annual gain vs Harvard's -2% performance. This marks the sixth straight year that Yale has outperformed Harvard. It also marks Harvard's worst annual performance since 2009. Both schools outperformed the average school endowment which reported a -2.7% net return.

Although both schools were among the first to add alternative investments to their portfolios, they manage their funds in different ways. Yale, managed by veteran David Swensen, outsources most individual investment decisions to dozens of investment managers. This is similar to individual investors who invest in plethoras of mutual funds. Those individuals put their faith in the investment prowess of the money managers in charge of those mutual funds.

Harvard, on the other hand, has relied on the 'old fashioned' approach of managing some of its assets in-house. It is also searching for a new chief executive for the endowment.

Also interesting was Yale's forecast parameters for 2017 asset allocations. Private equity and venture capital will might comprise up to 53.5% of the portfolio. Domestic stocks won't be higher than 4%, and cash and bonds won't exceed 7.5%.

It appears that David Swensen's well known 'equity bias' is still manifest in Yale's asset allocation.

Saturday, September 24, 2016

Easy to Create, Hard to Stop

Oh, a storm is threatening
My very life today
If I don't get some shelter
Oh yeah, I'm gonna fade away
--The Rolling Stones

Great point made by Fleck last nite. Monetary policymakers currently base their actions on the belief that inflation is hard to create and easy to stop.

This is a false belief, as Fleck observes. Properly defined, inflation is easy to create and hard to stop. Witness the gargantuan growth in global money supply under the tenure of central bankers.

When inflation spills over into the prices of goods and services in a big way, the toothpaste is out of the tube. Witness Weimar, Zimbabwe, et al.

People continue to ignore the insane nature of policies currently being put forth by central bankers. These bankers seem determined to ignite a cataclysm that cannot be stopped.

Friday, September 23, 2016

Staging News

"This is really wonderful. If we go along with you and lie our asses off, the world of truth and ideals is, er, protected. But if we don't want to take part in some giant rip-off of yours then somehow or other we're managing to ruin the country. You're pretty good, Jim. I'll give you that."
--Charles Brubaker (Capricorn One)

One thing that is becoming increasingly clear is that events reported as 'news' are often staged. Recent race riots in Ferguson, Baltimore, and now Charlotte are good cases in point. Evidence suggests that much of the rioting and damage is being done by paid protesters who are being bused in from the outside.

Most staging largely goes unreported by the mainstream media. Indeed, their lack of due diligence supports the proposition that the mainstream media are complicit in creating the illusion.

Fortunately, people now have more choices from which they can select information sources that they can trust.

Find those trusted sources, lest you wind up viewing theater events rather than becoming informed.

Thursday, September 22, 2016

Euphemized Spending

You fell and cried as our people were starving
Now you know that we blame you
You tried to walk on the trail we were carving
Now you know that we framed you
--The Who

Politicians love to create euphemisms for spending. 'Investing' is the current favorite.


This is nothing new. For example, the American System platform advanced by the Whigs in the 1800s promoted the value of 'internal improvement' projects initiated by the federal government.

Such euphemisms fool only the most gullible. Or soothe the most partisan.