Friday, May 29, 2015

More Bricks

I have seen the writing on the wall
Don't think I need anything at all
--Pink Floyd

Bricks continue to be added to the wall of the economic downturn thesis. Most ominous perhaps is that the Q1 GDP number has been revised negative (-0,7%):

Commercial activity continues to slow, as evidence by this morning's Chicago PMI:

Various consumer confidence series are also turning lower:

Markets, of course, might actually like this, as it implies that the Fed won't be tightening anytime soon--despite the fact that central bank money printing policies are not sustaining the economy.

position in SPX

Thursday, May 28, 2015

Roadside Stand

"Crazy is on the bus."
--Danny Roman (The Negotiator)

Sums it up nicely.

Interesting thing is that most devout statists refuse to admit that it is interventionary policy that is leaving Everyman on the side of the road.

position in SPX

Wednesday, May 27, 2015

Propped Up

There's a room where the light won't find you
Holding hands while the walls come tumbling down
When they do
I'll be right behind you
--Tears for Fears

I continue to believe stock markets worldwide are being bought by central banks in order to keep prices high. We know some central banks (i.e., Swiss, China, Hong Kong, Japan) are doing so either directly or thru 'sovereign wealth funds.' But others, including the Fed, are surely involved as well.

It is my sense that central bankers view stock prices as a vital input for consumer (and voter) confidence. As worldwide economic engines sputter despite massive monetary and fiscal stimulus, these bureaucrats believe that if they lose stock prices here, they lose complete control of the system.

And you know what, they may be right.

position in SPX

Tuesday, May 26, 2015

Broken Cars

There is no sense in pretending
Your eyes give you away
Something inside you is feeling like I do
We said all there is to say
--Tom Petty

Even if one is using the thickest crayon rather than a pencil, it's hard not to conclude after today's action that the Trannies have officially broken down. The Transportation Index is now south of 8600ish support by about 200 pts.

While it remains to be seen what this means for the general tape, hard not to view this as bearish.

position in SPX

Cable Concentration

Chip Douglas: Hi. Is there a problem with your service?
Steven Kovacs: Yeah, my cable went out.
Chip Douglas: Really? So you call me? Ha. Funny how you call when you NEED something. Is that how you treat people?
--The Cable Guy

This morning Charter Communications Inc announced that it will buy Time Warner Inc for about $55 billion in cash and stock. As ZeroHedge observes, one interesting thing about this deal is that Charter is less than half the size of Time Warner.

How can Charter afford to buy such a behemoth? Cheap money and leverage. When credit it ultra cheap, then the little guys can borrow more to buy the big guys. The problem is that higher leverage for the little guys increases risk and reduces margin for error. Small hiccups can bring the entire deal down.

This is also a nice demonstration how cheap money leads to increased industry concentration. The bigger get bigger and the small entrepreneurs get crowded out.

Monday, May 25, 2015

Inward War

In violent times
You shouldn't have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears

I have seen several studies recently claiming that the world is in the midst of an unprecedented war-free period. At first, these claims drew double takes from me. However, if one defines war as formal military conflict between two or more countries then these claims may be true, as we haven't had large scale 'outward wars' in some time.

Of course, there have been hundreds of conflicts that look like war that might not qualify under the above definition. Drug wars in Central and South America, East European conflicts, the War on Terror, etc. The social and economic impact of these 'non-wars' has been huge. For example, the US alone has spent more than $1 trillion on the War on Terror. Imagine applying that pile of economic resources toward voluntary, peaceful concerns.

More significant yet has been the 'inward wars' being waged by governments worldwide against their own citizens. The core competence of government is force--force that can be employed in either offensive or defensive manners. Overwhelmingly, governments are using offensive force. They are acting aggressively against citizens.

Because they are usually not called such, government programs of aggression sometimes fool people into thinking governments are keeping peace rather than waging war. Taxes, for example, are viewed by some as just means of acquiring resources for various interests rather than as confiscation of resources by strong armed agents. However, taxes constitute violent acts against the citizenry--as our founding ancestors ably recognized.

Expansion of the money supply by central banks is also seen as peaceful. However, when money is printed it lowers the value of money already in people's wallets. Those who get control of newly minted cash first effectively confiscate resources from others. Because the gradual theft of resources can be difficult to recognize, inflation is sometimes called the 'invisible tax.'

Sovereign debt is perhaps the most egregious indicator of today's inward war. Governments borrow on promises that it enslave citizens in order to obtain resources to make creditors whole. Sovereign debt levels have never been this high in history. And they are growing thanks to QE..

While outward wars may infrequent at the moment, intensity of inward wars has never been greater.

Sunday, May 24, 2015

Twenty Years

Nothing's so cold
As closing the heart when all we need
Is to free the soul
Be we wouldn't be that brave I know
--Toad the Wet Sprocket

Two decades ago I left a life to pursue a dream. After tendering my resignation at work, I spent two difficult weeks saying goodbyes to so many good friends and packing things up. Then, on this day 20 yrs ago I set sail for home.

I'd be lying if I said it wasn't scary. After all, I was walking away from a successful executive career in a large company that was (at the time) supremely stable. The opportunity cost of future income streams foregone was difficult to swallow. Layer on top of that a comfortable lifestyle and community that had adopted me with open arms and it was no wonder that I was emotionally spent on the day I left.

But it was the best decision I have ever made.

I'm living the dream daily. Often I'm guilty of taking for granted just how blessed I have been. Today I'm very grateful for the spark that moved me twenty years ago.

Saturday, May 23, 2015

War To End War

All the burning bridges that have fallen after me
All the lonely feelings and the burning memories
Everyone I left behind each time I closed the door
Burning bridges lost forevermore
--Mike Curb Congregation

World War I was labeled 'The War To End All Wars.' The label is attributed to British author and social commentator H.G. Wells who suggested that defeating the Central Powers via military conflict would bring permanent end to war.

The mindset lingered in American thought after the Treaty of Versailles was signed. Experiencing the bloody consequences and ugly social aftermath of WWI, many Americans no longer had taste for war--particularly war fought on foreign soil. Never again will the United States become entangled in conflicts involving other nations, many vowed.

1921 $1 Peace PCGS MS66 CAC

To signify the notion, a new silver dollar design, a 'peace dollar,' was developed. The coins was first struck in 1921. The Peace Dollar is the only circulation coin minted in US history inscribed with the word 'Peace.'

1935-S $1 Peace PCGS MS66 CAC ex Jack Lee

Of course, we now know that the peaceful mindset didn't last. The Peace Dollar itself fell out of favor and was discontinued after 1935--appropriate enough as the world was gearing up for a new global conflict that would put the War To End All Wars to shame.

We haven't learned it yet. War begets war, not peace.

Friday, May 22, 2015

How Much Cash?

I'm out of money, out of hope
It looks like self-destruction
How much more can we take
Of all of this corruption?
--Molly Hatchet

How much cash to hold continues to be a difficult decision for me. In unhampered markets cash is backed by hard assets and therefore a reliable proxy for production. More cash means more economic resources set aside and saved. Those savings can be applied toward future consumption or for investment projects. Although it resembles just a piece of paper, cash in unhampered markets becomes a store of value.

In hampered markets cash is not backed by hard assets. Instead, it is printed by fiat. In this situation cash is an unreliable proxy for production because the quantity of economic resources that can be bought with cash declines as more cash is printed by fiat (a.k.a. inflation). Under fiat money conditions, people are prone to save less because they are hesitant to hold cash that will buy less resources over time. Because cash no longer stores value, people will be prone to consume income rather than to save it, and/or convert cash into other assets (e.g., gold) thought to hold their value and be better proxies for saved production.

Right now I would like to be a significant saver of cash. However, the world of financial repression that we live in has me concerned that saving cash today is an increasingly losing proposition for tomorrow. My cash savings could be indirectly confiscated through inflation as greater supply of fiat currency renders each dollar that I save worth less in terms of economic resources that can be purchased. Indirect confiscation by process of gradual monetary devaluation is why inflation is sometimes called the 'invisible tax.'

I am also increasingly concerned about the prospects of direct confiscation of cash. The situation in Cyprus two years ago showed us that governments might enact capital controls that impair ability to withdraw cash during times of crisis. Worse yet, there is the possibility that physical cash could be banned in favor of purely electronic transactions. That could give desperate governments even more confiscatory control. Cyprus also demonstrated that governments could simply dip into cash deposits and take some. For example, government might expropriate, say, 20% of cash balances to help fund bailout programs in times of 'national crisis.'

The present economic environment, defined by extreme monetary and fiscal policies alongside record leverage, makes me increasingly wary of holding cash. Risk associated with holding cash, as I see it, is extremely high. As such, my cash balances are currently lower than they have been in some time.

position in gold

Thursday, May 21, 2015

Ninth Amendment

Abigail Chase: People really don't talk that way, you know.
Benjamin Franklin Gates: I know. But they think that way.
--National Treasure

During his recent filibuster, one of Rand Paul's points was respect for the Ninth Amendment, which reads:

"The enumeration in the Constitution, of certain rights, shall not be construed to to deny or disparage others retained by the people."

The Ninth Amendment was authored by James Madison, who worried that people would assume that rights not listed in the Bill of Rights would assigned to the federal government. Adding the Ninth Amendment told all that rights not enumerated in the Constitution belong to the people.

While constitutional powers of the federal governments are "few and limited," said Paul yesterday, "it's the opposite of your rights. Your rights are many and infinite."

While that fact pervaded thoughts of our founding ancestors, it has been sorely missing in rhetoric in Washington. How refreshing to have someone bring it to the floor.

Let's hope that it stays and grows among the people.