Tuesday, September 16, 2014

Divisiveness and the State

Tell me why, tell my why, tell me why
Why can't we live together?

Many Americans understand that instrusive foreign policy practiced by the United States invites feelings of resentment and pushback from people in foreign countries. They know that foreign countries are sovereign by right, and that the United States has no business meddling in the affairs of others.

Unfortunately, many of those same Americans fail to grasp that intrusive domestic policy invites similar feelings of diviseness among the citizenry at home. As Jefferson observed, all individuals have been endowed by the Creator with certain inalienable rights, and when the State aggresses on those rights then people will naturally resist.

Want to reduce divisiveness and encourage more peaceful cooperation? Then stop trying to 'force it' via government. Reduce size and scope of the State--both abroad and at home.

Monday, September 15, 2014

Healthcare Slaves

Walking on the streets
It's really all the same
Selling souls, rock-n-roll
Any other day
--Huey Lewis and The News

David Stockman shares an interesting chart that contrasts government vs out-of-pocket healthcare expenditures.

Since 1960, government healthcare spending has increased from about 15% to about 50% of total expenditures, while out-of-pocket spending has fallen from about 48% to 10%.

As Stockman correctly observes, healthcare markets no longer do what they do best--efficiently allocate scarce resources--when buyers no longer have out-of-pocket incentive to seek satisfaction at prices perceived as attractive. Lower quality, less innovation, less capacity, higher prices are predictable and inevitable under these circumstances.

What he doesn't note is the moral decline that accompanies the above trends. More government spending and less out-of-pocket spending on healthcare essentially means that more people are being forced to produce healthcare goods and services for others. The above chart suggests that nearly half of all healthcare output is produced under conditions of force.

More people are being enslaved as healthcare resource providers.

Sunday, September 14, 2014

Dollar Destruction

Now that ain't workin'
That's the way you do it
Lemme tell ya them guys ain't dumb
--Dire Straits

Nice graphic that provides a sense of how much purchasing power has been lost in the dollar over the years.

It should be noted that the USD was not destroyed right out of the gate. From the country's founding thru the early part of the 20th century, the purchasing power of the dollar held steady--with notably exceptions such as the Civil War.

What this means is that if the above graphic were done in 1900, then what the dollar could buy in 1900 was about the same as what the dollar could buy in 1800. There would be little if any difference.

It was not until the Federal Reserve took the reigns in 1913 that the dollar's decline began in earnest.

The gradual, covert nature of this loss in purchasing power is why inflation is often referred to as "the invisible tax."

Saturday, September 13, 2014

Warmonger in Chief

Guy de Lusignan: Give me a war.
Reynald de Chatillon: That is what I do.
--Kingdom of Heaven

David Stockman suggests that Barack Obama, the 'peace candidate of 2008,' is kowtowing to the influence of the warfare state with his recent comments aimed at the latest figment of terroristic fear presented before the American public: ISIS.

Perhaps. But another motive for beating wardrums could be that the president thinks he needs the ultimate distraction to divert attention from other issues, including a sputtering economy. He may even buy into the perverse logic employed by past presidents that war jump starts the domestic economy.

A deadly fallacy, quite literally.

Chance of war continues to increase.

Friday, September 12, 2014

Treasury Selloff

Drawn into the stream
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

Long dated Treasuries have been selling off over the past week or so. The action has been getting 'gappy.' Ten year yields are cutting thru the downtrend line defined by the New Years top.

The 200 day moving avg above at ~26.5 (2.65%) seems the next technical level of lore.

The most popular 'reason' for the weakness is fears of a more hawkish Fed in the face of growing economic strength.

Regardless, protracted govie weakness is a radar-worthy item. The policymaker playouse burns down if rates can no longer be suppressed.

no positions

Thursday, September 11, 2014


But keep in mind
That love's the clue
And keep in mind
That it's all for you
--Ric Ocasek

The central mystery of God is how life and freedom leap from death and bondage. Once again this day offers opportunity to reflect on this mystery. Solemn and sad for loss.

But grateful as well. Grateful for the awakening. For the open window.

And for the blessings involved with climbing thru it to pursue truth.

Wednesday, September 10, 2014

Buybacks and Market Tops

I don't about yourself or
What you want to be
When we gamble with our time
We choose our destiny
--Molly Hatchet

Interesting analysis on share buybacks in John Hussman's always insightful weekly letter. The analysis stems from his argument that the only folks who will be able to safely exit markets at these prices are those investors whose shares are removed via share buybacks. Remaining shareholders will be subject to the escalating musical chairs Ponzi.

Currently, share buybacks are approaching an annual rate of 4% of stock market capitalization which is near the upper bound of historical buyback data. Those not taken out by buybacks face the Greater Fool.

Hussman notes that heaviest share buyback activity is typically associated with market peaks--just like emotionally-led share buying intensity in general. To fund these corporate buying frenzies, however, managers need to borrow--since corporate cash flows are insufficient to cover other activities such as capital expenditures and dividend payouts in addition to share repurchases.

In other words, corporations are going on margin to buy stocks at their highs. As Dr J observes: "the history of corporate buybacks is a chronicle of corporations buying stock at market tops, and retreating from buybacks at the very points that stocks are most reasonably valued."

Where does current corporate buyback behavior suggest we are in this cycle?

position in SPX

Tuesday, September 9, 2014

Less Savings, Less Entry

So I went to the bank to see what they could do
They said, sir, bad luck's got a hold on you
--Simply Red

This missive proposes that secular decline in new firm entries is due in large part to declining savings. These pages have frequently put forth similar arguments.

As savings decline, less production is set aside to fund productivity improvement projects. Capital is consumed, and there is less available for entrepreneurs seeking to build businesses.

Most monetary and fiscal policies today encourage capital consumption, allowing the big to get bigger and raising barriers to entrepreneurial entry.

Monday, September 8, 2014

QE World

To me
You're like a grown addiction
That I can't deny

Here is a graph of major central bank balance sheet assets:

Central bank assets have more than doubled since late 2008, rising from $4 trillion to over $10 trillion. It should be noted that the Fed alone is responsible for nearly $4 trillion of that increase.

As noted previously, the effect on stock markets has been straightforward.

This relationship explains why stock markets rally on bad economic news. They sense additional easy money fix.

position in SPX

Sunday, September 7, 2014

Fall and Football

Roland Steele: Rudy, are you ready for this, champ?
Rudy: I've been ready for this my whole life.
Roland Steele: Then you take us out on the field.

Although the colleges began last Labor Day weekend, fall doesn't seem 'offical' until the this weekend with the arrival of the NFL. Only the barest hint of fall has been revealed--some early leaf turn and diminishing daylight. 

Indeed, during the first couple weeks of the football season, it is hard to imagine that the last few weeks of the season will be played in snow and cold. Because at kick-off, conditions are warm and the view downfield looks wide open.