Wednesday, July 23, 2014

Prices and Wages

We're talkin' 'bout the dollar bill
Now what are we all to do
When the money's got a hold on you?
--Simply Red

One way to assess severity of inflation is to compare prices to wages. If prices increase more than wages, then inflation is bound to be felt by wage earners.

Food prices, for example, have been increasing much more than wages. Even if the reported CPI seems low, wage growth has been even lower. That taxes purchasing power at the grocery store.

While government can fudge price data, it cannot fudge real production. Stagnant real production means stagnant wages. Stagnant wages in even a 'low inflation' environment means restrained purchasing capacity. Each item purchased costs relatively more in wages. Less purchasing power is a central condition of inflation.

Sooner or later people will get it, regardless of the fairy tales told by officials.

Tuesday, July 22, 2014

Major Blow to ACA

They make no mention
Of the beauty of decay
Blue, yellow, pink umbrella
Save it for a rainy day
--Tears For Fears

This morning the DC Circuit Court of Appeals ruled that the Affordable Care Act does not permit the federal government to issue insurance subsidies to enrollees in states that do not operate their own exchanges. The decision reverses a lower court ruling that the federal government did have such authority.

The ruling is grounded primarily in the ACA language itself, which in several instances limits subsidies and credits to any "Exchange established by the State." Thirty six states opted not to operate their own health insurance exchanges.

While it is destined to be appealed and likely headed for the Supreme Court, today's ruling vacates the IRS regulation allowing the federal exchange to give subsidies. More than 80% of enrollees on the federal exchange receive subsidies, and those subsidies cover over three quarters of the premium on average.

This is a major blow to Obamacare, perhaps a lethal one. Interestingly enough, it is a self-administered blow. The law is tripping over its own bureaucratic syntax.

Monday, July 21, 2014

AK-47 Sanctions

"Of all the weapons in the vast Soviet arsenal, none was more profitable than the Avtomat Kalashnikova model of 1947--more commonly known as the AK-47 or Kalashnikov. It's the world's most popular assault rifle. A weapon all fighters love. An elegantly simple nine pound amalgamation of forged steel and plywood. It doesn't break, jam, or overheat. It'll shoot whether it's covered in mud or filled with sand. It's so easy, even a child could use it--and they do. The Soviets put the gun on a coin. Mozambique put it on their flag. Since the end of the Cold War, the Kalashnikov has become the Russian people's greatest export. After that comes vodka, caviar, and suicidal novelists. One thing is for sure, no one was lining up to buy their cars."
--Yuri Orlov (Lord of War)

As part of a recent round of sanctions against Russia, the Obama Administration has banned US business contacts with Russian arms makers including those making AK-47s.

The AK-47 is the most popular assault rifle ever made. No one knows precisely how many have been made since volume production began in 1949, although the count is probably in the hundreds of millions.

The recent ban has sparked a run on AK-47s in the US. CNN's exclamation of 'surprise' is either disingenuous or naïve. Restrict supply below market and shortages will result. So will black markets.

Every time this administration restricts gun markets, the gun industry reaps a windfall.

Sunday, July 20, 2014

The Captain

I've been lost now days uncounted
And it's months since I've seen home
Can you hear me, can you hear me
Or am I all alone?
--Grand Funk Railroad

Newfound respect this week for Derek Jeter. The Captain is retiring after this season, closing a stellar 20 year career as shortstop for the New York Yankees.

Jeter's numbers speak for themselves. Over 3400 hits (9th all time), .311 career batting average, eight seasons with over 200 hits, 5 time Gold Glove winner, 14 time all star. In the field, he has played no where but SS.

One would think that, with these results, you're looking at a natural--someone with off-the-earth talent. However, Jeter's raw athletic ability is often middle-of-the-pack with others on the field. Not the quickest bat--I am constantly amazed at how many opposite field dink shots he hits. Nor does he possess the best speed or the best arm.

What Derek Jeter does possess is superior mindset. He notes that one of his greatest traits is confidence. In difficult situations, he thinks back to times when he was successful and pictures success in his mind. Minimize negatives. He also says that he's not big on reflection, preferring instead to focus on the moment.

He works hard, rarely taking time off in the off season. "There may be people with more talent than you, but there's no excuse for anyone to work harder than you do," he likes to say.

Off the field, he has kept his nose clean despite 20 yrs in the Big Applie media spotlight. He is active in the community, particularly thru his Turn 2 Foundation for kids.

Last week's All Star Game was consummate Jeter. Modest response to booming ovations. Diving stop off the bat of The Cutch on first play of the game. Leadoff double in first inning and scored the first AL run. Two for two (both to right field). Stayed on top step in dugout, where he did a long candid interview with the game announcers upstairs, after leaving the game.

Strange thing is that it is only now that I am coming to realize how special this person is. But certainly glad I did.

Catching up to millions of others this week, a tip of the cap to The Captain.

Saturday, July 19, 2014

Are We Better Decision Makers Today?

The pressure's on the screen
To sell you things that you don't need
It's too much information for me
--Duran Duran

The current environment offers more information than any previous period. Because decision-making is generally thought to be better when it is 'informed,' one would think that we are presently making the best decisions in the history of mankind.

Yet, it can be argued that decision-making quality has not improved in proportion to the increase in information. Some might even argue the opposite--that the general quality of decisions made today is worse than those of our predecessors.

What might explain such a phenomenon--that today's decisions are generally not improving at the rate of information increase? Here are a few propositions:

Information overload. The quantity of information available exceeds our cognitive capacity for processing it.

Not enough relevant information. Although more information is available today, it is mostly trivial and largely not useful for making the decisions we face.

Competitive negation. To the extent that decisions help us compete for resources, the gains possible from better information are competed away by rivals employing similar technology. This might be particularly true in organizational environments.

Misinformation. Channels convey misleading information that, when utilized, reduces decision-making quality.

False premise. The proposed relationship between information and decision-making is invalid. Rather than drawing on rich information pools for decisions, individuals prefer decision-making processes that employ little information.

Friday, July 18, 2014

Greater Good Accounting

"There will be a day when you will wish that you had done a little evil to do a greater good."
--Sybilla (Kingdom of Heaven)

Statists often use rationalize government programs using some variation of this mental accounting:

number of people helped by the program - number of people hurt by the program = net people helped

If the net is positive, then the program is judged to be a winner. If the net is negative, then the accounting rationale migrates toward the following:

gross number of people helped

If the gross is deemed > 0, then the program is deemed worthwhile. Never mind those who are hurt by the program.

Thursday, July 17, 2014

Less Copyright

"Now, do what I do. And say what I say."
--John Winger (Stripes)

Discussion suggests that we'd be better off with less copyright law. The popular 'wisdom' behind copyright law it to promote creativity and innovation. Yet, these laws clearly do the opposite.

Copyright laws grant monopolistic privileges that restrict use of ideas and limit expression.

The solution proposed by the discussants is to merely emphasize ordinary property and contract law. Such laws provide plenty of incentive to create and innovate.

It is ironic that many people who oppose monopolistic practices by Big Business have no problem with monopolistic privileges granted to them by copyright law.

Wednesday, July 16, 2014

Price Equity Ratios?

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

New Fed chair Janet Yellen opines that "price equity ratios and other measures are not outside of historical norms." Price equity ratios?

Zero Hedge relates this comment to one made by President Obama years back about attractive "profit and earning ratios."

As ZH concludes, government officials, Fed and otherwise, have no idea what they are talking about when it comes to economics and financial markets.

The real bubble is a bubble in public confidence in these institutions. The real question is how long before this bubble pops.

Blinded to Wealth Transfer

It's poetry in motion
She turned her tender eyes to me
As deep as any ocean
As sweet as any harmony
--Thomas Dolby

The folly of it all. Washington bickers over billion dollar spending bills while the Federal Reserve prints that much in a couple of days and gives it to the banks and other special interests.

A dollar is a claim on production. When the Fed prints those claims, those who get their hands on them first take production from others.

People continue to be blind to the largest wealth transfer in the history of the world.

Tuesday, July 15, 2014

Few Shorts

I don't know when to start or when to stop
My luck's like a button
I can't stop pushing it
--General Public

Toddo notes that he knows some people who are cautious here but few who are actually short. This is true at all tops. Some bears turn their hats around as prices march ever higher. Other cautious types can't stomach the pain of short positions moving against them.

What is important is how people are actually positioned, not what they say or feel.

And currently bulls are fully entrenched while bears exhibit no commitment.

position in SPX