Tuesday, June 30, 2015

National Concealed Carry

There's a battle ahead
Many battles are lost
But you'll never see the end of the road
While you're traveling with me
--Crowded House

Is a logical extension of last week's gay marriage ruling the reciprocal recognition of concealed carry permits across the states? Some commentators think so.

After all, states have taken upon themselves to issue licenses to legalize the carrying of a firearm under cover. Failure to recognize these licenses from one state to the next appears to violate the Equal Protection clause.

Unlike the gay marriage ruling, however, there is a legitimate Due Process argument here as well. Carrying firearms for personal protection is not a privilege granted by government, but a natural right, one deemed so noteworthy as to be enumerated in the Bill of Rights. If an Ohio resident with a concealed carry permit can be arrested in Illinois simply for carrying a firearm without an Illinois-issued license, then that person is being denied a basic right.

The anology would be for Illinois to make same sex couples subject to arrest for living together (co-habitation is also a natural right) in that state.

Current concealed carry laws violate the Fourteenth Amendment in more than one way.

Monday, June 29, 2015

Game On?

She's got a heart of gold
She'd never let me down
But you're the one who always turns me on
You keep me coming 'round
--Bryan Adams

Not sure. Early attempts to jam them higher failed and domestic markets sank all day, closing on the lows. The SPX lost about 2% and now sits on its 200 moving avg.


Banks lost a bit more and dropped out of the channel that defined their recent melt-up.


Ugliest chart belongs to the Trannies that have now decisively broken down thru near term support. Perhaps other markets are now moving to close the divergence.


Technically, then, most damage is limited to the shortest of time frames. Which, of course, is what one should expect from a single 2% down day in a generally uptrending market.

On the other hand, markets have been stick saved by central banks et al so many times in these situations that it is hard to imagine a context pregnant with more moral hazard. Risk seems higher here than many market participants may realize.

position in SPX

Acropolis Now

Phil Connors: I've been stabbed, shot, poisoned, frozen, hung, electrocuted, and burned.
Rita Hanson: Oh, really?
Phil Connors: And every morning I wake up without a scratch on me. Not a dent in the fender. I am an immortal.
--Groundhog Day

Over the weekend, Greece announced capital controls, including shutting its banks and stock market, after failing to reach a debt deal with the EU. Foreign markets have had sizeable negative reactions although the downside movement thus far stateside has been muted.

It remains to be seen whether we are once again being treated to a preview, or whether the full length feature is about to unfold.

Sunday, June 28, 2015

Gay Marriage

Matthew Harrison Brady: We must not abandon faith. Faith is the most important thing!
Henry Drummond: Then why did God plague us with the ability to think? Mr Brady, why do you deny the one faculty of man that raises him above the other creatures of the earth? The power of his brain to reason. 
--Inherit the Wind

Someone seeking an example of how convoluted legal thought has become in the land's highest court need look no further than the recent Obergefell v. Hodges ruling on gay marriage. Convoluted logic in the majority opinion underwritten by Justice Kennedy is only trumped by even more convoluted logic in dissenting opinions authored by four other justices.

Many pages of analysis have and will be generated on this ruling. One that I found particularly insightful is here. In this post, I want to discuss what I believe to be the proper basis for the ruling.

At its heart, marriage is co-habitation. Two people living together in voluntary union. Co-habitation, one aspect of freedom of association, is a natural right--a dimension of liberty endowed by our Creator. It is with us at birth as a function of our humanity. It is unalienable, meaning that no one can justly take away the right of co-habitation, whether that union is between members of the opposite sex or same sex.

Over time, and for various reasons including economic ones, the construct of marriage has evolved. One aspect that has developed is a social one where the union between two people is recognized as legitimate by others. However, this social recognition is not a right to those in voluntary union. Married people cannot force others to recognize their union.

If this was the issue in Obergefell--that gay couples were seeking to force others in society to respect their union--then the plaintiffs have no case. They cannot force their beliefs onto others.

But that is not the issue here. Unfortunately, others in the past have successfully forced their definition of marriage on others. They have done this by getting state governments to pass laws declaring that only a certain type of co-habitation arrangement, that between man and woman, will be legally recognized.

It is important to note that contemporary legal recognition of marriage does not preclude same sex unions. It does not make it illegal for gay couples to live together. Laws outlawing gay marriage would be outright violations of natural law.

What legal recognition of a particular union does do in the current system is confer particular benefits to couples who are deemed legally married by a state. Some of the benefits listed by Justice Kennedy in his opinion include (p.17) favorable treatment related to taxes, inheritance, health care access, government certificate making, and worker's compensation. Moreover, Kennedy notes that "valid marriage under state law is also a significant status for over a thousand provisions of federal law." Consequently, states have placed the institution of marriage "at the center of so many facets of the legal and social order."

Of all dissenting justices, only Justice Thomas acknowledged this. By failing to legally recognize marriage among same sex couples, "the States have refused to grant them governmental entitlements." (p. 10).

Therein lies the basis for the ruling. Primarily through democratic process, people have used the strong arm of government to force their definition of marriage on others. Along with this legal status has followed a set of government-granted entitlements to those couples who meet the legal definition.

Under the Equal Protection clause of the Fourteenth Amendment, there can be no discrimination when it comes to government-granted entitlements. If people put government into the marriage contract business and confer privileges based on marital status, then both same and opposite sex unions are entitled to those benefits.

Why government is involved in marriage in the first place, and why unmarried people aren't privileged to the same treatment as married people are both excellent questions, but they aren't central to the immediate case.

Kennedy et al also claim that there is a due process issue here, as a fundamental right to marriage has been denied some individuals (p. 10). This would be true if marriage was defined only in terms of co-habitation, and laws had been passed that prohibit voluntary union among gays. But that is not the contemporary construction of marriage considered in this case. Instead, marriage is a legal status and benefit package conferred by government. It is erroneous and misleading to label marriage in this sense as a right because it is not a liberty grounded in natural rights. The contemporary legal construction of marriage imposes obligations, such as increased tax burdens, on those who are not married.

Under the current legal arrangement, marriage is an entitlement. Refusing to grant legally married status to a union because of sexual orientation is clearly discriminatory. As such, gay marriage must be legally recognized by all states under the Equal Protection Clause so that associated government-sponsored benefits can be equally distributed.

Saturday, June 27, 2015

Roberts Doctrine

"I think that when statesmen forsake their own private conscience for the sake of their public duties, they lead their country by a short route to chaos."
--Sir Thomas More (A Man For All Seasons)

SCOTUScare is now an appropriate label for the Affordable Care Act as a majority of the high court headed by Chief Justice John Roberts has rewritten law as if the judges were serving at the pleasure of the executive branch.


The Roberts Doctrine, as George Will characterizes it, includes a judicial function that modifies laws in ways the court believes would make them perform better than they would as written by Congress. Consequently, rather than serving as a check on congressional and executive power, the court works in tandem with the other branches as legal consultants of sorts.

Progressives who are end zone dancing around the King ruling might do well to consider the implications of this development relative to future periods when other factions rule the day.

To be sure, our judiciary system designed under the assumption that it constitutes a the primary line of defense in protecting liberty against discretionary rule as been deteriorating for years--particularly since FDR was able to reconfigure the court to his liking.

However, with the court now editing legislation firsthand for the other branches, the Roberts Doctrine promises to take loss of liberty to a new level.

Of course, some saw this coming many years ago.

Friday, June 26, 2015

SCOTUScare

I'll pick up my guitar and play
Just like yesterday
And I'll get on my knees and pray
We won't get fooled again
--The Who

The primary goal of judicial process is arriving at and acting on the truth. Sometimes this does not occur. The process may be erroneous or incomplete which prohibits the truth from being obtained. Even if obtained, the truth may not be acted on due to either intentional or incompetent misbehavior.

In high courts, responsibility for arriving at and acting on the truth lies with a judge or panel of judges. A jury does not process evidence and render decision. Instead, it is the bench's duty to obtain the truth.

An institution that permits outsiders to evaluate the extent to which judges have upheld this responsibility when rendering decisions is the written opinion. High courts must explain their rationale in writing. If some judges dissent from majority opinion, then they are invited to put their counterarguments in writing.

As long as this institution remains, anyone can evaluate the extent to which judges have arrived at the truth when making decisions. The is because written opinions lay bare judicial reasoning. They expose errors in thought process and possibilities of judicial interest rather than disinterest. No amount of sophistry can obscure incomplete or erroneous judgment when a reasoning mind carefully examines written judicial opinion. As such, judges who fail to arrive at or act on truth have nowhere to hide when they write their arguments down. They can only hope that onlookers do not scrutinize their work.

By analyzing both the affirming and dissenting opinions in King v. Burwell, we can conclude that the majority of the Supreme Court has once again abdicated its truth-seeking process regarding the Affordable Care Act. Similar to his affirming opinion written three years ago, Chief Justice Roberts displays tortured rationale to justify why, under section 36 of the Act, health insurance sold on an "Exchange established by the State" actually means "Exchange established by the State the Federal Government."

In defense of his decision, Roberts offers various arguments involving the statute's context, design and purpose, and "inartful drafting." He also suggests that the decision is consistent with the principle of judicial restraint. His arguments are weak and at times preposterous, as demonstrated by the ease with which each of them is excoriated by dissenting Justice Scalia.

For example, with respect to the argument that the majority of the court is practicing judicial restraint in this case, it is easy to see that they are engaging in just the opposite--judicial activism. The court is rewriting the law by adding words that do not appear in the statute. As Scalia (p. 20) observes, the court's revision authorizes the IRS to collect billion$ in taxes on federal exchanges, it changes insurance prices for millions of Americans, reduces state participation in implementing the ACA, and expands the reach of the law's individual mandate.

A straightforward and wholly appropriate response consistent with judicial restraint would have been to send the law back to Congress so that it can hammer out the problems with the current statue. The legislative branch would thus be doing what it is supposed to do: write clear law--which by the Roberts majority's own admission the current statute is not.

It is easy to conclude that, similar to the case three years ago, Roberts is grasping at straws because he is interested. He wants the law to 'work' and he is willing to sacrifice the truth in doing so.

Near the end of his dissent, Scalia (p. 21) concludes as much, suggesting that because the majority of the court is rewriting law, effectively working in tandem with other branches of government rather than providing a constitutional check, in order for the health care program to work out as they hope, "We should start calling this law SCOTUScare."

Once again, the highest court in the land demonstrates how truth can been subjugated in favor of interest.

Thursday, June 25, 2015

Protecting Hatred

"My old man was so full of hate that he didn't know that bein' poor was what was killin' him."
--Agent Rupert Anderson (Mississippi Burning)

In both his recent essay and subsequent conversation with Jon Stewart, Judge Nap explains how protecting hatred preserves freedom. The context is the Confederate flag. The flag has garnered attention because a gunman who killed nine people in Charleston last week identified with it. Because the Confederate flag flies over the South Carolina state house, some people view this as the state's tacit endorsement of what appears to be a racially motivated shooting.

To many people, the Confederate flag constitutes a symbol of hatred as reflected by the practice of Southern slavery and bigotry. As such, these people believe that this symbol needs to go. However, other people view it differently. To them the flag symbolizes states rights, self-determination, independence. As with many symbols, the flag takes on multiple meanings. The wise person sees them all.

But regardless of what meaning the government of South Carolina (or any other government for that matter) might assign to the Confederate flag, the state has no business flying it.

This is because government does not enjoy the same freedom of speech naturally endowed to each of us as individuals. If government was free to endorse an opinion, then it could employ its virtual monopoly of force to coerce others to abide by it. The entire purpose of the First Amendment is to keep government out of the business of speech.

The correct thing to do is for the state of South Carolina to remove the flag from public grounds. Similarly, governments at all levels in the United States should retract all opinion, and processes that produce it, from its operations. For example, government should not recognize individuals deemed to be noteworthy achievers, promote a particular diet,  or opine about economic affairs. Only government speech that can be construed as universally accepted, such as the American flag, or absolutely necessary for governance, such as speed limits, should be retained. That even those issues can be seen as contestable demonstrates just how little speech government should engage in.

On the other hand, the First Amendment guarantees our unalienable right to thought, expression, and association. It bars government from interfering with a person's expressions or associations except when necessary to prevent immediate physical aggression when there is no time for more expression to do so first.

As the Judge noted in his discussion with Jon Stewart, there is no right not to be offended. This means that government can not interfere with speech or associations that some people might find offensive or distasteful. In the case of the Confederate flag, this means that government cannot pass laws to ban its general use or trade. When government is on the receiving end of distasteful speech, it may never, consistent with the First Amendment, interfere with thought or expressions because it fears or despises the views reflected by those speaking.

Hatred, therefore, is a protected mode of thought and expression in a free society. It may provide the basis for association. Groups may form based on hate. If the group expresses a willingness to use violence, then that expression is not criminal in itself. It is only the manifestation of hatred in actual aggression that may be prosecuted.

As Judge Nap observes, a remedy for hatred is reason. Human hatred is always unreasonable. It often errors by connecting traits such as physical characteristics to sweeping behavioral generalizations. Hatred provides a dark place of comfort for weak minds.

The challenge of those on the receiving end of hate is not to hate back--which includes not to recruit the strong arm of government to suppress the hate. Instead, we are free to not take the hate of others personally. We are free to respond peacefully with reason, compassion, and love.

Quadruple Bottom?

It's not in the way that you hold me
It's not in the way you say you care
--Toto

Trannies are touching near term support at 8300ish for the fourth time.


Textbook technical analysis suggests that support gets weaker with each successive touch as demand I stripped away by layers of supply.

Stated differently, quadruple bottoms rarely hold.

Divergence between Dow industrial and transportation indexes continues to beg for resolution.

position in SPX

Wednesday, June 24, 2015

Illiquid Tide

It happened one summer
It happened one time
It happened forever
For a short time
--The Motels

Increasingly on my personal radar as a potential factor driving the Next Time Down is growing illiquidity in bond markets. As noted here, both the Fed and high frequency trading black boxes have been taking supply off the market. That means that spreads between bid and ask will widen in the event of increasing selling pressure.

Some bond funds are trying to anticipate liquidity problems by arranging for lines of credit that would essentially pay redemptions with borrowed money than with proceeds from sold shares. That would provide only a temporary buffer, of course, given the size of fixed income markets.

Might it be that the key unrecognized factor in all of this central bank bond buying be that the trillion$ in bonds sitting on Fed et al balance sheets constitute vital market liquidity that has been rendered unusable for making markets in times of crisis?

position in SPX

High Yield Credit Analog

Confusion that never stops
The closing walls and ticking clocks
--Coldplay

In 2007 slowdown in high yield credit growth helped signal the subsequent turn in stocks as the gap between the two investment classes widened.


Currently HY credit growth is once again slowing...and the gap vs stocks is widening...

position in SPX

Modeling Violence

Senator Jasper Irving: It is my responsibility, it's part of my job description to protect the American people and that is why we put this new strategy into motion now.
Janine Roth: So when does it start?
Senator Jasper Irving: Ten minutes ago.
--Lions for Lambs

Interesting point made by Jacob Hornberger. Like all similar events, the tragic shootings in Charleston last week predictably brought gun grabbers out of the woodwork. Their logic, as tired and twisted as ever, ignores many factors, including the possibility that the federal government models the aggression that these perpetrators engage in.

The national security state, one that destroys people on a constant basis, plausibly fosters a culture of violence that encourages mentally unstable people to engage in aggression. In ordinary societies, the crazed are less prone to violence because there is little example and encouragement to act out twisted scripts.

In societies driven by national security (both warfare and welfare) motives, the state models violent behavior for the deranged. Immersed in a culture of violence, mentally unstable people perceive it ok to aggress on others for trivial reasons.

The national security state can be seen as a role model that encourages mentally unstable individuals to quite literally pull the trigger.

Tuesday, June 23, 2015

Greek Folly

Take the children and yourself
And hide out in the cellar
By now the fighting will be close at hand
--Mike & The Mechanics

Amusing cover chronology of the folly surrounding Greece. Six years and running.


A proxy not for Greece or even the EU at large. Rather, the covers reflect socialism in motion toward a chaotic destination.

Monday, June 22, 2015

Transmission Mechanisms

And the world looks just the same
And history ain't changed
'Cause the banners
They are flown in the next war
--The Who

There are various flavors of socialism. Communism puts control of property directly in the hands of bureaucrats. Planning bureaus make the decisions over production and distribution. The stated goal is equal distribution of wealth although, in practice, there are reasons to believe this cannot occur.

Fascism is another form of socialism. In fascist regimes, the state partners with large corporations in a manner that permits government to indirectly influence production and distribution decisions. Essentially, large producers act in accordance with state wishes in exchange for special favors, such as regulatory protection, subsidies, or bailout guarantees. Fascism skews distribution of wealth unnaturally toward statist cronies.

Industrial 'verticals' become the primary conduit for transmitting fascist policy. Because they are earning 'profits,' many mistake these verticals for expressions of capitalism. But they are nothing of the sort. Instead, verticals serve as fronts for the state.

Fascist verticals are best identified by determining where special favor is flowing. In classic resource dependence theory style, those industries sporting strong government connection and support are strong candidates for state transmission mechanisms.

Using this approach, we can be confident that three of the largest mechanisms for transmitting fascist policy in the US are finance, healthcare, and education.

Sunday, June 21, 2015

Monopolies and Patents

"I'm the only caterer in town."
--Caterer (The Flintstones, Season 5, Episode 4)

Most people intuitively oppose monopolies. Monopolies constitute situations where there is only one provider of a particular good or service. People oppose monopolies because there is no competition that drives efficiency and improvement. As such, monopolists can curtail production and charge higher prices than they otherwise could in competitive environments. Consequently, prosperity is hindered.

In unhampered markets, monopolies are incapable of existing for long periods of time. A lone producer that profits from monopolistic practices attracts other producers who subsequently increase supply and lower price. As competition increases, all producers are motivated to improve productivity, thereby providing more goods to consumers at lower prices and enhancing prosperity.

Monopolies can only persist in markets that have been hampered. Regulations and other mechanisms forcibly restrict entrepreneurial entry into concentrated industries, thereby preserving the monopolistic positions of incumbents.

It is curious, then, to observe many people who oppose monopolies simultaneously support patents and other forms of 'intellectual property.' As these pages have discussed, intellectual property is not property at all, in part because it fails to meet the scarcity test. Instead, patents et al are government granted monopolies that restrain exchange and use of ideas. As noted here, patents clearly restrict production and innovation.

Instead, patents encourage monopolies and cronyism--the very opposite of free enterprise.

Supporters of patents and other forms of intellectual property are supporters of monopolies--most likely those that their supporters believe could be a source of personal privilege.

Saturday, June 20, 2015

Bailout Barometer

"Moral hazard means once someone bails you out, what's stopping you from taking another shot?"
--Jacob Moore (Wall Street: Money Never Sleeps)

Strangely enough, the Richmond Fed has developed what itself calls the Bailout Barometer to indicate the fraction of financial sector liabilities that are protected from losses. At the end of 2013 the Bailout Barometer estimated that about 60% of all liabilities were protected. The bailout fraction has been increasing with time.


As astonishing as that number is, it is likely underestimated. Few securities are now traded under the assumption that the Fed or some government entity has their back in case things don't work out.

This is, of course, is moral hazard WRIT LARGE.

And most ironically, the Bailout Barometer comes courtesy of the largest facilitator of moral hazard on the planet: the Federal Reserve.

Friday, June 19, 2015

Institutional Confidence

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

Recent Gallup poll indicates that American confidence in most major institutions continues to decline, and collectively rests at its lowest level since Gallup began systematically updating broad institutional confidence in 1993. Congress, banks, big business, unions, newspapers, police, organizations religion, state of the union.

Only confidences measures related to the military, the ultimate institution of government force, and small business, a fundamental institution of peaceful exchange, are above their historical averages.

A steady march lower in institutional confidence should be wholly expected as society moves toward a more socialistic position. As freedom is replaced by force, people notice that institutions just don't seem to work as well as they used to. That is because their liberties are being restrained and, commensurately, so is their prosperity.

Declining institutional confidence is a milepost on the road to the chaos destination of socialism.

Thursday, June 18, 2015

Preserving Poverty

Nothing's so loud
As hearing when we lie
The truth is not kind
And you've said neither am I
--Toad the Wet Sprocket

In 1964 President Lyndon Johnson declared a War on Poverty. Of course, poverty had been declining for decades on a peaceful basis prior to Johnson's declaration of war. We also know that the war continues 50+ years later with less than satisfactory results--particularly when considering that this campaign that has lasted five times as long as the putrid War on Terror.

Subsequent to LBJ's declaration, a blizzard of social legislation was passed with the expressed aim of reducing poverty. There is good reason to believe, however, that much of this legislation has incentivized poverty. For example, welfare benefits can discourage productive effort if the cost of lost benefits exceeds income from work. Stated differently, welfare benefits can effectively tax work to trap people in poverty.

Other policies preserve poverty status quo as well. For example, regulations that impair or prohibit basic entrepreneurial activity such as street vending effectively criminalize effort to improve one's economic position.

The way to eradicating poverty is not through government-sponsored war. Rather, the solution is to remove all aggression from the system--including forcible policies supported by proponents of 'equal opportunity.'

Poverty is preserved by war-like force. Poverty cannot persist under conditions of peace.

Wednesday, June 17, 2015

Public School Hypocrisy

"None of them have a personal stake at that school. Not one!"
--Joe Clark (Lean on Me)

In a recent discussion of how to improve black education, Prof Williams cites data indicating that many proponents of public education do not practice what they preach. For example, public school teachers in Chicago, Philadelphia, San Francisco, and other public ed strongholds send their children to private schools at more than triple the national average. Fifty two percent of members of the Congressional Black Congress with school-age children have enrolled them in private schools.

Another example of hypocrites pointing guns at others to obtain behavior that they don't practice themselves.

Tuesday, June 16, 2015

Magna Carta

Sir Thomas More: You threaten like a dockside bully.
Cromwell: How should I threaten?
Sir Thomas More: Like a minister of state. With justice.
Cromwell: Justice is what you're threatened with.
Sir Thomas More: Then I am not threatened.
--A Man for All Seasons

Yesterday marked the 800th anniversary of the establishment of the Magna Carta. The Magna Carta (Latin for 'Great Charter') was an agreement between King John of England and a group of local barons. Having been the target of plunder by the King, the barons rebelled and defeated royal forces in battle. The Magna Carta was essentially a peace treaty meant to quell future war.


Although the Magna Carta is largely a collection of specific provisions between a feudalistic king and barons of the time, it does include some principles that helped shape libertarian thought and the rule of law in centuries to come. For example, the Magna Carta states that:

"No freeman shall be taken, imprisoned, disseised, outlawed, banished, or in any way destroyed, nor will We proceed against or prosecute him, except by the lawful judgment of his peers or by the law of the land."

Similar ideas can be found in the Bill of Rights.

The Magna Carta, then, can be considered as one of the first documents that put the idea of limiting the power of government into the minds of people.

Unfortunately, the anniversary of the Magna Carta is also a reminder of the difference between documented law consistent with natural rights and its realization in everyday life. Soon after the Magna Carta was written, the agreement was nullified and England plunged into civil war. Centuries thereafter, the Magna Carta was resurrected as the basis for preventing tyrannical rule only to be violated by the governing regime. Today, we face the same thing.

The lesson that seems hard for us to learn is this: rulers don't have to follow rules when they enjoy a near monopoly position in the use of aggressive force. Eight hundred years after the Magna Carta, we are still duped by the belief that elegant law on paper can easily subdue motivated principals contracting with strong-armed government agents in their quest for discretionary rule.

Monday, June 15, 2015

Delusion of Phantoms

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

Charles Hugh Smith discusses phantom unemployment--one of the many phantoms perpetuated by the federal government. As he notes, "it is obvious that the unemployment rate should be calculated on the total work force (those of working age 18-65 who are not institutionalized or permanently disabled) and those with real jobs, i.e. ones that generate enough income to get close to the poverty line."

The calculation would look like this:

unemployment rate = (# of working age people - # working age people with income above poverty line)/# working age people

We could make it even more general by taking out age qualifications:

unemployment rate = (total # number of people - those working) /total # of people

The idea is to estimate the fraction of all people actually producing. The higher the fraction, the greater the production. The greater the production, the higher the prosperity.


Of course, the federal government does nothing of the sort. It strips out various categories of people not working, such as the 93 million estimated as 'not in the labor force.' With 120 million currently estimated as in the labor force, one can see how high the unemployment rate would shoot if we put those 93 million back into the denominator. Can you say Great Depression?

It seems that we prefer the delusion of phantoms. Phantom GDP, phantom inflation, phantom recoveries, phantom unemployment.

Sunday, June 14, 2015

Texas Bullion Depository

Well I just keep thinking of you
Sister Golden Hair surprise
And I just can't live without you
Can't you see it in my eyes?
--America

Last Friday the governor of Texas signed into law a bill to establish a state gold and silver bullion depository. This bullion depository will be the first of its kind among the states. The measure also calls for the repatriation of $1 billion in gold from the Federal Reserve Bank of New York.

Many people take this as another sign of declining trust in federal government policies including those of the Federal Reserve. Texas gold will be out of federal control and closer to home. Interestingly, people from all over the world have been calling Texas officials to express interest in storing their gold in the new depository.

Part of the worry involves issues of rehypothecation. It is possible that gold held in federally owned or audited vaults, particularly bullion that forms the basis for securitized trading vehicles, has been loaned out to others, meaning that there may not be clean title to gold in the event that large numbers of people try to take delivery of the physical asset. The MF Global meltdown a few years back involved a rehypothecation situation.

The other worry is outright confiscation of physical gold by the federal government--similar to what occurred in 1933. The new Texas law seems to anticipate this, as it includes a provision to prevent federal seizure.

This coupled with the state's size and stature make Texas an attractive location for many people interested in securing their gold and silver bullion.

position in gold and silver

Saturday, June 13, 2015

Slack Fill

There are things we won't recall
Feelings we'll never find
It's taken so long to see it
Because we never seemed to have the time
--Phil Collins

If you're a consumer products maker, then you're interested in strategies that allow you to pass along price increases to customers in ways that they don't notice. One such strategy is 'slack fill.'

Slack fill involves charging the same price for less product put in a container that looks more or less the same as the previous container that held more. For example, price hasn't changed on the standard box of Ritz Crackers. Unfortunately the standard box now contains 13.7 oz of crackers rather than the old 16 oz amount. At $2.50/box, consumers now pay 18.2 cents/oz compared to 15.6 cents/oz previously, which amounts to a 17% price increase.


I can think of few consumer product categories that have not been touched by slack fill over the past few years. At the grocery store with my brother last weekend, I noticed that even the standard bag of Kingsford charcoal is down from the old 20 lbs to about 15 lbs. Lighter to lift but heavier on the wallet.

Slack fill tends to work until buyers notice absurdly large packages compared to amount of product inside (think deodorant). At that point, producers are likely to resize the standard package or perhaps the product itself to change the frame of reference.

Ritz boxes are already in transition. As the number of crackers goes down the height of boxes as been reduced in order to insure a snug fit. The box now appears noticeably wider than tall. Would think the next step is to either significantly change the standard package amount (e.g., drop to 8 oz) or resize the cracker itself.

As long as consumers care not to monitor cost/oz, games of slack fill proceed in an inflationary world.

Friday, June 12, 2015

Concentrated Corporates

And through a fracture on that breaking wall
I see you my friend and touch your face again
Miracles will happen as we trip
--Seal

Bloomberg reports that, while the corporate bond market has more than doubled in size over the past few years, buyers of corporates are more concentrated. What used to be 23 relatively evenly distributed buying groups has essentially narrowed to three: mutual funds, foreign investors, and insurance companies.


This has helped to contribute to lack of liquidity (i.e., big differences between bid and ask) in this market. Should these concentrated players ever seek to unwind their corporate holdings simultaneously, then these illiquid conditions would likely be exacerbated, resulting in a downside massacre.

Just one more potential catalyst that helps pop the corporate bond bubble.

Thursday, June 11, 2015

JFK at American University

"The organizing principle of any society, Mr Garrison, is for war. The authority of the state over its people resides in its war powers. Kennedy wanted to end the Cold War in his second term. He wanted to call off the moon race and cooperate with the Soviets. He signed a treaty to ban nuclear testing. He refused to invade Cuba in 1962. He set out to withdraw from Vietnam. But all that ended on the 22nd of November, 1963."
--X (JFK)

Yesterday marked the 50th anniversary of President John F Kennedy's famous commencement speech at American University in Washington DC. His topic was world peace and how world powers, particularly the US and Soviet Union, could collaborate toward such a goal.


There are those who believe that JFK was executed by warfare state interests because of this speech.

JFK could have just as easily angered welfare statists if he would have called for peace at home by ending domestic programs of aggression on US citizens.

Of course, some people such as Ron Paul have done both...

Calls for peace threaten statists of all stripes.

Wednesday, June 10, 2015

Democracy and Diversity

You declared you would be three inches taller
You only became what we made you
Thought you were chasing a destiny calling
You only earned what we gave you
--The Who

Many proponents of democracy, defined as a social decision-making process where decisions are made according to the wishes of the majority, also claim to support diversity, defined as acceptance and respect for differences among people. However, these two concepts are clearly incompatible.

Democracy promotes sameness and compliance as the will of the majority is imposed on all. Differences between people are not respected, but ignored and repressed. Democracy is a collectivist concept.

Diversity, on the other hand, promotes innovation and creativity as people are free to pursue their interests unencumbered by the wishes of the dominant coalition.

Democracy is consistent with despotism and tyranny while diversity is consistent with liberty.

Tuesday, June 9, 2015

Zero Bound

Maybe someday
Saved by zero
I'll be more together
--The Fixx

One of the many nice points made by David Stockman here is that central banks do not balance monetary policy at neutral over the long haul. Instead, policy is biased toward 'easy.'


During the past 300 months (25 yrs), the Fed has either cut or kept Fed Fund rates flat 80% of the time. It has not raised rates in 108 months (9 yrs). Fed Fund rates have been essentially zero for 78 months (6.5 yrs).

After cutting rates, the Fed never raises rates back to where they were previously (as demonstrated in graph above). Over time, central bank policy migrates toward the zero bound.

We're there now. And it could have easily been forecast decades ago.

Monday, June 8, 2015

Open Carry

"You're unsnapped, officer."
--Bob Lee Swagger (Shooter)

Carrying firearms is a constitutional right. It is consistent with natural law, as it enables people to protect their person and property from aggression.

However, as this article points out, there are persuasive arguments against 'open carry,' i.e., carrying guns in a manner that other people can readily see them.

Essentially what these arguments boil down to is this: open carry increases risk of harm to people carrying firearms in unconcealed fashion--precisely the opposite of what people trying to protect themselves should want to do.

Sunday, June 7, 2015

Tradition Never Graduates

With a little perseverance
You can get things done
With the blind adherence
That has conquered some
--Corey Hart

A few years ago I was chatting with my old high school baseball coach, the legendary Mike Cameron, prior to a Moeller baseball game. We joked about how unsophisticated our approach back then seems compared to today's game--uniforms, equipment, facilities, training. media attention, etc.


However, Coach Cameron was careful to point out, "It was you guys who paved the way to today. These players are standing on your shoulders."

I should add, of course, that even back then, Coach Cameron was a leading edge-like innovator as he had us trying things things few other teams of the time were doing.

Yesterday, Moeller captured its 8th state baseball championship with a dominant performance over Westerville Central. Final record: 31-3 including a Spring Break tournament crown in Atlanta that featured several top national programs. It was great to watch these young men perform thru an amazing season and cap it off as they did.


You know what, all that shoulder weight feels light as a feather.

Saturday, June 6, 2015

HilsenWrath

Lights go out and I can't be saved
Tides that I tried to swim against
Have brought me down upon my knees
Oh I beg, I beg and plead
--Coldplay

The Wall Street Journal's Jon Hilsenrath is known as the Fed's 'mouthpiece' because it is well known that the Federal Reserve likes to communicate with the public thru his writing. Little that Hilsenrath writes about does not have the Fed's stamp of approval.

Last Tuesday Hilsenrath penned 'A Letter to Stingy American Consumers' basically asking why people aren't spending more. This is a question to be expected from Keynesian central bankers. The economy depends on spending, they believe. We need you to consume more. Why aren't you doing so?

Responses to the column were largely hostile. Many found the column offensive and wrought with central banker arrogance. Responses reflected mistrust in federal government and pessimism about the economy. There was also the theme of stagnant incomes in the face of rising costs and high debt loads.

Of course, Hilsenrath tried to downplay the intent of his original letter--calling it playfully 'tongue-in-cheek.' In other words, his original letter wasn't really serious.

Here is an interesting letter back to the Fed that captures many of the issues facing consumers. The Fed has created conditions of financial repression that have gutted capacity for saving and capital formation. Fed policies have not raised incomes or wealth for anyone except those at the top of the economic pyramid. Moreover, QE policies have enabled government to buy its own debt, shouldering people with even more future obligations.


Some people foresaw this situation years ago when the Fed was in its nascency. Plainly, today we witness Fed policies that enrich special interests at the expense of others.

Fed bureaucrats and their mouthpiece seem surprised that people actually understand what is happening.

Friday, June 5, 2015

Bond Rout

Sometimes I never leave
But sometimes I would
Sometimes I stay too long
Sometimes I would
--The Motels

The worldwide bond rout continues. Over the past couple of months, 10 yr Treasury yields are up about 50%.


But that's nothing compared to sovereign debt elsewhere--particularly in Europe. Rates on Spanish paper have about doubled. Yields on German bunds are up about 20 fold.

Of course, these increases come from such small levels that the absolute effects are minor. But the relative moves, particularly for leveraged players, are certainly being felt.

Whether this is the beginning of THE bond rout that blows up the financial market casino remains to be seen. But it is how such a rout is likely to begin.

position in SPX

Thursday, June 4, 2015

American Dream

Benjamin Martin: May I sit with you?
Charlotte Selton: It's a free country. Or at least it will be.
--The Patriot

A popular narrative of the American Dream goes like this: If you work hard enough and are skilled enough, then you can be successful. But if you are born into an unfavorable position, then society owes you resources in order to level the playing field relative to those endowed with more. That way all have equal opportunity to succeed.

This is mischaracterizes the American Dream as expressed by our founding ancestors and practiced during the first century of US history.

As discussed in a recent post, Jefferson et al did not describe a system where opportunities for individuals would somehow by equalized by taking resources from some for the benefit of others. Not only is the task of accurately determining how fairly redistribute resources beyond the capacity of any planning bureau, but doing so would violate the fundamental principle of equality articulated by the Declaration--that being equal treatment under the law. No favors granted to any group.

Instead, the American Dream as originally conceived was an environment--an environment where individuals could pursue their interests, whatever they may be, as long as they did not forcibly intrude on the pursuits of others. In this environment the rule of law, centered on the principle of non-aggression, applies equally to all with no special treatment dispensed by government.

Stated differently, the original American Dream was one where people were free to improve their positions without forcible interference of others. An environment of liberty.

We know that this was the original American Dream not only by the writings of our founding ancestors, but also by the actions of early settlers and immigrants. Many early settlers came here to escape repression, whether that repression was social or economic in nature. They sought an environment where they could practice as they wished. By the time the founding documents of the United States were drawn up, there was a large installed base of people who were practicing the American Dream articulated by Jefferson et al.

Stated differently, Jefferson et al did not blueprint a dream for a society that did not exist. Instead, the Framers were formalizing ideas already understood and in motion in many parts of the land.

The following century saw a massive influx of immigrants who wanted to pursue the dream as well. While some had been formally educated in the founding government structure that spawned it, most learned of the American Dream through word of mouth. As commentators such as de Tocqueville observed at the time, this was not primarily a rags-to-riches parable. Instead, immigrants were sending word back to people in the Old Country. "It is possible to do better here. The authorities will not get in your way."

The words of first generation immigrants inspired future generations to follow. While the country was not perfectly free and more improvement was necessary, by the late 19th century, with slavery outlawed, no other place on earth offered such an environment of liberty. And the world knew it.

That would soon change, of course, as the Progressive movement took hold and altered the prospects, and the narrative, of the American Dream.

Wednesday, June 3, 2015

Subprime Education

Professor Jerry Hathaway: When you first started at Pacific Tech you were well on your way to becoming another Einstein and then you know what happened?
Chris Knight: I got a haircut?
--Real Genius

College students would stand better informed if they heard this 'commencement speech' by George Will. Preferably years before commencement, of course. High school, even junior high, would not be too early.



While the previous real estate bubble created the subprime mortgage, the current higher ed bubble has created the subprime education.

Superb analogy.

Theoretical Liberty

"Why should I trade one tyrant 3000 miles away for three thousand tyrants one mile away? An elected legislature can trample a man's rights as easily as a king can."
--Benjamin Martin (The Patriot)

In this discussion of the Establishment's pushback against Rand Paul's efforts to force expiration of the Patriot Act's surveillance program, the author observes that "liberty is only theoretical to our political class."

Indeed, politicians generally use liberty as a positive substitute symbol for its opposite--despotism.

The author correctly concludes that "the political class benefits from the decay of liberty, not its growth."

Tuesday, June 2, 2015

Political Markets

"Now, Joe, I think you'd better go back into the Senate and keep those senators lined up."
--James Taylor (Mr Smith Goes to Washington)

These pages have frequently viewed politics as markets for political favor. However, Lew Rockwell suggests relating politics to markets amounts to superficial comparison.

Unlike traditional markets where confidence in what is being exchanged is usually high, voters are uncertain about what they will get in exchange for their vote. For example, there may not be enough like-minded voters to constitute a majority, or elected officials may not deliver on past promises.

Unlike nearly immediate feedback on decision quality available in many markets, long lags often characterize the time between trading a vote for political action. Moreover, while cost/benefit analysis underpins many markets, voters are prone to perceive perceived benefits bestowed by the state without grasping their costs.

While interesting points, Rockwell's argument does not invalidate the connection between politics and markets. Elections and other political activities still constitute people engaging in trade (e.g., votes for favor).

More accurate, it seems, would be to state that political markets tend to be inefficient.

Monday, June 1, 2015

Left Fielders

"Profit? Fiscal year? Tsk, tsk, tsk. Beware, my dear Zilkov. The virus of capitalism is highly infectious. Soon you'll be lending money out at interest."
--Dr Yen Lo (The Manchurian Candidate)

My suspicion is that the Democratic Party will migrate further to the left in advance of the 2016 presidential election. Hillary Clinton has already declared her candidacy and is the heavy favorite to receive her party's nomination.

However, not only is she fighting age and Clinton legacy barriers, but many of her past positions as US senator and secretary of state appear too conservative to many progressives. Thus, secondary candidate Bernie Sanders, an avowed socialist, is actually putting up some numbers in early polls.

This suggests a couple of possibilities over the next year. One is that party operatives pressure Clinton's platform more to the left. The other is that another, more left leaning candidate rises to challenge Clinton.

The latter possibility should muster a sense of deja vu with Clintonistas. Ms Clinton was also endowed with heavy favorite status at this point in the last election cycle--only to be subsequently crushed by newcomer Barack Obama.

Personally, I would not be surprised if Elizabeth Warren, a senator from Massachusetts, assumes the spoiler role this time around. She possesses characteristics that align with party interests. Her gender appeals to many in her party who favor demographic category over personal character. She also supports policies as socialist as those favored by Sanders.

A left field candidate for those interested in moving left.