Sunday, October 22, 2017

In Control

Trust in the Lord with all your heart
And lean not on your understanding
Acknowledge Him in all your ways
And He will direct your paths
--Proverbs 3:5-6

In times of strife and chaos, it is easy to conclude that God has left us, that he is no longer in control of the situation.

This is mistaken.

God is always and everywhere with us. He is always in control.

Because He is always in control, it follows that, even in the worst of times, we are precisely where God wants us to be at that moment.

That is both comforting and mind-numbing at the same time.

Saturday, October 21, 2017

For the Children?

Richard Vernon: Now this is the thought that wakes me up in the middle of the night. That, when I get older, these kids are going to take care of me.
Carl the Janitor: I wouldn't count on it.
--The Breakfast Club

Government spending is often justified 'for the sake of the children.' If you buy this, then you have been emotionally captured. Spending today is largely debt-financed. Government debt burdens future generations.

Stated differently, we are increasingly consuming what amounts to our children's future production. And, as the chart below suggests, the burden that we are saddling onto our children is increasingly back-breaking.

Imagine showing children this graph and explaining it in terms of "we are doing this for you."

This is generational theft at its worst.

Friday, October 20, 2017

Monetizing Debt

All my instincts
They return
The grand facade
So soon will burn
--Peter Gabriel

Comparison of the extent to which various central banks are buying their country's sovereign bonds (a.k.a. 'monetizing debt' thru their quantitative easing (QE) programs. At its peak, Fed bond buying never exceeded net issuance.

Other central banks have been much more profligate. BOJ has been buying bonds at the rate of 3x net issuance.

ECB has been going at it at the rate of 7x net issuance.

The Fed looks like a tightwad in this era of CB profligacy.

Thursday, October 19, 2017

Presidential Healthcare Subsidies

We thought just for an instant
We could see the future
We thought for once we knew
What really was important
--Til Tuesday

Another important part of President Trump's healthcare-related executive orders signed last week is that they direct the treasury and health and human services secretaries to cease making payments to heath insurance companies that subsidize policies for people that qualify for subsidies under Obamacare.

Judge Nap explains why those payments were unconstitutional.

Under the Constitution, it is Congress's responsibility to direct federal funds for expenditure. The congressional process requires two steps. First, Congress must create the program using its legislative process. Then, it must pass a second bill that appropriates money from the federal treasury and makes it available to the president for the purpose stated in the first law.

Although the Affordable Care Act become law in 2010, its provisions required several years to roll out. By the time the subsidy provisions of Obamacare took effect, Republicans had regained control of Congress. When President Obama asked Congress to appropriate the funds necessary to subsidize the system, Congress declined to do so.

This is completely within Congress's legal scope. The framers anticipated the very situation confronting Obama and Congress: an increasingly unpopular law no longer supported by Congress that costs money to enforce, with a president eager to enforce it. In such a situation, the framers clearly put the power of the purse in the hands of Congress. "No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."

When Obama was denied the means to enforce the subsidy portion of his signature legislation, he spent the money anyway. He directed his treasury and HHS secretaries to take fund appropriated for other programs and make subsidy payments to the seven largest health insurance carriers in the United States.

This was illegal.

Trump, after making the same unlawful payments for the first nine months of his presidency, decided to cease the practice last week. Although he should have done so his first day in office, Trump did the constitutionally correct thing.

Wednesday, October 18, 2017

Revenue Neutral

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

If a requirement of a tax cut plan is that it must be 'revenue neutral' to the federal government, then it is not a tax cut plan at all. Rather, it is a tax shifting plan. Some people may realize lower taxes, but only at the expense of others who must pay more to the federal government to make up for lost tax revenue.

Revenue neutral tax plans always find special interest groups maneuvering to be among those who don't get the shaft, er, shift.

Tuesday, October 17, 2017

Cash on Hand

I went to my brother
To see what he could do
He said, brother like to help you
But I'm unable to
--Simply Red

One personal finance decision is how much physical cash to keep on hand--i.e., under the pillow, in a coffee can in the backyard, between pages on the bookshelf--for 'just in case' situations. If one focuses on the central bank money printing situation, then the answer is not much. As we move closer to Big Inflation, then the value of paper dollars kept at the house goes to dust quickly.

However, the recent hurricanes offer a reason why it still makes sense to keep some cash around. Power could go off, thereby reducing electronic access to money. Those with cash in hand can make vital purchases that others cannot.

Bank runs, like those in Greece and Cyprus, are another reason. Cash withdrawals could be limited, once again granting only those with physical cash on hand with financial flexibility.

Bottom line: Despite the inflationary environment that destroys the purchasing power of currency, keeping some cash on the premises seems prudent to manage risk associated with extreme events.

Monday, October 16, 2017

Obamacare's Ugly Truth

You're begging me to go
Then making me stay
Why do you hurt me so bad?
--Pat Benatar

Jeff Tucker observes that last week's executive order that allows choice in seeking healthcare coverage defeats the core feature of Obamacare: coercion. The ACA forces risk pools to exist that free people would otherwise never had chosen.

Tucker cites a litany of mainstream media critics who believe that that Trump's executive order is some sort of despotic act. But clearly the opposite is true. The order removes one source of coercion from the system.

Per Tucker, "Once you break this all down, the ugly truth about Obamacare is laid bare: Obamacare didn't create a market. It destroyed a market. Even the slightest bit of freedom wrecks the whole point."

Obamacare is about force, not freedom. It forcibly redistributes wealth from the healthy to the sick. Through its forcible creation of non-market risk pools, Obamacare counters the entire logic of insurance, which is "supposed to calibrate premiums, risks, and payouts toward mutual profitability."

By introducing a modicum of freedom into the system, last week's executive order exposes Obamacare as the true despotic act.

Sunday, October 15, 2017


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

Gold recaptured the flag last week as it moved back above 1300. In addition to being a psychologically important round number, 1300 is an important technical level currently as depicted below.

Let's see if the comeback holds.

position in gold

Saturday, October 14, 2017

Marginal Credit

Will Emerson: These here are the historical volatility limits which, of course, our trading model relies on pretty fucking heavily. Well, we're now so levered up that once it gets outside of these limits, it gets ugly in a hurry.
Sam Rogers: And how close to these limits have we gotten?
Will Emerson: Sam, we're beyond close. We broke through these limits five or six days in the last two weeks.
--Margin Call

Not sure what the corporate universe was for the analysis, but picture reflects the decline in corporate credit quality over the past decade.

Very few AAA companies left--probably even fewer than indicated as credit rating agency scales have relaxed.

Couple that with a burgeoning stable of junk and, once again, the stage is set for credit events.

Friday, October 13, 2017

Bait and Nominate

We can do the innuendo
We can dance and sing
When it's all said and done
We haven't told you a thing
We all know that crap is king
Give us dirty laundry
--Don Henley

Donald Trump's outrageous claims on Twitter and elsewhere constantly keep his adversaries in motion. Many absorb themselves in the president's rhetoric and spend much of their days crafting clever replies and put downs. They rationalize that Trump is unstable and maybe even downright crazy.

Crazy like a fox, maybe? What if Trump's social media remarks are meant, in many cases, to distract? Perhaps many of his off-the-wall comments are designed to bait enemies into looking one way while he acts elsewhere.

Case in point offered here in the WSJ editorial. The author argues that, while the media remains caught up in Trump's tweets, his administration is restocking the federal courts with dozens of constitutional textualists that bear little resemblance to their predecessors. Trump has nominated more that 60 judges and has already filled more vacancies than Barack Obama did in his first year.

The author suggests that, while Trump keeps "baiting the media with shiny objects," he is remaking the judiciary with an extraordinary class of nominees that appear to be, as the editorial title reads, "Scalias All the Way Down."

Thursday, October 12, 2017

Associated Health Plans

The mist across the windows hides the lines
But nothing hides the colors of the lights that shine
Electricity so fine
Look and dry your eyes
--Joe Jackson

Earlier today, President Trump signed an executive order that permits people to purchase health insurance across state lines. The blueprint for this order came from Rand Paul, who posits that this will allow small buyers to band together and form 'association health plans.' The prospective bargaining power of these AHPs promises to push down premiums for many Americans.

Paul discusses the executive order here.

The increased competition and buyer bargaining power facilitated by the order makes it potentially one of the best health care market 'reforms' in many years.

And the beauty of it, as RP has noted, is that this plan "costs zero dollars" and sidesteps the dysfunction on Capitol Hill. Instead, it frees the market to do what it does best via its 'invisible hand.'

Wednesday, October 11, 2017

What Hyperinflation Looks Like

Better get yourself together
And hold on to what you've got
Once the music hits your system
There's no way you're gonna stop
--Miami Sound Machiine

Venezuela provides an example of what hyperinflation looks like. Prices rising at double, triple, and even quadruple digits rates.

Hyperbolic currency exchange rates.

Empty grocery store shelves and associated consequences.

Good thing the Venezuelan situation could never

Tuesday, October 10, 2017

How Would Criminals Vote?

"The liquor business is gonna grow big and it's gonna grow fast. So get in line, buster."
--Panama Smith (The Roaring Twenties)

Following up on yesterday's post. If prohibition comes up for vote, what would be the preference of criminals and wannabes?

The answer is obvious. Prohibition is good for business, particularly the violent kind.

Monday, October 9, 2017


"They pull a knife; you pull a gun. He sends one of yours to the hospital; you send one of his to the morgue."
--Jim Malone (The Untouchables)

Prohibitionists never seem to learn. Seeking to restrict voluntary trade between buyers and sellers inevitably fails. People who want to trade will trade. Black markets inevitably arise to satisfy latent demand. And because prohibited trade is by definition criminal, black markets tend to attract...criminals.

Crime becomes more organized over time and frequency of criminal activity increases. Law enforcement in turn develops harsher measures to deal with illegal activity. Criminals respond in kind. And violence escalates.

The irony, of course, is that prohibitionists generally seek to reduce violence rather than to increase it. But they are the ones initiating violence against people who wish to peacefully trade.

Sunday, October 8, 2017

Global Market Cap

She's so high
Like Cleopatra, Joan of Arc
Or Aphrodite
--Tal Bachman

Global stock market cap is quickly approaching $90 trillion. World GDP currently resides at about $75 trillion.

What does this variant of the 'Buffett ratio' suggest about global stock market valuation and risk?

Saturday, October 7, 2017

Enabling Snipers

"How do you like it when someone's shooting back at you?"
--Rafe McCawley (Pearl Harbor)

It has been said that gun-free zones are essentially hunting preserves for mass shooters and other criminals. Gun-free zones attract law breakers because perpetrators can accost law-abiding citizens who have no capacity for shooting back.

Stated differently, because gun-free zones offer grounds for aggression without meaningful pushback, they are magnets for bad guys.

Last weekend's mass shooting in Las Vegas demonstrates that gun free zones can also provide long range assailants with safe havens from which to shoot. The Mandalay Bay resort is a gun-free zone--so much so that not even hotel security guards are often not permitted to carry. High rise buildings that prohibit possession of firearms can be seen by criminals as inviting sniper stands from which shooters can rain death on people below without challenge for a significant period of time.

The current official story line in the Vegas incident indicates that the shooter enjoyed at least 10 minutes of private shooting time from his perch before being interrupted by authorities.

Had Mandalay Bay guests been permitted to carry, then perhaps some would have taken initiative to home in on the shooter's room and, at the very least, distracted the perpetrator sooner, thereby reducing the carnage outside.

Lesson for me: be aware not only of gun free zones that you enter, but also of gun free zones within your range--particularly if they occupy high ground.

Friday, October 6, 2017

Losing Luster?

"I'm going after that gold, Joe."
--Kelly (Kelly's Heroes)

Bloomberg reports US Mint gold coin sales at lowest levels since 2007. That previous low, of course, marked a launching point for gold. Over the next few years, bullion prices tripled and Mint ounces sold went thru the roof.

The article suggests that investors are dissing gold in favor of stocks. With stock prices marking all time highs and gold well below its highs, well, the relative value play seems obvious.

Particularly in this environment...

position in gold

Thursday, October 5, 2017

Shrinking Spreads

Out along the edges
Always where I burn to be
The further on the edge
The hotter the intensity
--Kenny Loggins

Corporate bond spreads have narrowed back to 2007 levels.

At the same time, corporate leverage continues to climb. This is painfully obvious when combing thru corporate balance sheets--debt has risen significantly for nearly all large corporations.

The culprits. Stretching for yield under conditions of financial repression. Borrowing 'cheap' to buy back stock. And don't forget to add a dollop of moral hazard.

Wednesday, October 4, 2017

Protecting Liberty

I'll move myself and my family aside
If we happen to be left half alive
I'll get all my papers and smile at the sky
Though I know that the hypnotized never lie
--The Who

It is the natural right of all human beings to pursue their interests--as long as they do not forcibly interfere with the pursuits of others. This is the essence of liberty.

Because some will be tempted to live off the backs of others thru use of forcible interference, it is also the natural right of individuals to protect their liberty from such invasion.

As such, individuals must acquire capabilities for defending their interests. Home security systems, self-defense skills, and weaponry exemplify such capabilities for defending against direct assault. People might also combine their capabilities with those of others to build strength in numbers. For instance, walking down a poorly lit street with someone else rather than by oneself reduces threat of invasion and increases self-defense capacity.

However, many perpetrators may not seek to invade a person's liberties directly. Instead, they may find it more efficient to hire a strong armed agent to do their bidding. Because government tends to be an attractive agent-for-hire in this regard, individuals must also invest in capabilities for keeping an eye on this potential threat, and acting in manners that curtail government invasion of liberty.

An implication is that, as distasteful as it is for many, individuals must invest some of their attention in the political sphere. They need to become knowledgeable about political systems, monitor political trends, and be ready to act when their liberty is threatened by politically motivated principles and their strong-armed agents.

If people do not develop political awareness, then their interests are more likely to be compromised over time.

Tuesday, October 3, 2017

Drawdown Dream

I felt so good
Like anything was possible
I hit cruise control
And rubbed my eyes
--Tom Petty

The below graph shows the maximum percentage drawdown in the SPX since 1914. The average appears to be about 10%.

So far in 2017, we've experienced the smallest max drawdown on record.

Low volatility emboldens the bulls...

no positions

Monday, October 2, 2017

Bravo Votto

And when the night is cold and dark
You can see, you can see light
'Cause no one can take away your right
To fight and to never surrender
--Corey Hart

Special shout out to Reds first baseman Joey Votto on the completion of a spectacular season--particularly considering the team's dismal endpoint.

Of all the eye popping achievements Votto booked this year, starting all 162 games--the first Red to do so since Pete Rose in 1975--stands out most. A couple years ago, knee issues caused Votto to miss parts of two seasons, casting doubt about his durability.

No doubts now about the smartest and hardest working player in the game today.

Sunday, October 1, 2017

Coping With Anthem Protests

Col Robert Gould Shaw: It stinks, I suppose.
Trip: Yeah, it stinks bad. And we all covered up in it too. Ain't nobody clean. Be nice to get clean, though.
Col Robert Gould Shaw: How do we do that?
Trip: We ante up and kick in, sir. But I still don't want to carry your flag.

Favorability ratings are declining for the NFL in response to player protests during the national anthem. How can owners stem the tide? Similar to the NBA, the league could create a rule that requires players to stand for the national anthem. Such a work rule is fully within the owner's rights. Those who argue that the First Amendment generally protects workplace speech need a Civics 101 refresher.

Owners could also cease playing the national anthem before games. Playing the Star-Spangled banner before sporting events is a relatively recent institution. As recounted by Tara Ross, baseball appears to be the first professional sport where the national anthem was played before (or during) games, but it did not become a routine occurrence until WWII.

Because national anthems can be viewed as political statements, they invite push back from those with different political preferences. Why create such a forum for trouble?

While some people would immediately be upset with the removal of the national anthem before games, the long run effect would be to depoliticize an environment that nearly all consumers of sports, in truth, would like to see depoliticized.

Saturday, September 30, 2017

Blue Blooded Family

"Everything you need is right here."
--Frank Reagan (Blue Bloods)

Previously these pages suggested that Blue Bloods offered the best in network television. Last night's season opener reinforced that proposition.

The ending scene in the new house around the dinner table was a powerful moment. A family picking up one of its own, and Danny finishing it off by offering grace.

Lotta lessons worthy of reflection.

Friday, September 29, 2017

Institutions of Capitalism

You see dimensions in two
State your case in black or white
But when one little cross leads to shots, grit your teeth
You run for cover so discreet
--The Fixx

In the sociological context, institutions are structures that promote social order. They define rules, customs, and traditions that govern behavior. In capitalistic societies, these institutions include:

division of labor
limited government
private ownership of property
profit motive

As Prof Reisman observes, most of these institutions have been under attack for years. Without these institutions, standard of living suffers.

Thursday, September 28, 2017

Paul Plan

Has he taken
Any time
To show you
What you need to live?

After the failure of another flawed 'Obamacare Lite' healthcare bill, it appears that President Trump is preparing an executive order to allow people to purchase health insurance across state lines. Essentially, this is Senator Rand Paul's 'association health plans' proposal.

This would be very positive and possesses far more potential impact than any health care reform discussed to date. Why? Because it fundamentally improves the system. As Paul observes, this plan frees the market by giving individuals the ability to club together in groups that would increase their bargaining power with a larger stable of insurance providers.

The plan is thought to not require congressional approval because authority for it already exists. The Employment Retirement Income Security Act (ERISA) already permits multi-state corporations to buy insurance across state lines. Paul thinks that the president can act on his own with an executive interpretation of existing law that expands the definition of who can form an association.

"The good thing about my plan is that it costs zero dollars," Paul adds.

That may be true, Rand, but it will take money out of the pockets of myriad special interests. It also subtracts from state power as it adds to social power. As such, expect those who a) benefit from the current arrangement, b) aspire toward a single payer healthcare system in the object.

Wednesday, September 27, 2017

Golden Pullback

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

After an early September breakout, gold has pulled back and is currently hovering above the $1300 breakout point.

As it stands, appears a healthy pullback. Of course, a decisive break below support would darken the technical picture.

position in gold

Tuesday, September 26, 2017

Scripts of Paradox

Evey Hammond: Who are you?
V: Who? Who is but the form following the function of the what, and what I am is a man in a mask.
Evey Hammond: Well I can see that.
V: Of course you can. I am not questioning your powers of observation. I'm merely remarking upon the paradox of asking a masked man who he is.
Evey Hammond: Oh, right.
--V for Vendetta

Several students at Virginia Commonwealth University were arrested last week while protesting at a neo-confederate rally. Their alleged crime: wearing masks. In Virginia, wearing masks to conceal your identity is considered a felony.

This is ironic for a couple of reasons. One, the trial for the students has been set for...Halloween.

Two, the law that they were accused of breaking was passed in 1952 in an effort to stymie activities of...the KKK.

Stupid laws are scripts of paradox.

Monday, September 25, 2017

Wounded Knee

Because a vision softly creeping
Left its seeds while I was sleeping
And the vision that was planted in my brain
Still remains
--Simon & Garfunkel

Some sports fans are pushing back against NFL players who chose to take a knee or sit during the playing of the national anthem before yesterday's games. Players shouldn't be making a political statement during a sporting event, goes the complaint.

I sympathize with that argument. When I sit down to watch football, I'm not interested in observing political protests by players on the sidelines.

The problem is that I already have to endure political statements during NFL games--and those statements are sanctioned by the NFL itself. It begins with the national anthem, which can be viewed as a pledge or oath to a political collective.

It continues with regular events that honor military personnel, particularly those who have fought in government-sanctioned wars.

Even the Super Bowl is not immune, as the president is routinely granted a 5-10 minute television slot during pregame festivities to make a political speech. This is always my cue to hit the snack tray.

The NFL is not the sole purveyor of political statements in professional sports, of course, as most other sports leagues engage in similar activities.

For those wishing to remove politics from sports, perhaps their first stop should be the owners' box.

Sunday, September 24, 2017

National Anthem

Duke of Norfolk: Thomas, look at these names! Why can't you did as I did and come with us, for fellowship?
Sir Thomas More: And when we die, and you are sent to heaven for doing your conscience, and I am sent to hell for not doing mine, will you come with me...for fellowship?
--A Man for All Seasons

A country's national anthem can be seen as a remembrance and celebration of heritage. This is surely a reason why many people, particularly conservatives, are attracted to it.

But a national anthem can also be seen as a tool of indoctrination--a pledge of allegiance to a collective entity that demands surrendering one's self for the good of the state.

Those who refuse to take that pledge are called unpatriotic. Of course, patriotism itself can be seen as an instrument for driving isomorphism in collective regimes.

In a true land of liberty there can be no such mechanism of compliance. People are not required to swear allegiance to the collective because, by definition, liberty puts the interests of each individual first.

When anthems, pledges, oaths, et al are required of citizens to demonstrate that they are subservient to the whole, then that country is no longer the land of the free.

Saturday, September 23, 2017

Flawed Again

When the truth is found
To be lies
And all the joy
Within you dies
--Jefferson Airplane

Judge Nap outlines why Rand Paul is once again correct to stand in opposition of the latest GOP-sponsored Obamacare 'repeal and replace' bill circulating around the Senate. He notes that Obamacare has been built on four flawed requirements:

1) The federal government has the obligation to provide healthcare coverage for every American.

2) The federal government can mandate that all citizens purchase healthcare coverage.

3) The federal government can micromanage healthcare production and distribution.

4) The federal government has access to all provider and patient medical records.

The latest Graham-Cassidy bill changes none of those flaws.

The correct response, as Judge Nap observes, is straight repeal of Obamacare, and then reliance on the free market, or at the very least regulation by the states, for healthcare provision.

As he has noted previously, the Judge suggests that the insidious victory of the Obamacare legislation is that it has persuaded Republicans, and a large group of Americans for that matter, that it is the duty of the federal government to assure healthcare coverage for all.

The federal government has nothing rightfully to do with healthcare. That's not according to the Judge, as he adds, it's according to the Constitution.

Friday, September 22, 2017

Bearing Down

Go on
Take the money and run
--Steve Miller Band

Yale's Robert Shiller discusses three current market conditions similar to those preceding most historical bear markets. One condition is valuation. Using his CAPE metric, the value of the S&P 500 has only been higher before the 1929 crash and the pop.

Another condition is high earnings growth. Huh? Shouldn't high earnings growth be good for stocks? Unfortunately, earnings growth is often highest just prior to big market declines. Shiller notes that in 13 prior bear market cases, annual earnings growth averaged over 13%. Over the past 12 months S&P earnings growth has averaged...13.2%.

Finally, average stock market volatility is low. In terms of the standard deviation of monthly percentage stock price changes, volatility is about 1.2%. From 1872 until 2017, the average is about three times as high at 3.5%. Lower vols lead to compression, which leads to...higher vols.

The message: For investors, things may not be as good as they appear.

Thursday, September 21, 2017

Pooling Assets

"Just when I thought it was safe to go back in the water."
--Brantley Foster (The Secret of My Success)

Yesterday the Fed announced that it will begin unwinding the $4+ trillion of assets that it accumulated during its various 'quantitative easing' programs since the credit collapse. It will begin by selling $10 billion worth of paper in October and gradually increasing sales in subsequent months.

It is difficult to fully appreciate the enormity of the Fed's balance sheet. For instance, even at a $50 billion/month sell rate, it would take the Fed nearly seven years to unwind a $4 trillion book.

My sense is that the Fed is selling only because other central banks continue to buy. As shown in the graph above, BOJ and ECB balance sheet assets have blown past the Fed with no end in sight.

Central banks buying and selling assets to each other constitutes a modern day stock pool.

Wednesday, September 20, 2017

Rebuttal vs Retraction

A time to build up
A time to break down
--The Byrds

Interesting piece discussing growing tendency for academics to demand journals to retract published articles that they do not agree with. The traditional academic way has been to rebut research that contains what are considered falsehoods. This is what scholars are supposed to do--use their thinking skills to argue their way thru competing hypotheses and propositions on the way to the truth.

Emotion or ad hominem do not apply in this process.

Unfortunately, cries for retraction rather than rebuttal are wholly consistent with trends toward intolerance of ideological diversity in higher ed.

Tuesday, September 19, 2017

Home Formation and Student Debt

"Christ. Seven years of college down the drain. Might as well join the Peace Corps."
--John 'Bluto' Blutarsky (Animal House)

Mike Shedlock reviews a recent study on college student debt. Student loan debt now totals $1.4 trillion, which amounts to about 35% of non-housing debt. More than half of all student borrowers have debt greater than $50,000.

One consequence of student debt is that it postpones family and home formation while students pay down their loans. The delay in buying a first house is estimated at about seven years. This is a headwind to economic growth.

While cheap student loans certainly benefit the colleges and universities who receive the borrowed funds as payment for services rendered, college grads who struggle to dig out from underneath student loans serve as a long term drag on the economy.

Monday, September 18, 2017

Miner Revision

When it gets too much
I need to feel your touch
--Bryan Adams

Have been itching to add to my Pan American Silver (PAAS) and finally did so this am as the stock pulls back a bit from near term highs.

May be a bit early as the moving averages are still a coupla dimes below. Like the technical setup nonetheless with stochastics reaching low.

And fundamentally, continues to operate with one of the best balance sheets in the sector. Net cash of over $100 million and an enterprise value of about $2.5 billion continues to make this my favorite name in the mining sector.

position in PAAS

Sunday, September 17, 2017

Prices in Nascent Markets

On another day, c'mon, c'mon
With these ropes tied tight we can do no wrong
Now we grieve 'cause now it's gone
Things were good when we were young
--Von Bondies

Saw an insightful comment the other day. Prices are set by supply and demand in mature markets. In nascent markets, supply and demand has yet to be established. Instead, entrepreneurs post initial prices based on where they think buyers will perceive value.

Apple might price a new iPhone model at $1000 but customers may not show up to buy them. Or customers might show up in such quantities that prices go up with demand.

When markets are young, prices can be volatile.

Saturday, September 16, 2017

Squawk Box

America, have your heard?
I got a brand new dance and it's called 'The Bird'
--Morris Day and the Time

Classic example of excessive regulation. An Obama era 2014 regulation limits the number of chickens that can be processed in a plant to 140/minute. A trade group representing poultry companies is petitioning the USDA for an increase to 175.

Rationale for the limit includes worker and food safety. Poultry companies cite pilot plant results that no adverse safety impact of higher production rates.

Regardless, government has no rightful role in dictating these production rates. If producers lose control of their processes at higher production rates, then they will be penalized in the market (for both labor and product).

Government's rightful role is settling legal disputes that may result. For example, if consumers sickened by bad birds, then then it is their right to seek recompense in the courts.

Stated differently, let markets (buyers and sellers) set proper production rates, not government.

Friday, September 15, 2017

On the Margin

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

Dow vs margin debt. Strong correlation between the Dow and margin.

New high in Dow corresponds to new high in margin debt. Margin debt also peaked at previous two bubble highs.

Thursday, September 14, 2017

Becoming the Market

"You don't go half way, do you kid?"
--Mace Ryan (Rapid Fire)

Ponder the magnitude of the below levels and trends for a moment. Central banks worldwide are not just influencing the market. CBs are becoming the market.

What happens when they own it all?

Wednesday, September 13, 2017

$20 Trillion and Rising

Another night in any town
You can hear the thunder of their cry
Ahead of their time
They wonder why

Earlier this week federal debt topped $20 trillion. We're so used to talking about government spending and debt in the trillion$ that we tend to lose perspective on just how immense and intractable this level of borrowing is.

The primary losers, on this planet, are the young. Because it will primarily be their production that must be surrendered to pay back debt, young bears the brunt of old's profligacy.

However, the primary losers, on Judgment Day, may be the old. The old will have to answer for saddling their children with unpaid bills and turning them into debt slaves.

Tuesday, September 12, 2017

Sentimental Journey

It's time for the good times
Forget about the bad times, oh yeah

Gallup study indicates investor optimism has journeyed back up to dot com levels. Sentiment among retirees particularly bubbly.

Ducks continue to line up for an epic event.

Monday, September 11, 2017

Remembering the Unforgettable

Remember when the days were long
And rolled beneath a deep blue sky
Didn't have a care in the world
With mommy and daddy standing by
--Don Henley

Once again remembering what can't be forgotten. Sixteen years ago, my world changed.

Would I go back to the pre 9/11 age of innocence if I could? Tempting to be sure. But no thanks. The terrible sights and sounds of that day woke me up.

I remain awake.

Sunday, September 10, 2017

Kickoff Cometh

"And on the sixth day, He created the football player. And people paid to watch them hurt. And on the seventh day, they played FOOTBALL!"
--Stefen Djordjevic (All the Right Moves)

We usher in pro football once again today on a sunny late summer Sunday.

Crowded gridirons coincide with the harvest season--a season for which we are grateful for all that we have been blessed with.

Saturday, September 9, 2017

Managers and Entrepreneurs

Dream baby dream
Of all that's come and going

Baumol (1968) distinguished managers from entrepreneurs. Managers oversee existing processes. They are efficiency minded, and tasked with ensuring that traditional technologies are employed to their utmost to produce outputs that achieve current goals.

Entrepreneurs, on the other hand, are tasked with searching for and implementing new ideas. They are always looking to improve today's practices through innovation.

Baumol goes on to note that entrepreneurs are generally absent from economic theory--a theory that views managers as calculators of optimal values for all decision variables in the firm. They do so, he says, "until exogenous forces lead to an autonomous change in the environment. Until there is such a shift in one of the relationships that define the problem, the firm is taken to replicate precisely its previous decision, day after day, year after year." (67)

Although he does not explicitly say so, Baumol implies that entrepreneurs are the ones that respond to environmental forces pushing against the status quo and demanding adaptation.


Baumol, W.J. (1968). Entrepreneurship in economic theory. American Economic Review, 58(2): 64-71.

Friday, September 8, 2017

Marx and Redistribution

"Look, what does a capitalist do? Let me ask you that, Mike. Huh? Tell me. I mean, what does he make, besides money? I don't know what he makes. The workers do all the work, don't they?"
--John Reed (Reds)

Nice point made here that Karl Marx was not a proponent of forced redistribution of privately made output. Instead, Marx's brand of socialism specified no private ownership of capital. Productive assets would be the property of the state.

At the outset, according to Marx, planning boards would make production and distribution decisions. Over time, however, as people adjusted to a life of serving others and void of self interest, they would cooperate amongst themselves to produce according to each person's ability and distribute according to each person's need. Like what happens in a commune...thus 'communism.'

Both theory and empirical evidence demonstrate just how wrongheaded socialism in general, and Marx's version in particular, is.

Thursday, September 7, 2017

Immigration and Welfare States

We come from the land
Of the ice and snow
From the midnight sun
Where the hot springs blow
--Led Zeppelin

In the wake of President Trump's rescinding of his predecessor's executive order aimed at keeping illegal immigrants in country, I am reminded of a principle attributed to several people. It says that you can't have open borders and a welfare state at the same time.

In unhampered markets, people are free to cross borders in search of opportunity. Those opportunities involve those related to production and trade. Those countries that offer the best opportunities attract the most productive people. Open border policies, then, create competition among various free states for productive people with capacity to increase standard of living for all.

If a welfare state is available, then some people cross borders into that country in search of a free ride. Rather than attracting producers, welfare states are magnets for those who would rather live on the backs of others. Consequently, standard of living is restrained as productive people are forced to work for others as well as for themselves. In addition, conditions of moral hazard encourage loafing over work.

It follows that, in a society of welfare states, unrestricted travel and immigration will face considerable resistance--much of it justified. Though counterintuitive to some freedom lovers, open borders in welfare states can compromise, rather than preserve, liberty.

Wednesday, September 6, 2017

Fin Weight

There's 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

Financials trading heavier than general market. Sign of supply.

Technical pattern also looks head-and-shouldersy.

position in XLF

Tuesday, September 5, 2017

Corporate Debt

I saw the sign
And it opened up my eyes
I saw the sign
--Ace of Base

Although the size of federal debt grabs much attention, corporate debt is not far behind. As shown by the graph below, corporate debt is quickly approaching $15 trillion and 75% of GDP.

ECON 101 says lower the price of a commodity and demand will rise. So it goes with debt. Like individuals and nations, corporations have been assimilating more debt as rates have been forced lower.

The question nagging the reasoning mind is can this go on indefinitely? And if answer is negative, then what stops it?

Monday, September 4, 2017

Korean Trade Sanctions

"You're in deep kimchi, buddy. Better have it all in one sock for this one."
--Captain Spellman (Under Siege)

Yesterday President Trump indicated that the US would consider ceasing trade with any country doing business with North Korea.  Presumably, that would include big trading partners like China.
My first thought was good luck marshaling enough support for that.

But beyond the political difficulties involved, such a move would set back standard of living for the United States and its trading partners. Sanctions, tariffs, and boycotts prohibit people from engaging in production and trade that advances prosperity for all.

There is also the proposition that 'when goods don't cross borders, armies will.' Sanctions promote conditions of war, not peace.

Sunday, September 3, 2017

Lacking Real Capital

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

Why don't we have exploding capex when money has never been easier? Because money does not equal capital, and we have been consuming capital for years.

Plus, the world is swimming in unused capacity. Why build more when we already have too much?

Saturday, September 2, 2017


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

Energy supply chain disruption remains in motion down south. Not only are refineries struggling to produce and pipelines struggling to pump, but raw material in the form of crude oil sitting in tankers is piling up in the Gulf.

Currently close to 60 tanker ships are anchored in the Gulf waiting for ports to open. Interesting dynamic view here.

With perhaps 20% of US refining capacity not producing, refined product unable to find its way downstream, and lots of raw material sitting offshore, easy to imagine how this situation reaches out to touch lots of people.

Friday, September 1, 2017

That Seventies Dollar

Mike Brady: I honey. What's for dinner?
Carol Brady: Pork chops and applesauce.
--Peter Brady (The Brady Bunch)

Nice reminder of what happens to purchasing power as money supply goes up.

By this particular account, a 1971 dollar is worth less than 20 cents. Stated differently, That Seventies Dollar has lost over 80% of its value.

Thursday, August 31, 2017

Intervention Timeline

"And I hate to tell you this, but it's a bankrupt business model. It won't work. It's systemic, it's malignant, and it's cancer."
--Gordon Gekko (Wall Street: Money Never Sleeps)

Nice timeline of CB intervention over the past 10+ years.

Currently eyes turning to ECB and their anticipated reduction of asset buying this fall.

Wednesday, August 30, 2017

Cause for Pause

Ever had that feeling
Almost broke in two
Said that you were leaving
Like you do, like you do

Conference Board survey indicates that 80% of Americans believe that stock prices will not be lower 12 months from now. Last time the public had similar sentiment was 2007.

Add to that record high specs in stock futes...

...and there's cause for pause.

position in SPX

Tuesday, August 29, 2017

Detective Gold

Private eyes
They're watching you
They see your every move
--Hall & Oates

Pretty breakout in gold yesterday above the technically important 1300 resistance level. Follow thru today as well.

Firming technicals in both gold and silver raises the spectre that the metals complex may be in the early stages of sniffing something out.

position in gold and silver

Monday, August 28, 2017

Silver Setup

I step off the train
I'm walking down your street again
--Everything But the Girl

Silver doing work against the intermediate term downtrend line.

Gotta think the trading bots will get long on a decisive move above resistance here.

position in silver

Sunday, August 27, 2017

Harvey Havoc

Rain, rain on my face
It hasn't stopped
Raining for days
My world is a flood
Slowly I become
One with the mud
--Jars of Clay

Harvey slammed into the Texas coast over the weekend as a Cat 4 Hurricane. Although declining winds quickly brought a downgrade to tropical storm status, Harvey has dropped a ton of rain. Some areas may realize four feet of rain before it is over.

Needless to say, flooding is widespread. Because the area is an epicenter to oil and gas, eyes are focusing on how related supply chains cope with disruption. In the map below, offshore dots are oil platforms, solid squares are terminals, open squares are refineries, and lines are major pipelines.

Many upstream facilities were shut in advance of the storm. Now nearby refineries are being taken offline. The generally lean nature of these supply chains exposes them to prolonged outages.

How prolonged the outage will be here remains to be seen.

Saturday, August 26, 2017

Communism and Fascism

And the parting on the left
Is now parting on the right
And the beards have all grown longer overnight
--The Whoe

Socialism is a form of economic organizing in which control of the means of production rests with the state. Rather than consumers ultimately dictating what gets produced and for whom (as in capitalism), bureaucratic planning boards make production and distribution decisions.

While the concepts of socialism have a long history that can be traced back to Greek philosophers, political frameworks for putting socialism in motion are more recent. Of the several frameworks proposed over the past two hundred-plus years, primarily by Europeans, two of them have popularly evolved.

The earlier form, communism, is credited to German born Karl Marx, although many of his concepts were drawn from developers in France and England. Communism espouses equitable distribution of resources in the name of the 'common good.' In its ideal form, property rights and class differences are non-existent, and individuals are supposed to produce according to their ability and consume according to their need. Of course, the strong arm of the state is necessary to confer such equity.

Communism as a political means for socialistic economizing became the rage among European academics and politicians in the mid to late 1800s--particularly in Germany. By the turn of the Twentieth Century, Germany had implemented several social welfare programs patterned on the Marxian ideal.

The devastating effects of World War I and its epilogue soured sentiment for communism among the German people--particularly the part about sharing wealth with comrades worldwide. Political activists, among them an ambitious Adolf Hitler, sensed opportunity in advancing a different brand of socialism--one with a reach that stopped at German borders. The idea was for government to concentrate resource control and distribution among various verticals that were controlled by the state. The proceeds would be shared inside Germany only.

Hitler's National Socialist (i.e., NAZI) Party became the template for similar movements in other countries. National socialism is also known as fascism.

One would think that, because they are both grounded in socialism, that communists and fascists would get along nicely. Historically, however, this has not been the case. In 1930s Germany, communists and fascists fought a bitter battle for power that was ultimately won by Hitler's Nazis. Surviving communists fled and took up residence elsewhere. Subsequently, World War II pitted Germany and it fascist neighbor Italy against the communists heavyweight Soviet Union.

While that war has long since ended, the battle between the two dominant brands of socialism continues, as is currently being demonstrated by street riots pitting fascists against their 'antifa' adversaries.

Friday, August 25, 2017

Institutional Masquerade

Col Robert Gould Shaw: What are you doing?
Col James M. Montgomery: Liberating this town in the name of the republic.

These pages have included a thread discussing the work of Tom DiLorenzo and his studies of Lincoln and the Civil War. In the context of current Monumental Hysteria, DiLorenzo once again presents compelling evidence of Lincoln's racist tendencies and his motivation for war centered around achieving the American System doctrine by keeping Southern States in the union--particularly as sources of tax revenue and as customer of Northern goods with few realistic options.

That this body of evidence, which has been built by many researchers, is so strongly ignored by the mainstream provides a sense of just how persistent the institutional masquerade has become concerning Lincoln, the Civil War, and, in current context, the South.

What particularly captured my attention this time around was the discussion near the bottom of DeLorenzo's piece about the war crimes committed by Lincoln and his generals. Particularly because this group opened Pandora's box for genocide and crimes against humanity in the next 150 years' worth of war, perhaps their statues and associated insignias, battle flags, war songs, et al. should be designated for destruction by those who believe they occupy the moral high ground as well.

Thursday, August 24, 2017

Diversion of War

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

As both Ron Paul and Judge Nap observe, Donald Trump appears to be taking a cue from presidents in the near and more distant past.

When in need of a political diversion, choose war.

Wednesday, August 23, 2017

Contracting Expansions

Christy Wills: So tell me one more time what your solution is to this crisis.
Brantley Foster: We don't cut. We expand.
Sheila the Waitress: I agree. Expansion is a positive reaction to the universe. While retraction, or cutting back, or pulling off...those are all negative forces.
--Secret of My Success

Graph below shows annual increases in GDP following recessions for the last 60+ years. The most recent recovery stands out as the weakest.

Taken in context of the graph, however, the recent weak recovery is not a one-off event. Instead, it is a continuation of a long term trend. Recoveries have been trending down in terms of GDP growth across the study period.

Would venture a guess that the economic stimulus put forth to juice recoveries has generally escalated during this period. When viewed from thru this lens, more and more stimulus has led to less and less recovery.

As such, the picture portrays a less-bang-for-the-buck trend.

Tuesday, August 22, 2017

Robot Anxiety and Politics

Karen Thompson: Think it's better than it was--when people did all this work?
Jack Ramsay: Sure.
Karen Thompson: But machines always break down.
Jack Ramsay: Let me tell you how it is. Nothing works right. Relationships don't work right. People don't work right. People make machines, so why should machines be perfect?
Karen Thompson: Because they're machines.
Jack Ramsay: Yeah? Well, that's not the way it is.

Recent Brookings Institute analysis suggesting a link between 'robot anxiety' and last year's presidential election. Robot anxiety is the fear that robots will permanently displace workers. Although it has been around long before modern day technology, robot anxiety appears to be growing in part due to rapid advances in artificial intelligence which has some forecasting that machines will soon obsolete even knowledge workers.

Robot anxiety may also be growing because robots are being over-employed as regulations such as the minimum wage inaccurately tip economic calculation in favor of automation.

The Brookings study portrays the distribution of robotic installations across the US as uneven--i.e., some states are home to significantly more robots than others. Moreover, states that voted 'red' in last year's election carry a robot intensity (defined as robots/1000 workers)--more than double that of states that voted blue.

Because workers that fear for their jobs will seek political relief if need be, it is proposed that voters in key battleground (and robot-laden) states such as Michigan and Wisconsin pulled the lever for Trump partly due to his loud protectionist stance.

While the economic angle of permanent job loss has little merit, the political aspect of the theory may contain a kernel or two of truth. In the long run, of course, protectionism has long been a bipartisan endeavor here in the States.

Monday, August 21, 2017

Downside Position

You're looking good just like a snake in the grass
One of these days you're gonna break your glass
--Electric Light Orchestra

Took on my first downside exposure in some time last Friday. Environment feels pregnant with potential catalysts, and the technicals feel like they're running out of upside gas.

Token exposure, really, consisting of small index SPX short and some XLF puts. Relative value of out-of-the-money XLF puts seemed superior to SPY at the moment. Fundamentally, financial leverage will work against the banks, I believe, if prices get moving to the downside. Technically, just to retrace the Trump rally means that the banks need to fall 20%--which seems quite within the realm of possibility.

I like them out of the money right here as an expression of a potential melt.

position in SPX, XLF

Sunday, August 20, 2017

Monumental Hysteria II

"Well, I'm sorry if the truth offends you."
--Rhett Butler (Gone With The Wind)

Previously we discussed the loss of historical perspective possible when seek to remove or destroy historical monuments positioned in public places. However, there is a good argument that they should be removed. The argument is similar to the one made in favor of removing Confederate flags flying in public places.

By 'public places,' we mean government land, buildings, and associated infrastructure owned and operated by the government. This includes but is not limited to government buildings and public parks at the federal, state, and local levels.

The display of any monument or artifact of any kind--save perhaps national, state, and local flags which can be seen as a form of geographic affiliation--constitutes a form of speech. The government does not enjoy the same freedom of speech that we enjoy 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.

Viewed from this perspective, all Confederate monuments should be removed from public places. But these monuments are just the focus du jour. This argument extends to virtually all public monuments currently standing that can be construed as expressing any opinion. The low hanging fruit would include shrines to religion, war, social issues, and particular groups including minorities.

That the logical extension of this argument includes consideration about the appropriateness of even the most basic of symbols, including the American flag, demonstrates just how little speech government should be engaged in.

A similar argument, btw, can be made for dismantling public schools as it is impossible to keep them value neutral.

Does that mean that all of the monuments to these groups and issues should be destroyed? By all means no. It means they should be privatized. As Ryan McMaken proposes, those upset with the removal of Confederate monuments from public grounds should lawfully obtain them from the government or their rightful owners (or make new ones, of course), purchase a chunk of private land--perhaps near a busy intersection, and put their statues there.

Saturday, August 19, 2017


"Do not judge, and you will not be judged. Do not condemn, and you will not be condemned."
--Luke 6:37

The popular word in politically correct circles currently is 'condemn.' As in "I condemn (fill in behavior)." There are also public outcries for others to condemn (fill in behavior).

Alongside Matthew 7 and John 8, Luke 6 above suggests that we be careful with how we sling that word around.

Friday, August 18, 2017

Monumental Hysteria I

Colonel Robert Gould Shaw: It stinks, I suppose.
Tripp: Yeah, it stinks bad. And we all covered up in it, too. Ain't nobody clean. Be nice to get clean, though.
Colonel Robert Gould Shaw: And how do we do that?
Tripp: We ante up and kick in, sir. But I still don't want to carry your flag.

Following the Charlottesville riots, progressives across the country are engaging in their latest bout of hysteria: seeking to remove or destroy all monuments that this group perceived as linked to the Confederacy and/or slavery. This can be seen as an extension of the left's Confederate flag fetish a couple of years back.

Of course, tearing down statues is the socialist way. Whether those socialists originate from communist or fascist sides of the spectrum, the idea is to erase symbols from the public mind that are inconsistent with the collective message. Also, being an intolerant lot, socialists seem to possess a strong urge to blot out words or symbols that cause them negative psychic income.

As many, including President Trump and Judge Nap, have argued, removing these monuments amounts to trying to erase history. And how far do you take it? The pyramids were built by slaves. The White House was built by slaves. Washington, Jefferson, Madison, et al were slave owners. Lincoln's racism. Slaves even worked in Lincoln's White House during the Civil War. Lots of infrastructure would have to come down to be logically consistent with this movement.

As Judge Nap questions, do we really want to pretend that none of this happened? He suggests that we're in a bad place when we erase and deny history. He argues that we should remember the awful so that the pain of those memories helps prevent those bad events from recurring. Quoting Orwell's 1984:

"Every record has been destroyed or falsified. Every book rewritten. Every picture has been repainted. Every statue and street building has been renamed. Every date has been altered. And the process is continuing day-by-day and minute-by-minute. History has stopped. Nothing exists, except an endless present in which The Party is always right."

The Judge fears we are getting there today. Me too.

Although I am sympathetic to this view, there is a good argument for removing these monuments from public places. We'll discuss it next time.