Steel Blues

Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms
Standing in line
--Billy Joel

Yesterday, after President Trump indicated that a big tariff on steel imports was coming, stock markets drained a couple percent. This morning Trump followed up with comments that trade wars are 'good' and 'easy to win.'

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!

— Donald J. Trump (@realDonaldTrump) March 2, 2018

Even the ghosts of Smoot and Hawley might be raising eyebrows at that one.

Of course, we have come to learn that it can be a bad idea to take the president's blurts at face value. He floats revocable thoughts in the spirit that all issues are fluid and negotiable.

The spectre of escalating trade wars is disturbing nonetheless. ZeroHedge observes that the last time significant tariffs were slapped on steel (under President Bush), stock markets sank about 30% over the course of the next year.

The graph appearing in this analysis shows that the Bush steel tariff did little to protect domestic steel jobs. In fact, US steelworker jobs are down nearly 60% since 1990. However, over that same time period, steel production is up about 8%. That's an increase in productivity of over 150%.

Societies benefit from such productivity increases. Not from policies that slow such productivity increases down.

Election Rallies

"Kid, you're on a roll. Enjoy it while it lasts, 'cause it never does."
--Lou Mannheim (Wall Street)

As we close in on the one year anniversary of arguably the most incredible presidential election in US history, Donald Trump reminds us almost daily about how high the stock market has lifted since election night. The S&P 500 is up about 21% in the last year.

However, that twelve month performance places the Trump election rally only fourth on the list since 1936. Clinton 1996 (32%), JFK 1960 (29%), and George H.W. Bush 1988 (23%) all rank higher.

One thing we can be sure of. All of these administrations, and their supporters, were prone to tout what they saw as the executive office's positive influence on markets. And you can bet that many of Trump's detractors who see higher stock market prices as completely unrelated to Trump were chatting up Bill Clinton's market magic during the dot.com era.

Taking credit for stock market gains is extremely bad mojo. From the above graph, the JFK and Bush rallies both fizzled in subsequent months. Clinton was fortunate enough to jump ship before the dot.com bust really got going.

Rest assured that the wrath of the trading gods will rain down upon Donald Trump's swagger as well. When the storm hits, this president, like his predecessors, will quickly move from owning market increases to disowning market declines.

no positions

Bad Mojo

"The truth is, we're all part of it now. Banks, consumers...we're moving around money in circles. We take a buck, we shoot it full of steroids, and we call it leverage. I call it steroid banking."
--Gordon Gekko (Wall Street: Money Never Sleeps)

On several occasions since he has taken office, President Trump has taken credit for increased stock prices. He is not the first president to do so. In fact most do--particularly when higher stock prices can be woven into campaign rhetoric.

But it is extremely bad mojo to do so.

As we know, interventionary forces designed to prop up markets ultimately give way to ever-persistent natural forces intent on wiping out excess and revising prices to reflect true value. The thing of it is, the timing of this 'decompression' is unknowable.

In the case of the Obama administration, enough drugs were shot into the system to prop markets up for virtually the president's entire tenure. In the case of the Bush administration that preceded him, the engineered housing bubble popped at an inopportune moment, thereby draining both asset prices and GOP election hopes in the 2008.

What makes Trump's end zone dance particularly foolish is that he is doing it so early in his tenure. Touting the effect of his policies on stock prices at this stage of the game practically guarantees markets will punish his hubris while he's still on the clock. Measuring nearly ten years in length, this particular phase of interventionary 'steroid banking' policy is so long in the tooth that markets could reverse hard at any time and for any reason.

When prices do begin to spill, of course, Trump's naysayers will take their turn at the podium and point fingers at the president for market declines.

All the while it will have been the cumulative efforts of a century of bipartisan interventions that rest at the root cause of the problem.

Broadcasting Private Information

"The government's been in bed with the entire telecommunications industry since the forties. They've infected everything. They get into your bank statements, computer files, email, listen to your phone calls...every wire, every airwave. The more technology used, the easier it is for them to keep tabs on you. It's a brave new world out there. At least it better be."
--Brill (Enemy of the State)

Judge Nap recounts outgoing Attorney General Loretta Lynch's recent actions to permit the NSA, which has been unconstitutionally collecting information about all Americans via its domestic spying apparatus, to pass along its raw spying data to all other federal intelligence agencies. Those agencies can then share that data with counterparts in foreign countries and in the fifty states.

By essentially permitting the federal government to broadcast private information, this administration has acted once again to move the needle further away from liberty and freedom.

We can only hope that the incoming administration, including the new AG, will act to reverse these wrongs.

Tax Cuts vs Bailouts

If you drive a care, I'll tax the street
If you try to sit, I'll tax the seat
If you get too cold, I'll tax the heat
If you take a walk, I'll tax the street
--The Beatles

Of many headlines Donald Trump made this week, one related to a deal that he helped engineer with Carrier Corp. The essence of the deal was that the company would keep 800 jobs at a factory in Indiana rather than moving them outside the US in exchange for about $7 million in tax breaks.

Of course, the president-elect has no authority to grant tax breaks. But his running mate, vice president-elect Mike Pence, is still governor of Indiana and does possess the influence to get state-level tax exemptions done.

One of the many complaints about the deal comes from, naturally, progressives. Their complaint goes something like this: Barack Obama got all kinds of grief for bailing out the US auto industry following the credit market meltdown eight years ago. What's the difference between Obama's bailouts and Trump's tax cut?

The difference is considerable. When Obama, who in reality extended a plan initiated by his predecessor George Bush, bailed out the auto industry, he forced tax payers to subsidize imprudent behavior of automakers. In an unhampered market, that imprudent behavior would have been penalized by turning economic resources formerly in the hands of people who took excessive risk over to others who would have had the chance to manage those assets more prudently. Bailouts backstop excessive risk taking, and invite more imprudent decision-making in the future.

On the other hand, tax cuts of any kind are not subsidies. They constitute government permission to keep property--property that was rightfully owned in the first place. Tax cuts are peacefully grounded as they remove force from the system.

Bailouts are grants of privilege. They must be funded by imposing financial obligations on others. Tax avoidance of any kind (exemptions, loopholes, etc) confers no privilege. Those who avoid taxes are merely keeping more of what is rightfully theirs.

Executive Power

"And, when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat?"
--Sir Thomas More (A Man for All Seasons)

Part of the post-election hysteria engulfing the Left can be interpreted as fear of the power that Donald Trump will be able to wield as president. Such a threat is very real. And, as Glenn Greenwald observes, the vast power that the president currently holds is something that the Left has facilitated.

As administrations before him have done, President Obama has extended his authority far beyond its constitutional limits. While they complained about executive overreach when President Bush was in office, Democrats were fine with such lawlessness when their party held the office.

As these pages have warned, when discretionary rule replaces rule of law, sooner or later you will be in trouble when your guy is replaced by someone with a different view of the world.

When Bias Backfires

You got altered information
You were told to not take chances
--The Who

In the run up to the 2004 presidential election, the  media's slant toward Kerry and away from Bush intensified. The negative Bush ads and failure to portray Kerry as anything other than qualified revealed a bias that was blatantly obvious to anyone but the most partisan Kerry supporter.

On election day, many polls (and all of the odds-making sites) had Kerry in the lead. But then early election night results found Bush taking several swing states by surprise, and the tables quickly turned.

I remember thinking that one factor working in Bush's favor may have been the heavily biased tone of the media. Their output was so slanted that large groups of voters in the middle may have said "enough" and pulled the lever for Bush as an expression of protest or of balancing the situation.

I wonder whether the same phenomenon may be at work again.

Media coverage of the two presidential candidates this time around has been so slanted that some outlets have confessed that they must compromise journalistic integrity in order to keep Trump from winning. Thus, Clinton gets a free pass on criminal behavior while Trump is put under the microscope for issues that appear trivial in comparison.

Onlookers with a sense of procedural fairness perceive this situation as out of balance and, although they might not see eye to eye with Trump, begin to root for the guy.

And if the bias becomes slanted enough, people who had no original intent to do so may vote for him.

Unseen Costs

Well I do my best to understand dear
But you still mystify
And I want to know why
--Nick Lowe

Prof Williams applies Bastiat's seen and unseen rule to the Bush administration's 2002 steel tariffs. What is seen are the beneficiaries, including steel industry workers and shareholders who benefit directly from the protectionist practice.

What is unseen are the costs. Williams cites studies estimating that each steel industry job 'saved' by the tariffs cost American consumers $800,000, and that tariffs caused the loss of about 50,000 jobs across 16 states in supply chains that had to cope with higher steel prices.

As Williams observes, taxing ourselves and giving each steel worker a $100,000 check would have been far cheaper than the ultimate cost of the tariffs.

When the federal government creates a special privilege for some Americans, it must necessarily come at the expense of other Americans.

To hone your skills, apply Bastiat's rule to various policies and programs. Consider, for example, some issues favored by the Obama administration, including:

Higher minimum wages
Zero interest rate policy/quantitative easing
Stricter gun control
Obamacare

Identifying who benefits is relatively easy. This is what the administration wants you to see.

Identifying who bears the cost is harder. The administration hopes that you remain blind to the costs.

Presidents and Regulation

I lie awake
Burning inside
Nowhere to run
Nowhere to hide
--Roger Daltrey

Article discusses rate of increase in regulatory restrictions under each presidential administration since Carter. Results suggest that there has been little difference in rate of regulatory increase among administrations save the second terms of both Reagan and Clinton.

"Over the last 20 years, the regulatory budget has more than doubled in real terms, while the total number of restrictions has grown by about 220,000 - a 25 percent increase.

Restricting freedom has been a bi-partisan activity.

Walker's Wilderness

In a big country, dreams stay with you
Like a lover's voice fires the mountainside
Stay alive
--Big Country

Years ago, former head of the General Accounting Office David Walker launched a campaign to increase public awareness about fiscal responsibility in the US. He's still at it. As in the past, he observes that unfunded liabilities substantially increase the 'headline' federal debt number.

Today's $18.5 trillion in federal debt is really closer to $65 trillion when future social security and health care liabilities are factored in.

Like a few other voices in the wilderness, people heed not his message.

Trump's Card

Would I lie to you?
Would I lie to you honey?
Now would I say something that wasn't true?
I'm asking you sugar
Would I lie to you?
--Eurythmics

To many people, the attractiveness of Donald Trump as a presidential candidate boils down to his being an outspoken outsider--someone who has not been a government employee and who is willing to speak in non-politically correct terms. Some of that is indeed refreshing and something that other candidates might learn from.

Thus, when Trump challenges that effectiveness of recent monetary and fiscal policies in promoting real economic growth, and suggests the complicity of the Fed in facilitating pending financial disaster, it is tempting to think that this guy has a solid grasp of problems confronting us and what to do about them.

However, Trump's record places him in the authoritarian camp, and authoritarians often have a keen habit of appealing talk to help them get elected followed by opposing behavior once they are elected. Thus, we found FDR campaigning on planks to cut federal government spending and balance budgets prior to initiating his massive New Deal spending programs. More recently, candidates Bush and Obama both railed against crony capitalism and corporate welfare before approving massive bailout programs and programs that protect big business on their watch.

Trump's calling card, rhetoric with shock value, distracts from his statist core.

Elections and Markets

There's a place 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

The last two changes in party control of the presidency coincided with major market declines. 2000. 2008. Electorates are likely to place blame on sitting administrations for big market declines.

And blame is justified. Administrations have enacted or condoned monetary and fiscal policies sure to drive booms followed by inevitable busts. Recently it has taken about the length of a two term presidency for these cycles to play out.

We can be confident that it will be similar this time. The sitting administration will seek to move heaven and earth to prop markets up thru November of 2016 so that it increases the chance that a representative from its party remains in the Big Chair.

Whether it will be successful at doing so is a different issue entirely. History suggests that it will prove difficult.

position in SPX

All the King's Men

We
Are young but getting old before our time
We'll leave the TV and the radio behind
Don't you wonder what we'll find
Steppin' out tonight
--Joe Jackson

Approximately eight years ago to the day, I was in NYC visiting my good friends at Minyanville. Early tremors were shaking markets as subprime derivatives were beginning to fall apart.

I remember thinking two things. One was that few people in The City seemed aware of the danger ahead. Real estate was flying. $1000 dinner tabs were common. Limos filled the streets.

The other was that the Bush administration and Republicans were going to have their hands full trying to keep the markets together ahead of the 2008 election. They couldn't, of course, as the SPX sank by about 50% over the next year.

Here we are eight years later and the shoe is now on the other foot. Early tremors are once again shaking markets--although with less effect so far as the markets have been heavily medicated. The Obama administration and Democrats are surely thinking about what they can do to prop prices up for the next year.

One problem that they face is that they have already moved heaven and earth to jam markets higher for the past few years. As bad as they were, the Bush people applied nowhere near the preemptive interventionary force currently being administered by the Obama group.

The question is whether this administration has any interventionary capacity remaining. What tricks the Obama administration might still be able to pull to keep those limos cruising the NYC streets in the months ahead?

position in SPX

Massive Fight?

Suddenly now it seems
I'm sleeping with the enemy
--Kylie Minogue

In response to recent criticisms that a proposed trade deal would reverse effects of financial regulations implemented since the 2008 credit meltdown, President Obama responded in part with this one:

"Think about the logic of that, right? The notion that I had this massive fight with Wall Street to make sure that we don't repeat what happened in 2007, 2008, and then I sign a provision that would unravel it? I'd have to be pretty stupid."

The actual 'logic' of trade deal effects, particularly this one, on regulated markets is fodder for another day. Here let's consider the president's claim that he has engaged in a 'massive fight' with Wall Street to eliminate risk of a repeat market meltdown.

The president is almost surely referring to the Dodd Frank legislation and other regulation which does nothing to eliminate the root cause of the 2008 collapse: leverage many times in excess of what would be possible in unhampered markets.

Not only has that root cause not been eliminated but policies enacted under the Obama administration have increased leverage to levels far above where they stood before the 07-08 wipeout.

Add to that a couple of additional tidbits. Like all regulation, the supposed burden of Dodd Frank et al regulation is actually a boon to established players as it raises barriers to entry against innovative entrepreneurs who would otherwise enter the industry and chop down inefficient incumbents.

Moreover, the Obama administration has supported various policies that bailed out the supposed 'enemies' that this president has warred with. Wall Street profits, salaries, and bonuses are way up. Income disparity has widened. Many of Obama's Wall Street enemies have been large campaign donors.

With enemies like this, who needs friends?

More of the Same

Meet the new boss
Same as the old boss
--The Who

Jacob Hornberger discusses the biggest failures of Barack Obama's presidency. Few liberty-minded people expected Obama to steer policy toward more economic freedom. In fact, it was easy to fear the worst--more intervention in economic affairs. And that has occured.

But Obama could have worked within his ideological constraints to alter the country's course on civil liberties and foreign affairs. He could have used his office to move America away from policies of militarism, surveillance, and foreign interventionism and back toward original principles of peace, security against warrantless search and seizure, and no foreign entanglements.

Instead, Obama allowed himself to be just another president. JH proposes that "Obama's two terms in office are nothing more than Bush's third and fourth terms in office."

How could it have been different? Obama could have worked toward several ends that would have made big progress on the civil liberties and foreign affairs fronts, including:

Repealing the Patriot Act.

Ending all US invasions, occupations, and coups of foreign soil.

Bringing home and discharing all US troops.

Closing all US military bases on foreign soil.

Ending all sanctions and embargoes. Cuba's embargoes could have been first.

Shutting all Cold War era military and intelligence departments agencies, including CIA and NSA.

Welcoming dissent about infringements on civil liberty and foreign policy, rather than seeking to prosecute it.

Ending all foreign aid.

Ending all surveillance--both foreign and domestic.

Ending the war on drugs.

About halfway through Bush's second term, I hoped that W would break away from his general party's direction and champion radical efforts toward removing force from the system. "Because Bush was a lame duck, what did he have to lose?" I reasoned (probably naively). It didn't happen, of course.

Of course, the book is not yet closed on Obama. Perhaps he will step out of the mainstream and champion liberty rather than force.

I pray that he does.

Unclear and Distant Danger

"These drug cartels represent a clear and present danger to the national security of the United States."
--President Bennett (Clear and Present Danger)

As US bombs and missles fly in Syria, I am reminded what Syrian officials said prior to the attack--that any military action taken by the United States in Syrian would be viewed as acts of aggression.

They are correct. We are not defending ourselves against aggression. Syria has not attacked us nor has it brandished a clear and present threat that justifies lethal self-defensive force. Instead, we are the attacker, engaging in offensive action against Syria. Syria is now the self-defender.

Playing out how this could escalate is not a pleasant endeavor.

I am also reminded how similar this president's actions are to his predecessor's, despite claims to the contrary. Distinctions with no difference...

Obama's Censorship

Here I am in silence
It's a game I have to play
You and I in silence
With nothing else to say
--Information Society

Letter from the Society of Professional Journalists requesting that the Obama administration remove various forms of censorship of public information.

In particular, SPJ cites restrictions placed on communications between journalists and federal agencies. Whereas journalists could once freely walk agency halls and communicate with agency staff, such free communication is no longer allowed. Instead, media representative must go through public affairs offices or political appointees. Incomplete information and spin, results.

Unlike privately owned and operated organizations, where reasonable control of communication is a valid property right, government agencies are owned by and work for the public. Transparency should be total. Media restrictions lifted.

What makes the present state of censorship particularly ironic is that it comes from an administration that had promised high transparency. In reality, it operates with growing opacity and deceit.

The SPJ letter suggests that information suppression at the federal level has been growing for decades, and has significantly increased with the past two administrations.

Why more censorship now? Because technology has collapsed barriers to entry and opened the field of journalism. Prior to the increased competition, media outlets were fewer and easier to control--particularly where biased journalists were partial to particular political causes. Even if journalists with a political preference intend to report news impartially, it is difficult to do so (see 'Distortion Theory' thread).

Now, it is more difficult for government institutions to control the media. Journalists and their outlets can no longer be trusted to toe party lines. Information markets that are more free are more capable of exposing political malfeasance.

The institutional response, and quite predictable, really, has been to cut information flows and more tightly manage its content.

'Defending Freedom' Indoctrination

"A brilliant man would find a way not to fight a war."
--Admiral Yamamoto (Pearl Harbor)

I grew up one of the indoctrinated. As a kid, I saw the daily Vietnam body counts on the nightly news. Those soldiers were dying 'defending our freedom,' it was said. I watched gobs of WWII war movies. Again, the message was that US soldiers nobly died 'defending freedom.' I tipped my cap to Iraq I, Iraq II, and Afghanistan in the name of freedom.

Over the past few years I have finally seen thru the deception. The truth is that none of these were just wars. Freedom in the United States was never legitimately 'under attack' in these conflicts.

Sadly, hundreds of thousands died. But, by and large, these soldiers died in wars of aggression in remote lands. Rather than sentries of freedom, these people, by following orders, became instruments of empire.

This past Memorial Day weekend, there was perhaps no better reflection of our blind allegiance to militarism than the observances that took place at all Major League Baseball games on Monday. It included all players decked out in special camouflage-laden attire in honor of the battle colors of various branches of the armed services.

Predictably, the stated objective behind these activities was to recognize the military--those who 'defend and protect' us. My angst grew as I watched games throughout the day.

Like notorious empires of past, we are blindly celebrating militarism.

Capacity for force is not something to be recklessly brandished. It should be revealed reluctantly in legitimate self-defense situations.

Although developing self-defense capacity can be useful, truly free people are saddened when capacity for force is legitimately put to use. It means that voluntary cooperation failed in those instances.

Parading military capacity and deeds done in the 'name of freedom' indoctrinates minds to the misuse of force.

Empty Promises

Second time around
I'm still believing
The words that you said
--Naked Eyes

It goes without saying that this president does not have the Constitutional power to unilaterally authorize military action against Syria. Unfortunately, it has happened so many times in the past by so many other presidents that people must believe that what is going on here is legal.

Congress is complicit by not taking legal action to block the president's orders.

All of these people have taken oaths to uphold and defend the Constitution.

Empty promises once again.

Feds vs Fourth Amendment

"What can I say? I'm a spy."
--Harry Tasker (True Lies)

Consistent with discussion on these pages, Jacob Hornberger observes that broad federal government surveillance schemes are clearly unconstitutional per the Fourth Amendment. Any search or seizure must be specific by place and person. There is no justification for ongoing or 'blanket' programs.

Government officials claim that these programs are necessary in order to keep us safe. But, as JH notes, there are no exceptions written into the Fourth Amendment that nullify the law in the name of national security.

The framers knew exactly what they were doing when they wrote this amendment. They understood that the federal government would inevitably attract people who would like to do the things prohibited by the Fourth Amendment.

People like those currently in office.

The Fourth Amendment prohibits federal officials from indiscriminately searching homes, businesses, and personal effects. In the event of a crime, the feds cannot go door to door in search of evidence. They also cannot search everyone's things in order to prevent a crime.

If federal officials want to search a person or a person's possessions, then they must get a warrant authorized by a judge. In order to get a warrant, law enforcement officials must swear out an affidavit specifying precisely the evidence that is being sought. They must also produce evidence of 'probable cause.' If officials fail to do either of those things, then it is the judge's responsibility to deny the search warrant application.

People seeking to enact/enforce NSA spying, the Patriot Act, and related programs are precisely the type of people that the framers were seeking to restrain.