On the Mat

Coach: You done everything you came here to do?
Louden Swain: Not yet.
Coach: Then do it boy. You got 27 seconds left and you're down 4 points. Forget your nose. Forget about everything. You've got to go out there and stick him. Now go out there and do it!
--Visionquest

Congressman Ron Paul continues his personal visionquest of Fed accountability (and perhaps it's ultimate dissolution. He's one of the few who is trying to unearth a root cause of our problems.

It would have been easy for Mr Paul to pack up and head home a long time ago. After all, who needs the angst he's had to endure?

But you know what? He might sense that he has the leverage for a take-down this time.

Seems Like Old Times

You remind me I live in a shell
Safe from the past
And doing okay
But not very well
--Barry Manilow

Remember the tech bubble days, when earnings reports from folks like Intel (INTC) would propel stocks higher after hours? A 'gap and go' would follow the next day, as broad market indexes would open green and then grind higher throughout the session.

We experienced some of that vuja de the last couple of days courtesy once again of Mother Chip, who was was spin her earnings call magic like the good 'ole days. The real story may be more sobering, but right now it feels like the INTC news has the bulls wanting to party.

To me, the technical set up looks pretty bullish. The last half year of price data looks reverse head and shoulder-ish. Should the S&P 500 break above SPX 950ish, then there's pretty clear sailing to 1000 and 1100 from a chart perspective.

The set up has me looking for an opportunity to get long some Spyders (SPY) somewhere in here.

For a trade only, please understand--and with funds I can afford to lose (this isn't a bet the farm trade). My big picture concerns place me squarely in Boo's camp as my sense is that this will all end in tears.

In the near term, tho, feels like bulls are gonna try to jam 'em higher.

no positions

Work Study

Hey I'm not complaining cause I really need the work
Hitting up my buddy's got me feeling like a jerk
Hundred dollar car note, two hundred rent
I get a check on friday, but it's all ready spent
--Huey Lewis & The News

I continue to be amazed about how little people seem to understand minimum wage laws. As Peter Schiff deftly explains, minimum wage laws lock productive earners out from low paying jobs. Qualified talent willing to work for $6/hr is legally banned from a market where $7.25 is the minimum. Because the price of labor goes up, employer demand for labor goes down.

Perversely, the demographic that purportedly benefits the most, low income wage earners, is damaged the most.

So who benefits? Following the money leads us toward politicians and collective bargaining units that vote for them. Wage minimums raise barriers to entry into job markets where unions have a presence.

But even the union's advantage is temporary, as markets will be made in other parts of the world for buyers and sellers of labor at the unmessed with price.

Here We Go Again

I don't know where I'm going
But, I sure know where I've been
Hanging on the promises
In songs of yesterday
--Whitesnake

Fannie Mae (FNM), Freddie Mac (FRE) et al just celebrated their 75th birthdays. This piece provides a nice chronology of the story. Many folks like to blame Democrats for the damage that these institutions have wrought. After all, FDR originated them.

But this article offers ample evidence that Republicans have been just as complicit, if not more so, in escalating housing market distortions over the past three quarters of a century.

The message once again, although most folks don't want to hear it, is that our housing problem did not stem from 'free market' causes, but rather from fatal flaws inherent to any central planning initiative.

And yet here we go again, escalating housing market intervention to ever higher levels.

no positions

No Quick Fix

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

I wanted to highlight one of Mr P's many sage points from this missive. Higher standard of living comes from improved productivity (more output per unit of input). Improved productivity comes from investment, or abstaining from consumption today so that resources can be allocated toward productivity projects.

As such, critical to improved standard of living is saving and capital formation.

Our current approach, more debt and increased spending, is leading us in the opposite direction. A direction pointed toward squalor.

Hat Trick

Rise up! Gather round
Rock this place to the ground
Burn it up let's go for broke
Watch the night go up in smoke
--Def Leppard

Dems are raising the spectre of another stimulus package. That government would want to head back to the till for more stimulus is one of the biggest layup predictions of all time. When you have a debt and spending problem, adding more debt and spending worsens the situation, which requires more debt and spending...etc.

This process only ends when we decide to head the other way (pay down debt and save--not likely given our lack of political will). Or creditors decide not to fund our habit anymore, in which case the the system freezes up.

Summer Gaze

Out on the road today I saw a DEADHEAD sticker on a Cadillac
Little voice inside my head said, 'Don't look back. You can never look back.'
--Don Henley

As we enter the back nine for '09, here are three themes that I'm assigning a decent probability to:

1) State and municipal funding issues take center stage. We're already seeing some evidence of this (#2,3,4 here). Now that the US government has bailed out corporations, how will it be able to say no to states stumbling to DC with hat in hand?

2) Unemployment continues higher. We're just south of 10% currently using current government methodology. Economists are herding close to the 10% number as a ceiling. What better motivation of continuation north?

3) Resumption of debt destruction. Markets have rallied over the past couple of months largely because of a belief that deflationary forces are behind us. However, only a small fraction of the mamouth debt and leverage out there has actually been retired. Particularly if #2 above remains in force, then chance favors more deflation in the near future.

In terms of market positioning, this translates for me into relatively high levels of cash--with some bullion, commodity ETFs/ETNs, and a couple of dividend paying stocks in the mix to guard against an inflationary surprise. I'm also trying to retire mortgage debt (my only debt) as quickly as possible.

position in gold and silver

Spirit of '76

"All tyranny needs to gain a foothold is for people of good conscience to remain silent."
--Thomas Jefferson

Two hundred and thirty two years ago yesterday Thomas Jefferson's document declaring our independence was ratified. One does have to wonder how the Founders would react if, through some divine intervention, they were able walk the country today.

Perhaps Thomas Paine would respond like this.

Unfortunately, such Common Sense is much less common today than it was 200 yrs ago.

Nature Calls

Mr Miyagi: You remember lesson about balance?
Daniel LaRusso: Yeah
Mr Miyagi: Lesson not just karate only. Lesson for whole life. Whole life have a balance. Everything be better. Understand?
--The Karate Kid

Buried in this piece critiquing Paul Krugman, who by the day seems to be bidding to be remembered as the greatest fool ever to win a Nobel Prize, was this simple explanation of what an economy is:

"In the real world, an economy is the social organization that comes about when large numbers of people act to alleviate scarcity."

Nice. Because resources are necessarily scarce, people naturally organize in a manner that facilitates exchange.

Like any natural system, economies works best in a free, unimpeded state. However, natural systems contain buffers that help make them robust to intervention (otherwise they couldn't evolve). If messed with to the extreme, however, they'll push back with a vengeance in order to re-establish balance.

It's difficult for even dedicated interventionists like Mr Krugman to argue that our current approaches are not extreme. In response, our economic system is building up forces in kind. An important question involves the nature of these counterbalancing forces. Will they be long and shallow? Or will they be swift and deep?

It's impossible to know with certainty. However, given just how much we've messed with the system, it's easy to imagine that the push back will be equally severe in order to re-establish natural balance.

Burden of Proof

Juror #2: "It's hard to put into words. I just think he's guilty. I thought it was obvious from the word 'go.' Nobody proved otherwise.
Juror #8: "Nobody has to prove otherwise. The burden of proof is on the prosecution. The defendant doesn't even have to open his mouth. That's in the Constitution
--12 Angry Men

Professor Anderson offers thoughtful counter to the global warming thesis. As I understand it, the global warming hypothesis generally posits that the earth is getting dangerously warm, that the increase in earth's temperatures is caused by an increase in atmospheric CO2, and that man's industrial activities are the primary source of this detrimental increase in CO2 load and in earthly temperature.

Mr Anderson's argument includes recent data points inconsistent with the higher C02/higher temp hypothesis, the fact that most of the 'evidence' provided by scientists who favor global warming is sourced from computer models of CO2/temperature interaction (not experiments where causality can be more decisively verified), and the inherent inaccuracy of weather forecasting.

In one of the early missives on this blog, we suggested that considerable data were inconsistent with the global warming hypothesis. From a scientific standpoint, until such inconsistencies can be resolved, then the global warming hypothesis can not be considered valid--at least among those who prefer to think critically.

Particularly interesting were the responses to Mr Anderson's piece, of which there were many. Of those who disagreed with the position in the article, there was little, if any, evidence offered to strengthen the validity of the global warming case. Instead, themes included:

"the experts have spoken--there is no debate"
"I observe out-of-the-ordinary snow melt/hot weather in my locale, so global warming must be true"
"you must have a political agenda by taking this position"
among others...

None of these strengthen the scientific case for global warming. And, as with any endeavor grounded in the scientific method, the burden of proof rests with the prosecution--those seeking to advance their hypothesis.