COVID Relief and Moral Hazard

"You're getting a free ride on my tail, mate."
--Sir Lawrence Wildman (Wall Street)

In case you've heard the term 'moral hazard' before but are fuzzy on what it means, the recently passed $1.9 trillion 'COVID relief'' bill provides a textbook example. Several states were prudent in their virus countermeasures--no lockdowns, limited restrictions on movement, etc. As a result, their economies remained just as healthy as their people.

Many states did just the opposite--draconian countermeasures that cratered their economies and tossed millions out of work.

Facing depressionary conditions, those states that implemented totalitarian policies are now looking to the prudent states for a bailout. Those states with vibrant economies are being forced to surrender production to those states that chose not to produce.

Bad behavior is being subsidized. Precisely as predicted.

This is the essence of moral hazard. Taking more risk than you otherwise would because you believe that you ill-advised behavior is insured.

Ignore the Gaslights

"I'd rather be with someone for the wrong reasons than alone for the right ones."
--Amanda Jones (Some Kind of Wonderful)

There can be little doubt that gaslighting is alive and well. If you doubt what you see and think because it conflicts with a media narrative, then you are most likely being gaslighted. 

In the weeks before the election, what I saw suggested that not only was the election going to be close, but that President Trump might win in a landslide. Yet, the media narrative held that Trump had no chance. Polls showed him down 10.

I remember thinking, "How can what I see and think be correct when all of the headlines suggest otherwise?"

In the post election contest, same thing. It's over, claimed the narrative. Trump has no case. 

But there were well-reasoned arguments that suggested otherwise.

Which goes to show that gaslighting works on judges as well.

The lesson: Ignore the gaslights.

Changed Lives

Look in the mirror
And see how you've been taken
You won't surrender
But now you're heart is breakin'
--John Waite

Heard on the radio this morning that it has been one year since COVID-19 'changed our lives.' For most people, it has not been the virus itself that has changed their lives. Even with our inflated measures, the data indicate that slightly more than 1% of the US population has tested positive for the virus--with perhaps 10-20% of the population actually contracting the virus without official detection or significant effect. The official US CV19 death count currently stands at about 0.15% of the population.

For most people, what has 'changed their lives' over the past year has been draconian government policy response to the virus. These policies have destroyed jobs, closed businesses, increased a raft of medical conditions ranging from mental illness to cancer onset, dumbed down education, and restricted people's rights to assemble and freely associate. Future financial burdens have increased thru monetary and fiscal policies pumping trillion$ in fiat currency and debt into system in the name of COVID relief.

It has not been the disease that has changed most people's lives, but rather a concocted, force-fed 'cure.'.

Safe Unsecured

We can go where we want to 
A place where they will never find
And we can act like we come from out of this world
Leave the real one far behind
--Men Without Hats

Yesterday, the Dow touched a new all time high on an intraday basis...

While the Nasdaq dropped into official 'correction' territory when it closed 10% off its recent highs.

When racier stocks are sold in favor of more conservative names, it often signals that risk appetites are waning among market participants. And that rallies are getting long in the tooth. 

Inflation Math

So hold on
Here we go
Hold on
To nothing we know
--The Motels

M1 is considered the narrowest, most liquid form of money. Physical coin and paper money, demand deposits, traveler's checks, other checkable deposits (OCDs), and other liquid deposits including money market deposit accounts. This is the form of money closest to making purchases and paying bills.

As you can see from the graph, M1 money stock has, um, grown significantly in the past year. The surge is primarily a function of the Fed's debt monetization operations to counter negative economic impacts of CV19.

Do the math: supply chain shortages + pent up demand + a mountain of new minted cash = ?

Why This and Not That?

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

In an age where work is increasingly specialized and societies are increasingly politicized, people have been conned into thinking that they must leave scientific thinking to so-called experts. Of course, those heavily credentialed 'scientists' are subject to political influence--and are often retained by political factions who benefit from a particular 'scientific' viewpoint.

The simple truth is that anyone can think scientifically. At its core, scientific thought is reasoned thought. Reasoning requires considering alternative explanations of a phenomenon (sometimes referred to in scientific circles as 'propositions' or 'hypotheses'), and then selecting the one that makes the most sense. Selecting the most sensible alternative is done by using a combination of logic, previous theory, and empirical evidence.

Consider, for example, the well-publicized proposition that face masks help 'stop the spread' of viruses COVID-19. Proponents of this proposition claim that it is grounded in 'science.' However, instead of presenting the various arguments in favor of and against masks, and why their arguments are superior, mask proponents merely defer to the recommendations of the so-called 'scientific community' in this regard. 

This blind deferral makes any reasoning mind suspicious. 

A truly scientific explanation considers the various theories of masking and outcomes. The prevailing theory in favor of masks is some variation of: face masks filter out virus particles in inbound and outbound airflow, thus reducing viral transmission. Let's call this hypothesis H0.

But what are some plausible rival theories? Let's list a few, primarily grounded in filtration theory when applied to masking:

H1: CV19-laden particles are too small to be effectively filtered by face mask substrates.

H2: Inbound and outbound air escapes between the mask and the face allowing virus-laden particulates to circumvent the filtration process.

H3: Covering the nose and mouth with a filter obstructs normal respiration (e.g., reduced oxygen intake, increased CO2 in local air mixtures, and breathing contaminants lodged in dirty masks), which can lead to health risks more significant than the risk of the virus itself.

The duty of true 'science' is to evaluate all plausible rival hypotheses in search of truth. If H0 is to be true, then the scientific mind not only has to explain the validity of H0, but also why H1, H2, and H3 are not valid.

It should be noted that plucking one published research study out of the literature that supports H0 does not necessarily suffice--particularly if there are other studies available that favor H1, H2, or H3. 

To the reasoning mind, science is rarely if ever settled. True science is obligated to consider what else could it be? Why this and not that?

Oil Irony

The time has come

A fact's a fact

It belongs to them

Let's give it back
--Midnight Oil

In hindsight, an 'obvious' trade associated with the incoming administration was getting long things fossil fuel--particularly the big guys. Executive orders have already shut down the Keystone Pipeline project and raised hurdles on domestic production.

Prospects of extended periods of curtailed supply have lit a fire under crude oil and producers with capacity outside the reach of Washington regulators.

Crude prices have nearly doubled, topping $66/barrel on Friday.

Stocks have followed suit, with big oil names such as Chevron (CVX) and Exxon (XOM) marking 52 week highs.

The irony is hard to ignore. The pro-business, anti-regulation Trump administration facilitated a domestic oil production boom that increased supply, increased sector employment, and decreased prices in pursuit of 'energy independence' goals.

Now, the anti-business, pro-regulation Biden administration is shutting that boom down, cutting sector jobs, and driving energy prices higher in pursuit of 'green energy' goals.

It is also handing fossil fuel producers just what they need: better breakeven points.

position in CVX, XOM

Yield Curve Control

Here comes the rain again

Falling on my head like a memory

Falling on my head like a new emotion

--Eurythmics

The latest fad in monetary policy circles is called yield curve control. YCC is close cousin to the previous fad known as quantitative easing (QE). Both are forms of debt monetization (read: money printing).

In QE, central banks declare that they will regularly purchase X dollars worth of particular fixed income securities on the market, and then proceed to do so, usually on a monthly basis, until some type of monetary (e.g., interest rate target) or economic goal (GDP growth) is reached.

In YCC, no particular security or dollar amount is targeted. Instead, the idea is to maintain a certain disposition of the yield curve. Essentially, yield curve control is QE unshackled. It hands central banks a blank check to print however much money they want to purchase however many bonds at whatever duration fits their fancy in pursuit of a yield curve to their liking. 

It should be plainly apparent that YCC is consummate central planning...and grossly inflationary.

Chatter about YCC has gotten loud enough that market participants have begun to price it in. Yesterday, Fed head Jerome Powell made comments that caused many onlookers to conclude that the Fed might not be employing YCC as soon as folks figured.

This caused the bond market to fall out of bed--particularly at the long end of the curve where the market figures the Fed would be focusing early YCC efforts.

Ten Year yields are now back to where they were prior to the CV19 meltdown. As we have noted, the Fed needs to keep these rates under control. 

We can be confident that, if it is unable to talk rates down, then the Fed will try to buy 'em down using YCC.

no positions

Doublethink

"His brain has not only been washed, it has been dry cleaned."
--Dr Yen Lo (The Manchurian Candidate)

For anyone who has read George Orwell's 1984, it is difficult to avoid a sense of life imitating fiction as current events unfold. Increasingly, it seems, the totalitarian novel is being used as a playbook by governments worldwide.

As Larry Arnn recounts, the Orwellian concept of doublethink particularly resonates today. Doublethink is a way of thinking that defies reasoning. Reasoning is grounded in the law of contradiction. The law says that X and Y cannot be true at the same time if they are mutually exclusive. For example, if A is greater than B and B is greater than C, then C cannot be greater than A. By applying the law of contradiction, we make sense of the world and progress toward the truth.

Doublethink seeks to eradicate the law of contradiction. C can be greater than A. War can be peace. Freedom is slavery. Ignorance is strength. 

Applied to our time, church gatherings are too dangerous to allow in a CV19 world, but mass protest marches aren't. A man can declare himself a woman. Protecting voters' rights is a racist act.

In 1984, doublethink is advanced by the Thought Police, an organization that monitors the media and people's actions through overt and covert means. Those people suspected of challenging doublethink conventions are detained, and subject to interrogation, 're-education,' or worse. The Thought Police report to the Ministry of Truth. It is easy to draw parallels to their real life counterparts today.

The ultimate goal of doublethink? To legitimize any act of government, no matter how counterintuitive or morally repulsive. When government takes life, liberty, or property, citizens who have been mesmerized by doublethink don't think twice about it. 

Doublethink seeks to dry clean the brain.

No Day in Court

Oh, he tells me tears are something to hide
And something to fear
And I try so hard to keep it inside
So no one can hear
--'Til Tuesday

During my industry days, a series of fortuitous promotions landed me in the executive suite of a large corporation at a young age. I was surrounded by veteran managers--many more than double my age. As the Young Turk, I was anxious to make big change, and often grew frustrated when the execs around me wanted to slow it down and take more measured approaches. 

After a meeting where the top management team decided to table my recommendations for a later date, a sage vice president--probably the closest person I had to a 'mentor' at the company--sensed my discontent and stopped by my office for a chat. He told me to avoid feeling discouraged. He said that the senior management group valued my enthusiasm and needed my ideas. 

But he also suggested that I needed to "respect the process." By that he meant that the way the company moved forward was creating forums for people to present their ideas and concerns to the decision-making hierarchy. It was the responsibility of decision-makers to listen, and then to thoughtfully deliberate on recommendations presented in those forums before rendering decisions.

Then he paused and said to me, "Those decisions might not always go the way you want. But no matter which way they go, know that you had your day in court."

Subsequently, I came to realize that 'the process' served not only search purposes, but also as an outlet for expression and concerns. A listening post and relief valve of sorts.

Unfortunately, legal institutions that offer similar forums for relief have failed since last November's election. For example, judges across the land have stonewalled legal challenges to the election process and its results. Claims that tens of millions of people had their votes disenfranchised have not been heard.

The wounds inflicted by this institutional failure are certain to fester, for the claimants have been denied their day in court.