All for freedom and for pleasure
Nothing ever lasts forever
Everybody wants to rule the world
--Tears for Fears
In previous posts we distinguished between outsourcing and offshoring, and we observed that offshoring in particular is subject to political meddling. Perversely, while politicians jawbone against the practice of offshoring, many of their policies exacerbate, rather than brake, offshoring tendency.
Consider the following three general policy categories:
Tax rates. Econ 101 tells us that when you tax a behavior, you get less of that behavior. Couple that with US corporate tax rates that approach 40% - among the highest in the world - and, voila, policymakers have created compelling incentives for companies to operate outside the US.
Minimum wage laws. Minimum wage laws are a form of price control which imposes a price of hourly labor above the free market rate. Minimum wage laws also can be viewed as a monopolistic grant that protects a subset of workers from would-be workers willing to do the same job for lower pay. Econ 101 tells us that minimum price controls drive buyer (in this case employer) demand from the market. Thus, not only do minimum wage laws result in compulsory unemployment for some workers in domestic markets, but these laws encourage companies to look at foreign markets where labor can be obtained at a cheaper rate.
Regulation. Regulation in its general form involves any government interference in voluntary exchange between individuals. Tax and minimum wage laws discussed above can be viewed as regulation. Here, however, let's limit the notion of regulation to government interference in processes of production. In this context, regulatory burden might include product requirements (e.g., safety, quality), production process requirements (e.g., environmental, mandatory practice, testing, record keeping), and/or licensing requirements (process qualification, individual qualification), among others. Plainly, regulation raises cost of production. It also reduces flexibility to quickly move in directions that better satisfy market needs. Incumbents as well as aspiring entrepreneurs will be prone to look abroad for less regulated markets that reduce cost and increase freedom.
We might include other policies as well. For example, monetary policies that force interest rates lower discourage saving, thereby starving markets of real capital for investment. High levels of government spending and debt reduce forecasting clarity, thereby making it more difficult to plan for the future.
Clearly, policymakers have enacted rules that tilt the playing field away from domestic employment and toward offshoring.
The escalating presidential campaign provides a nice example of the politics of offshoring. Recently President Obama has been chastising challenger Mitt Romney for offshoring jobs during Romney's time at Bain Capital. Because Obama presides over an offshoring friendly political system, this is a classic 'pot calling the kettle black' accusation.
And Romney should have said so. He should have said that he, like hundreds of thousands of managers, was making decisions inside a system distorted by rules that encourage offshoring. This system is currently being overseen by the Obama administration. Romney should have said that before lashing out at others, President Obama should perhaps get his own house in order by dedicating effort toward lower corporate tax rates, abolishing minimum wage laws, and less regulation.
Unfortunately, Romney did not say so. He either a) does not possess capacity for recognizing lay up opportunities when presented with them, or b) he would like to preside over similar offshoring-friendly policies himself. Given Romney's history as a Big Government type, b) seems more likely.
Regarding offshoring, these two candidates may be more alike than different. Both seem either clueless about the president's role as offshorer-in-chief, or they think that voters are clueless.
Tuesday, July 31, 2012
Monday, July 30, 2012
So Far Away
Here I am again in this mean old town
And you're so far away from me
And where are you when the sun goes down
You're so far away from me
--Dire Straits
Taken from this piece, below is a nice little graph demonstrating that domestic equity markets remain closer to where bear markets begin rather than end.
Sage Richard Russell has often noted that secular bear markets end at compelling valuations. He has cited trailing PE ratios of 4-8 for the DJI.
We are far from that sort of 'value range' currently.
Also consistent with John Hussman's work suggesting that US stocks are in aggregate at levels more commonly associated with market tops.
position in SPX
And you're so far away from me
And where are you when the sun goes down
You're so far away from me
--Dire Straits
Taken from this piece, below is a nice little graph demonstrating that domestic equity markets remain closer to where bear markets begin rather than end.
Sage Richard Russell has often noted that secular bear markets end at compelling valuations. He has cited trailing PE ratios of 4-8 for the DJI.
We are far from that sort of 'value range' currently.
Also consistent with John Hussman's work suggesting that US stocks are in aggregate at levels more commonly associated with market tops.
position in SPX
Saturday, July 28, 2012
Shlaes' Forgotten Man
Meet the new boss
Same as the old boss
--The Who
After many starts and stops, finally finished Amity Shlaes' (2007) The Forgotten Man. The title is adopted from William Graham Sumner's 1883 essay about the individual who is robbed by the welfare state.
Rather than employing a purely economic approach (of which I have read quite a few), Shlaes views the Depression thru more of a narrative lens using a number of leading characters in the story. Thus, I became familiar with a number of people (e.g., Stuart Chase, Harold Ickes, David Lilenthal, Andrew Mellon, Raymond Moley, Rex Tugwell, Wendell Wilkie) that I previously knew little about.
Because of her approach, Shlaes' recount has a personal feel that works pretty well. She did her research, too. There are pages of notes and references although she does not employ superscripts to explicitly link her narrative to her sources.
The book consists of 15 chronologically arranged chapters. Each one has a primary theme although Shlaes is careful to insert other important events as the timeline unfolds.
Some of the highlights as they come to mind:
Calvin Coolidge was the closest we came in the 20th century to a 'hands off' president. While not perfect, he labored largely to get government out of the way of the people. On the other hand, his Commerce secretary Herbert Hoover was making a name for himself as a hands-on interventionist. Coolidge, observing the people's enthusiastic response to Hoover's handouts, decided not to run for re-election in 1928. Shlaes doesn't say this, but it is easy to posit that Coolidge's decision to bow out may have been one of the largest errors in judgment of the period. I doubt that Coolidge would have meddled anywhere close to the degree that Hoover did following the events of 1929. In turn, the entire dynamic of the 1930s may have been profoundly different had Coolidge won a second term.
Despite what mainstream history books imply, Hoover was far from a 'free marketer.' He constantly espoused that government should 'do more' to help the people. His actions place him in line with other Progressive presidents who dominated the office in the first half of the century.
Similar to Flynn (1954), Shlaes finds FDR to be more of an opportunistic politician than an ideologue. He would readily shift positions if he thought that it would earn him more votes. FDR's campaign themes demonstrate his opportunism: 1932 class warfare; 1936 building special interest groups and buying their votes; 1940 war leadership. His spontaneous inconsistency drove many of his staffers (e.g., Ray Moley) away.
Although FDR himself was not an ideologue, he populated his administration with people who possessed strong socialistic (a.k.a. 'progressive') ideologies. Progressive fascination with Stalin and Soviet Russia is something that we do not hear much about today. However, in the late 1920s/early 1930s, boatloads of Progressives, including many that wound up in FDRs administration, toured Russia and waxed poetic that this was the social/political model for the world.
FDR's staff, known as 'the brain trust' because of its weighting toward academics with little real world experience, used government force to change the nature of markets with its New Deal programs - much of it in the name of 'experimentation.' The hubris of this group - their sense that they knew better than citizenry - remains truly eye popping to this day.
Not all citizens took kindly to the experimentation of the brain trust, and it was not long before challenges to many New Deal programs began making their way thru the court system, with many winding up before the Supreme Court. The High Court, led by the Four Horsemen, struck down a number of early New Deal programs such as the NIRA, AAA, various minimum wage laws. Shlaes does a particularly good job of profiling the 'sick chicken' case of the Schechter brothers that wound up breaking the NRA.
That the Supreme Court was not falling in line with his New Deal initiative irritated FDR to no end. He publicly railed against the Court, and liberal commentators such as Pearson and Allen (1936) lambasted the justices using the Progressive party line that they were out of touch with the modern world. After his re-election in 1936, FDR proposed his court packing plan that would allow him to appoint more Supremes that shared his view. Many citizens were appalled; even his closest supporters cautioned him of overreach. After finding little support for his plan even among congressional Democrats, FDR withdrew his plan.
But he ultimately won the war. Swing justice Owen Roberts suddenly turned his hat around and began siding with leftists on the court. The Four Horsemen, all of them 70 yrs or older by 1936, began retiring, which enabled FDR to subsequently replace them with cronies such as Felix Frankfurter. The fix was then complete.
Shlaes dedicates a significant portion of her story to the TVA and the federal government's near takeover of the utilities sector. In the 1920s, electricity was a growth industry, with residences being wired for the first time. FDRs New Dealers clearly saw this sector as a major political opportunity. Using the Tennessee Valley Authority run by David Lilenthal as a pilot project, the federal government sought to demonstrate how it could help improve standard of living for commonfolk through the provision of 'cheap power.' Because government was essentially competing with private industry using tax payer funds, this put many utility company execs in the spotlight. One of these was Wendell Wilkie, who handled himself well enough in public debates on the subject to become the Republican presidential nominee in 1940. The TVA was complemented with farming projects and communes (e.g., Casa Grande) meant to demonstrate how centrally planned communities could provide benefits that competitive markets could not.
Shlaes provides compelling evidence that, despite the massive government intervention that took place first under Hoover and then under FDR, that the economic barely moved by the end of the 1930s. Many of New Deal programs were outright failures and didn't see the 1940s. Others did little to add long term value, indicated by the fact that nearly all jobs 'created' by the government were short term and when the money ran out, the jobs disappeared. Stated differently, any good coming from government supplied stimulus was temporary and unsustainable.
She astutely makes the point (although I thought she could have made it stronger), that a primary reason for the persistence of the Depression was lack of investment capital. There was not much in the way of savings that could fund productivity improvement projects. What little capital did exist either a) remained on the sidelines because of huge uncertainty among capitalists about what FDR was going to do next, b) was offset by massive government spending. On the margin, capital was being consumed. As we have discussed on these pages many times, this is a ticket for the Lower Standard of Living Express.
Unemployment and investment remained weak up until WWII. Indeed, the perverse lesson that hard core policymakers likely derive from the Depression is that war can be an effective way to jump start an economy - assuming that you wind up winning the war, of course.
One area area where Shlaes could have done more relates to her title. Sumner's Forgotten Man is the individual who pays at the point of a gun to subsidize welfare programs. I think this work would have benefited from more on-the-ground research of actual forgotten men during the 1930s. Yes, Shlaes touches on some high profile characters such as Andrew Mellon, but it would have been interesting had more research been dedicated to typical taxpayers and their thoughts and activity during the time.
Such an approach would have resulted in a work truer to its title.
Nonetheless, this book is a worthy read. The reader will experience many deja vu moments connecting characters, behaviors, and events from the 1930s to our present day situation.
Reference
Pearson, D. & Allen, R.S. 1936. The nine old men. Garden City, NY: Doubleday Doran.
Shlaes, A. 2007. The forgotten man: A new history of the Great Depression. New York: HarperCollins.
Same as the old boss
--The Who
After many starts and stops, finally finished Amity Shlaes' (2007) The Forgotten Man. The title is adopted from William Graham Sumner's 1883 essay about the individual who is robbed by the welfare state.
Rather than employing a purely economic approach (of which I have read quite a few), Shlaes views the Depression thru more of a narrative lens using a number of leading characters in the story. Thus, I became familiar with a number of people (e.g., Stuart Chase, Harold Ickes, David Lilenthal, Andrew Mellon, Raymond Moley, Rex Tugwell, Wendell Wilkie) that I previously knew little about.
Because of her approach, Shlaes' recount has a personal feel that works pretty well. She did her research, too. There are pages of notes and references although she does not employ superscripts to explicitly link her narrative to her sources.
The book consists of 15 chronologically arranged chapters. Each one has a primary theme although Shlaes is careful to insert other important events as the timeline unfolds.
Some of the highlights as they come to mind:
Calvin Coolidge was the closest we came in the 20th century to a 'hands off' president. While not perfect, he labored largely to get government out of the way of the people. On the other hand, his Commerce secretary Herbert Hoover was making a name for himself as a hands-on interventionist. Coolidge, observing the people's enthusiastic response to Hoover's handouts, decided not to run for re-election in 1928. Shlaes doesn't say this, but it is easy to posit that Coolidge's decision to bow out may have been one of the largest errors in judgment of the period. I doubt that Coolidge would have meddled anywhere close to the degree that Hoover did following the events of 1929. In turn, the entire dynamic of the 1930s may have been profoundly different had Coolidge won a second term.
Despite what mainstream history books imply, Hoover was far from a 'free marketer.' He constantly espoused that government should 'do more' to help the people. His actions place him in line with other Progressive presidents who dominated the office in the first half of the century.
Similar to Flynn (1954), Shlaes finds FDR to be more of an opportunistic politician than an ideologue. He would readily shift positions if he thought that it would earn him more votes. FDR's campaign themes demonstrate his opportunism: 1932 class warfare; 1936 building special interest groups and buying their votes; 1940 war leadership. His spontaneous inconsistency drove many of his staffers (e.g., Ray Moley) away.
Although FDR himself was not an ideologue, he populated his administration with people who possessed strong socialistic (a.k.a. 'progressive') ideologies. Progressive fascination with Stalin and Soviet Russia is something that we do not hear much about today. However, in the late 1920s/early 1930s, boatloads of Progressives, including many that wound up in FDRs administration, toured Russia and waxed poetic that this was the social/political model for the world.
FDR's staff, known as 'the brain trust' because of its weighting toward academics with little real world experience, used government force to change the nature of markets with its New Deal programs - much of it in the name of 'experimentation.' The hubris of this group - their sense that they knew better than citizenry - remains truly eye popping to this day.
Not all citizens took kindly to the experimentation of the brain trust, and it was not long before challenges to many New Deal programs began making their way thru the court system, with many winding up before the Supreme Court. The High Court, led by the Four Horsemen, struck down a number of early New Deal programs such as the NIRA, AAA, various minimum wage laws. Shlaes does a particularly good job of profiling the 'sick chicken' case of the Schechter brothers that wound up breaking the NRA.
That the Supreme Court was not falling in line with his New Deal initiative irritated FDR to no end. He publicly railed against the Court, and liberal commentators such as Pearson and Allen (1936) lambasted the justices using the Progressive party line that they were out of touch with the modern world. After his re-election in 1936, FDR proposed his court packing plan that would allow him to appoint more Supremes that shared his view. Many citizens were appalled; even his closest supporters cautioned him of overreach. After finding little support for his plan even among congressional Democrats, FDR withdrew his plan.
But he ultimately won the war. Swing justice Owen Roberts suddenly turned his hat around and began siding with leftists on the court. The Four Horsemen, all of them 70 yrs or older by 1936, began retiring, which enabled FDR to subsequently replace them with cronies such as Felix Frankfurter. The fix was then complete.
Shlaes dedicates a significant portion of her story to the TVA and the federal government's near takeover of the utilities sector. In the 1920s, electricity was a growth industry, with residences being wired for the first time. FDRs New Dealers clearly saw this sector as a major political opportunity. Using the Tennessee Valley Authority run by David Lilenthal as a pilot project, the federal government sought to demonstrate how it could help improve standard of living for commonfolk through the provision of 'cheap power.' Because government was essentially competing with private industry using tax payer funds, this put many utility company execs in the spotlight. One of these was Wendell Wilkie, who handled himself well enough in public debates on the subject to become the Republican presidential nominee in 1940. The TVA was complemented with farming projects and communes (e.g., Casa Grande) meant to demonstrate how centrally planned communities could provide benefits that competitive markets could not.
Shlaes provides compelling evidence that, despite the massive government intervention that took place first under Hoover and then under FDR, that the economic barely moved by the end of the 1930s. Many of New Deal programs were outright failures and didn't see the 1940s. Others did little to add long term value, indicated by the fact that nearly all jobs 'created' by the government were short term and when the money ran out, the jobs disappeared. Stated differently, any good coming from government supplied stimulus was temporary and unsustainable.
She astutely makes the point (although I thought she could have made it stronger), that a primary reason for the persistence of the Depression was lack of investment capital. There was not much in the way of savings that could fund productivity improvement projects. What little capital did exist either a) remained on the sidelines because of huge uncertainty among capitalists about what FDR was going to do next, b) was offset by massive government spending. On the margin, capital was being consumed. As we have discussed on these pages many times, this is a ticket for the Lower Standard of Living Express.
Unemployment and investment remained weak up until WWII. Indeed, the perverse lesson that hard core policymakers likely derive from the Depression is that war can be an effective way to jump start an economy - assuming that you wind up winning the war, of course.
One area area where Shlaes could have done more relates to her title. Sumner's Forgotten Man is the individual who pays at the point of a gun to subsidize welfare programs. I think this work would have benefited from more on-the-ground research of actual forgotten men during the 1930s. Yes, Shlaes touches on some high profile characters such as Andrew Mellon, but it would have been interesting had more research been dedicated to typical taxpayers and their thoughts and activity during the time.
Such an approach would have resulted in a work truer to its title.
Nonetheless, this book is a worthy read. The reader will experience many deja vu moments connecting characters, behaviors, and events from the 1930s to our present day situation.
Reference
Pearson, D. & Allen, R.S. 1936. The nine old men. Garden City, NY: Doubleday Doran.
Shlaes, A. 2007. The forgotten man: A new history of the Great Depression. New York: HarperCollins.
Friday, July 27, 2012
Going All In
"I put it all on Lucky Dan...half a million dollars - to win."
--Doyle Lonnegan (The Sting)
Over the past couple of days EU officials have been painting the tape with comments meant to reflect firming resolve to do their best Abe Lincoln--i.e., doing whatever it takes to 'save the union.'
When today's dose of comments hit the tape, domestic equity indexes doubled in a heartbeat. Treasuries and other 'risk off' assets were sold. Ten year yields are up nearly ten percent today.
What stands out to me is how much energy EU officials have put into talk without any action to back it up. Seems to me they either need prices higher right here, or they are playing chicken with factions who are not on board (read: Germany).
Sure feels to me like policymakers are going all in right here.
In any event, I want to sell this rally, and have trimmed more long exposure from an already thinning long side of my book.
position SPX
--Doyle Lonnegan (The Sting)
Over the past couple of days EU officials have been painting the tape with comments meant to reflect firming resolve to do their best Abe Lincoln--i.e., doing whatever it takes to 'save the union.'
When today's dose of comments hit the tape, domestic equity indexes doubled in a heartbeat. Treasuries and other 'risk off' assets were sold. Ten year yields are up nearly ten percent today.
What stands out to me is how much energy EU officials have put into talk without any action to back it up. Seems to me they either need prices higher right here, or they are playing chicken with factions who are not on board (read: Germany).
Sure feels to me like policymakers are going all in right here.
In any event, I want to sell this rally, and have trimmed more long exposure from an already thinning long side of my book.
position SPX
Big Business and the State
"The plane we flew in on this morning...leased from AIG. Construction downtown...AIG. Life insurance 81 million policies with a face value of $1.9 trillion. Billions of dollars of teachers' pensions. You want 'too big to fail?' Here is is!"
--Henry Paulson (Too Big to Fail)
Embedded in this piece is a nice history of the increasingly cozy relationship between government and big business. He integrates a number of key events, including:
Henry Clay and the Whigs' 'American System' which included planks for protectionist tariffs and government subsidized 'internal improvement' projects that benefitted large business.
The American System baton was handed to the Republican Party in 1854. It is straightforward to argue that big business influenced Lincoln and the prosecution of the Civil War.
Post Civil War, 'political entrepreneurs' such as many railroad operators relied on monopolistic grants, subsidies, and loans from the federal government. 'Market entrepreneurs,' on the other hand, were unassisted, and even opposed, by the government.
By 1900, competition was chewing into many large business franchises, driving many corporate leaders to approach Washington for 'regulation' to help keep competition (especially from new entrants) under control. Large businesses allied with administrations beginning with Theodore Roosevelt to advance their agendas.
The Progressive era strengthened the alliance between big business and the State. Progressive 'reforms' such as compensation laws were favored by big businesses and their affiliates.
Despite what history books suggest, no period period matched the New Deal for its incestuous relationships between business and government. FDR's National Industrial Recovery Act was essentially a copy of Mussolini's facist industry verticals. Welfare programs such as Social Security were backed by large corporations as an instrument for levying outsized burdens on smaller, nimbler competitors. FDR's administration also saw the rise of the military industrial complex which survives to this day.
The author lists some of the myriad government policies that prop up big business: licensing laws, regressive taxes, giveaways, military spending contracts, patents and copyright laws, secured higher ed loans, banking regs, credit expansion.
The incestuous relationship between big business and the federal government has clearly been a bipartisan effort. This administration has been no exception, providing bailouts, regulations, low interest rates, etc that favor incumbent operators at the expense of upstarts.
Yet we find President Obama arguing that the federal government is here to protect people from 'big business.' Of course, this administration is doing nothing new. As noted by the author, "'Liberal' politicians have long advanced their own power while serving the very monopolists they claim to oppose."
If you are one of the many who buy the 'government must protect you from big business' argument, then you are being played.
--Henry Paulson (Too Big to Fail)
Embedded in this piece is a nice history of the increasingly cozy relationship between government and big business. He integrates a number of key events, including:
Henry Clay and the Whigs' 'American System' which included planks for protectionist tariffs and government subsidized 'internal improvement' projects that benefitted large business.
The American System baton was handed to the Republican Party in 1854. It is straightforward to argue that big business influenced Lincoln and the prosecution of the Civil War.
Post Civil War, 'political entrepreneurs' such as many railroad operators relied on monopolistic grants, subsidies, and loans from the federal government. 'Market entrepreneurs,' on the other hand, were unassisted, and even opposed, by the government.
By 1900, competition was chewing into many large business franchises, driving many corporate leaders to approach Washington for 'regulation' to help keep competition (especially from new entrants) under control. Large businesses allied with administrations beginning with Theodore Roosevelt to advance their agendas.
The Progressive era strengthened the alliance between big business and the State. Progressive 'reforms' such as compensation laws were favored by big businesses and their affiliates.
Despite what history books suggest, no period period matched the New Deal for its incestuous relationships between business and government. FDR's National Industrial Recovery Act was essentially a copy of Mussolini's facist industry verticals. Welfare programs such as Social Security were backed by large corporations as an instrument for levying outsized burdens on smaller, nimbler competitors. FDR's administration also saw the rise of the military industrial complex which survives to this day.
The author lists some of the myriad government policies that prop up big business: licensing laws, regressive taxes, giveaways, military spending contracts, patents and copyright laws, secured higher ed loans, banking regs, credit expansion.
The incestuous relationship between big business and the federal government has clearly been a bipartisan effort. This administration has been no exception, providing bailouts, regulations, low interest rates, etc that favor incumbent operators at the expense of upstarts.
Yet we find President Obama arguing that the federal government is here to protect people from 'big business.' Of course, this administration is doing nothing new. As noted by the author, "'Liberal' politicians have long advanced their own power while serving the very monopolists they claim to oppose."
If you are one of the many who buy the 'government must protect you from big business' argument, then you are being played.
Thursday, July 26, 2012
Is Self-Defense an Inalienable Right?
Imad: He says, that is his horse.
Balian: Why would it be his horse?
Imad: Because it is on his land.
Balian: I took this horse from the sea.
Imad: He says you are a great liar, and he will fight you because you are a liar.
Balian: I have no desire to fight.
Imad: Then you must give him the horse.
[Balian draws his sword]
--Kingdom of Heaven
Isn't the central question whether individuals have the inalienable right to protect their person and property from forceful invasion by others?
If the answer to that question is yes, then doesn't any government imposed restriction (which of course is forceful itself) that impairs capacity for self-defense violate that right?
Balian: Why would it be his horse?
Imad: Because it is on his land.
Balian: I took this horse from the sea.
Imad: He says you are a great liar, and he will fight you because you are a liar.
Balian: I have no desire to fight.
Imad: Then you must give him the horse.
[Balian draws his sword]
--Kingdom of Heaven
Isn't the central question whether individuals have the inalienable right to protect their person and property from forceful invasion by others?
If the answer to that question is yes, then doesn't any government imposed restriction (which of course is forceful itself) that impairs capacity for self-defense violate that right?
Wednesday, July 25, 2012
Analog Device
Sometimes you picture me
I'm walking too far ahead
You're calling to me
I can't hear what you've said
--Cyndi Lauper
Are we in for a summer market swoon similar to 2011? The spectre has been crossing my mind.
In late July 2011 we had the budget stalemate plus early rumblings from Europe. Despite that, domestic stock markets were closer to their recent highs than recent lows. Action in many individual names seemed bullish.
Not that different from now.
There are bearish similarities as well. In addition to the Euro news, Treasuries were marking new lows. The SPX was tracing out a multi month up-down-up pattern with the recent 'up' seemingly marking a lower high.
One difference this time is that markets are at the edge of their seats in anticipation of more QE action from the Fed. Last year, it took a big swoon before the Pavlovian bell starting ringing in the heads of investors.
Feels deja vu-ish to me.
Personally, I've reeled in some long exposure in both stocks and commodities over the past week or so. Am currently sitting about 5% net long.
position in SPX
I'm walking too far ahead
You're calling to me
I can't hear what you've said
--Cyndi Lauper
Are we in for a summer market swoon similar to 2011? The spectre has been crossing my mind.
In late July 2011 we had the budget stalemate plus early rumblings from Europe. Despite that, domestic stock markets were closer to their recent highs than recent lows. Action in many individual names seemed bullish.
Not that different from now.
There are bearish similarities as well. In addition to the Euro news, Treasuries were marking new lows. The SPX was tracing out a multi month up-down-up pattern with the recent 'up' seemingly marking a lower high.
One difference this time is that markets are at the edge of their seats in anticipation of more QE action from the Fed. Last year, it took a big swoon before the Pavlovian bell starting ringing in the heads of investors.
Feels deja vu-ish to me.
Personally, I've reeled in some long exposure in both stocks and commodities over the past week or so. Am currently sitting about 5% net long.
position in SPX
Tuesday, July 24, 2012
Out of Balance
I close my eyes
Oh God I think I'm falling
Out of the sky, I close my eyes
Heaven help me
--Madonna
We have noted often on these pages that government is essentially force. There are two general purposes for employing government force.
One is to help individuals protect their person and property against forceful invasion by others. This purpose is based on the natural law notion that individuals are endowed with inalienable rights to pursue their interests without forceful impairment by others. The force of government enables liberty by protecting people's pursuits from unwanted invasion.
The other purpose for employing government force is as a mechanism of plunder. Government can be used to forcefully invade the person and property of some individuals for the benefit of others. This purpose is grounded in axiomatic human behavior. Because people have insatiable needs that must be satisfied through productive work, and because people generally prefer less work rather than more work to satisfy their needs, some people will seek to satisfy their needs on the backs of the productive efforts of others. Given government's core competence of force, it inevitably dawns on some people to employ the strong arm of government to take what they want from others.
Some people believe that a balance can somehow be struck between the two purposes of government. When this proposition is seriously considered, however, it becomes clear that the two purposes of government are mutually exclusive. People cannot be free to pursue their interests under a government that is sanctioned to take from some for the benefit of others.
Bastiat recognized the dichotomy long ago when he observed that societies slide away from liberty when the strong arm of government is employed as an agent of plunder.
Indeed, a political system that blends the two purposes of government is inherently out of balance. Plunder is likely to grow, and liberty is likely to shrink.
Instability rather than stability.
Oh God I think I'm falling
Out of the sky, I close my eyes
Heaven help me
--Madonna
We have noted often on these pages that government is essentially force. There are two general purposes for employing government force.
One is to help individuals protect their person and property against forceful invasion by others. This purpose is based on the natural law notion that individuals are endowed with inalienable rights to pursue their interests without forceful impairment by others. The force of government enables liberty by protecting people's pursuits from unwanted invasion.
The other purpose for employing government force is as a mechanism of plunder. Government can be used to forcefully invade the person and property of some individuals for the benefit of others. This purpose is grounded in axiomatic human behavior. Because people have insatiable needs that must be satisfied through productive work, and because people generally prefer less work rather than more work to satisfy their needs, some people will seek to satisfy their needs on the backs of the productive efforts of others. Given government's core competence of force, it inevitably dawns on some people to employ the strong arm of government to take what they want from others.
Some people believe that a balance can somehow be struck between the two purposes of government. When this proposition is seriously considered, however, it becomes clear that the two purposes of government are mutually exclusive. People cannot be free to pursue their interests under a government that is sanctioned to take from some for the benefit of others.
Bastiat recognized the dichotomy long ago when he observed that societies slide away from liberty when the strong arm of government is employed as an agent of plunder.
Indeed, a political system that blends the two purposes of government is inherently out of balance. Plunder is likely to grow, and liberty is likely to shrink.
Instability rather than stability.
Cisco Kid
They're seeing through the promises
And all the lies they dare to tell
Is it heaven or hell?
They know very well
--Journey
Nibbling on Cisco (CSCO) this am. After the bell last nite, the company announced that it would layoff about 2% of its workforce. That's knocked the stock down about 5% thus far today.
Below $16, I think this name represents decent long term value. Technically, the 2008/2011 low rests at about $14. Will be adding between here and there if/when.
position in CSCO
And all the lies they dare to tell
Is it heaven or hell?
They know very well
--Journey
Nibbling on Cisco (CSCO) this am. After the bell last nite, the company announced that it would layoff about 2% of its workforce. That's knocked the stock down about 5% thus far today.
Below $16, I think this name represents decent long term value. Technically, the 2008/2011 low rests at about $14. Will be adding between here and there if/when.
position in CSCO
Monday, July 23, 2012
Offshoring and Politics
They're the first to come and the last to leave
Working for that minimum wage
They'll set it up in another town
--Jackson Browne
Recently we distinguished between outsourcing and offshoring. Offshoring is either a) contracting out (i.e., outsourcing) to external suppliers located in other countries, or b) insourcing by relocating work units in others countries.
Either way, what people tend to see is migration of jobs offshore. What they tend to not see is that, in unhampered markets, offshoring is done in the name of providing better value for customers. When producers deliver satisfy customers in novel or more efficient ways, standard of living improves.
Because people generally focus on what they see, offshoring becomes an attractive target for those interested in preserving domestic jobs. A local union, for example, might demonize a vertically integrated employer that moves a unionized domestic parts operation to another country that operates in a union-free environment.
However misguided they might be, opponents of offshoring have a right to complain. They can buy TV ads, rent lecture halls, and lambast the practice of offshoring to those willing to listen. They might even try to convince buyers to elevate their taste preferences for locally produced goods and services.
Stated differently, opponents of offshoring can market the virtues of keeping jobs at home.
This is all well and good - as long as there is no force involved. Unfortunately, this is commonly not the case.
Politicians possess uncanny capacity for exploiting what people see. They can utilize their expertise in making markets for politial favor to promise those blindly married to the idea of domestic jobs that, if (re)elected, they will work towards bending the rules toward keeping jobs here.
But politicians can only bend rules through the use of force. Only thru the use of force can government coerce people to a) do what they do not voluntarily want to do, or b) not do what they voluntarily do want to do.
When politicians intervene in markets that engage in offshoring activity, consumers are no longer calling the shots. Instead, politicians and their special interest groups (SIGs) are forcefully altering behavior thats fits their view of the world.
Customer satisfaction goes down, standard of living declines, and, quite ironically, domestic employment is likely to take a hit as well.
Perhaps the strangest consequence of the present US situation related to offshoring is that policians have actually bent the rules in a manner that encourages more rather than less offshoring.
To be explained in a future installment.
Working for that minimum wage
They'll set it up in another town
--Jackson Browne
Recently we distinguished between outsourcing and offshoring. Offshoring is either a) contracting out (i.e., outsourcing) to external suppliers located in other countries, or b) insourcing by relocating work units in others countries.
Either way, what people tend to see is migration of jobs offshore. What they tend to not see is that, in unhampered markets, offshoring is done in the name of providing better value for customers. When producers deliver satisfy customers in novel or more efficient ways, standard of living improves.
Because people generally focus on what they see, offshoring becomes an attractive target for those interested in preserving domestic jobs. A local union, for example, might demonize a vertically integrated employer that moves a unionized domestic parts operation to another country that operates in a union-free environment.
However misguided they might be, opponents of offshoring have a right to complain. They can buy TV ads, rent lecture halls, and lambast the practice of offshoring to those willing to listen. They might even try to convince buyers to elevate their taste preferences for locally produced goods and services.
Stated differently, opponents of offshoring can market the virtues of keeping jobs at home.
This is all well and good - as long as there is no force involved. Unfortunately, this is commonly not the case.
Politicians possess uncanny capacity for exploiting what people see. They can utilize their expertise in making markets for politial favor to promise those blindly married to the idea of domestic jobs that, if (re)elected, they will work towards bending the rules toward keeping jobs here.
But politicians can only bend rules through the use of force. Only thru the use of force can government coerce people to a) do what they do not voluntarily want to do, or b) not do what they voluntarily do want to do.
When politicians intervene in markets that engage in offshoring activity, consumers are no longer calling the shots. Instead, politicians and their special interest groups (SIGs) are forcefully altering behavior thats fits their view of the world.
Customer satisfaction goes down, standard of living declines, and, quite ironically, domestic employment is likely to take a hit as well.
Perhaps the strangest consequence of the present US situation related to offshoring is that policians have actually bent the rules in a manner that encourages more rather than less offshoring.
To be explained in a future installment.
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