Elmer's Excellent Economy

Forget about the worries on your mind
You can leave them all behind
--DeBarge

Former Fed chair Alan Greenspan tells Maria Bartiromo that he doesn't envision recession in the next couple of years. Not sure that should be comforting to the economy bulls. Elmer's track record on foreseeing recessions has not exactly been stellar--beginning with his poetic waxings just before the dot.com collapse.

Former Federal Reserve Chair Alan Greenspan to @MariaBartiromo when asked if he can envision a recession in the next couple of years: "I don't think so. At least as far as the data as far as we can see tell us." pic.twitter.com/zMOJTiXW7F

— FOX Business (@FoxBusiness) June 29, 2018

Central bankers generally create economic havoc far better than they can forecast it.

Fake News Bias

Shake it up is all we know
Using the bodies up as we go
I'm waking up to fantasy
The shades all around aren't the colors we used to see
--Hall & Oats

The most interesting part of these results is the breakdown by party affiliation. More than 9 of 10 Republicans think the media commonly reports fake news while only about half of Democrats do. Independents split the difference.

These differences are predictable by theory. Bias, in this case slanted media, should be most apparent to those in out-groups and least visible to those in in-groups. Collectivist tendency should accentuate the difference.

Kennedy to Retire

Jake Lo: What judge is going to believe that?
Agent Wesley: My judge.
--Rapid Fire

Yesterday, Supreme Court Justice Anthony Kennedy announced that he would retire. Kennedy has often played the role of swing or wildcard voter on high court rulings otherwise divided along predictable ideological lines given the makeup of the other eight supremes. Should his replacement carry more commitment to one of those competing ideologies, then the balance of justice, at least the current high court version, will tilt accordingly.

Because they currently hold enough executive and congressional power to get it done, many on the right are relishing at the spectre of such a rebalancing. Conversely, many on the left are cursing the process that permits a president that they did not support to nominate another judge who could move the court further from progressive sympathy.

The roles would be precisely reversed, of course, if the 2016 presidential election turned out differently.

The frenzy that Kennedy's announcement has already created is but a harbinger of the political theater that will take the stage as the nomination process for a replacement justice unfolds.

As the theater plays out, I will be remembering this. It is unlikely that our founding ancestors fought a bloody revolution to ultimately concentrate so much political power in the hands of nine (or really five) lawyers who are tenured for life.

Unfortunately, when positivism trumps the rule of law, the modern translation of the framer's original design should not be surprising.

Travel Ban Upheld

Judge McKay: Let's try and keep this from become a personal matter, please.
Ed Hucheson: Well, a newpaper's a very personal matter, sir. Ask the people who let us into their homes. 
Judge McKay: I've read The Day for more than 35 years. Before that, I sold it in the streets. However, here we're only concerned with the legal aspect of the sale and purchase of property.
--Deadline U.S.A.

In a 5-4 decision released yesterday, the Supreme Court upheld President Trump's 'travel ban' affecting several mostly Muslim countries. The ruling essentially reverses several lower court rulings opining that the ban unjustly discriminated on the basis of nationality and religion.

Those lower court opinions, and those among the four dissenting Supremes, are grounded in the argument that statements made by Trump, many of them during his presidential campaign, 'prove' that his motivations for the travel ban were bigoted and racist. However, it does not take a J.D. to sense that such an opinion rests on shaky legal footing.

After reading the Ninth Circuit opinion issued in early 2017, I wondered whether it was the court, not the president, that was overstepping bounds. The central legal issue is whether the president has the authority to issue such an executive order and whether the content of the order is consistent with the rule of law. As long as the order itself is valid, then the motivation behind it matters little.

Otherwise, what the dissenters in this case essentially argue is that the same executive order issued by a different president who used less inflammatory rhetoric would be ok.

.@Judgenap: “Executive orders signed by Donald Trump and any subsequent president will be interpreted only on the basis of the words that are in the order." https://t.co/YJoYrCncJe @AmericaNewsroom pic.twitter.com/pULP5BryRV

— Fox News (@FoxNews) June 26, 2018

As Judge Nap recounts, this is what the majority SCOTUS opinion concluded. It is the text of the order that must be construed from a legal standpoint. The political or rhetorical backdrop have little standing. Stated differently, what matters under the law is what's in the law, not the personalities behind it.

Although it has been suggested that this sets an important legal precedent for interpreting executive orders, it is difficult to see how other approaches would be more consistent with the rule of law.

Tariff Tirade

When I'm far from home
Don't call me on the phone
To tell me you're alone
--Billy Idol

Donald Trump unleashed a tweetstorm against Harley Davidson this morning after the company announced that it will move some operations to Thailand in lieu of the president's tariff plans. Of course, Trump did not complain last year when South Korea-based Samsung announced that it would build a $10 billion factory in Wisconsin in part to front run pending tariffs.

To make the theater even more amusing, progressives have suddenly become free market advocates. They are decrying tariffs as taxes that kill jobs. This is, of course, true. But it comes from the same group of people that has no problem levying other forms of taxes that kill jobs. And that has no problem interfering with markets in other ways (e.g., minimum wage laws) that similarly drive jobs elsewhere.

Trump's tariff tirade and the associated hypocrisy of others once again demonstrate human tendency to recognize the negative effects of market intervention in the politics of others but not in their own.

Four Falsehoods

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

Lawrence Reed discusses falsehoods conveyed by the school system (particularly public schools) about four historical events/people:

1) That the Industrial Revolution ushered in a dark era and exploitation of the working class. Children in particular were hapless victims.

2) That Upton Sinclair's The Jungle was a historically accurate account of unscrupulous capitalism in the early 20th century that was 'solved' by subsequent government regulation.

3) That the Great Depression was eliminated by government intervention, particularly FDR's New Deal programs.

4) That Jesus was a socialist.

If you believe that any or all of the above or true, Reed suggests that you ask for a tuition refund. Of course, many students who have been so indoctrinated paid no tuition. Which nicely validates the  adage that you get what you pay for...

I would suggest that if you believe any or all of the above, then you are not engaging your capacity for critical thought. If you are pursing truth, then you would ask questions and find answers that would steer you away from the above falsehoods.

Record Converts

Well I'm heavenly blessed and worldly wise
I'm a peeping tom techie with x-ray eyes
Things are going great
And they're only getting better
--Timbuk 3

Tech companies have been issuing convertible bonds at record rates. As indicated by the graph below, previous highs occurred in 2000 and 2007.

Implication: market demand for converts tends to be highest when stock prices are peaking.

position in SPX

Borderline Thoughts

Stop driving me away
I just want to stay
There's something I just got to say
--Madonna

Interesting questions raised by Pat Buchanan and other about US immigration policy have me thinking once again about the role of borders in society and government's role in maintaining them. Searching these pages for previous missives on the subject, I was surprised by how often, and how long ago, this topic has been on my mind.

This post serves as a lander page of sorts for these previous thoughts that might serve as a useful reference point in the future.

Role of borders in society. Boundaries have been drawn since the early days of civilized society--suggesting a natural tendency of human beings to do so. Possible reasons for doing so include selfishness (inappropriately possessive), security, economic (e.g., facilitate trade), or social (preference for living with similar individuals).

Desirability for borders as a means for creating political competition and choice. The idea is that differing political systems operating in each bordered society compete with each other for citizens. People will leave societies with less desirable political systems in favor of the better ones. Some believe this should benefit liberty over time.

An interesting thought experiment related to the 'borders as political competition' idea above is to imagine that the geography of the continental US is split at the Mississippi River into two countries. One side houses people who believe in liberty. On the other side are those who believe in state-sponsored 'equality.' Over time, the prosperity realized by Liberty will attract people who have become impoverished in Equality. At some point, Equality will have to erect exit barriers to stem the outflow--or, of course, throw off its totalitarian state. On the other hand, Liberty's destiny will depend on the extent to which its citizens can limit the scope of its government.

That conclusion--i.e., the success of a society founded on the principles of liberty is dependent on limiting scope of government--has led to several posts (here, here, here, here) that essentially consider the 'open border' problem. The central conclusion is this. When property rights are well respected and not confiscated to fund welfare programs available to all, then open borders are preferred. Open borders create competition and mobilize labor seeking opportunity. Prosperity will increase. However, if property is being confiscated to fund welfare programs, then borders cannot be open. People seeking a free ride, as well as those ideologically opposed to the notion of liberty, will cross borders (and/or encourage others to cross borders) to consume resources that they did not earn. If borders are not secured, then the welfare state grows ever larger under such circumstances until it collapses under its own weight.

This leads to an issue that has sparked much public debate recently: the erection of physical barriers such as walls as deterrents to unwanted border crossing. One camp likes to argue that 'wall don't work.' Because people can climb, tunnel, fly over, go around them, wall don't keep people out. What this camp conveniently omits from its argument are the words 'all' and 'some.' While walls certainly don't keep all out, they certainly keep some out. We can be sure that most of the very same people who argue against building border walls have fences around their yards, security systems in their houses, and locks on their doors. Few of these people are naive enough to expect these security measures to keep out the most hardened and dedicated criminals. But they will slow some down and deter others. The more formidable the wall, the greater the deterrent to illegal border crossing.

That said, there is a very good case to be made for alternatives to walls. Reduce trade barriers. Barriers such as tariffs increase cost of doing business and motivate locals to cross borders in search of better opportunity. Existing laws that restrain illegal immigration could also be more fully enforced. Finally, reduce welfare state incentives that attract immigrants seeking to live off the production of others.

Most recently, these pages have considered how orchestrated efforts have magnified the border problem. Politically motivated groups are using children as pawns and a complicit media to capture emotional support for conditions that, as noted above, are certain to sink the system: porous borders in tandem with an inclusive welfare state.

Two Hundred Days Away

Close enough but not too far
Maybe you know where you are
Fighting fire with fire
--Talking Heads

How far away are major indexes from their respective 200 day moving averages? The COMP is farthest away, at about 9%:

The SPX is next at about 3%:

The Dow is closest to its 200 day. Already below its 50 day moving average, the DJI is only 1% from its 200 day.

How to interpret? In a trending market like we've had, moving below the 200 day moving average is one indicator of a technical breakdown. Viewed from this perspective, the Dow appears closest to breaking down and merits watching.

On the other hand, major reversals often begin with those groups that have been the object of the raciest speculation. The COMP has been that object and, as the relatively big distance between the index value and its 200 day moving average suggests, has thus far has shown little evidence of cracking.

Stated differently, the current COMP>SPX>DJI standing of the major indexes relative to their 200 day moving averages may need to reverse to DJI>SPX>COMP before we get a major trend reversal.

position in SPX

Orchestration

Borderline
Feels like I'm going to lose my mind
You just keep on pushing my love
Over the borderline
--Madonna

The recent hysteria involving separation of children from adults (not necessarily parents) seeking to cross the southern border illegally demonstrates once again that few social events with political overtones are random. Rather, they are premeditated. Planned and often funded by groups with political agendas to elicit a sympathetic response from onlookers--particularly those who vote.

Stated differently, most sociopolitical events that grab headlines are not spontaneous, but orchestrated. A primary goal of orchestration is emotional capture.

A complicit media fans the flames. And kids commonly serve as political pawns.