Tuesday, September 4, 2007

Clinical Depression

Purple haze was all in my eyes
Dont know if it's day or night
Youve got me blowin', blowin' my mind
Is it tomorrow or just the end of time?
--Jimi Hendrix

The pyramid of debt supporting financial markets worldwide has begun to crumble. The dominos have been hitting each other since problems surfaced mid-July at some leveraged CDO hedge funds at Bear Stearns. As expected, government enablers have been quick to administer some Dr Feelgood to the leveraged addict. Stimulants, however, are not what this patient needs. They merely add to the cost of treating tomorrow's crack up.

Saturday, July 7, 2007

Secret Separation

We are matching spark and flame
Caught in endless repetition
Life for life we'll be the same
I must leave before you burn me
--The Fixx

When measures are proposed to make Federal Reserve activities more transparent, officials balk, citing the need to keep the Fed 'independent of politics.' But this is an agency linked to the government. How else can an agency be accountable in a democracy unless the people better understand its workings? Per Rothbard (1994), if a government sphere exists as a self-perpetuating oligarchy accountable to no one, then the associated elite are more suitable for a dictatorship rather than a democracy.

Emotion in Motion

I'm gonna soak up the sun
I got my 45 on
So I can rock on
--Sheryl Crow

Whenever people involved in a social movement claim that their cause should be accepted because its validity has garnered support of the 'experts,' those contrarian hairs on the back of my neck stand at attention (how 'bout you, Dr Kuhn?)

The escalating 'consensus' behind global warming is a good example. I've been distant from the scientific flow but my rudimentary understanding of the complexity of earth's climatology invites skepticism that we can predictively model with accuracy--particularly as it relates to the movement of one (i.e., CO2 levels) of the myriad factors that might influence global climate. That meteorologists struggle with forecasting weather conditions a couple of days out should cast some doubt about the validity of longer term global climate modeling.

I do plan to piece together some data to become better informed. A couple of observations from early effort. I've seen graphs similar to this one touted by the pro global warming crowd in their stream of evidence that 'proves' we have a problem. (Keep in mind that, if the earth is indeed ~4 billion yrs old, this graph encompasses only the most recent 10% of the planet's existence.) Beyond measurement issues (for both instrumental and reconstructed data) which certainly influence the validity of the data, the graph suggests that the earth's temps and CO2 levels cycle together. Also, we seem to be near the top of previous cycles w.r.t. temp. One more note: the data suggest that past cycles have not been symmetrical--i.e., both temp and CO2 spike up, then gradually decline over 100,000 yrs or so.

If I'm understanding the graph correctly (the labels of 'preindustrial' and 'human contributed' make me wonder), then current CO2 levels (however measured) have surpassed all previous levels. Here's my question. Why isn't temp following CO2 levels higher? If there's truly direct causation between CO2 and temp, then shouldn't temps be rocketing to record highs as well? Something seems awry w.r.t. the long term relationship (Boo is whispering the word 'spurious' in my ear). Seemingly, the 'greenhouse effect' on temps depends on more than just CO2 levels.

That's what this MIT climatologist suggested back in 1992. In addition to thinking that this piece could have been written yesterday, I found it informative in terms of the factors that confound easy understanding (and prediction) of earth's climatology as well as the political backdrop of the global warming movement.

Saturday, June 30, 2007

Out for Justice

Confusion that never stops
The closing walls and the ticking clocks
Gonna come back and take you home
I could not stop, that you now know

What is law? According to Frederic Bastiat, law is common force organized to protect the liberty of individuals and their right to own property. The law is justice, pure and simple. Penned more than 150 years ago as socialism escalated in France, Bastiat's The Law is one of the finest essays on the relationship between liberty and politics that I've read.

Friday, June 29, 2007

Vice Grip

Seems so long I've been waiting
Still don't know what for
There's no point escaping
I don't worry anymore
--Phil Collins

Allota terms bubblin' up from the market lexicon. CDOs, mark-to-model (# 3 here), subprime--many of them emanating from probs at the mighty Bear (1 & 2 here). Of course, Bear Stearns is just the tip of the iceberg. If this ocean of mismarked, illiquid derivatives comes for sale, we'll see fireworks that'll put pending July 4th exhibits to shame.

Monday, May 7, 2007

Parallel Form

All for freedom and for pleasure
Nothing ever lasts forever
Everybody wants to rule the world.
--Tears for Fears

Two phenomena have consistently occured (I believe without exception) throughout the history of civilized man. One is that governments always seek more power. The other is that governments have always debased currency.

Can you see why these are related?

Sunday, April 29, 2007

Seeing Red

What if you knew her
And found her dead on the ground?
How can you run when you know?

--Neil Young

When I first heard about the Virginia Tech shootings, my first thought was that a sad event like this was past due. Since the 9/11 tragedy, I've been thinking that a college campus is an ideal location for someone who wants to make trouble. Low security, low levels of street smarts, and lots of diversity.

The most surprising element of the VT incident to me? With two handguns, the shooter was able to kill 32 and injure 20 more. His targets had to be close and stationary--likely paralyzed in fear. With some awareness and tactical training, these student targets could have acted and this casualty rate should have been much lower.

As noted by Congressman Paul, a liberty-based system requires individuals to shoulder reponsibility for their own safety. Depending on bureaucracy for security could quite literally be a deadly mistake.

Friday, April 6, 2007

She's a Beauty

Step right up and don't be shy
Because you will not believe your eyes.
--The Tubes

Yale's Robert Shiller has been tracking home prices since 1890. For some 'hands-on' perspective, take this metaphorical roller coaster ride of this price series. Experience the long climb up that last hill--plus how high you are at the end!

Saturday, March 24, 2007

Grand Illusion

But dont be fooled by the radio
The TV or the magazines
They show you photographs of how your life should be
But they're just someone else's fantasy

'The world is awash in liquidty.' You hear this claim a lot right now. 'Liquidity' is often offered as the primary cause of bouyant asset prices around the globe. But REAL liquidity is cash driven and relatively stable. Instead, bid/ask spreads have narrowed due to debt and leverage (e.g., the yen carry trade). Speculation driven by leverage is fickle and can reverse in a heartbeat when debtors get fearful.

Leverage creates the illusion of liquidity. As long as folks are willing to speculate with those borrowed funds, then financial asset prices are supported. But if risk seeking behavior turns risk averse, then the 'liquidity' will rapidly vanish.

The real issue seems related to how long collective risk seeking behavior will last. History suggests that market groupthink is prone to reversals--often with little warning.

Friday, March 16, 2007

No Quarter

It's early fall
There's a cloud in the New York skyline
Innocence...dragged across a yellow line

Terrorists of the 9/11 variety are perhaps the worst kind of enemy because they:
  1. are willing to die in order to destroy us
  2. have demonstrated capacity for doing so in a big way
  3. wear no marker

A difficult enemy to deal with--particular because they wear no marker. Conventional diplomacy with foreign countries is ineffective since terrorists are dispersed rather than affiliated with national governments.

Seems as if two primary strategies exist for dealing with this threat. Reactive mode--beef up defense and wait for the enemy to strike again on your home turf. Proactive mode--go abroad to hunt down and destroy the enemy.

Because of the potential damage that can be done on a return attack, it's difficult for me to see the wisdom in being reactive. A proactive strategy will never be totally successful, since you'll never eliminate all the enemy. But you're pressuring them (like a boxer who won't let his opponent get a breather) and creating distance between your home and them.

Neither option is what I would consider 'good'. But given the nature of this enemy, a proactive strategy seems 'less bad.'

Thursday, March 15, 2007

The Big Sleep

I'll move myself and my family aside
If we happen to be left half alive
I'll get all my papers and smile at the sky
Though I know that the hypnotized never lie
--The Who

There is plenty of evidence that liberty is dwindling in the US. Rising debt (debt reduces freedom), coercive taxation (theft of property), and government tracking systems (less privacy) are some of the symptoms. When problems arise, we increasingly look to the government (or outside countries) for assistance (see Mr Practical's example).

If we are to reverse this trend, we need to understand why we so willingly forfeit the freedom claimed by our founders over 200 years ago. What is causing our Big Sleep? Problems are much easier solved when the root cause is understood.