Tuesday, August 31, 2010

Civil Rights Irony

"My old man was so full of hate that he didn't know that being poor was what was killing him."
--Agent Rupert Anderson (Mississippi Burning)

We have noted that there are two primary definitions of equality in the social context. One definition pertains to equal treatment under the law. This definition appears to be the one preferred by the Founders as implied by the country's founding documents. Let's call it the classical definition.

The other definition pertains to equality of income (or economic resources, or opportunities, or living standards). The definition has gained popularity over the past century with the rise of the Progessive movement. So let's call this one the progressive definition.

Not only are these definitions diametrically opposed w.r.t. liberty, but they also conflict in their implications for policy. Policy that is developed on the premise that both definitions of equality can be supported is likely to be confusing and unconstitutional in some manner.

An example of such policy is Public Law 88-352, more commonly known as the Civil Rights Act of 1964. The Civil Rights Act is divided into 11 sections, or 'Titles,' that are intended to address various issues related to discrimination and segregation.

Many sections seem consistent with the classical defintion of equality. Title 1 guarantees equal treatment for all voters. It is sad to think that this policy actually had to be written into civil code--nearly 200 years after the Declaration and Constitution generally guaranteed it in the name of liberty. Sections such as Title 5 related to the desegregation of public schools and Title 6 that prohibits discrimination in federally assisted programs, also seem consistent with the classical definition because they address equal treatment of public (shared) property.

Two sections, however, support the progressive definition of equality. Title 2 prohibits discrimination in places of public accomodation, which is specified to include privately owned businesses. Title 7 mandates 'equal employment opportunity' in hiring practices with the scope again including privately owned businesses. These conflict with the other sections because private property owners and 'protected classes' no longer receive equal treatment under the law. Private property owners are required to surrender property--which includes economic resources as well as the decision rights over them--to other groups (i.e., the 'protected classes'). This is unequal treatment under the law. Property owners are being treated differently than others. Protected classes gain access to resources that are not rightfully theirs.

The central conflict of the competing definitions of equality is well captured in the Civil Rights legislation. It boils down to this: Should the liberty of one group of individuals be infringed upon in order to advance the welfare of another group?

A tangential issue involves how discrimination can be decisively demonstrated. Sadly, most of the remaining sections of the Civil Rights Act of 1964, and well over half the total page count of the PL, are directed towards the establishment of the bureaucracy to oversee enforcement of a highly subjective behavior.

Finally, it must be noted that in truly free markets, chances of persistent discrimination based on race, gender, religion, etc are extremely low. Producers who make bigoted decisions lose customers as well as talented workers to entrepreneurs who recognize the opportunity. Bigoted operations get weaker and disappear.

Bigoted operations are likely to persist when markets are not free. For example, regulations that discourage entrepreneurs from entering a bigoted industry are likely to make discrimantory behavior more durable.

Ironically, regs like those imposed by Public Law 88-352, which raise cost of business thru EEO and compliance programs, are likely to do just that.

Another case of unintended consequence writ large...

Monday, August 30, 2010

Hayek on Equality

It may take a little time
A lonely path, an uphill climb
Success or failure will not alter it
--Howard Jones

Back in January I shared some thoughts from Hayek on the competing notions of equality. They're so lucid I'm going to jot them here once again in an effort to remember them better:

"[Individualism] can see no reason for trying to make people equal as distinct from treating them equally. While individualism is profoundly opposed to all prescriptive privilege, to all protection, by law or force, of any rights not equally applicable to all persons, it also denies government the right to limit what the able or fortunate might achieve.It is equally opposed to any rigid limitation of the position individuals may achieve, whether this power is used to perpetuate inequality or to create equality. Its main principle is that no man or group of men should have the power to decide what another man's status ought to be, and it regards this as a condition of freedom so essential that is must not be sacrificed to the gratification of our sense of justice or of our envy.

"If all men were completely equal in their gifts and inclinations, we should have to treat them differently in order to achieve any sort of social organization. Fortunately, they are not equal; and it is only owing to this that the differentiation of functions need not be determined by the arbitrary decision of some organizing will but that, after creating formal equality of the rules applying in the same manner to all, we can leave each individual to find his own level...There is all the difference in the world between treating people equally and attempting to make them equal."

Sunday, August 29, 2010

Equal Experience

"Have you ever had a dream, Neo, that you were so sure was real? What if you were unable to wake from that dream? How would you know the difference between the dream world and the real world?"
--Morpheus (The Matrix)

I've been feeling the urge to scribe some vibe on equality. Equality is a word that in today's social context possesses two very different meanings. Operationalizing one or the other meanings in a society will have dramatically different consequences on freedom and economic/social outcomes.

Before heating up the keyboard, I tapped the search feature on this blog and was surprised to find previous posts, all written earlier this year, that housed much of what I wanted originally intended to write about here. The subconscious mind works in mysterious ways, I suppose.

To better elevate some of these thoughts into my consciousness, I thought it useful to revisit these old posts (repetition is the mother of skill...). Here, then, are some reflections on this old post.

Rule of Law vs Rule of Authority. The definition of equality adapted by America's founders was equal treatment under the law. This was and remains a great departure from history. Instead of the rule of law, the dominant government structure that has defined social structure has been the rule of authority. Under the rule of authority, people of different social status are treated differently under the law--i.e., inequality under the law.

Evolution of liberalism. Over time, the legal structure of the US has been migrating from the radical notion of the rule of law toward the traditional notion of rule by authority. The trend has paralled evolution of what it has meant to be a liberal. Classic liberalism was grounded in the notion of individual freedom (liberty) and was suspicious of government and sought to restrain its power. Today's liberalism believe in the increasing authority of the state at the expense of individual liberty. Today's liberals look upon citizens with suspicion and upon governments with approval.

Inequality under the law. Modern liberals typically view equality in terms of leveling of resources. They want everyone to be decently clothed, fed, housed, educated etc and are willing to give government unlimited authority to accomplish the results they approve. America's founding precept of 'equality under the law' is thus replaced by the traditional notion of 'inequality under the law.'


Saturday, August 28, 2010

Spin Dry

Roll Up
Roll up for The Mystery Tour
--The Beatles

Over the past couple of days, I've heard President Obama and his administration claim that they 'inherited' a $1.3 trillion deficit from the Bush Administration.

Not sure where the president is getting his numbers from. His own Office of Management and Budget pegs the budget deficit at $459 billion in 2008, Bush's last year (see Table 1 here). Under the Obama administration, the deficit ballooned to $1.4 trillion in 2009 and is estimated at $1.6 trillion this year.

Per the OMB, then, the deficit has nearly quadrupled under the Obama administration.

Why media gives this stuff a free pass is one of those mysteries...

Furthermore, President Obama continues to suggest that the severity of our economic problems was unforeseeable ahead of time and that the problem was not of his making. Of course, many did see this problem coming as it was a mile wide. The unpredictable thing was the timing--i.e., when the problem would begin to express itself.

Moreover, few problems that administrations encounter are purely of their making. But pointing the finger soley at the immediately preceeding administration is usually intellectually dishonest, as underlying causes are likely linked to decisions made during administrations many generations past. For example, our current economic malaise can easily be linked to decisions made 70-100 years ago.

Each administration is presented with the opportunity to reverse these decisions and the problems they've caused if the adminstration has the political will to do so. Unfortunately, few if any choose this path. Instead, it is more likely that administrations will act in a manner that escalates problems.

Thus, just as the Bush Administration decided to escalate the conditions of spending and debt that underpin our economic issues, the Obama Administration has chosen to do the same.

The magnitude and severity of the problem is merely much larger than before.

Friday, August 27, 2010

Trampled Underfoot

Benjamin Martin: May I sit with you?
Charlotte Selton: It's a free country. Or at least it will be.
--The Patriot

The intent behind the Constitution was to enumerate those powers that the federal government would possess. The implication was all other powers not specified were in the hands of individuals and the states. Thus the scope of central government would be explicitly limited.

During the ratification process, however, some states felt uncomfortable signing off due to the lack of specificity about individual rights. The only way to get states like Virginia to sign off was to amend the Constitution with a more explicit enumeration of individual rights. Thus, the first ten amendments were born. Today they are commonly known as the Bill of Rights.

The preamble of the Bill of Rights defines their purpose:

"The Conventions of a number of the States, having at the time of their adopting the Constitution, expressed a desire, in order to prevent misconstruction or abuse of its powers, that further declaratory and and restrictive clauses should be added: And as extended the ground of public confidence in the Government, will best ensure the beneficent ends of its institution."

Unlike the Constitution, which was designed to confine federal government power, the Bill of Rights is not meant to be limiting in nature. We know this not only because of the preamble above, but because of the final two amendments. The ninth and tenth amendments read as follows:

Amendment IX: The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

Amendment X: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to States respectively, or to the people.

The Bill of Rights must therefore be construed as capturing some of the more more significant individuals rights as perceived by the authors but not as an all encompassing list. The rights of the federal government were meant to be carefully constrained while the rights of the people were 'open ended'--wholly consistent with the notion of individual pursuit of happiness.

I cannot think of a Constitutional concept that has been trampled more than this one. Today the federal government constantly looks for ways to extend its power, which by definition robs power from the individual.

The working standard today seems to be: unlimited government power, limited individual rights.

Precisely the opposite of original intent.

Thursday, August 26, 2010

Hat Dance

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

If you're a contrarian, it's hard to view 'avoid stocks' missives by the likes of Tony Robbins and Mark Cuban and not feel at least a pang of bullishness. Mainstream media headlines have been getting into the act as well.

Tempting. Very tempting. When bearish views become popular it's often time to turn the hat around.

That said, I've long thought that a prolonged bear market--one that leaves few standing by the time it's over--is likely to chew up bulls and bears alike. One way this occurs is thru vicious trend reversals that sooner or later take out those who are persistently optimistic or pessimistic.

Another purging mechanism relates to the prolonged duration of weak prices, and the gradual darkening of social mood that accompanies it. Slowly but surely those who were formerly bearish view declining prices or seemingly grossly pessimistic sentiment as rationale for joining the bull camp. Subsequently, another bear phase takes them out. Metaphorically, it's like the individual who correctly foresees a killer storm coming and heads down to the cellar, only to be prematurely lured out of safety during a temporary break in the clouds.

We need look no further than Japan for an example of just how long post-bubble bear markets can last. The Nikkei is entering its third decade of malaise.

From where I sit, it does seem possible that we may be close to a 'tradeable low,' where those who are agile might slap on some tactical long exposure for a trade. I've been doing just that over the past coupla days. My preference is for names that have been pounded down, are cash rich, and have little debt.

Frankly, I think some of these names are starting to look attractive from a pure valuation perspective (see for example GPS, MSFT). But the macro environment remains unfavorable and likely to press undervalued issues lower still.

Classically, generational market lows occur when stocks on average trade in single digit PE multiples and sport dividend yields >6%. Currently, we're only about half way there (altho I do suspect that we'll ultimately arrive at this destination).

Meanwhile, I've kicked out my 'special' positions in bonds and the USD. If we get a bit more weakness, I'll jettison my small short position as well, at which time I'll be long a small basket of stocks along w/ some SLV.

positions in GPS, MSFT, SH, SLV

Wednesday, August 25, 2010

To Have and Have Not

Now, the mist across the window hides the lines
But nothing hides the color of the lights that shine
Electricity so fine
Look and dry your eyes
--Joe Jackson

While funds dry up in lower tier public institutions, high profile b-schools are engaged in an orgy of spending in order maintain, well, their high profiles.

Some of the numbers are staggering. A 30+ building campus in front of the Charles River at HBS--here at NKU we've yet to put a single dedicated b-school building in the ground. Looks like the minimum facility cost at these schools is $100 million--last I heard the recent round of blue prints had our planned facility at $40-50 million. Naming rights at Stanford, Chicago, Yale: $100 million minimum--cost at NKU: $15 million.

Night and day...

Tuesday, August 24, 2010

No Zip in Mother Chip

"Wooa, that's a mother dictionary!"
--Lloyd Dolber (Say Anything)

Intel (INTC) certainly is not the market 'tell' that it used to be. However, after surprising markets with a rather strong earnings report and forecast in early July, the stock has given back all the euphoria and then some.

Looks to me like $18 is a pretty serious line in the sand for this stock. Last time it let go of this level was during the 2008 meltdown.

Hoofy might argue that Mother Chip is merely in the process of tracing out a huge multi-year reverse head and shoulders pattern.

Will be keeping half an eye on this one...

no positions

Monday, August 23, 2010

Greenback Attack

You say goodbye right now
I'll still survive somehow
Why should we let this drag on?
--Tom Petty

John Hussman posits that the Fed's recent announcement of more quantitative easing (QE) materially increases the chances of a collapse in the dollar.

I have little doubt that such a collapse will occur. The question, of course, lies in the timing. Individuals who believe inflation is eminent think are likely to think this collapse may come sooner rather than later.

Personally, I believe there is a near term case for stronger dollar as folks close out debt projects and seek securities denominated as 'safe.' Major dollar decline comes later, when either a) enough debt has been destroyed or b) outside creditors close the borrowing window.

Dr J is careful to point out that dollar destruction is likely to be quick rather than gradual. He notes that the Fed's change in bias toward more QE has him reorienting his funds toward more precious metal exposure ("...the Federal Reserve has begun to play with fire, the effects of which I doubt Bernanke fully appreciates.").

A week or so back I (once again) initiated a position in SLV. John's comments have me wanting to bump my gold, silver exposure a bit. Like John, I hope to use price weakness to my advantage.

position in SLV, gold, USD

Sunday, August 22, 2010

Almost Done

One summer never ends
One summer never began
It keeps me standing still
It takes all my will
--The Motels

Number one personal finance goal this yr was to pay off the house. Almost finished it this month but would have drawn my cash position down a bit lower than the 'emergency fund' minimum I like to keep.

September should be it. Payoff statement has been ordered from lender. Payoff amount is principal and interest due Oct 1st plus a $28 record fee. A small bonus is that since amount due is under $5K, I can send personal check rather than messing with certified funds.

Plan is to mail final amount after end of August pay day. 

Saturday, August 21, 2010

Chinese Checkers

Welcome to the grand illusion
Come on in and see what's happening
Pay the price, get your tickets to the show

Proponents of the China often cite the country's clean balance sheet as an asset. Very little debt, they say.

This article suggests that some of this condition is an accounting phenomenon. Chinese officials appear to understand SIVs and SPEs just as well as their overseas counterparts.

Over time, what is certain in my mind is that Chinese debt levels will grow. Centrally planned economies misallocate capital in large quantities. To make up for losses, and to fulfill political promises, officials will turn to borrowing resources that their economic engine cannot produce.

no positions

Friday, August 20, 2010

Bass Master

We are passengers in time
Lost in motion, locked together
Day and night by trick of light
But I must take another journey
We must meet with other names
--The Fixx

Had never heard of Kyle Bass before, but was quite impressed with his demeanor and thought process during these interviews (part 1, part 2). I found myself going thru these multiple times.

Essentially, his thesis is that the world's debt load is larger than its ability to pay. When he says that there will be debt 'restructuring', this is a code word for defaults (i.e., creditors are not going to get paid per original obligations).

His asset allocations are interesting. Looks like he's short JGBs in pretty good size. His, 'I can't see how you can own stocks' comment seemed to sober the talking heads a bit.

position in SH

Thursday, August 19, 2010

In Search of Hairbands

In the howling wind comes a stinging rain
See it driving nails
Into the souls on the tree of pain

Much ink has been spilled in the media and the blogosphere about the Muslim center to be located near Ground Zero. Commentary has been all over the map, which perhaps should not be unexpected given the impact that 9/11 had, and continues to have, on so many. A few things have struck me in the commentary that I wanted to reflect on here.

Analogies. Many people have been offering analogies in attempts to convey their point of view on this issue. When used appropriately, analogies can be an effective form of persuasion and learning because they help people connect current situations to past lessons learned from experience. However, analogies can be misleading or downright nonsensical when they fail to use examples that allow for 'apples to apples' comparisons.

It seems to me that in the present situation, the most effective analogies are those that aggregate a) an event in which heinous murder was committed that directly or indirectly affected a large group of people (the 9/11 event) b) a group perceived as having traits in common with the those who committed the heinous murder (Islamic religion or background) c) intent of said group to locate a facility near the location where the heinous crime was committed (Muslim center near Ground Zero).

As such, the most appropriate analogies seem related to hypotheticals such as:

-->a center for Japanese culture located near the USS Arizona memorial at Pearl Harbor
-->a KKK meeting hall located around the corner from the hotel in Memphis where Martin Luther King was shot
-->a Nazi history museum located outside the gates of Auschwitz

Majority beliefs and democracy. From the data I've seen, it appears that a majority of Americans do not want the Muslim center to be built close to Ground Zero. However, it also appears that most Americans would be against a law prohibiting such a center from being built.

Most Americans seem to understand that it is the Constitutional right of this group to locate where it wants to, regardless of whether citizens think it's a good idea or not. This is encouraging.

Things might be different, however, if this issue were put to a vote, as many folks might vote with emotion of the minute. Which once again suggest the danger of putting social issues to a democratic vote, where mob rule might very well trample the freedoms of the few. Sadly, many people seem to recognize the dangers only when it is their cause that the mob threatens. When their cause happens to align with the mob, then these same people jump behind democratic vote as 'just.'

Intent. The question whose answer escapes me is this: Why would a Muslim organization want to locate a facility so close to place where a terrible crime, among the worst in American and perhaps world history, was committed by people with Muslim affiliation?

When these plans hit the tables of the organizers, they surely had to realize that this action would be viewed as a threat to many who are still in the process of healing--a process likely to take a generation or longer to conclude.

Those who have expressed 'surprise' at the ensuing pushback seem either ignorant of the human condition or politically motivated.

There's a scene in the movie Road House where the local crime boss and his henchman stroll into a bar that has been trying to turn itself into a respectable establishment. The boss orders a round of drinks for everyone, and then suggests that his lady get up on stage and do some dancing for the patrons. Meanwhile, his gang splits up and saunters around the club. As this situation unfolds, one of the bar's 'coolers', played by Sam Elliot, takes out a rubber band and begins tying back his long hair, because he senses that a volatile situation is about to ignite.

Why would he sense otherwise?

Wednesday, August 18, 2010

Of Addicts, Fixes, and Enablers

You like to think that you're immune to the stuff, oh yeah
It's closer to the truth to say you can't get enough
--Robert Palmer

The end game for a country addicted to spending and debt is when creditors close the borrowing window. At that point, two things can happen--actually 3 things.

One is that the addicted country quits borrowing and spending cold turkey. Two is that the country, if it holds a printing press for its currency (the US does; Greece doesn't), simply prints paper to pay their creditors and distribute to their people under the pretense that the paper represents claims to real economic resources.

Third is that the country, if it holds a powerful enough army, holds other countries at gunpoint for a fix (until it runs out of ammo, of course, which could be sooner than people think).

The consequences that follow any of these alternatives are not pleasant.

So the US keeps borrowing and spending because, well, because there are still lenders out their willing to finance our habit. In the addiction context, creditors can be seen as 'enablers.'

Interestingly enough, recent reports suggest China may be backing away from Treasuries in size.

Could be something; could be nothing. We've had some 'false alarms' from our Asian creditors before and this may be another one.

But the day our enablers pull out for good, then the addict is forced into painful action.

Addicts, of course, refuse to think that far ahead...

position in USD

On the Zoom

Well she got up every morning
And she waited in the cold
Got in a stinking yellow cab
Put the money through the hole
And she stared out the window
All the way down Fifth Avenue
--Don Henley

Long bonds have been on the zoom, presumably on the back of the Fed's announcement last wk that it'll be buyin' em.

Decided to peel off my exposure into this morning's lift. The trader in me senses a 'too far, too fast' situation and that there may be a gap to fill back to 102ish.

Besides, am still holding some dollars and short equity index which reflect the same basic deflationary theme...

positions in SH, UUP

Tuesday, August 17, 2010

Decline, Part IV

I never saw you look like this without a reason
Another promise fallen through
Another season passes by you
--Big Country

Twenty years ago, the coated paper industry was in the groove. Today, it's in shambles. The company I used to work for has been bought twice over. Today, there is barely a trace of evidence that the firm even existed. And the host communities have been hammered in kind.

What exactly happened?

It seems straightforward point the finger at 'free market capitalism.' After all, Schumpeter famously labeled capitalism a process of 'creative destruction' for good reason, didn't he? To be sure, fundamental market forces such as supply and demand, risk and reward, fear and greed, innovation, etc exerted influence on this situation.

However, we know that markets everywhere have not been operating freely for a long time. The paper industry has been no exception. The intellectually honest question relates to how interventionary forces may have distorted the playing field to drive unnatural outcomes--i.e., outcomes that may not have occured if markets were unhampered.

Let me propose a few interventionary forces that likely twisted outcomes in a significant and negative fashion.

The first one is central bank interest rate policy. Beginning in the early 80s, the Federal Reserve reversed the multi-year hawkish interest rate policies of former Fed chair Paul Volcker designed to 'break the back' of inflation that dominated the 70s. Central banks worldwide basically followed in kind. We began the 1980s with 10 yr T-note yields at close to 20%. The Fed has been pushing rates lower ever since (currently they're at less than three).

Lower yields mean cheaper credit. Cheaper credit means more borrowing. In capital intensive industries where managers are always tempted to borrow more to expand, well, you do the math here. Is it likely that firms in this sector would have borrowed as much, expanded as much, weakened their balance sheets as much if borrowing costs were higher at priced 'at market'? No way.

A second one is unions. I think that unions do have some utility. For example, I found them excellent communication channels. However, the primary goal of most unions is to fix the price of labor higher than market, and then use coercive means to 'close the shop' to outsiders willing to do the same work for less. To the extent that employers are coerced by law to comply with this arrangement, then production costs will be artificially high. Competitive positions of those operators will be compromised.

Unions also tend to make workforces more rigid and resistant to change. When the inevitable game changing environments arrive, workers are unprepared to make major adjustment in their career courses. This inflexibility hurts not only workers, but it impairs a community's ability to adapt.

Third and finally is government subsidy. Critical to the decline of this particular sector was the influx of foreign supply and, subsequently, foreign capital in the form of buyouts. When governments identify particular industries as 'strategic' and are willing to shower them with priviledges, then global competitive behavior gets distorted. Often, however, the distortions occur in localized areas. Thus, favorable government treatment of paper companies in Finland can wind up devastating communities in central Wisconsin. Moreover, capital gets misallocated in huge quantities. Somebody paid (or is paying) for the multi-billion dollar loss when my former firm was bought out, then bought out again at much lower prices.

Parenthetically, I shudder when I see our government picking industries for favorable treatment. See, for example, the Obama administration's treatment of alternative energy. There is a very good chance that this will end in tears somewhere for somebody, and that average standard of living will take a large hit. Just what we need given our current predicament...

It is easy, and somewhat sad, to speculate where things in the US coated paper industry (and these communities) would be today if government had kept its hands off of things.

Monday, August 16, 2010

Decline, Part III

"We didn't quit. You quit."
--Steffan Djordjevic (All the Right Moves)

While it is too early to draw definitive conclusions regarding the recent acquisition of my former company's assets, it's pretty safe to say that secular conditions in the industry have not materially improved.

Meanwhile, the central Wisconsin communities in which these operations reside continue to deteriorate. I try to return to the area every year or so, and it's pretty easy to notice change when you're not dipped in the perpetual motion of daily life in a locality.

Overall census pops appear to be stabilizing after taking a 20-40% hit earlier in the decade. Would guess that unemployment is about 20%, although many of those looking for work have already left the area.

I've seen less homes for sale this time around. Can't say the same for commercial real estate, as the number of empty store fronts and office buildings seems to be significantly higher.

There is a palpable bitterness about the original company sale to the Europeans. Some say the family owners sold out the community. Others blame the unions. As of now, however, even the bitterness seems to have stopped escalating compared to the last few times I was here.

My saddest experience this time around was cruising down to Wisconsin Rapids to check out the old Main Office where I worked and the River Block staff building across the street. Both of them are virtually empty. Paint peeling off the walls, felled trees on uncut lawn, empty parking lots. Vacant and in some cases demolished storefronts adjacent to the company properties. Had that ghost town feel. Couldn't help but think back 15-20 years when this was one bustling and vibrant district. Now...nothing.

Which brings me to the thing that stuck out most this time around. And that is the effect of spillover from a healthy corporate enterprise, and the emptyness that creeps in when that spillover is removed. The parks, nature preserves, community service and other outreach. Also, all of the jobs that were dependent directly or indirectly on a company--in this case literally thousands.

When companies get in trouble, the spillover to the community stops spilling. Sadly, removal is necessary in order to fully appreciate the salience.

It's easy to point finger about who is to blame for this situation. The media has picked these types of situations apart with predictably similar and in my view shallow and unsatisfactory conclusions.

That'll be the subject of our last installment...

Decline, Part II

Well I'm living here in Allentown
And it's hard to keep a good man down
But I won't be getting up today
--Billy Joel

The signs of industry deterioration that became evident early in the 1990s began to pick up late in the decade. The plight of my former company serves as a microcosm of the general conditions that unfolded.

The 1995 acquisition added a few $ hundred million in debt to an already levered balance sheet. Integration problems were a challenge. Acquisitions were not something my company was used to doing, and the restructuring hit some speed bumps.

Pricing pressures continued to build from falling demand and rising supply. By this time, foreign supply was coming not only from the Europeans but from Asia as well. Falling prices made it more difficult to service debt.

By the end of the decade, many stalwart North American players began shopping their assets in this paper sector. In late 1999 a European firm made an offer that the owners couldn't refuse (the publicly traded stock was largely concentrated in the hands of founding family members) and my former company was sold for nearly $5 billion--a hefty premium over the traded market value of the firm.

Then came restructuring. Waves of reductions in force (RIFs) commenced. Some were offered early retirement packages but most reductions were the result of layoffs--something very foreign to my former company. Over the next few years the workforce of nearly 7000 was cut by over 40%. Old machine lines were shuttered. A general rule is that, in an acquisition, administrative staff of the acquired company usually takes an outsized hit as staff functions are 'consolidated' with a preference for keeping staff of the acquirer. The corporate staff building in downtown Wisconsin Rapids began to empty out.

Local management positions were now being populated with expatriates from overseas. Managers from the old firm were making long trips across the pond for meetings at parent company headquarters in Finland.

The new owners began major investment programs to improve the productivity in the remaining machine lines. These programs affected major capacity improvements. However, the $billions in investment added more stress to the balance sheet. 

General industry conditions continued to worsen during the 2000s. Global supply continued to increase in the face of weakening demand. Capacity was retired. Acquisitions increased...as did debt and leverage.

By 2008, the Euro parent threw in the towel on making this acquisition work. Plus, it needed cash as the company was drowning in debt that home base government subsidies could no longer cover. So they sold their US assets to a subsidiary of a large private equity firm most famous for its recent acquisition of Chrysler. The price tag was about $2 billion, and reflected a multi-billion dollar loss over the original purchase price for the Europeans.

Another new sign over the door...

to be continued

Sunday, August 15, 2010

Decline, Part I

Born down in a dead man's town
The first kick I took was when I hit the ground
You end up like a dog that's been beat too much
Till you spend half your life just covering up
--Bruce Springsteen

When I began my career in the paper industry in the early 1980s, business was just starting to ramp after a rough recession. I joined a company that was well positioned for the upturn. Leader in technology, focused product line, talented workforce, seasoned and respected management. We were also strong financially. Zero debt! We financed expansions thru cash from operations (a practice that was unheard of even back then in the paper industry).

Business rocked thru much of the 80s. Those were good times.

Things started to change toward the end of the decade. Strong demand prompted nearly every player in the sector to add capacity. The cost of a new paper machine line with all the trimmings was $200 to $500 million--big money in those days. No one, not even us, could finance these capital intense expansions without borrowing heavily. Exit pristine balance sheet, enter reliance on debt.

In addition, the Europeans were beginning to export product to North America. Penetration was tiny at first, but by the end of the 80s they had scooped 5-10% of the market. Our competitive analysis lab was constantly receiving field samples of paper from European operators we had never heard of.

While the quality of the Euro sheets was pretty awful, the price/ton was irresistable to our customers. In many cases the Europeans were undercutting prices of domestic operators by 20% or more. How were they able to do this? Subsidies. Euro governments targeted forest products as a strategic industry for global trade, and they were offering sweet incentives for operators to pour paper into US markets.

By the early 1990s supply was up huge and competitors were extensively leveraged--a toxic combination in the event of a decline in demand. A general economic recession in 1991-92 dealt one body blow. A few operators began shutting down older machines. As operating cash flows declined, refinancing was necessary to service the debt. All the while, European share was increasing.

Then came the Internet. While we 'saw' the prospect of less demand paper from electronic and small scale publishing, we did not take the threat seriously. In the early 1990s, the spectre posed by the Web was nearly off our radar screens completely.

When I left the industry in 1995, signs of secular decline were becoming more apparent (if one was willing to look for them). Machine closures, some mergers and acquisitions, more debt. In fact, just before I left, my company announced a large acquisition--something that was very strange given that our policy had always been to grow organically rather than thru rollups. And, yes, the acquisition was debt financed.

To an outsider looking in, however, the company I was leaving still appeared healthy. There were no layoffs, in fact we were hiring. Folks were still getting raises. Corporate outreach to the community was strong as ever. The company was viewed as a model corporate citizen, perhaps even to the extent of being a paternalistic caretaker.

Storefronts were occupied. Streets were crowded. Communities were strong.

This vibrance, however, was on borrowed time.

To be continued

Saturday, August 14, 2010

Path of Dreams

I nenver will forget those nights
I wonder if it was a dream
Remember how you made me crazy
Remember how I made you scream
--Don Henley

After graduating from college I moved to Wisconsin. Lived there for a dozen years. I left in 1995 to return to grad school. Now I try to make it back every year or so to visit old friends.

And to remember.

Those years in Wisconsin were instrumental in shaping who I am today. Moving away from home and beginning a career in an unknown place (scary for me). Forming new and lasting friendships. Learning how businesses and industries operate. Being part of an organization that was making something tangible that people valued. Making a difference.

While it was all very satisfying, I found myself almost perpetually restless. Few days went by where I wasn't dreaming about the future--one that was not in Wisconsin. A future that found me in an urban environment, more connected to family, and doing something even more meaningful from a career standpoint.

This was saying something, because by the early 90s I was working my dream job--an executive position that I originally hoped to achieve by the time I retired. I had the good fortune of attaining it by the time I was thirty one. My career prospects with the company were never brighter.

Ironically, it was during this period that my restlessness hit a crescendo. That little voice inside my head was getting loud. It was telling me that I had to leave, and that the time to do it was when things were hitting on all cylinders.

One thing that helped me cope during this confusing time was walking. Stevens Point has a fine park alongside the Wisconsin River with a walking path that stretches for a couple of miles. I walked this path a lot (the pix scattered throughout this post were taken from this path).

There is a particular spot at the end of the path that looks west over the river. I gazed out over the horizon many times at this spot, pondering the future and how to make it happen. It became a quasi spiritual place for me, I suppose.

In retrospect, the changes that followed seem almost 'obvious.' My time in Wisconsin can be seen as 'training' for what I do today. Moreover, it turned out that I was very fortunate to leave when I did. Not long after I left, industry conditions took a drastic turn for the worse and have been spiraling downward since.

So when I come up to visit, I renew old friendships. And I walk the river, reflecting on the path to my good fortune.

Friday, August 13, 2010

Commodity Oddity

"We are commodities brokers, William. Now, what are commodities? Commodities are agricultural products...like coffee that you had for breakfast...wheat, which is used to make bread...pork bellies, which are used to make bacon, which you might find in a 'bacon, lettuce, and tomato sandwich.'
--Randolph Duke (Trading Places)

One issue with owning commodity exchange traded funds (ETFs) that buy futures contracts is that they are impacted by 'roll yield.' Let's say an ETF owns crude oil futures contracts that expire at the end of August. Crude currently trades at $75. The September contract may be trading higher at $77, reflecting a condition known as 'contango.' Out month futes may be higher because of opinions regarding supply/demand, storage costs of holding physical crude, or other things.

Assuming that it is fully invested, the ETF can only buy ~98% of the original quantity of crude when it rolls its contracts forward (not counting any further slippage due to transaction costs). Stated another way, it loses about $2 per barrel when rolling. This is known as a negative roll yield. It should be apparent that negative roll yields will erode commodity ETF value over time--all else equal.

Of course, it is also possible to have a positive roll yield if out month contracts are declining in value. This condition is called 'backwardation' and happens from time to time. Positive roll yields would be accretive to fund performance.

When I first started trading the United States Oil Fund (USO), it didn't take long before I noticed the roll yield tracking error, which was considerable, and I haven't traded it since. That was 3-4 years ago.

Business Week recently ran a cover story slamming commodity ETFs for the roll yield losses. Nothing like being on the edge of the sword, BW!

Not unexpectedly I suppose, the tone of the BW piece is decidedly slanted against Wall Street, implying that investors were unknowingly rooked by ETF shysters. This is nonsense, of course, as the risks were printed on the 'warning labels' of these funds--if investors took the time to read them. Moreover, any fool that fails to closely study that he/she participates in are likely to lose.

Despite their problems, I've been able to employ commodity ETFs effectively using a few rules of thumb. Some commodity ETFs are backed by physical rather than futes (e.g., GLD, SLV) which eliminates roll yield concerns (altho it doesn't eliminate annual mgt fees). Some commodity ETFs trade baskets of commodities (e.g., DBC, RJI) which helps diversify roll yield profiles. Finally, I like to use commodity ETFs as trading vehicles rather than investment vehicles which, again, reduces roll yield effects.

Properly employed and intelligently managed, commodity ETFs can still add significant value.

position in SLV

Silly Bands

There are things we won't recall
And feelings we'll never find
It's taken so long to see it
'Cause we never seemed to have the time
--Phil Collins

Just a quickie as I'm tired after a long drive today. Heard a silly conversation on NPR about the economy. One commentator offered that because the Fed has unlimited capacity to print money, it can 'save' us from deflation. See prev post.

Be careful for what you wish...

Wednesday, August 11, 2010

Straight Flush

One day you see me the next day I'm gone
Don't fight me baby I don't want to hold on

Markets fell victim to the 'the first move is the false move' dictum following yesterday's FOMC announcement. After an initial rally following the Fed's announcement yesterday afternoon, market participants decided on second thought that they did not like the tone of the FOMC statement, and promptly drained today to the tune of 2.5% or so.

Note that the uptrend in the making since early July has been clearly snapped.

If we were able to peer into the collective mind of the market to understand the thought process, here's one possible interpretation:

"We need the Fed's help to keep this thing going. Although the Fed said they'll be buying bonds, they're only going to do so to the extent that they maintain their $2 trillion in total assets. We wanted them to expand their balance sheet. Besides, since the Fed will essentially be replacing mortgage backed securities with Treasuries, this could be bad for the housing markets. SELL!"

position in Treasuries

The Deflation Mind Trick

Words are so cheap but they can turn out expensive
Words like conviction can turn into a sentence
--General Public

Propaganda claiming that inflation is good and deflation is bad has been around a long time. It is misleading for a number of reasons.

One is that it distorts the meaning of inflation and deflation. Classically defined, inflation is an increase in quantity of money and credit while deflation is a decrease in the quantity of money and credit. Modern definitions deflect attention away from quantity, which is something that bureaucrats perpetually want to increase, to price, something that may or may not change immediately with a change in monetary quantitiy. As such, we fixate on whether metrics like the consumer price index go up and down, and by how much. All the while, the real focus should be on money and credit quantity. A neat Jedi Mind Trick...

Next, consider the condition likely to prevail in an unhampered economy. In an unhampered economy, no central bank or other entity intervenes to create more paper currency. What is likely to happen when the quantity of money stays relatively constant yet economic output increases over time due to productivity improvement? The natural condition is for prices to decline (constant money spread across more goods means lower $/good). This is the opposite of what we've been conditioned to believe. We're told that a 'little' inflation is a good thing for long term prosperity. Of course, it has been that 'little' inflation that has devalued the USD by about 97% over the past 100 yrs.

Finally, considered the sequence of events that motivate the business cycle in a hampered economy. Policymakers, for political reasons, prefer to expand the money supply. This inflation motivates a boom, as borrowers gorge on cheap money and credit. At some point, however, the optimism hits an extreme and people decide they have overdone it. At that point, the inflation peaks. Subsequently, people begin to dial back. They borrow less, save more, and poorly chosen projects funded with credit default. This is deflationary.

In a hampered economy, inflation cannot last forever. This is much to politicians' chagrin; they are likely to try to perpetuate inflation with every tool at their disposal. At some point, however, the mountain of debt that builds under inflationary regimes is likely to sink under its own weight despite interventionary efforts.

In a hampered economy, deflation counterbalances inflationary excess.

position in USD

Tuesday, August 10, 2010

Buyin 'em

I keep looking for something I can't get
Broken hearts lie all around me
And I don't see an easy way to get out of this
--Cutting Crew

Long bond yields breaking lower anew today.

FOMC just out of their mtg. Announced they will commence operations to buy 'em using agency proceeds.

Seems to me the Fed is taking pains to state this in a way that makes this debt monetization process legitimate and likely to be effective. Watch the dollar, 10 yr yields, and gold over the next coupla days to see whether investors drink the kool aid...

position in bonds, USD, gold

Our Ancient Regime

You can't see nothing
And pinball completes the scene
Here comes Uncle Ernie to guide you to
Your very own machine
--The Who

One argument offered by those who opposed ratifying the Constitution as-is was that, over time, it would create a government that was aloof and removed from the people. Put enough distance between the government and the governed, the thinking goes, and politicians will begin to see themselves as a ruling elite. They will shower themselves with perks and build barriers against their removal. What was a federal republic morphs into an aristocratic Ancien Regime.

There can be little doubt that Washington has been moving in that direction for some time. Perhaps my first recallable data point in this regard was learning in junior high social studies that those in Washington enjoyed 'franking privledge'--free use of mail services. Why should they get free stamps, I thought. My eyes opened a bit wider some yrs later when George Bush Sr was unable to quote the price of a loaf of bread while he was president in the late 80s.

Today's elected officials enjoy lavish salary and benefit plans, including retirement and health care outside the scope of mainstream programs designed for 'the people.' Today's perks go beyond free stamps to include rich budgets for travel, staff support, entertaining, et al.--all of it billed to...us.

During the Constitutional debates, some smart cookies suggested that in a truly free state individuals could become so focused on pursuing their destinies that they will become less vigilant in guarding their liberty against perpetual assault by those who want to take it away. Couple that with the distancing effect of central government, which promotes apathy and indifference among citizens, and you get the elitist mentality that pervades Washington today.

At some point, however, the elitist behavior is likely to become so extreme that it raises eyebrows even among the most apathetic.

Perhaps we're nearing that point...

Monday, August 9, 2010

Bail Tales

When it gets too much
I need to feel your touch
I'm gonna run to you
--Bryan Adams

John Mauldin notes mortgage bailout rumor that we noted a couple posts back. Would be truly sad if it happens. Note Aug 17th date for UST mtg on future of Fannie, Freddie.

Rest of his missive is on the underfunded public pension situation. A few yrs back, concerns began surfacing on underfunded private pensions, essentially because pension mgrs were plugging in discount rates that were too optimistic.

Now appears public sector has been doing that and then some.

no positions

Sunday, August 8, 2010

Walking Papers

"They want what every first-term administration wants...a second term."
--Robert Ritter (Clear and Present Danger)

CEA chair Christina Romer announced her resignation last wk. The official reason was 'family' or 'personal' but this move can be interpreted as an Obama administration response to ineffective economic policies that Dr Romer spearheaded.

Dr Romer is often hailed as an 'expert' on the Great Depression and her policy stances (and her published research) reflect the Keynesian notion that more government intervention can divert Depressionary pain. Thus, we've seen mammouth stimulus et al over the past couple of yrs.

The feeble outcomes of this moves are not only sad but were totally predictable. And we're a few more $trillion in the hole because of them.

The really sad (scary) thing is that the next person that the administration puts in the chair will likely take the same approach--only to a more extreme level.

Saturday, August 7, 2010

Capital Flight

Time keeps on slippin,' slippin,' slippin.'
Into the future
--Steve Miller Band

Toddo notes that a number of his acquaintences are pulling plugs on businesses. This rant by Steve Wynn includes similar thoughts.

Essentially, the rationale for shutting down ops is essentially one of uncertainty. Uncertainty created by unpredictable government intervention. A regime that pushes the limit related to taxes, regulation, etc makes it difficult to plan. Moreover, returns on capital are likely to be reduced when government interference increases.

A plausible rival view is that this period merely represents a changing of the guard. Major change creates opportunity for those who correctly anticipate the challenges. After all, the Depressionary Thirties constituted a time when some embarked on paths to great fortunes.

While there may be some truth in the latter, unfriendly business environments are less likely to attract capital and to invite risk taking on a level that enables the achievement of high living standards for a society.

Friday, August 6, 2010

Hover Craft

"Mr Preston, this operation will be a failure if we all die."
--Major Brad Little (Fire Birds)

Late last week rumors began circulating that the Obama administration, desperate to gain political points ahead of the Fall elections, might try something novel in the mortgage markets in order to light a fire under the economy. Over the last day or so, the chatter has been getting louder.

The rough idea as I currently understand it is that the federal government would order lenders to forgive some portion of mortgage principal for those borrowers who are upside down on their houses. Because the government effectively controls the two big guns in the mortgage market, Fannie Mae and Freddie Mac, it could effectively use them as conduits for swallowing the writedowns or reimbursing lenders for the forgiven mortgage amounts.

Presumably, the mortgages would then be refinanced at lower, government suppressed rates, and the commensurate lower principal amts would translate in lower monthly payments. How much lower would depend on who would qualify and how much principal would be forgiven.

Obviously, the underlying thesis is to put more money in the hands of consumers and to reverse the sour social mood w.r.t. consumption.

I have seen no figs on the cost of such a program but it would be big. Just to toss a number out there, if 10 million homeowners are upside down by an average of $50,000 and all of that difference is forgiven, then that would cost half a trillion dollars.

Such a progam would certainly be radical. Largely immeasurable would be systemic costs related to loss of confidence in contracting and to moral hazard effects--both of which would likely be larger than anticipated. My instinct tells me that the long term damage that such a program would would be devastating.

Moreover, there is some question whether the underlying thesis of this program would be validated. In other words, it is possible that consumers will use all that newfound cash to save and pay down debt--rather than spend it. Stated another way, we could wreck the system all for naught.

To cornered politicians however, desperate situations require desperate measures.

While I've been favoring a deflationary theme to how things evolve over the next year or two, the prospect of a Armegeddon-like response like this now finds me wanting to hedge my bets a bit. Bought some SLV today and will be keeping an eye on gold and silver as the inflationary canaries in the coal mine.

position in SLV

LA Law

In violent times
You shouldn't have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears

There are a number of proposals that seek to remove individual choice from various personal finance decisions. For example, rather than having to opt into 401k plans as is currently the case, it has been proposed that individuals should have to opt out, or perhaps have no opt out option at all, from contributory retirement plans.

During a discussion of such proposals at this week's conference, a professor from Loyola Law School Los Angeles suggested that this type of set up allows for more freedom and autonomy, since individuals would not have to allocate time and attention toward making these decisions themselves.

Although this sort of argument surfaces periodically, I was somewhat surprised to hear it from someone presumably versed in law.

One issue with her argument involves the relatonship between specialization and freedom. If I outsource some of my decisions/activities to someone else so that I can focus on things I like to do or that I am good at, then, yes, it appears that I have entered into an arrangement that frees me up to pursue my destiny. However, to the extent that the decisions I outsource impact my well being and destiny over time, I may actually become more dependent on others. Under conditions of specialization, it is possible for liberty to decrease if the risks associated with this situation are not intelligently managed.

The more significant issue, of course, concerns the mandatory nature of such a program. If I voluntarily enter into a situation where I outsource financial decisions to others, then it is possible for me to remain in charge to manage the risks of the arrangement. But if I am forced into a situation that requires me to allocate my resources in a particular direction, then I am no longer free. Constitutionally, this is wrong and any lawyer should know this.

Perhaps my expectations for attorneys remain too high. And that's saying something.

Thursday, August 5, 2010

Social Science

And there's winners, and there's losers
It ain't no big deal
'Cause the simple man pays for the thrills, the bills
The pills that kill
--John Mellencamp

Was able to get thru this week's research conference without attracting the ire of other attendees. At least to an excessive degree...

At most universities, the bulk of education and research in personal financial education is not done in business schools. Instead, it is housed in schools of arts & science, public health, or the like. In days of old, this domain was commonly known as 'home economics.' Am pretty sure team leader Tahira Hira included me to add some diversity to the team based on what she knew about my academic background and publication record.

Like most lines of work, academic disciplines tend to attract people who are intellectually and emotionally good 'fits' with prevailing norms and beliefs that shape the field. In the domain of personal finance, its historical connection with social work attracts many who are sympathetic to the view that for profit businesses exploit consumers, particularly those in low income or minority groups. As such, terms like 'victim,' 'protection,' and 'underprivledged' surface frequently in dialogues.

Through this lens, initiatives to improve financial literacy can be seen as programs for helping those in need better cope with unfriendly environments. What became more evident to me this past week is that academic work in financial literacy goes beyond education and inquiry. It is activist in nature, seeking to influence public policy via government mandates and regulation--again assuming the normative view that consumers need government protection and assistance.

It was useful for me to experience the discussions involving this subject first hand. The lopsided nature of general assumptions that underpinned the conversation suggests opportunity in viewing problems thru a different lens. For example, a popular topic at the conference was the plight of consumers who were 'misled' into buying subprime mortgage products that were too complex to understand. As viewed by the majority of conference attendees, the consensus villians in the transaction were the big banks and mortgage brokers who unfairly preyed upon illiterate buyers in exploitive, profit-motive fashion.

As I heard them, the remedies to this situation as discussed by the conference crowd universally related to more, perhaps even mandatory, financial literacy education for the masses, plus more government regulation of these transactions--particular w.r.t. sellers.

One noteworthy thing about this situation is the lack of problem solving rigor--the desire to move from symptom to remedy without clear understanding of underlying causes. Now, to be fair, I should note that more than half of the 57 listed conference attendees hailed from non-academic institutions (e.g., government agencies, think tanks, lobbying groups, etc) and shoddy thought process like the above pervades this demographic. But I was expecting more from academics, whose primary objective should be pursuit of the truth thru formal inquiry.

The other noteworthy thing about this situation came from off line conversations w/ various attendees. The various questions I posed included the following:

If choices to mortgage buyers were too complex to understand, which was apparently easy to see by observers, then why didn't opportunity-seeking entrepreneurs come into the market with easier to understand products?

If mortgage brokers sold risky products to unknowing consumers because the brokers were only middlemen in the transaction (they didn't have to hold onto the mortgages they sold), then why did downstream buyers purchase them?

Where does the supply of mortgages and credit come from?

Few could comment on any of these. The most coherent remarks came from a woman who works in consumer education and research at the Fed. Point is that few if any attendees that I spoke with demonstrated solid grasp of the supply chain underlying the situation that they were eager to 'fix.'

This is a ticket to ineffective problem solving. Bad anywhere, but toxic in the hands of those shaping policy.

So perhaps some fresh eyes on the situation will prove useful. More to come.

Paper Boy

I'm sorry but
There's no one on the line

Am trying a position in US Dollar. Multimonth pullback to support. Plus considerable recent exuberence for large currencies on the other side of the trade, e.g., yen, euro.

Trade only...as you know my long term concerns about USD.

position in UUP

Wednesday, August 4, 2010

Stake Out

No place for beginners or sensitive hearts
Sentiment is left to chance
No place to be ending but somewhere to start

Nice assessment of inflation vs deflation risks offered, I suspect, by Mr P. He suggests our fate depends on gov't, particularly w.r.t. the Fed.

While many believe that monetizing till kingdom come is a layup, Mr P seems to think that undershooting is more likely. Me too. 

Define Insanity

Isn't it ironic
Don't you think?
--Alanis Morissette

No shortage of weird out there. But reinforcing/strengthening Fed and Treasury authority on the back of their cataclysmic failures has to rank right up there.

When folks look back on this period in history, they'll surely wonder what we were thinking.

Monday, August 2, 2010

Mind Over Data

Welcome to your life
There's no turning back
Even while we sleep
We will find you
--Tears for Fears

I'm attending an academic conference hosted by the National Endowment for Financial Education that is reviewing extant research on financial literacy and its distilling its implications. Financial literacy is one of many areas of research interest for me, and this is the first meeting of this type that I've attended in the financial literacy domain.

I've attended research 'colloquiums' in other topic areas and their primary objective has been on identifying opportunities for future research. The focus of this group seems much more normative--geared toward implications for public policy. A few of the recurring themes heard in today's discussion included:

a) the goal of researchers is to see effective policies developed and implemented.

b) the need for government mandated financial education.

c) too many financial choices for consumers are bad...'we' must limit choice or or make choices for people.

d) consumers of financial products are being exploited and must be protected.

Setting aside glaring issues related to freedom and liberty, these themes SHOULD be problematic from a pure academic viewpoint. Theme a) violates the research research principle of seeking the truth wherever it leads. Themes b), c), d) are all judgmental views, with no conclusive evidence to substantiate them. Not the stuff that 'evidence based practice' is based on.

Tomorrow another 30 or so people from government, non profits, and more academics join the fray. I had to bite my tongue a few times today as I'm clearly a fish swimming against a major tide here. We'll see what happens tomorrow when the floor is opened for dialogue.

Hope I'm not sent packing a day early...

Sunday, August 1, 2010

Rocky Road

Well he's telling us this and he's telling us that
Changes it every day, says it doesn't matter
--Joe Walsh

Can't take my eyes off the ten yr yield chart. Despite all the 'we're gonna make some serious inflation' chatter by the Fed Heads, bond market's not buying it yet.

The shape of deflation...

position in bonds