But somehow I can't believe
That anything should happen
I know where I belong
And nothing's gonna happen
Yeah, yeah
--Tal Bachman
I wonder whether structural newsflow isn't pushing market behavior to a head. On one side we have the stated intentions of the Fed to manufacture 'their' level of inflation, which has price of stocks and commodities heading higher. On the other side we have continued deterioration in Europe, which currently has not captured much collective market attention.
Should that worm turn, then a decent sized correction may be in the cards, as bi-polar markets once again shift gears away from inflation toward deflationary possibilities.
This has me wanting to slap on more short exposure to hedge precious metal longs. Bifurcated outcome may be in the making...
position in SPX, GLD, SLV
Thursday, September 30, 2010
Wednesday, September 29, 2010
Planned Despotism
Welcome to your life
There's no turning back
Even while you sleep
We will find you
--Tears for Fears
Another thoughtful article by the unassuming Hayek. As he is prone to do, he offers a potpourri of observations, leaving the reader reflecting on multiple fronts. Here are various notes from this article:
The desirability of planning as a general activity in the rational design of human institutions has little room for argument. When applied towards economics, however, planning is not regarded as a general activity in rational economic organization but as conscious central direction of all economic activity. The objective of planning in this sense is to overcome the results of competition.
Competitive economic systems are grounded in prices. Prices reflect the combined knowledge of all market participants. Planned systems lack pricing mechanisms.
While a central planner may be smarter than a single entrepreneur under competition, the planner can not possibly incorporate the decentralized knowledge of all entrepreneurs engaged in economic activity. The combined knowledge incorporates particular facts and ever changing circumstances--something that an individual planner in a room cannot possess. Planning systems are thus static; market systems are dynamic.
Prices in competitive markets reflect this dynamic knowledge.
"This method of solving by an automatic decentralization a task which, if it had to be solved consciously, would exceed the powers of any human mind, would have been hailed as one of the most marvelous inventions--if it had been invented deliberately. Compared with it the more obvious method of solving the problem by central direction appears incredibly clumsy, primitive, and limited in scope."
As such, markets and the competitive pricing system may suffer from the fact that they were not the deliberate construction of scientific personel seeking to solve the economic problem themselves. (nice observation)
GREAT quote from American National Temporary Economic Committee paper: "It is sometimes assumed, or asserted, that large scale production, under the conditions of modern technology, is so much more efficient than small scale production that competition must ultimately give way to monopology as as large establishments drive their smaller rivals from the field. But such generalization finds scant support in any evidence that is now at hand." (amazing quote given its 1938 tag)
Hayek goes on to observe that "Indeed few people who have watched economic development during the last 20 years or so can have much doubt that the progressive tendency toward monopoly is not the result of any spontaneous or inevitable force, but the effect of a deliberate policy of governments, inspired by the ideology of 'planning.'"
In other words, free markets do not deterministically create huge monopoly-like firms. Competition and innovation are likely to destroy slow, unresponsive operators in favor of innovation (Schumpeter's 'creative destruction'). Rather monopolistic tendencies are created by government intervention. This is very much counter to today's 'conventional wisdom'...
Trying to study social sciences like a natural science is a mistake. He includes a quote "one of the most terrible examples of unscientific mindedness is frequently an eminent, i.e. physical or biological scientist speaking on societal matters." I am reminded of the global warming issue...
Similar to Mises' observations, if the argument between markets vs. planning were merely one of economic efficiency, then the issue is easily put to bed. However, if the intent is to make distribution of incomes conform to some predetermined standard, then central planning is likely the only way this could be achieved.
Central planning needs an authoritarian mechanism to accomplish this redistribution. Inevitably this leads to a totalitarian government. Whoever controls the means must also decide which ends they are to serve. Lacking a price system, planners must impose their scale of value, their hierarchy of ends, which must include a rank order of all people's status. Nearly total control of human action is necessary to achieve the equality outcome. Mises suggests this end cannot be even be realized to any durable degree due to the chaos created in transit.
In theory socialism may wish to enhance freedom, but in practice every kind of collectivism carried through must practice the totalitarian features that Facism, Nazism, Communism, et al have in common. Totalitarianism is nothing but collectivism--the ruthless execution of the principle that 'the whole comes before the individual' and the direction of all members of society by a single will supposed to represent the 'whole.'
Ironic comment by FDR in 1938 that a pending program for restoring competition in the United States was based on the thesis "not that the system of free enterprise has failed in this generation, but that it has not yet been tried." Feels like a bait-and-switch to me...
Corruption of minds often comes from intellectual and scientific leaders. Hayek offers the German example.
There's no turning back
Even while you sleep
We will find you
--Tears for Fears
Another thoughtful article by the unassuming Hayek. As he is prone to do, he offers a potpourri of observations, leaving the reader reflecting on multiple fronts. Here are various notes from this article:
The desirability of planning as a general activity in the rational design of human institutions has little room for argument. When applied towards economics, however, planning is not regarded as a general activity in rational economic organization but as conscious central direction of all economic activity. The objective of planning in this sense is to overcome the results of competition.
Competitive economic systems are grounded in prices. Prices reflect the combined knowledge of all market participants. Planned systems lack pricing mechanisms.
While a central planner may be smarter than a single entrepreneur under competition, the planner can not possibly incorporate the decentralized knowledge of all entrepreneurs engaged in economic activity. The combined knowledge incorporates particular facts and ever changing circumstances--something that an individual planner in a room cannot possess. Planning systems are thus static; market systems are dynamic.
Prices in competitive markets reflect this dynamic knowledge.
"This method of solving by an automatic decentralization a task which, if it had to be solved consciously, would exceed the powers of any human mind, would have been hailed as one of the most marvelous inventions--if it had been invented deliberately. Compared with it the more obvious method of solving the problem by central direction appears incredibly clumsy, primitive, and limited in scope."
As such, markets and the competitive pricing system may suffer from the fact that they were not the deliberate construction of scientific personel seeking to solve the economic problem themselves. (nice observation)
GREAT quote from American National Temporary Economic Committee paper: "It is sometimes assumed, or asserted, that large scale production, under the conditions of modern technology, is so much more efficient than small scale production that competition must ultimately give way to monopology as as large establishments drive their smaller rivals from the field. But such generalization finds scant support in any evidence that is now at hand." (amazing quote given its 1938 tag)
Hayek goes on to observe that "Indeed few people who have watched economic development during the last 20 years or so can have much doubt that the progressive tendency toward monopoly is not the result of any spontaneous or inevitable force, but the effect of a deliberate policy of governments, inspired by the ideology of 'planning.'"
In other words, free markets do not deterministically create huge monopoly-like firms. Competition and innovation are likely to destroy slow, unresponsive operators in favor of innovation (Schumpeter's 'creative destruction'). Rather monopolistic tendencies are created by government intervention. This is very much counter to today's 'conventional wisdom'...
Trying to study social sciences like a natural science is a mistake. He includes a quote "one of the most terrible examples of unscientific mindedness is frequently an eminent, i.e. physical or biological scientist speaking on societal matters." I am reminded of the global warming issue...
Similar to Mises' observations, if the argument between markets vs. planning were merely one of economic efficiency, then the issue is easily put to bed. However, if the intent is to make distribution of incomes conform to some predetermined standard, then central planning is likely the only way this could be achieved.
Central planning needs an authoritarian mechanism to accomplish this redistribution. Inevitably this leads to a totalitarian government. Whoever controls the means must also decide which ends they are to serve. Lacking a price system, planners must impose their scale of value, their hierarchy of ends, which must include a rank order of all people's status. Nearly total control of human action is necessary to achieve the equality outcome. Mises suggests this end cannot be even be realized to any durable degree due to the chaos created in transit.
In theory socialism may wish to enhance freedom, but in practice every kind of collectivism carried through must practice the totalitarian features that Facism, Nazism, Communism, et al have in common. Totalitarianism is nothing but collectivism--the ruthless execution of the principle that 'the whole comes before the individual' and the direction of all members of society by a single will supposed to represent the 'whole.'
Ironic comment by FDR in 1938 that a pending program for restoring competition in the United States was based on the thesis "not that the system of free enterprise has failed in this generation, but that it has not yet been tried." Feels like a bait-and-switch to me...
Corruption of minds often comes from intellectual and scientific leaders. Hayek offers the German example.
Tuesday, September 28, 2010
Historical Fact and Fiction
"We are being detoured into the land of make-believe."
--Horatio Caine (CSI: Miami)
The more I read about American history, the more it seems that it has been significantly misrepresented in mainstream history books.
Over the past few years, my personal studies have focused on the periods surrounding the Constitution's ratification and the Great Depression. During my investigations, I am constantly bombarded by events, issues, and people that I never knew existed. To be sure, part of this is just closing gaps in my ignorance, of which there are many. But the frequency with which I run across items that are brand news to me has me wondering just how accurate, and truthful, US historians have been.
Recorded history is necessarily a sample drawn from the population of data that fully expresses a period in time. It is impossible to capture 'everything that happened' in archival form. As such, history relies on the recorder, the historian, capture a sense of what happened.
Because all people are different, historians will differ in which people, issues, and events they want to emphasize. Upbringing, religious beliefs, career aspirations, et al all shape interpretation. Institutional forces linked to social and political groups also exert pressures likely to influence historical analysis--particularly if the historians depend on institututional sources for their livelihood.
Historical accounts, then, are likely to reflect selective reasoning (perhaps even dishonesty) writ large, resulting in end products that are significantly biased.
Two conclusions seem evident. American history as expressed in social studies classes and textbooks is incomplete and biased--perhaps significantly so. Those interested in a more truthful historical account will have to work for it.
The big losers are kids who have yet to hone critical reasoning skills. They are easy targets for propaganda disguised as history.
The best we can do is to don those Horatio shades and proactively seek the truth.
--Horatio Caine (CSI: Miami)
The more I read about American history, the more it seems that it has been significantly misrepresented in mainstream history books.
Over the past few years, my personal studies have focused on the periods surrounding the Constitution's ratification and the Great Depression. During my investigations, I am constantly bombarded by events, issues, and people that I never knew existed. To be sure, part of this is just closing gaps in my ignorance, of which there are many. But the frequency with which I run across items that are brand news to me has me wondering just how accurate, and truthful, US historians have been.
Recorded history is necessarily a sample drawn from the population of data that fully expresses a period in time. It is impossible to capture 'everything that happened' in archival form. As such, history relies on the recorder, the historian, capture a sense of what happened.
Because all people are different, historians will differ in which people, issues, and events they want to emphasize. Upbringing, religious beliefs, career aspirations, et al all shape interpretation. Institutional forces linked to social and political groups also exert pressures likely to influence historical analysis--particularly if the historians depend on institututional sources for their livelihood.
Historical accounts, then, are likely to reflect selective reasoning (perhaps even dishonesty) writ large, resulting in end products that are significantly biased.
Two conclusions seem evident. American history as expressed in social studies classes and textbooks is incomplete and biased--perhaps significantly so. Those interested in a more truthful historical account will have to work for it.
The big losers are kids who have yet to hone critical reasoning skills. They are easy targets for propaganda disguised as history.
The best we can do is to don those Horatio shades and proactively seek the truth.
Monday, September 27, 2010
In Fed We Trust
There's a room where the light won't find you
Holding hands while
The walls come tumbling down
If they do, I'll be right behind you
--Tears for Fears
Toddo reflects on the growing chorus of 'Don't fight the Fed' bulls, punctuated by hedgie David Tepper's bold proclamation last week.
To be sure, the FOMC's statement last week can be construed as a bold commitment by the Fed to fight off deflation with howitzers if need be.
However, as Todd observes, blindly riding the Fed's coat tails has been a dangerous strategy historically.
Even if the Fed were able to manufacture Big Inflation, I'm not sure that would be bullish for stocks. More certain to me is that if inflation does indeed get going, it will be very hard for the Fed to restrain it.
Which once again accentuates the need for gold and silver as insurance against monetary and perhaps social disorder.
positions in gold, silver
Holding hands while
The walls come tumbling down
If they do, I'll be right behind you
--Tears for Fears
Toddo reflects on the growing chorus of 'Don't fight the Fed' bulls, punctuated by hedgie David Tepper's bold proclamation last week.
To be sure, the FOMC's statement last week can be construed as a bold commitment by the Fed to fight off deflation with howitzers if need be.
However, as Todd observes, blindly riding the Fed's coat tails has been a dangerous strategy historically.
Even if the Fed were able to manufacture Big Inflation, I'm not sure that would be bullish for stocks. More certain to me is that if inflation does indeed get going, it will be very hard for the Fed to restrain it.
Which once again accentuates the need for gold and silver as insurance against monetary and perhaps social disorder.
positions in gold, silver
Sunday, September 26, 2010
Money Never Sleeps
"Why don't you start calling me Gordon."
--Gordon Gekko (Wall Street: Money Never Sleeps)
This weekend my brothers and I went to see the long awaited sequel to my all time fave movie, Wall Street. For years we had been 'writing' the sequel's script for Oliver Stone. Gekko gets out of jail and opens a hedge fund. In the midst of a credit market meltdown, perhaps he turns 'good guy' (a la Arnie in Terminator 2) and saves the world from a financial market crash.
Not exactly how it unfolds, since the credit collapse occured prior to the movie hitting the screen. But not altogether different, either. Gekko does seem a reformed guy, altho he still swipes (or at least 'borrows') a $100 million trust fund meant for his daughter so that he can capitalize, yep, his London-based hedge fund. And he does take action toward saving his narrow world (i.e., his family) after foreseeing the credit collapse and then shorting markets during the meltdown.
One can see why Stone took his time in getting this flick out. Once the actual credit market meltdown was in motion, it would have been difficult to write a script with a historical background that was still fluid. It still is, of course. Stone did a good thing, I think, in focusing the movie against the chronology of 2008/early 2009 when many eye popping market events were occurring.
Center pieces of the historical backdrop included two meetings at the NY Fed concerning what to do about overleveraged firms facing insolvency as asset prices tumbled. The early meeting involved a situation resembling the Bear Stearns/Lehman situation where only a single firm faced extinction and the rest of the firms crowed about the dangers of moral hazard of bailing someone out. The later meeting involved the remainder of the firms, all of them facing insolvency, hypocritically delivering the 'too big to fail' ultimatum to the Hank Paulson look alike from Treasury.
The biggest surprise to me in this movie was the increased complexity of Gekko's character. In WS1, Gekko was your typical LBO operator. One dimensional--someone who would do anything, even things illegal, to win. In WS2, it seems that GG has changed. While he expresses little remorse over his past behavior, Gekko appears introspective after he emerges from prison. He seems interested in pulling his disintegrated family life together. He also identifies problems with current financial and political systems that are moving things toward the brink. He expresses many of those thoughts (with very good clarity, I thought) during a book tour speech in front of Forham MBAs.
Don't worry, there's still plenty of antagonist in Gekko that raises questions about whether he's reformed at all. That, of course, is what an interesting story does.
A few words/themes are repeated throughout this film. They include bubbles, leverage, and moral hazard. Stone appears to be telling viewers that there systemic problems related to those factors. Very astute, in my view...
Perhaps the biggest problem with this film is that we have two stories unfolding. One between the characters and one related to the historical backdrop. Stone clearly wants the viewer to be thinking about both. But with so many moving parts (and for those not well versed in the chronology of the 2008 meltdown), this is hard to do.
Coming into this movie I was assuming that Oliver Stone wanted to convey a message about the downside of capitalism. He is on record as saying that he wanted to deliver such a message in WS1 but that it 'backfired' on him. Instead, the original flick inspired a generation of ambitious folks toward the Street.
WS2 constituted an opportunity for Stone to ensure that this time his message got across.
His message in WS2 was more balanced than anticipated. I doubt anyone could successfully argue that the social system portrayed in WS2 was one of capitalism. The system is clearly hampered by collusion between firms and government. Moreover, the film does not seem bossy or normative at all. Instead, it presents a number of clues for thoughtful people questioning exactly what went on during the 2008-2009 meltdown.
And what is still going on today.
--Gordon Gekko (Wall Street: Money Never Sleeps)
This weekend my brothers and I went to see the long awaited sequel to my all time fave movie, Wall Street. For years we had been 'writing' the sequel's script for Oliver Stone. Gekko gets out of jail and opens a hedge fund. In the midst of a credit market meltdown, perhaps he turns 'good guy' (a la Arnie in Terminator 2) and saves the world from a financial market crash.
Not exactly how it unfolds, since the credit collapse occured prior to the movie hitting the screen. But not altogether different, either. Gekko does seem a reformed guy, altho he still swipes (or at least 'borrows') a $100 million trust fund meant for his daughter so that he can capitalize, yep, his London-based hedge fund. And he does take action toward saving his narrow world (i.e., his family) after foreseeing the credit collapse and then shorting markets during the meltdown.
One can see why Stone took his time in getting this flick out. Once the actual credit market meltdown was in motion, it would have been difficult to write a script with a historical background that was still fluid. It still is, of course. Stone did a good thing, I think, in focusing the movie against the chronology of 2008/early 2009 when many eye popping market events were occurring.
Center pieces of the historical backdrop included two meetings at the NY Fed concerning what to do about overleveraged firms facing insolvency as asset prices tumbled. The early meeting involved a situation resembling the Bear Stearns/Lehman situation where only a single firm faced extinction and the rest of the firms crowed about the dangers of moral hazard of bailing someone out. The later meeting involved the remainder of the firms, all of them facing insolvency, hypocritically delivering the 'too big to fail' ultimatum to the Hank Paulson look alike from Treasury.
The biggest surprise to me in this movie was the increased complexity of Gekko's character. In WS1, Gekko was your typical LBO operator. One dimensional--someone who would do anything, even things illegal, to win. In WS2, it seems that GG has changed. While he expresses little remorse over his past behavior, Gekko appears introspective after he emerges from prison. He seems interested in pulling his disintegrated family life together. He also identifies problems with current financial and political systems that are moving things toward the brink. He expresses many of those thoughts (with very good clarity, I thought) during a book tour speech in front of Forham MBAs.
Don't worry, there's still plenty of antagonist in Gekko that raises questions about whether he's reformed at all. That, of course, is what an interesting story does.
A few words/themes are repeated throughout this film. They include bubbles, leverage, and moral hazard. Stone appears to be telling viewers that there systemic problems related to those factors. Very astute, in my view...
Perhaps the biggest problem with this film is that we have two stories unfolding. One between the characters and one related to the historical backdrop. Stone clearly wants the viewer to be thinking about both. But with so many moving parts (and for those not well versed in the chronology of the 2008 meltdown), this is hard to do.
Coming into this movie I was assuming that Oliver Stone wanted to convey a message about the downside of capitalism. He is on record as saying that he wanted to deliver such a message in WS1 but that it 'backfired' on him. Instead, the original flick inspired a generation of ambitious folks toward the Street.
WS2 constituted an opportunity for Stone to ensure that this time his message got across.
His message in WS2 was more balanced than anticipated. I doubt anyone could successfully argue that the social system portrayed in WS2 was one of capitalism. The system is clearly hampered by collusion between firms and government. Moreover, the film does not seem bossy or normative at all. Instead, it presents a number of clues for thoughtful people questioning exactly what went on during the 2008-2009 meltdown.
And what is still going on today.
Saturday, September 25, 2010
Nation Divided
I thought that pain and hope were things that really mattered
But you can't stay here with every single hope you had shattered
--Big Country
Should the social divide continue to widen between those who believe in freedom and those who believe in state-sponsored 'equality,' it is hard not to entertain the plausibilitiy of a secession scenario where America is divided up geographically according to belief.
Suppose for example, that we split the US into two countries using the Mississippi River as the inter-country border. One new country, Liberty, would belong to those who believe in limited government and free markets. The other new country, Equality, would belong to those who believe in big government and income leveling in the name of social justice.
We can confidently predict the outcomes of such a scenario. Standard of living, in terms of income per capita, would steadily increase in Liberty as people seek out opportunities to satisfy buyer needs. Resources are effectively allocated by private enterprise seeking to satisfy buyer needs. Pricing mechanisms permit economic calculation necessary to allocate those resources. The role of government is limited toward protecting people's property rights, broadly construed to include life, wherewithall to produce, and physical property. Initiative and productivity are rewarded. Portions of income are set aside as savings, and part of those savings are invested in productivity improvement projects. Wealth and prosperity grow.
In Equality, planning bureaus decide what gets made and for whom, dividing up the work so that workloads are 'fair.' Folks bicker over what is fair, and complaints arise about some not pulling their share of the workload. Without pricing mechanisms, resources are allocated toward areas that planners favor; allocation patterns remain rigid in the face of environmental change--which causes large misallocations and low user satisfaction. Paying for state social welfare programs requires increasingly more of Equality's gross domestic product. Living standards in Equality shrink. There is no income available for savings. In fact, Equality must borrow increasingly higher amounts from outside creditors, perhaps including Liberty, in order to fund its social programs. Widespread squalor ensues.
People in Equality will envy Liberty's progress, and seek to appropriate Liberty's wealth in various ways. For example, Equality might coax Liberty onto a panel of united nations where Liberty will be asked to contribute its fair share to 'world progress.' Residents of Equality will want to immigrate to Liberty in search of greater opportunity. At some point, Equality will raise forcefull exit barriers to keep its people from fleeing the country.
Liberty's destiny will depend on how successfully its citizens can limit scope of government. Equality's destiny will depend on how succesfully its citizens can throw off the authoritarian state.
But you can't stay here with every single hope you had shattered
--Big Country
Should the social divide continue to widen between those who believe in freedom and those who believe in state-sponsored 'equality,' it is hard not to entertain the plausibilitiy of a secession scenario where America is divided up geographically according to belief.
Suppose for example, that we split the US into two countries using the Mississippi River as the inter-country border. One new country, Liberty, would belong to those who believe in limited government and free markets. The other new country, Equality, would belong to those who believe in big government and income leveling in the name of social justice.
We can confidently predict the outcomes of such a scenario. Standard of living, in terms of income per capita, would steadily increase in Liberty as people seek out opportunities to satisfy buyer needs. Resources are effectively allocated by private enterprise seeking to satisfy buyer needs. Pricing mechanisms permit economic calculation necessary to allocate those resources. The role of government is limited toward protecting people's property rights, broadly construed to include life, wherewithall to produce, and physical property. Initiative and productivity are rewarded. Portions of income are set aside as savings, and part of those savings are invested in productivity improvement projects. Wealth and prosperity grow.
In Equality, planning bureaus decide what gets made and for whom, dividing up the work so that workloads are 'fair.' Folks bicker over what is fair, and complaints arise about some not pulling their share of the workload. Without pricing mechanisms, resources are allocated toward areas that planners favor; allocation patterns remain rigid in the face of environmental change--which causes large misallocations and low user satisfaction. Paying for state social welfare programs requires increasingly more of Equality's gross domestic product. Living standards in Equality shrink. There is no income available for savings. In fact, Equality must borrow increasingly higher amounts from outside creditors, perhaps including Liberty, in order to fund its social programs. Widespread squalor ensues.
People in Equality will envy Liberty's progress, and seek to appropriate Liberty's wealth in various ways. For example, Equality might coax Liberty onto a panel of united nations where Liberty will be asked to contribute its fair share to 'world progress.' Residents of Equality will want to immigrate to Liberty in search of greater opportunity. At some point, Equality will raise forcefull exit barriers to keep its people from fleeing the country.
Liberty's destiny will depend on how successfully its citizens can limit scope of government. Equality's destiny will depend on how succesfully its citizens can throw off the authoritarian state.
Friday, September 24, 2010
Chaos Theory
Ninety nine dreams I have had
Every one a red balloon
Now it's all over and I'm standing pretty
In this dust that was a city
--Nena
Masterful observations from, well, the master. Excerpted from Mises' (1949) magnus opus. He makes a number of salient points here.
Although many reformers and utopians wax poetic about the "state of nature" as paradise, from a human life perspective, nature is a state of scarcity and poverty.
Markets, grounded in production to satisfy human wants, reduce conditions of scarcity and elevates standard of living--even for those at the bottom of the social pyramid.
A central proposition of socialism has been that it would abolish restraints on productive forces inherent to capitalism, increasing the productivity of labor beyond all measure. Capitalism, proposed to benefit only a few at the expense of many, would be replaced by a 'fair' system of social organization which would make class struggles disappear. More socialists have been modifying their views, however, as they increasingly see problems with this theory.
The dominant social philosophy of our age remains that capitalism harms the vast majority of people and that it needs to be replaced in the name of 'social justice.' Held by institutions of all walks, from USSR to Nazi to Catholic to FDR.
Fundamental errors of the socialist proposition include: no recognition for uncertainty and environmental change--which static central planning structure cannot cope with (lack of pricing mechanism leads planners to misallocate resources in a big way). Failure to acknowledge that entrepreneurs hire and pay workers based on their productivity, not their time (reduced incentive to perform in bureaucratic structure).
Any reasonable individual should conclude that capitalism is superior to socialism in terms of overall productivity.
Socialists might admit this point, but argue that it is better to have all live equally under a lower standard of living. Moreover, it might be possible that some fraction of people will be better off under a planned system than in a capitalistic system. No praxeological proof can settle this argument decisively.
Over time, however, this argument become moot. As Mises observes, absent means for economic calculation in socialism, the long term choice is between capitalism and chaos.
References
Mises, L. 1949. Human action. New Haven: Yale University Press.
Every one a red balloon
Now it's all over and I'm standing pretty
In this dust that was a city
--Nena
Masterful observations from, well, the master. Excerpted from Mises' (1949) magnus opus. He makes a number of salient points here.
Although many reformers and utopians wax poetic about the "state of nature" as paradise, from a human life perspective, nature is a state of scarcity and poverty.
Markets, grounded in production to satisfy human wants, reduce conditions of scarcity and elevates standard of living--even for those at the bottom of the social pyramid.
A central proposition of socialism has been that it would abolish restraints on productive forces inherent to capitalism, increasing the productivity of labor beyond all measure. Capitalism, proposed to benefit only a few at the expense of many, would be replaced by a 'fair' system of social organization which would make class struggles disappear. More socialists have been modifying their views, however, as they increasingly see problems with this theory.
The dominant social philosophy of our age remains that capitalism harms the vast majority of people and that it needs to be replaced in the name of 'social justice.' Held by institutions of all walks, from USSR to Nazi to Catholic to FDR.
Fundamental errors of the socialist proposition include: no recognition for uncertainty and environmental change--which static central planning structure cannot cope with (lack of pricing mechanism leads planners to misallocate resources in a big way). Failure to acknowledge that entrepreneurs hire and pay workers based on their productivity, not their time (reduced incentive to perform in bureaucratic structure).
Any reasonable individual should conclude that capitalism is superior to socialism in terms of overall productivity.
Socialists might admit this point, but argue that it is better to have all live equally under a lower standard of living. Moreover, it might be possible that some fraction of people will be better off under a planned system than in a capitalistic system. No praxeological proof can settle this argument decisively.
Over time, however, this argument become moot. As Mises observes, absent means for economic calculation in socialism, the long term choice is between capitalism and chaos.
References
Mises, L. 1949. Human action. New Haven: Yale University Press.
Thursday, September 23, 2010
Depressing Irony
"Put...the bunny...back...in the box."
--Cameron Poe (Con Air)
Sure it's ironic when the largest market manipulator in the history of the world bashes another market manipulator for its manipulation and threatens to counter with...more manipulation.
Especially when the wrath is directed toward our largest creditor, who essentially is blamed for lending us resources that we have since squandered.
One constant of politics is its consistent inconsistency.
As observed occaisionally on these pages, protectionism is a common policy response to economic downturns. Politicians can demonize trade partners and garner popular support to justify implementation of policies designed to guard domestic special interest groups (SIGs).
The Depression was laced with protectionist trade policies. In 1932 the US undertook one of the greates currency manipulations of all time when it confiscated citizen owndership of gold and then devalued the dollar by more than half. Perhaps China is reading the FDR playbook.
As global economic and social conditions worsen, expect a commensurate increase in protectionist activity.
position in US Treasuries
--Cameron Poe (Con Air)
Sure it's ironic when the largest market manipulator in the history of the world bashes another market manipulator for its manipulation and threatens to counter with...more manipulation.
Especially when the wrath is directed toward our largest creditor, who essentially is blamed for lending us resources that we have since squandered.
One constant of politics is its consistent inconsistency.
As observed occaisionally on these pages, protectionism is a common policy response to economic downturns. Politicians can demonize trade partners and garner popular support to justify implementation of policies designed to guard domestic special interest groups (SIGs).
The Depression was laced with protectionist trade policies. In 1932 the US undertook one of the greates currency manipulations of all time when it confiscated citizen owndership of gold and then devalued the dollar by more than half. Perhaps China is reading the FDR playbook.
As global economic and social conditions worsen, expect a commensurate increase in protectionist activity.
position in US Treasuries
Wednesday, September 22, 2010
Dollar Dandruff
In violent times
You shouldn't have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears
Yesterday's FOMC announcement can easily be construed as a statement by the Fed that it will manufacture significant inflation--whatever it takes.
Stated another way, the Fed is committed to devaluing the dollar, whatever it takes.
Markets in their forward looking wisdom, have been figuring this out for months. That's one ominous head and shoulders pattern setting up in the dollar index.
Meanwhile, gold and silver are marking all time highs...
positions in gold, silver
You shouldn't have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears
Yesterday's FOMC announcement can easily be construed as a statement by the Fed that it will manufacture significant inflation--whatever it takes.
Stated another way, the Fed is committed to devaluing the dollar, whatever it takes.
Markets in their forward looking wisdom, have been figuring this out for months. That's one ominous head and shoulders pattern setting up in the dollar index.
Meanwhile, gold and silver are marking all time highs...
positions in gold, silver
Carry On
Once I rose above the noise and confusion
Just to get a glimpse beyond this illusion
--Kansas
One problem bamboozling policy makers has been the lack of demand for the infinite amount of cheap credit being offered by the Fed. Despite borrowing ultra low price of credit, borrowers seem reluctant to borrow.
Perhaps all this cheap credit is finding a home after all--with offshore borrowers. This investigation suggests that speculators around the world are borrowing ultra cheap USDs, and then using them to bid up risky foreign assets. The dollar carry seems to be on en force.
We know how these things end. Folks get progressively bolder, borrowing ever more USD to lever up their bets. Subsequently, either the cost of USD carry increases or prices of risky assets tumble, which collapses the spread, which sends speculators fleeing for the exits in a rush to delever--usually all at once. All prices come in, and we're back in depression.
Carry trade vuja de.
position in US Treasuries
Just to get a glimpse beyond this illusion
--Kansas
One problem bamboozling policy makers has been the lack of demand for the infinite amount of cheap credit being offered by the Fed. Despite borrowing ultra low price of credit, borrowers seem reluctant to borrow.
Perhaps all this cheap credit is finding a home after all--with offshore borrowers. This investigation suggests that speculators around the world are borrowing ultra cheap USDs, and then using them to bid up risky foreign assets. The dollar carry seems to be on en force.
We know how these things end. Folks get progressively bolder, borrowing ever more USD to lever up their bets. Subsequently, either the cost of USD carry increases or prices of risky assets tumble, which collapses the spread, which sends speculators fleeing for the exits in a rush to delever--usually all at once. All prices come in, and we're back in depression.
Carry trade vuja de.
position in US Treasuries
Tuesday, September 21, 2010
Media Bias
"A free press, like a free life, sir, is always in danger."
--Ed Hutcheson (Deadline USA)
In thinking about the intellectual's role in social systems (more on that to come), I ran across an interesting article by Sutter (2001) on media bias. The author focuses on the alleged liberal bias in major television networks, major weekly magazines, and leading newspapers. His focus is on these 'mainstream media' outlets because, unlike portions of the media industry such as talk radio and some local newspapers sometimes alleged to possess a conservative bias, mainstream outlets are likely to exert more influence on political agendas, presumably due to their big audience.
He claims that various studies utilizing journalist surveys, content analysis, and case studies of content selection have not provided a conclusive picture of political bias in the mainstream media. He therefore employs a different approach. Essentially he performs a conceptual examation using industry analysis concepts. His basic research question involves how a liberal news cartel (which is what would need to be in place for persistent bias to persist) could possibly control output quality in a market environment with different buyer taste preferences and capitalistic owners.
An interesting question with some thoughtful findings. Keep in mind that Sutter's (2001) analysis was done before Fox (NWSA) and web-based sources really took off--which actually provides a nice post script to this paper.
He divides his analysis into 1) demand side-viewers, 2) supply side-owners, 3) supply side-journalists. On the demand side, the author observes that there is empirical research suggesting that consumers of news may have liberal bias themselves (e.g., Goff & Tollison, 1990), in which case producers can be seen as merely catering to their customers' needs. He suggests, however, that in order for this bias to be consistent across media outlets, consumer bias would have to be significant and narrowly distributed--otherwise opportunistic operators would break ranks from the cartel in search of profits by catering to 'less liberal' news consumers. He therefore dismisses the demand side as a primary driver of a persistent liberal media cartel.
On the ownership side of supply, the author observes that although many owners of media firms have famously held political views, many of those owners have possessed conservative biases. Therefore, although owners might conceivably sacrifice profits to further personal agendas, there is no conclusive evidence that such agendas would be pointed in the liberal direction. He also suggests that temptation to increase profits is likely to trump personal agendas over time, which would lead owners to produce more conservative content in order to financially survive/thrive, which should dilute bias over time.
On the journalist side of supply, the author cites numerous studies (e.g., Lachter et al., 1986) that have consistently shown liberal bias among journalist personnel. In the studies shared, the breakdown runs roughly 40-60% liberal to 20% conservative. The author expresses little doubt that such bias exists although the source of that bias is uncertain. Possible sources offered include: self-selection bias, where conservative dissenters face psychic costs for remaining quiet and social sanctions for speaking their minds (Kuran, 1995); the screening function of journalism schools in a generally liberal academia; and journalism's membership in the 'intellectual' class of occupations that tends to attract those who fancy socioeconomic change and are often hostile to free enterprise.
What concerns Sutter is not that journalistic bias exists, but whether such bias could play a meaningful role in supporting a persistent cartel of liberal media on the market. He is doubtful that liberal journalists could fill that role. If journalists let their biases color reporting too much, then viewers might defect. Moreover, profit seeking owners would penalize those employees producing output ill-fitted to the market; product would be repositioned to better fit consumer taste preferences. He does acknowledge potential for agency problems (Alchian & Demsetz, 1972) that make it difficult for owners to effectively monitor the behavior of journalistic agents, which thus increases potential for shirking among the agents. Journalists may therefore be able to indulge in their liberal views to some degree at the expense of the organization's profit. He dismisses this control problem, however, as minor.
Finally, Sutter turns to the problem of maintaining a cartel under conditions of industry entry. Cartels tend to be less effective when the number of competitors increases. To the extent that outsiders can enter, then any opportunities for profit left on the table by a cartel would be captured as entrepreneurs fill the need. Although one could make the argument that entry has been historically difficult (FCC regs, limited number of outlets, etc), technological advances have lowered those barriers.
Taken together, all of these factors suggest to Sutter that persistent media bias is unlikely. If we fast forward to today, his conclusions seem pretty well supported. The massive rise of Fox appears to demonstrate pent up demand for content with a conservative bias. The big shift in market share does suggest to me that there has indeed been some persistent liberal bias in play--perhaps due to past entry barriers and and shirking by journalistic agents. But that's all changing due to entrepreneurial entry. Any bias that has been present is on the decline.
What currently amazes me is that few other providers have followed Fox into this space. Fox is flourishing while the market for left leaning content is so crowded that operators are competing themselves out of business. This is bound to change over time (i.e., more competition in Fox's segment) but right now this situation reflects an interesting dynamic.
The internet, of course, has become the other great equalizer, chasing folks from traditional venues toward fragmented media segments online. This movement is also sucking life out of traditional operators that have been slow to adapt. This general phenomenon, where incumbents face extinction by innovative entrants, is observable in any industry facing disruptive competitive change.
The general lesson seems a familar one: the more competitive the market, the less likely biases will persist that do no align with customer preferences.
Bias can only persist if enabled by intervention that prohibits supply to pursue demand.
no positions
References
Alchian, A.A. & Demsetz, H. 1972. Production, information costs, and economic organization. American Economic Review, 62: 777-795.
Goff, B. & Tollison, R.D. 1990. Why is the media so liberal? Journal of Public Finance and Public Choice, 1: 13-21.
Kuran, T. 1995. Private truths, public lies. Cambrige, MA: Harvard University Press.
Lachter, S.R., Rothman, S., & Lachter, L.S. 1986. The media elite. Bethesda, MD: Adler and Adler.
Sutter, D. 2001. Can the media be so liberal? The economics of media bias. Cato Journal, 20(3): 431-451.
--Ed Hutcheson (Deadline USA)
In thinking about the intellectual's role in social systems (more on that to come), I ran across an interesting article by Sutter (2001) on media bias. The author focuses on the alleged liberal bias in major television networks, major weekly magazines, and leading newspapers. His focus is on these 'mainstream media' outlets because, unlike portions of the media industry such as talk radio and some local newspapers sometimes alleged to possess a conservative bias, mainstream outlets are likely to exert more influence on political agendas, presumably due to their big audience.
He claims that various studies utilizing journalist surveys, content analysis, and case studies of content selection have not provided a conclusive picture of political bias in the mainstream media. He therefore employs a different approach. Essentially he performs a conceptual examation using industry analysis concepts. His basic research question involves how a liberal news cartel (which is what would need to be in place for persistent bias to persist) could possibly control output quality in a market environment with different buyer taste preferences and capitalistic owners.
An interesting question with some thoughtful findings. Keep in mind that Sutter's (2001) analysis was done before Fox (NWSA) and web-based sources really took off--which actually provides a nice post script to this paper.
He divides his analysis into 1) demand side-viewers, 2) supply side-owners, 3) supply side-journalists. On the demand side, the author observes that there is empirical research suggesting that consumers of news may have liberal bias themselves (e.g., Goff & Tollison, 1990), in which case producers can be seen as merely catering to their customers' needs. He suggests, however, that in order for this bias to be consistent across media outlets, consumer bias would have to be significant and narrowly distributed--otherwise opportunistic operators would break ranks from the cartel in search of profits by catering to 'less liberal' news consumers. He therefore dismisses the demand side as a primary driver of a persistent liberal media cartel.
On the ownership side of supply, the author observes that although many owners of media firms have famously held political views, many of those owners have possessed conservative biases. Therefore, although owners might conceivably sacrifice profits to further personal agendas, there is no conclusive evidence that such agendas would be pointed in the liberal direction. He also suggests that temptation to increase profits is likely to trump personal agendas over time, which would lead owners to produce more conservative content in order to financially survive/thrive, which should dilute bias over time.
On the journalist side of supply, the author cites numerous studies (e.g., Lachter et al., 1986) that have consistently shown liberal bias among journalist personnel. In the studies shared, the breakdown runs roughly 40-60% liberal to 20% conservative. The author expresses little doubt that such bias exists although the source of that bias is uncertain. Possible sources offered include: self-selection bias, where conservative dissenters face psychic costs for remaining quiet and social sanctions for speaking their minds (Kuran, 1995); the screening function of journalism schools in a generally liberal academia; and journalism's membership in the 'intellectual' class of occupations that tends to attract those who fancy socioeconomic change and are often hostile to free enterprise.
What concerns Sutter is not that journalistic bias exists, but whether such bias could play a meaningful role in supporting a persistent cartel of liberal media on the market. He is doubtful that liberal journalists could fill that role. If journalists let their biases color reporting too much, then viewers might defect. Moreover, profit seeking owners would penalize those employees producing output ill-fitted to the market; product would be repositioned to better fit consumer taste preferences. He does acknowledge potential for agency problems (Alchian & Demsetz, 1972) that make it difficult for owners to effectively monitor the behavior of journalistic agents, which thus increases potential for shirking among the agents. Journalists may therefore be able to indulge in their liberal views to some degree at the expense of the organization's profit. He dismisses this control problem, however, as minor.
Finally, Sutter turns to the problem of maintaining a cartel under conditions of industry entry. Cartels tend to be less effective when the number of competitors increases. To the extent that outsiders can enter, then any opportunities for profit left on the table by a cartel would be captured as entrepreneurs fill the need. Although one could make the argument that entry has been historically difficult (FCC regs, limited number of outlets, etc), technological advances have lowered those barriers.
Taken together, all of these factors suggest to Sutter that persistent media bias is unlikely. If we fast forward to today, his conclusions seem pretty well supported. The massive rise of Fox appears to demonstrate pent up demand for content with a conservative bias. The big shift in market share does suggest to me that there has indeed been some persistent liberal bias in play--perhaps due to past entry barriers and and shirking by journalistic agents. But that's all changing due to entrepreneurial entry. Any bias that has been present is on the decline.
What currently amazes me is that few other providers have followed Fox into this space. Fox is flourishing while the market for left leaning content is so crowded that operators are competing themselves out of business. This is bound to change over time (i.e., more competition in Fox's segment) but right now this situation reflects an interesting dynamic.
The internet, of course, has become the other great equalizer, chasing folks from traditional venues toward fragmented media segments online. This movement is also sucking life out of traditional operators that have been slow to adapt. This general phenomenon, where incumbents face extinction by innovative entrants, is observable in any industry facing disruptive competitive change.
The general lesson seems a familar one: the more competitive the market, the less likely biases will persist that do no align with customer preferences.
Bias can only persist if enabled by intervention that prohibits supply to pursue demand.
no positions
References
Alchian, A.A. & Demsetz, H. 1972. Production, information costs, and economic organization. American Economic Review, 62: 777-795.
Goff, B. & Tollison, R.D. 1990. Why is the media so liberal? Journal of Public Finance and Public Choice, 1: 13-21.
Kuran, T. 1995. Private truths, public lies. Cambrige, MA: Harvard University Press.
Lachter, S.R., Rothman, S., & Lachter, L.S. 1986. The media elite. Bethesda, MD: Adler and Adler.
Sutter, D. 2001. Can the media be so liberal? The economics of media bias. Cato Journal, 20(3): 431-451.
Costume Party
So glad we've almost made it
So sad they had to fade it
Everybody wants to rule the world
--Tears for Fears
position in SPX
So sad they had to fade it
Everybody wants to rule the world
--Tears for Fears
On back of FOMC announcement and subsequent price spike, have joined Toddo in pulling out the bear costume for a trade. Intuitive stop is SPX 1150.
Time to Relax
Live those dreams
Scheme those schemes
Got to hit me, hit me
Hit me with those laser beams
--Frankie Goes to Hollywood
Yesterday the National Bureau of Economic Research (NBER) declared that the recession is over. In fact they contend that it ended more than a year ago, in June, 2009.
Whew, we can relax now. Glad that's over...
While people often take such proclamations on faith, it may be a tough sell this time around. There is plenty of evidence to suggest that economic conditions have not improved much and in fact may be worsening.
The timing of the announcement is interesting--one day ahead of the Fed's meeting.
Moreover, for politicians looking to throw as many goodies to SIGs ahead of the fall elections as possible, a question some inquiring minds are likely to ask is why stimulate the economy if we're not in recession?
Competing bureaucratic mindsets, it seems...
Scheme those schemes
Got to hit me, hit me
Hit me with those laser beams
--Frankie Goes to Hollywood
Yesterday the National Bureau of Economic Research (NBER) declared that the recession is over. In fact they contend that it ended more than a year ago, in June, 2009.
Whew, we can relax now. Glad that's over...
While people often take such proclamations on faith, it may be a tough sell this time around. There is plenty of evidence to suggest that economic conditions have not improved much and in fact may be worsening.
The timing of the announcement is interesting--one day ahead of the Fed's meeting.
Moreover, for politicians looking to throw as many goodies to SIGs ahead of the fall elections as possible, a question some inquiring minds are likely to ask is why stimulate the economy if we're not in recession?
Competing bureaucratic mindsets, it seems...
Monday, September 20, 2010
Top It Off
I was halfway home, I was half insane
And every shop window I looked in just looked the same
--Style Council
Major indexes appear to be pushing thru upside resistance. SPX, for example, is trying to make its way thru a triple top.
If they do in fact move higher from here, it'll happen without me. Have kicked out virtually all remaining stock exposure into today's lift.
My proxy for risk here is precious metal. Gold and silver are marking all time highs again and continue to act very well. In my view, the metals have much more going for them here than do stocks...
position in GLD, SLV
And every shop window I looked in just looked the same
--Style Council
Major indexes appear to be pushing thru upside resistance. SPX, for example, is trying to make its way thru a triple top.
If they do in fact move higher from here, it'll happen without me. Have kicked out virtually all remaining stock exposure into today's lift.
My proxy for risk here is precious metal. Gold and silver are marking all time highs again and continue to act very well. In my view, the metals have much more going for them here than do stocks...
position in GLD, SLV
Sunday, September 19, 2010
Bargain of a Lifetime
I'd pay any price just to get you
Work all my life and I will
To win you, I'd stand naked, stoned, and stabbed
I'd call that a bargain, the best I ever had
--The Who
Thomas Paine once wrote that "These are the times that try men's souls." Seems true, but I'm thankful for every minute of it. Beautiful family, a job I'd do for free, and opportunity to make a difference.
Very fortunate...much more than deserved.
Can only hope the next 50 yrs are just as interesting...
Work all my life and I will
To win you, I'd stand naked, stoned, and stabbed
I'd call that a bargain, the best I ever had
--The Who
Thomas Paine once wrote that "These are the times that try men's souls." Seems true, but I'm thankful for every minute of it. Beautiful family, a job I'd do for free, and opportunity to make a difference.
Very fortunate...much more than deserved.
Can only hope the next 50 yrs are just as interesting...
Saturday, September 18, 2010
Deceptive Democracy
You tell me it's the institution
Well you know
You better free your mind instead
--The Beatles
The United States was founded as a federal republic. 'Federal' refers to a form of government in which a group of states or regions defers some power to a central authority while maintaining a measure of autonomy. 'Republic' refers to a form of government in which power is explicitly vested in the people, who in turn exercise their power through elected representatives.
Today many refer to our form of government as a democracy. Among the modern definitions of 'democracy' is this one: a system of government where the power is vested in the people, who rule either directly or through freely elected representatives. This meaning of democracy overlaps considerably with the definition of a republic, which seems to justify interchanging the two terms.
However, democracy has another meaning--one that has been held for a much longer period of time. Democracy also refers to a decision-making process where decisions are made by majority rule.
Decision by majority rule was not the intention of the Founders. We know this for a number of reasons. The word 'democracy' does not appear in any of the nation's founding documents, including both federal and state constitutions--although the concept of decision by majority rule was alive and well back then. Indeed, many Founders were on the record for their distaste of democracy. The republic design reflects this distaste. If democratic decision-making was intended, then why designate representatives when majority vote directly by the people would determine the outcome of an issue?
A primary problem with majority rule is that it discriminates against minority interests. If all decisions are to be decided by democratic vote, then any dominant coalition can, well, dominate. Essentially, majority rule does not facilitate equal treatment under the law. It is more likely to foster both predatory wealth and predatory poverty.
The Founders knew that equal treatment under the law required decisions grounded in the rule of law. Borrowing ideas expressed nearly one hundred years earlier, John Adams in 1774 wrote about 'a government of laws and not of men.' Decisions guided by principled law are likely to endure fashions of the day, emotions that distort perspective, and self-interest that drives human behavior.
Today, it seems clear that people have substituted democratic process in place of the rule of law. Obvious 'proof' in this regard is the size and intensity of the lobbying industry and the affiliated special interest groups. There would be very little market for SIGs in a system grounded in a principled rule of law.
Migration toward demcracy and its consequences as been discussed by many over the yrs (e.g., here, here, here). Toqueville and Hayek suggested that democratic societies had capacity to destroy themselves.
There is an argument to be made that democratic process is being misapplied in this country--perhaps because many people are condoning a process that they mistakenly identify with the country's founding.
Escalating debate of such a proposition seems a good thing--even if only to raise civic awareness.
Well you know
You better free your mind instead
--The Beatles
The United States was founded as a federal republic. 'Federal' refers to a form of government in which a group of states or regions defers some power to a central authority while maintaining a measure of autonomy. 'Republic' refers to a form of government in which power is explicitly vested in the people, who in turn exercise their power through elected representatives.
Today many refer to our form of government as a democracy. Among the modern definitions of 'democracy' is this one: a system of government where the power is vested in the people, who rule either directly or through freely elected representatives. This meaning of democracy overlaps considerably with the definition of a republic, which seems to justify interchanging the two terms.
However, democracy has another meaning--one that has been held for a much longer period of time. Democracy also refers to a decision-making process where decisions are made by majority rule.
Decision by majority rule was not the intention of the Founders. We know this for a number of reasons. The word 'democracy' does not appear in any of the nation's founding documents, including both federal and state constitutions--although the concept of decision by majority rule was alive and well back then. Indeed, many Founders were on the record for their distaste of democracy. The republic design reflects this distaste. If democratic decision-making was intended, then why designate representatives when majority vote directly by the people would determine the outcome of an issue?
A primary problem with majority rule is that it discriminates against minority interests. If all decisions are to be decided by democratic vote, then any dominant coalition can, well, dominate. Essentially, majority rule does not facilitate equal treatment under the law. It is more likely to foster both predatory wealth and predatory poverty.
The Founders knew that equal treatment under the law required decisions grounded in the rule of law. Borrowing ideas expressed nearly one hundred years earlier, John Adams in 1774 wrote about 'a government of laws and not of men.' Decisions guided by principled law are likely to endure fashions of the day, emotions that distort perspective, and self-interest that drives human behavior.
Today, it seems clear that people have substituted democratic process in place of the rule of law. Obvious 'proof' in this regard is the size and intensity of the lobbying industry and the affiliated special interest groups. There would be very little market for SIGs in a system grounded in a principled rule of law.
Migration toward demcracy and its consequences as been discussed by many over the yrs (e.g., here, here, here). Toqueville and Hayek suggested that democratic societies had capacity to destroy themselves.
There is an argument to be made that democratic process is being misapplied in this country--perhaps because many people are condoning a process that they mistakenly identify with the country's founding.
Escalating debate of such a proposition seems a good thing--even if only to raise civic awareness.
Friday, September 17, 2010
Grounds for Grievance
"There is much to be said in favor of modern journalism. By giving us the opinions of the uneducated, it keeps us in touch with the ignorance of the community."
--Oscar Wilde
My trusty Webster's reveals the following definitions:
journalism: the work of gathering, writing, editing, and publishing or disseminating news, as through newspapers and magazines or by radio and television.
editorial: a statement of opinion in a newspaper, etc., or on radio or television, as by an editor, publisher, or owner.
Seems someone should inform modern journalists that they're infringing on someone else's job description.
Or perhaps my 30 yr old dictionary needs updating...
--Oscar Wilde
My trusty Webster's reveals the following definitions:
journalism: the work of gathering, writing, editing, and publishing or disseminating news, as through newspapers and magazines or by radio and television.
editorial: a statement of opinion in a newspaper, etc., or on radio or television, as by an editor, publisher, or owner.
Seems someone should inform modern journalists that they're infringing on someone else's job description.
Or perhaps my 30 yr old dictionary needs updating...
Consistency
"A king may move a man, a father may claim a son. But remember that, even when those who move you be kings or men of power, your soul is in your keeping alone. When you stand before God you cannot say 'but I was told by others to do thus' or that 'virtue was not convenient at the time.' This will not suffice. Remember that."
--King Baldwin IV (Kingdom of Heaven)
One personal quality that I value highly is consistency. By this I do not mean how often an individual eats the same food for lunch or goes to bed at the same time each night. I am referring to how unswerving an individual's thoughts and actions are in matters of principle.
Self reflection over the past few years has revealed many personal inconsistencies that I've had to come to grips with, such as:
-->Belief in liberty while conducting or condoning actions that compromise freedom in the name of security
-->Belief in uniqueness of individual while seeking to conform to social norms--and downgrading people who don't act like me
-->Belief in property rights while voting to forcibly take property from others thru taxes and other avenues
-->Belief in peace while condoning coercive actions of the State
Identifying these gaps can difficult because of human tendency for selective reasoning. We pick and choose evidence that fits our view of the world, and discard data that might reveal that we are behaving inconsistently with closely held beliefs--perhaps in order to conveniently satisfy another interest.
To me, however, the reflection process is well worth it. To be sure, recognizing these inconsistencies often stings, but the upshot is that I've become more honest with myself. Plus, in circular fashion, identifying inconsistent behavior has led me to more deeply question what I hold to be true.
To the extent that others might be trying to learn from me thru observation (I've come to realize that you never know who might be watching), then consistent behavior in matters of principle is likely to strengthen vicarious learning processes that might be taking place.
Because the human condition is diverse, it is likely that others do not value consistency as highly as I do. As such, one of my greatest challenges going forward is to stay focused on improving my internal consistency while resisting the urge to impose similar value judgements on others.
--King Baldwin IV (Kingdom of Heaven)
One personal quality that I value highly is consistency. By this I do not mean how often an individual eats the same food for lunch or goes to bed at the same time each night. I am referring to how unswerving an individual's thoughts and actions are in matters of principle.
Self reflection over the past few years has revealed many personal inconsistencies that I've had to come to grips with, such as:
-->Belief in liberty while conducting or condoning actions that compromise freedom in the name of security
-->Belief in uniqueness of individual while seeking to conform to social norms--and downgrading people who don't act like me
-->Belief in property rights while voting to forcibly take property from others thru taxes and other avenues
-->Belief in peace while condoning coercive actions of the State
Identifying these gaps can difficult because of human tendency for selective reasoning. We pick and choose evidence that fits our view of the world, and discard data that might reveal that we are behaving inconsistently with closely held beliefs--perhaps in order to conveniently satisfy another interest.
To me, however, the reflection process is well worth it. To be sure, recognizing these inconsistencies often stings, but the upshot is that I've become more honest with myself. Plus, in circular fashion, identifying inconsistent behavior has led me to more deeply question what I hold to be true.
To the extent that others might be trying to learn from me thru observation (I've come to realize that you never know who might be watching), then consistent behavior in matters of principle is likely to strengthen vicarious learning processes that might be taking place.
Because the human condition is diverse, it is likely that others do not value consistency as highly as I do. As such, one of my greatest challenges going forward is to stay focused on improving my internal consistency while resisting the urge to impose similar value judgements on others.
Thursday, September 16, 2010
That's Threat with a Tea
The change, it had to come
We knew it all along
We were liberated from the fold, that's all
--The Who
Months back we posited that, if the Tea Party movement got legs, then it would increasingly be viewed as a threat by both the Left and Right. This appears to be playing out.
As victories in primary elections by TP centric candidates pile up, not only has the Left escalated its propaganda campaign against the movement, but the Right has been distancing itself from some candidates, and is now publicly fretting about party in-fighting and dilution of voting power.
Both sides (correctly) sense poor fit between Tea Party philosophy and political machine custom. The Tea Party's core values of fiscal responsibility, free markets, and limited government align with neither the Left or Right. TP tenets challenge the existence of the political Establishment.
To the Establishment, TP candidates appear awkward and unorthodox, which often leaves them open to ridicule by elitists. Most have not been trained as professional politicians. Many hail from Main Street backgrounds. They appear driven more by reluctant "if I don't do something, then we may not make it" motives rather than by political ambition.
As we observed months back, the Tea Party movement is a social movement. It surely has political consequences, but the basis for the TP movement is social power rather than political power. Social power is the network of voluntary interactions that produce relative abundance from nature's condition of relative scarcity. People freely engaging in exchange to improve their standards of living.
Political power, on the other hand, seeks to acquire wealth via non-economic means. The mechanism for political power is the State, which is constantly seeking to repress social power--cripple it, tax it, loot it, etc. Rather than free and voluntary exchange, political power enlists the State's as its agent to appropriate resources by coercive force.
The Tea Party movement seeks to dismantle the State, which threatens all who amass wealth by political means. It should be no wonder, then, why this movement is opposed by all of those who benefit from operations of the Establishment.
We knew it all along
We were liberated from the fold, that's all
--The Who
Months back we posited that, if the Tea Party movement got legs, then it would increasingly be viewed as a threat by both the Left and Right. This appears to be playing out.
As victories in primary elections by TP centric candidates pile up, not only has the Left escalated its propaganda campaign against the movement, but the Right has been distancing itself from some candidates, and is now publicly fretting about party in-fighting and dilution of voting power.
Both sides (correctly) sense poor fit between Tea Party philosophy and political machine custom. The Tea Party's core values of fiscal responsibility, free markets, and limited government align with neither the Left or Right. TP tenets challenge the existence of the political Establishment.
To the Establishment, TP candidates appear awkward and unorthodox, which often leaves them open to ridicule by elitists. Most have not been trained as professional politicians. Many hail from Main Street backgrounds. They appear driven more by reluctant "if I don't do something, then we may not make it" motives rather than by political ambition.
As we observed months back, the Tea Party movement is a social movement. It surely has political consequences, but the basis for the TP movement is social power rather than political power. Social power is the network of voluntary interactions that produce relative abundance from nature's condition of relative scarcity. People freely engaging in exchange to improve their standards of living.
Political power, on the other hand, seeks to acquire wealth via non-economic means. The mechanism for political power is the State, which is constantly seeking to repress social power--cripple it, tax it, loot it, etc. Rather than free and voluntary exchange, political power enlists the State's as its agent to appropriate resources by coercive force.
The Tea Party movement seeks to dismantle the State, which threatens all who amass wealth by political means. It should be no wonder, then, why this movement is opposed by all of those who benefit from operations of the Establishment.
Wednesday, September 15, 2010
Put Down Palace
"These rustics are so inept. It nearly takes the honor out of victory."
--Lord General Cornwallis (The Patriot)
We've suggested that some social behavior, such as the recent WTC mosque/koran building dyad, can be framed inside a model of escalating conflict driven by emotion and selective reasoning. This model is exemplified by, and perhaps even rooted in, juvenile behavior on playgrounds, as the words/actions of one entity provokes response from another.
One juvenile behavior often associated with our escalation model is the 'put down.' Put down is slang for making a disparaging or belittling remark about someone, often intended to embarrass or humiliate. Claiming someone else as being 'stupid' or some variation thereof is perhaps the most commonly employed put down.
While put downs are sometimes conveyed on a face-to-face basis between originator and recipient, they are often transmitted remotely by the originator in a venue that provides safety or social support. For example, the originator might put down someone else while speaking with like-minded friends who will 'like' the claim. Blog pages and social networking websites serve as high tech venues for put downs today.
Reflecting on the put downs that I have personally issued suggests that they are a coping device. When others are successful, I claim that their success must have been 'rigged' in some manner. When others say/do things that I don't agree with, I claim they must be stupid, illiterate et al.
One term that psych folks associate with this type of behavior is 'defensive routine' (e.g., Argyris, 1985). A put down can be viewed as a routine used to defend oneself--most likely one's ego.
Put downs seem likely to foster elitist mentality in the heads of the originators. "We know how to spell better than you...We are smarter than you...We know better than you...We have capacity to rule over you..."
The United States came into being on the back of the elitist mentality of the British. Highbrow Brits looked down on Colonists as a bunch of rubes incapable of governing themselves. When the revolution commenced, Redcoat generals routinely lambasted their adversaries, calling them 'farmers with pitchforks' and the like. They were incredulous when these same rubes sent them packing and created a nation conceived in liberty rather than in class distinction.
Today, elitism has returned...as have the put downs.
References
Argyris, C. 1985. Strategy, change, and defensive routines. Boston: Putnam.
--Lord General Cornwallis (The Patriot)
We've suggested that some social behavior, such as the recent WTC mosque/koran building dyad, can be framed inside a model of escalating conflict driven by emotion and selective reasoning. This model is exemplified by, and perhaps even rooted in, juvenile behavior on playgrounds, as the words/actions of one entity provokes response from another.
One juvenile behavior often associated with our escalation model is the 'put down.' Put down is slang for making a disparaging or belittling remark about someone, often intended to embarrass or humiliate. Claiming someone else as being 'stupid' or some variation thereof is perhaps the most commonly employed put down.
While put downs are sometimes conveyed on a face-to-face basis between originator and recipient, they are often transmitted remotely by the originator in a venue that provides safety or social support. For example, the originator might put down someone else while speaking with like-minded friends who will 'like' the claim. Blog pages and social networking websites serve as high tech venues for put downs today.
Reflecting on the put downs that I have personally issued suggests that they are a coping device. When others are successful, I claim that their success must have been 'rigged' in some manner. When others say/do things that I don't agree with, I claim they must be stupid, illiterate et al.
One term that psych folks associate with this type of behavior is 'defensive routine' (e.g., Argyris, 1985). A put down can be viewed as a routine used to defend oneself--most likely one's ego.
Put downs seem likely to foster elitist mentality in the heads of the originators. "We know how to spell better than you...We are smarter than you...We know better than you...We have capacity to rule over you..."
The United States came into being on the back of the elitist mentality of the British. Highbrow Brits looked down on Colonists as a bunch of rubes incapable of governing themselves. When the revolution commenced, Redcoat generals routinely lambasted their adversaries, calling them 'farmers with pitchforks' and the like. They were incredulous when these same rubes sent them packing and created a nation conceived in liberty rather than in class distinction.
Today, elitism has returned...as have the put downs.
References
Argyris, C. 1985. Strategy, change, and defensive routines. Boston: Putnam.
Tuesday, September 14, 2010
White Lightning
There used to be a graying tower alone on the sea
You became the light on the dark side of me
--Seal
There are two basic strategies when tradin' 'em. One is the fade trade, as in 'fading' or going opposite the prevailing trend. Buying fear and selling euphoria.
The other is the momentum trade, as in riding the mo-mo or going with the crowd. Running with the herd.
As a card carrying contrarian, I'm predisposed to fading. I like to be there for trend reversals. Jumping on board once price has already reversed and following the dominant trend is much harder for me.
Every now and then, however, I'll chase the train. Such a situation is occurring right now with silver.
I initiated a small SLV position in early August under $18. Since then, the price action has firmed and now sports a very strong technical pattern, with prices near 2008 highs.
The fundamental/macro backdrop is also strong. The spectre of more stimulus, quantitative easing, govt intervention (particularly in advance of the fall elections) increases the likelihood of currency destruction.
As conditions (thru my eyes) have become more favorable, I've been 'pyramiding' into SLV, meaning that I've been buying as price goes higher, and each purchase is for more shares than my previous position. Currently, my position is 4x the original 'starter' intiated in early Aug. If conditions remain favorable, I'm inclined to add more.
The risk is that the trend falls apart. Buying progressively more shares at higher prices means that I have less downside 'cushion' before losses kick in.
Currently, it's a risk I'm willing to take. I have a mental stop below in the $18.50-19 zone and upside eyes toward $25ish.
It should be mentioned that gold acts similarly. Am participating here as well but not in the same fashion as with White Lightning.
position in SLV, GLD
You became the light on the dark side of me
--Seal
There are two basic strategies when tradin' 'em. One is the fade trade, as in 'fading' or going opposite the prevailing trend. Buying fear and selling euphoria.
The other is the momentum trade, as in riding the mo-mo or going with the crowd. Running with the herd.
As a card carrying contrarian, I'm predisposed to fading. I like to be there for trend reversals. Jumping on board once price has already reversed and following the dominant trend is much harder for me.
Every now and then, however, I'll chase the train. Such a situation is occurring right now with silver.
I initiated a small SLV position in early August under $18. Since then, the price action has firmed and now sports a very strong technical pattern, with prices near 2008 highs.
The fundamental/macro backdrop is also strong. The spectre of more stimulus, quantitative easing, govt intervention (particularly in advance of the fall elections) increases the likelihood of currency destruction.
As conditions (thru my eyes) have become more favorable, I've been 'pyramiding' into SLV, meaning that I've been buying as price goes higher, and each purchase is for more shares than my previous position. Currently, my position is 4x the original 'starter' intiated in early Aug. If conditions remain favorable, I'm inclined to add more.
The risk is that the trend falls apart. Buying progressively more shares at higher prices means that I have less downside 'cushion' before losses kick in.
Currently, it's a risk I'm willing to take. I have a mental stop below in the $18.50-19 zone and upside eyes toward $25ish.
It should be mentioned that gold acts similarly. Am participating here as well but not in the same fashion as with White Lightning.
position in SLV, GLD
Monday, September 13, 2010
Downward Dog
The world will turn at least that's what they say
We'll crash and burn, it's hard to look away
That kind of thing is easier to say than do
--Til Tuesday
Wanted to capture a nice passage from John Mauldin's (consistently) fine work. The passage is actually a quote from Charles Gave at GaveKal:
"This is the law of unintended consequences at work: If an individual receives US$100 from the government, and at the same time the value of his portfolio/house falls by US$500, what is the individual likely to do? Spend the US$100 or save it to compensate for the capital loss he has just had to endure and perhaps reduce his compensation even further?
"The only way that one can expect Keynesian policies to break the "paradox of thrift" is to make the bet that people are foolish, and that they will disregard the deterioration in their balance sheets and simply look at the improvement in their income statements.
"This seems unlikely. Worse yet, even if individuals are foolish enough to disregard their balance sheets, banks surely won't; policies that push asset prices lower are bound to lead to further contractions in bank lending. This is why "stimulating consumption" in the middle of a balance sheet recession (as Japan as tried to do for two decades) is worse than useless, it is detrimental to recovery.
"With fragile balance sheets the main issue in most markets today, the last thing OECD governments should want to do is boost income statement at the expense of balance sheets. This probably explains why, the more the US administration talks about a second stimulus bill, the weaker US retail sales, US housing, and the US$ are likely to be. It probably also helps explain why US retail investor confidence today stands at a record low."
The boldface paragraph is my emphasis. Thought this was particularly well said. Keynesian theory, as with all elitist philosophy, is grounded in the assumption that people are generally fools, and that 'smart' people must take control and alter decisions that are 'obviously' wrong.
There may indeed be a foolishness phase. After all, we've been willing to go along with Keynesian policies, despite their destruction, for 80 yrs.
At some point, hopefully soon, the foolishness will end and we'll chuck Keynesianism onto the scrapheap of history where it belongs.
We'll crash and burn, it's hard to look away
That kind of thing is easier to say than do
--Til Tuesday
Wanted to capture a nice passage from John Mauldin's (consistently) fine work. The passage is actually a quote from Charles Gave at GaveKal:
"This is the law of unintended consequences at work: If an individual receives US$100 from the government, and at the same time the value of his portfolio/house falls by US$500, what is the individual likely to do? Spend the US$100 or save it to compensate for the capital loss he has just had to endure and perhaps reduce his compensation even further?
"The only way that one can expect Keynesian policies to break the "paradox of thrift" is to make the bet that people are foolish, and that they will disregard the deterioration in their balance sheets and simply look at the improvement in their income statements.
"This seems unlikely. Worse yet, even if individuals are foolish enough to disregard their balance sheets, banks surely won't; policies that push asset prices lower are bound to lead to further contractions in bank lending. This is why "stimulating consumption" in the middle of a balance sheet recession (as Japan as tried to do for two decades) is worse than useless, it is detrimental to recovery.
"With fragile balance sheets the main issue in most markets today, the last thing OECD governments should want to do is boost income statement at the expense of balance sheets. This probably explains why, the more the US administration talks about a second stimulus bill, the weaker US retail sales, US housing, and the US$ are likely to be. It probably also helps explain why US retail investor confidence today stands at a record low."
The boldface paragraph is my emphasis. Thought this was particularly well said. Keynesian theory, as with all elitist philosophy, is grounded in the assumption that people are generally fools, and that 'smart' people must take control and alter decisions that are 'obviously' wrong.
There may indeed be a foolishness phase. After all, we've been willing to go along with Keynesian policies, despite their destruction, for 80 yrs.
At some point, hopefully soon, the foolishness will end and we'll chuck Keynesianism onto the scrapheap of history where it belongs.
Correlation Station
Second best is never enough
You'll do much better baby on your own
--Madonna
Recently I've come across a few claims that movement between individual stocks is starting to disaggregate--i.e., to become less correlated. These claims haven't 'felt' right to me, based on my observation of the tape. It found me wanting for a Bloomberg terminal so I could punch up some correlation data.
Fortunately Jeff Saut did the leg work for us. The below Bloomie chart comes from his recent missive. Results indicate that since the May 'flash crash', correlations between SPX stocks has increased rather than decreased.
Jeff proposes that this is because 'dumb' retail investors have largely left the market, leaving daily action to the pros who are all doing the same thing. This seems wrong to me. For one, individuals didn't bolt out the door at one time, as the square wave higher in r-squareds would suggest in the graph. Moreover, we know that the 'pros' have all sorts of strategies likely to lead to differential positioning. In fact, one could argue that 'retail' market participants are more likely to follow the big guys rather than do something different.
If this chart would go back a couple of yrs, my sense is that we'd find correlations at least as high during the 2008-2009 period when more of the 'dumb guys' where more active.
Instead, it is likely that two other factors are exerting dominant influence on correlations. One is downward price movement. When prices fall, investors generally get nervous and sell indiscrimantly--Intel (INTC) gets sold alongside Johnson & Johnson (JNJ) et al. People reach for market indexes rather than individual issues, which causes stocks to move together. Volatility indices typically jump during downdrafts as folks pay up for insurance across the board.
The other factor that increases correlation is leverage. When leverage is employed to put on stock positions, small price changes in the opposite direction make people react sooner. Actions and reactions become more correlated as folks monolithically seek to relieve the pain of loss.
Couple downward price movement with leverage and you have a potent mix for high correlation. Relief rallies like we're seeing now are likely to lower inter-stock correlation. But as long as we remain in a highly leveraged state, then any downward price trend is likely to correspond to sharp increases in correlation.
positions in INTC, JNJ
You'll do much better baby on your own
--Madonna
Recently I've come across a few claims that movement between individual stocks is starting to disaggregate--i.e., to become less correlated. These claims haven't 'felt' right to me, based on my observation of the tape. It found me wanting for a Bloomberg terminal so I could punch up some correlation data.
Fortunately Jeff Saut did the leg work for us. The below Bloomie chart comes from his recent missive. Results indicate that since the May 'flash crash', correlations between SPX stocks has increased rather than decreased.
Jeff proposes that this is because 'dumb' retail investors have largely left the market, leaving daily action to the pros who are all doing the same thing. This seems wrong to me. For one, individuals didn't bolt out the door at one time, as the square wave higher in r-squareds would suggest in the graph. Moreover, we know that the 'pros' have all sorts of strategies likely to lead to differential positioning. In fact, one could argue that 'retail' market participants are more likely to follow the big guys rather than do something different.
If this chart would go back a couple of yrs, my sense is that we'd find correlations at least as high during the 2008-2009 period when more of the 'dumb guys' where more active.
Instead, it is likely that two other factors are exerting dominant influence on correlations. One is downward price movement. When prices fall, investors generally get nervous and sell indiscrimantly--Intel (INTC) gets sold alongside Johnson & Johnson (JNJ) et al. People reach for market indexes rather than individual issues, which causes stocks to move together. Volatility indices typically jump during downdrafts as folks pay up for insurance across the board.
The other factor that increases correlation is leverage. When leverage is employed to put on stock positions, small price changes in the opposite direction make people react sooner. Actions and reactions become more correlated as folks monolithically seek to relieve the pain of loss.
Couple downward price movement with leverage and you have a potent mix for high correlation. Relief rallies like we're seeing now are likely to lower inter-stock correlation. But as long as we remain in a highly leveraged state, then any downward price trend is likely to correspond to sharp increases in correlation.
positions in INTC, JNJ
Sunday, September 12, 2010
Feeling Depressed
"I have to believe that when things are bad I can change them."
--Jim Braddock (Cinderella Man)
Recently Dave Rosenberg penned some thoughts about the nature of a depression in his daily commentary worthy of note here.
First, his definition of a depression: 'A depression, put simply, is a very long period of economic malaise. A series of recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system.'
Dissecting this definition reveals a number of points that ring pretty true. One is that depressions extend over a long horizon. They are periods rather than events. Another is that there will be ups and downs during depressionary periods, although the general tone is one of weakness. Finally, depressions are the consequence of credit bubbles that pop, and the commensurate decline in asset prices that follow.
Based on that definition, Mr Rosenberg thinks we're in a depression now, suggesting that 'we are in the third inning of this current debt deleveraging ball game.'
He makes a number of other interesting points. For many people, the dominant image of many people is the soup line. Rosenberg suggests that today's soup lines can't be seen because they are in the mail in the form of unemployment checks. Nice observation.
I believe he's correct. Many fret about avoiding a depression that's already here.
Reference
Rosenberg, D.A. "Breakfast with Dave." Gluskin Sheff Economic Commentary. September 2, 2010.
--Jim Braddock (Cinderella Man)
Recently Dave Rosenberg penned some thoughts about the nature of a depression in his daily commentary worthy of note here.
First, his definition of a depression: 'A depression, put simply, is a very long period of economic malaise. A series of recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system.'
Dissecting this definition reveals a number of points that ring pretty true. One is that depressions extend over a long horizon. They are periods rather than events. Another is that there will be ups and downs during depressionary periods, although the general tone is one of weakness. Finally, depressions are the consequence of credit bubbles that pop, and the commensurate decline in asset prices that follow.
Based on that definition, Mr Rosenberg thinks we're in a depression now, suggesting that 'we are in the third inning of this current debt deleveraging ball game.'
He makes a number of other interesting points. For many people, the dominant image of many people is the soup line. Rosenberg suggests that today's soup lines can't be seen because they are in the mail in the form of unemployment checks. Nice observation.
I believe he's correct. Many fret about avoiding a depression that's already here.
Reference
Rosenberg, D.A. "Breakfast with Dave." Gluskin Sheff Economic Commentary. September 2, 2010.
Saturday, September 11, 2010
Rage and Honor
Remember when the days were long
And rolled beneath the deep blue sky
--Don Henley
The worst day of my life occurred nine years ago today. It remains difficult for me to watch or even listen to events of that day and those that followed without having to suppress those feelings of rage and dispair that enveloped me.
My world changed forever.
As senseless as this event seems, however, our Creator put it in motion for a reason--a 'reason' that quite likely differs for each of us.
For me, I suspect the reason was to get me more engaged in the search for the truth. Prior to 9/11 I took for granted the notion of liberty, and assumed that I was living in a free country. After the Towers came down, I remember sitting in my living room in late afternoon when it hit me that it was our freedom that was under attack, and that measures we ourselves had already put in place were compromising that liberty--and more compromise in the name of 'security' was certain to follow.
Reflecting on the starkness of that moment has me thinking of Neo and his flush from the pods once he threw off the Matrix.
Thus began a personal crusade to study liberty and its relationship to the truth.
A silver lining in the blackness of that cobalt blue sky.
And rolled beneath the deep blue sky
--Don Henley
The worst day of my life occurred nine years ago today. It remains difficult for me to watch or even listen to events of that day and those that followed without having to suppress those feelings of rage and dispair that enveloped me.
My world changed forever.
As senseless as this event seems, however, our Creator put it in motion for a reason--a 'reason' that quite likely differs for each of us.
For me, I suspect the reason was to get me more engaged in the search for the truth. Prior to 9/11 I took for granted the notion of liberty, and assumed that I was living in a free country. After the Towers came down, I remember sitting in my living room in late afternoon when it hit me that it was our freedom that was under attack, and that measures we ourselves had already put in place were compromising that liberty--and more compromise in the name of 'security' was certain to follow.
Reflecting on the starkness of that moment has me thinking of Neo and his flush from the pods once he threw off the Matrix.
Thus began a personal crusade to study liberty and its relationship to the truth.
A silver lining in the blackness of that cobalt blue sky.
Friday, September 10, 2010
Nock Out
My friends know what's in store
I won't be here anymore
I've packed my bags, I've cleaned the floor
Watch me walkin', walkin' out the door
--Eurythmics
Was surprised to learn that Albert Nock was once active in the Progressive movement and worked alongside the likes of John Reed.
Like Rose Wilder Lane, I suppose, Nock's hands on experience offered clarity into the problems with statism.
Thus he migrated to where his reason led him.
I won't be here anymore
I've packed my bags, I've cleaned the floor
Watch me walkin', walkin' out the door
--Eurythmics
Was surprised to learn that Albert Nock was once active in the Progressive movement and worked alongside the likes of John Reed.
Like Rose Wilder Lane, I suppose, Nock's hands on experience offered clarity into the problems with statism.
Thus he migrated to where his reason led him.
They Expect Results...
"And, Lenny, you will have saved the lives of millions of registered voters!"
--Dr Peter Venkman (Ghostbusters)
One thing surely contributing to the more favorable tone to the tape is market participant's anticiption of another round of monetary and fiscal stimulus. As Democrats sense trouble ahead of the November midterm elections, the reasoning goes, they will marshall their majority influence to jam thru new stimulatus programs in order to turn voter opinion.
Being a discounting mechanism, the market has been busy factoring in the chances of that intervention and its success.
My sense is that this is setting up a nice fade trade as participants figure out, once again, that any such stimulus will bring limited, if any, positive benefit.
Technically speaking, major indices such as the Dow are starting to sport that bearish head-and-shoulders look on multiple time horizons.
It also has me looking to start unwinding my small basket of stocks after this recent ~5% upside move...
position in select stocks
--Dr Peter Venkman (Ghostbusters)
One thing surely contributing to the more favorable tone to the tape is market participant's anticiption of another round of monetary and fiscal stimulus. As Democrats sense trouble ahead of the November midterm elections, the reasoning goes, they will marshall their majority influence to jam thru new stimulatus programs in order to turn voter opinion.
Being a discounting mechanism, the market has been busy factoring in the chances of that intervention and its success.
My sense is that this is setting up a nice fade trade as participants figure out, once again, that any such stimulus will bring limited, if any, positive benefit.
Technically speaking, major indices such as the Dow are starting to sport that bearish head-and-shoulders look on multiple time horizons.
It also has me looking to start unwinding my small basket of stocks after this recent ~5% upside move...
position in select stocks
Thursday, September 9, 2010
Tic Tac Toe
"A strange game. The only winning move is not to play."
--Joshua (War Games)
As kids, we witnessed (or participated in) the following sequence countless times.
-->One kids does/says something to provoke a negative or hostile response from another kid.
-->The second kid lets it get to him/her and retaliates with a counter response.
-->Back to the first kid who counters in turn...
-->And so it goes...
On the playground, the cycle usually breaks when fatigue sets in, attention spans drift, or someone gets a bloody nose.
The lesson should be similar to the one Joshua the WOPR learned. The sequence either never starts if no provacative action is initiated. Or the chain is broken if one of the recipients decides to not be provoked (often phrased today as 'offended') and walks away.
We know, of course, that most kids never learn this lesson because we see the same cycle played out daily in adult behavior. Recent events of the Ground Zero mosque followed by the Koran burning initiative can be viewed as part of an institutionalized sequence of provocative actions and countermeasures.
Both parties refuse to walk away. Instead, they continue to react and point to the other side's behavior as 'insensitve', 'crazy,' or 'juvenile.'
Laughably sad.
--Joshua (War Games)
As kids, we witnessed (or participated in) the following sequence countless times.
-->One kids does/says something to provoke a negative or hostile response from another kid.
-->The second kid lets it get to him/her and retaliates with a counter response.
-->Back to the first kid who counters in turn...
-->And so it goes...
On the playground, the cycle usually breaks when fatigue sets in, attention spans drift, or someone gets a bloody nose.
The lesson should be similar to the one Joshua the WOPR learned. The sequence either never starts if no provacative action is initiated. Or the chain is broken if one of the recipients decides to not be provoked (often phrased today as 'offended') and walks away.
We know, of course, that most kids never learn this lesson because we see the same cycle played out daily in adult behavior. Recent events of the Ground Zero mosque followed by the Koran burning initiative can be viewed as part of an institutionalized sequence of provocative actions and countermeasures.
Both parties refuse to walk away. Instead, they continue to react and point to the other side's behavior as 'insensitve', 'crazy,' or 'juvenile.'
Laughably sad.
Wednesday, September 8, 2010
Fat Chance
Shout, shout, let it all out
These are the things I can do without
Come on, I'm talking to you, come on
--Tears for Fears
I've seen various posts noting that this is National Childhood Obesity Month and that the President is taking an active role in this campaign. As this article suggests, one thing this administration could do is dismantle government policies that likely promote rather than disdain obesity.
The primary policies in question are subsidies that have promoted growing corn (which goes into high fructose corn syrup of HFCS) and tariffs/price floors that have raised the price of table sugar (sucrose). Studies indicate that ingestion of HFCS is a significant factor in obesity--perhaps more so that fatty foods.
Classic example of government intervention driving unintended consequences. Implement a policy to benefit a small group, but that policy hurts a larger group.
These are the things I can do without
Come on, I'm talking to you, come on
--Tears for Fears
I've seen various posts noting that this is National Childhood Obesity Month and that the President is taking an active role in this campaign. As this article suggests, one thing this administration could do is dismantle government policies that likely promote rather than disdain obesity.
The primary policies in question are subsidies that have promoted growing corn (which goes into high fructose corn syrup of HFCS) and tariffs/price floors that have raised the price of table sugar (sucrose). Studies indicate that ingestion of HFCS is a significant factor in obesity--perhaps more so that fatty foods.
Classic example of government intervention driving unintended consequences. Implement a policy to benefit a small group, but that policy hurts a larger group.
Tuesday, September 7, 2010
Constructive Zone
Gotta see the show 'cause then you'll know
The vertigo is gonna grow
'Cause it's so dangerous
You'll have to sign a waiver
--Barenaked Ladies
Thoughtful piece from Kevin Depew proposing that the time for bearishness is behind us. He proposes that it is now time to be thinking about how to intelligently position for a secular bull market. His basic rationale is that we have been in a bear market for more than a decade, and combined with current sentiment and particular technical indicators, he thinks it's time to get more constructive. He also suspects that there may be a 'Black Swan' event that positively pushes markets higher in a secular manner.
Perhaps Pep is right..he's one sharp cookie. But I have some reservations. Let's look at my concerns using the 'structural, technical, fundamental, psychological' framework.
Structural. The underlying causes of this bear market are structural in nature. We've had a classic 'crack-up boom.' A credit fueled bubble in economic activity stoked by interventionary action followed by debt poppage. This debt bubble began in the early 80s (actually one could persuasively argue that it began much earlier than that) and hit hyperspace during the 1990s-2000s. The 'pop' began in 2007 with probs in subprime mortgages. This was only 3 yrs ago. While 'popping' the bubble seems like a one-off event, debt destruction is actually a process likely to persist many, many years.
If we examine previous cycles, the popping process was going strong for a decade during the Depressionary 1930s when WWII and its consequences intervened. Japan is still at it today after the process began over 20 years ago for them. Because the bubble blown here was the biggest in the history of the world, it seems reasonable that we may have many years to go.
While it is certainly possible (in fact likely) that stocks could rally hard in the face of this (as they did in early 2009), the structural headwinds of deleveraging will likely be blowing in the face of stocks for some time.
Technical. Pep claims that stocks have been in a bear market for at least ten years. This claim depends on a) your definition of a bear market, b) which stocks you're talking about, and c) the time horizon. If stock prices have 'gone nowhere' for a decade, then is that a bear market? I like to think that bears markets are long term periods of signficant price declines. If I call up charts of the 3 major US stock indices, only the COMP has the look of a depressed market that's been dead in the water for many yrs. The SPX can be seen as oscillating in a trading range, but it matched it's all time high in 2007. The Dow looks even more positive, clearly marking an all time high in late 2007. In fact, one could argue that the Dow is only now tracing out a huge 10 yr head and shoulders top--suggestive that the 'real' bear market migh lie ahead.
On broad indices, it's hard for me to buy the argument that we've been in a bear market for a decade. The charts suggest to me that, similar to the structural conditions of debt destruction, real downtrends in stock prices seem more likely to have commenced in late 2007/early 2008.
Fundamentals. In the past 100 years, the worst bear markets have ended when stocks are dirt cheap. The metrics often cited are PEs of 5-9 and dividend yields north of 6%. We're far away from those benchmarks. At current levels, stock prices would need to fall 50% to approach these benchmarks. I should mention that from a discounted cash flow perspective, most stock prices suggest similarly heroic assumptions about future prospects for creating economic value.
Psychology. Pep claims that 'everyone' is bearish. I've been trying to steer clear of such 'point estimates' in favor of thinking about distributions. Because markets are necessarily two sided in perspective (otherwise nothing would trade), it is always possible to find extended examples of sentiment that support one's view. As such, instances of selective reasoning, a basic human defect, are writ large in financial markets.
In the near term, it did seem to me that more folks than usual, especially those in mainstream media, were bearish. Heck, I'm long a small basket of stocks in a humble attempt to catch a relief rally in sentiment. But we've seen these near term situations before. Longer term, my sense is that sentiment will grind lower toward a level where perhaps people are ready to board up exchanges. We're a long way from that.
It is often said that in serious bear markets, no one makes money--not even the bears. I suspect a key reason for this is that over time bears who were correctly positioned early in the decline wade back in the pool too early, and they subsequently get their heads handed to them.
My personal plan is to not get involved in stocks in a serious, long term way until I see the ducks (as expressed by the conditions outlined above) lining up across the board. Currently the quack count is low, not high. I'm hopeful that this happens in my lifetime but it may not (again witness Japan).
I'm a card-carrying contrarian and at times it's tempting to perceive that things have gotten so lopsided that the world is on the other side of the trade. When that happens w.r.t. stocks, I try to remember where we stand versus those valuation metrics that define generational market lows.
Meanwhile, focus remains on return of capital rather than return on capital.
position in select stocks
The vertigo is gonna grow
'Cause it's so dangerous
You'll have to sign a waiver
--Barenaked Ladies
Thoughtful piece from Kevin Depew proposing that the time for bearishness is behind us. He proposes that it is now time to be thinking about how to intelligently position for a secular bull market. His basic rationale is that we have been in a bear market for more than a decade, and combined with current sentiment and particular technical indicators, he thinks it's time to get more constructive. He also suspects that there may be a 'Black Swan' event that positively pushes markets higher in a secular manner.
Perhaps Pep is right..he's one sharp cookie. But I have some reservations. Let's look at my concerns using the 'structural, technical, fundamental, psychological' framework.
Structural. The underlying causes of this bear market are structural in nature. We've had a classic 'crack-up boom.' A credit fueled bubble in economic activity stoked by interventionary action followed by debt poppage. This debt bubble began in the early 80s (actually one could persuasively argue that it began much earlier than that) and hit hyperspace during the 1990s-2000s. The 'pop' began in 2007 with probs in subprime mortgages. This was only 3 yrs ago. While 'popping' the bubble seems like a one-off event, debt destruction is actually a process likely to persist many, many years.
If we examine previous cycles, the popping process was going strong for a decade during the Depressionary 1930s when WWII and its consequences intervened. Japan is still at it today after the process began over 20 years ago for them. Because the bubble blown here was the biggest in the history of the world, it seems reasonable that we may have many years to go.
While it is certainly possible (in fact likely) that stocks could rally hard in the face of this (as they did in early 2009), the structural headwinds of deleveraging will likely be blowing in the face of stocks for some time.
Technical. Pep claims that stocks have been in a bear market for at least ten years. This claim depends on a) your definition of a bear market, b) which stocks you're talking about, and c) the time horizon. If stock prices have 'gone nowhere' for a decade, then is that a bear market? I like to think that bears markets are long term periods of signficant price declines. If I call up charts of the 3 major US stock indices, only the COMP has the look of a depressed market that's been dead in the water for many yrs. The SPX can be seen as oscillating in a trading range, but it matched it's all time high in 2007. The Dow looks even more positive, clearly marking an all time high in late 2007. In fact, one could argue that the Dow is only now tracing out a huge 10 yr head and shoulders top--suggestive that the 'real' bear market migh lie ahead.
On broad indices, it's hard for me to buy the argument that we've been in a bear market for a decade. The charts suggest to me that, similar to the structural conditions of debt destruction, real downtrends in stock prices seem more likely to have commenced in late 2007/early 2008.
Fundamentals. In the past 100 years, the worst bear markets have ended when stocks are dirt cheap. The metrics often cited are PEs of 5-9 and dividend yields north of 6%. We're far away from those benchmarks. At current levels, stock prices would need to fall 50% to approach these benchmarks. I should mention that from a discounted cash flow perspective, most stock prices suggest similarly heroic assumptions about future prospects for creating economic value.
Psychology. Pep claims that 'everyone' is bearish. I've been trying to steer clear of such 'point estimates' in favor of thinking about distributions. Because markets are necessarily two sided in perspective (otherwise nothing would trade), it is always possible to find extended examples of sentiment that support one's view. As such, instances of selective reasoning, a basic human defect, are writ large in financial markets.
In the near term, it did seem to me that more folks than usual, especially those in mainstream media, were bearish. Heck, I'm long a small basket of stocks in a humble attempt to catch a relief rally in sentiment. But we've seen these near term situations before. Longer term, my sense is that sentiment will grind lower toward a level where perhaps people are ready to board up exchanges. We're a long way from that.
It is often said that in serious bear markets, no one makes money--not even the bears. I suspect a key reason for this is that over time bears who were correctly positioned early in the decline wade back in the pool too early, and they subsequently get their heads handed to them.
My personal plan is to not get involved in stocks in a serious, long term way until I see the ducks (as expressed by the conditions outlined above) lining up across the board. Currently the quack count is low, not high. I'm hopeful that this happens in my lifetime but it may not (again witness Japan).
I'm a card-carrying contrarian and at times it's tempting to perceive that things have gotten so lopsided that the world is on the other side of the trade. When that happens w.r.t. stocks, I try to remember where we stand versus those valuation metrics that define generational market lows.
Meanwhile, focus remains on return of capital rather than return on capital.
position in select stocks
Debt Free
Shout, shout, let it all out
These are the things I can do without
Come on, I'm talking to you, come on
--Tears for Fears
Just got the acknowlegement from Citi (C) that they received my payoff amount in full and that the mortgage is history.
A smart cookie once told me that debt reduces freedom.
Let freedom ring!
These are the things I can do without
Come on, I'm talking to you, come on
--Tears for Fears
Just got the acknowlegement from Citi (C) that they received my payoff amount in full and that the mortgage is history.
A smart cookie once told me that debt reduces freedom.
Let freedom ring!
Line Segment
And before this gets old, will it still feel the same?
There's no way this could die
--Pat Benatar
Rothbard makes the case for statism emanating from all portions of the 'Left-Right' political spectrum. The ideals may differ between factions, but the end objective is similar: use of authoritarian rule to limit freedom in the name of some political agenda.
Rothbard wrote this piece in 1979. Like many of his missives, this could have been written yesterday.
As he notes:
"The lines are getting drawn with increasing clarity. Statism versus liberty."
There's no way this could die
--Pat Benatar
Rothbard makes the case for statism emanating from all portions of the 'Left-Right' political spectrum. The ideals may differ between factions, but the end objective is similar: use of authoritarian rule to limit freedom in the name of some political agenda.
Rothbard wrote this piece in 1979. Like many of his missives, this could have been written yesterday.
As he notes:
"The lines are getting drawn with increasing clarity. Statism versus liberty."
Monday, September 6, 2010
Cruel Summer
The city is crowded
My friends are away and I'm on my own
It's too hot to handle
So I got to get up and go
--Bananarama
After announcing her resignation last month, Chief Economic Advisor Christina Romer gave her exit speech last week. Dr Romer expressed disappointment that the policies enacted on her watch have not significantly reduced economic issues.
Of course, her borrow and spend approach, straight out of the Keynes textbook, was destined to fail out of the gate. Debt and spending problems cannot be solved by more of the same.
Almost as laughable as these policies is the tone of the WP columnist who covered the Romer event, which seems to imply that there is an interventionist policy that would work and that Dr Romer was 'wrong'--i.e., she merely failed to choose the correct one.
One other thing about the outgoing CEA's remarks. Dr Romer suggested that economists 'don't fully understand' why things happened the way they did in this downturn.
It seems she and her card carrying economist friends may need to view the world thru a different lens.
My friends are away and I'm on my own
It's too hot to handle
So I got to get up and go
--Bananarama
After announcing her resignation last month, Chief Economic Advisor Christina Romer gave her exit speech last week. Dr Romer expressed disappointment that the policies enacted on her watch have not significantly reduced economic issues.
Of course, her borrow and spend approach, straight out of the Keynes textbook, was destined to fail out of the gate. Debt and spending problems cannot be solved by more of the same.
Almost as laughable as these policies is the tone of the WP columnist who covered the Romer event, which seems to imply that there is an interventionist policy that would work and that Dr Romer was 'wrong'--i.e., she merely failed to choose the correct one.
One other thing about the outgoing CEA's remarks. Dr Romer suggested that economists 'don't fully understand' why things happened the way they did in this downturn.
It seems she and her card carrying economist friends may need to view the world thru a different lens.
Sunday, September 5, 2010
Below Grade
"Who are you, tenth man on the deal team, last to know?"
--Gordon Gekko (Wall Street)
This article entertains whether US debt should be downgraded to junk. Because junk bonds relate to a debtor's capacity to repay loans, conventional wisdom says that the US would never default--because it has a printing press.
However, if the US ever DID crank up the presses to pay off what we owe, then perhaps what creditors would receive in terms of purchasing power would approach not getting paid off at all.
Moreover, ratings agencies are typically late to the game when it comes to credit downgrades. 3-4 yrs ago it was readily apparent that the chances of many leveraged institutions paying back their debt was decreasing, yet the ratings agencies did nothing.
When creditor start moving away from US debt, it's a pretty safe bet that ratings agencies will be pulling up the rear as always.
no positions
--Gordon Gekko (Wall Street)
This article entertains whether US debt should be downgraded to junk. Because junk bonds relate to a debtor's capacity to repay loans, conventional wisdom says that the US would never default--because it has a printing press.
However, if the US ever DID crank up the presses to pay off what we owe, then perhaps what creditors would receive in terms of purchasing power would approach not getting paid off at all.
Moreover, ratings agencies are typically late to the game when it comes to credit downgrades. 3-4 yrs ago it was readily apparent that the chances of many leveraged institutions paying back their debt was decreasing, yet the ratings agencies did nothing.
When creditor start moving away from US debt, it's a pretty safe bet that ratings agencies will be pulling up the rear as always.
no positions
Saturday, September 4, 2010
Bullion Base
Benjamin Martin: May I sit with you?
Charlotte Selton: It's a free country. Or at least it will be.
--The Patriot
Bought my first bullion in a while. With gold just below all time highs, feels 'right' to add some physical around here if/when it can be purchased at low premium over spot.
Gold holdings up 55% this yr by weight.
position in gold
Charlotte Selton: It's a free country. Or at least it will be.
--The Patriot
Bought my first bullion in a while. With gold just below all time highs, feels 'right' to add some physical around here if/when it can be purchased at low premium over spot.
Gold holdings up 55% this yr by weight.
position in gold
Friday, September 3, 2010
Tidey Dry
"Whatever it takes? Whatever it takes is what happens to somebody else."
--Jake Lo (Rapid Fire)
Definitely the most surprising story I ran across today. Must admit PG and dry cleaning franchises not an intuitive fit from where I sit.
Was also surprised to read that PG previously launched Mr Clean Carwash franchises. A few are operating out there, altho none in my neighborhood...
no positions
--Jake Lo (Rapid Fire)
Definitely the most surprising story I ran across today. Must admit PG and dry cleaning franchises not an intuitive fit from where I sit.
Was also surprised to read that PG previously launched Mr Clean Carwash franchises. A few are operating out there, altho none in my neighborhood...
no positions
Thursday, September 2, 2010
Eye of the Tiger
Rising up, out on the street
Did my time, took my chances
--Survivor
Few technical pictures stronger than gold's currently. Silver looks nearly as strong. Sweet 'cup and handle' look on this weekly chart.
Can be viewed as the market's increasingly higher assigned probability to a state of monetary and perhaps social disorder.
position in gold, SLV
Did my time, took my chances
--Survivor
Few technical pictures stronger than gold's currently. Silver looks nearly as strong. Sweet 'cup and handle' look on this weekly chart.
Can be viewed as the market's increasingly higher assigned probability to a state of monetary and perhaps social disorder.
position in gold, SLV
Scared Away
Welcome to your life
There's no turning back
Even while you sleep
We will find you
--Tears for Fears
Russell snippet illustrates the negative environment for operating a business today. It does make one wonder why anyone would take the risk...
Also hard to not wonder how many great ideas have never been advanced because the entrepreneur decided that the risk wasn't worth it.
Make no mistake, our standard of living is compromised, not advanced, by government's intrusion into free and purposeful exchange between individuals.
There's no turning back
Even while you sleep
We will find you
--Tears for Fears
Russell snippet illustrates the negative environment for operating a business today. It does make one wonder why anyone would take the risk...
Also hard to not wonder how many great ideas have never been advanced because the entrepreneur decided that the risk wasn't worth it.
Make no mistake, our standard of living is compromised, not advanced, by government's intrusion into free and purposeful exchange between individuals.
Wednesday, September 1, 2010
Carpe Diem Economics
"Sucking the marrow out of life doesn't mean choking on the bone."
--John Keating (Dead Poet's Society)
Nice missive on the need for saving rather than spending given our predicament. The Keynesian notion that prosperity is realized on a path of consumption is, sadly, broadly accepted.
If each of us consumed all of our income or more so (thru borrowing), then three consequences follow:
1) we will have nothing set aside for the future
2) if we have borrowed, we'll have to use some of our future income to pay back debtors
3) we'll have no savings to invest in productivity improving technology
All three of these weigh on future standard of living. Saving, not consumption, is the path to improved prosperity.
Perhaps Keynesian economics is best thought of as carpe diem economics.
--John Keating (Dead Poet's Society)
Nice missive on the need for saving rather than spending given our predicament. The Keynesian notion that prosperity is realized on a path of consumption is, sadly, broadly accepted.
If each of us consumed all of our income or more so (thru borrowing), then three consequences follow:
1) we will have nothing set aside for the future
2) if we have borrowed, we'll have to use some of our future income to pay back debtors
3) we'll have no savings to invest in productivity improving technology
All three of these weigh on future standard of living. Saving, not consumption, is the path to improved prosperity.
Perhaps Keynesian economics is best thought of as carpe diem economics.
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