Monday, January 31, 2011


Here I am in silence
Looking 'round without a clue
I find myself alone again
All alone with you
--Information Society

Following up on last weekend's thoughts, I was fairly active today in the commodity space. As anticipated, commodities caught some wind today, with many ETF charts showing near term breakouts.

My primary focus today was oil and energy. Inflationary pressures appear to be building much more so than I was formerly anticipating. While this is affecting commodities broadly and particularly the ags, my growing sense is that oil may be ready to move north with some power. Combine current tensions + Fed's paper blizzard + energy geopolitics (as reflected in the map below taken from this MV article), and, well, you have the sum of my current thought process.

After initiating energy ETF positions early, I was already adding to them mid-day higher in 'pyramid' fashion as prices moved higher. I plan to add more on further strength.

Not typically the way I roll. But pyramiding can be an effective way to enter a trending market while still managing risk. Essentially, I want to use gains from lower priced shares to buffer risk of acquiring higher priced shares. Stops are employed to manage the downside if prices reverse and head south.

positions in DBE, DBO, RJA, RJI

The Fed, Food, and Chaos

There's a room where the light won't find you
Holding hands while
The walls come tumbling down
When they do, I'll be right behind you
--Tears for Fears

Thoughtful piece linking Fed policies to uprisings around the world, with Egypt the current focus. We've been noting it for a long time: central bank policies gut wealth over time. Those impacted the most are those with lower incomes since they have little means to protect themselves against inflation.

In an interconnected world, the effects of the Fed's policies are not confined to US borders. Via stimulus, QE2, and other money printing programs, we are exporting inflation to the world. Inflationary effects are exacerbated because the US dollar remains the world's reserve currency. On a beggar-thy-nation planet where all countries want weak currencies in order to gain an edge in trade, as the Fed does the world.

Commodity prices worldwide have been shooting higher since last summer--none more so than agricultural commodites. One representative ETF above, DBA, is up about 50% since last summer.

Naturally, the effects of higher food prices are felt in developing countries first. Poor people begin to have trouble affording food. And when citizenry can't eat, they riot. Thus the situations in Kuwait, Tunisia, Egypt, et al.

Blend inflation w/ worldwide proclivity toward socialism, and you've mixed yourself a massive chaos cocktail. 

position in commodities

Saturday, January 29, 2011

Pharoah Value

If they move too quick
Oh whey oh
They're falling down like a domino
--The Bangles

The three general macro scenarios that I constantly assign probabilities to are 'big' inflation, 'average' inflation, and deflation. Due to massive worldwide debt and leverage, I've favored the deflation scenario for years and have been tilting my asset allocations appropriately.

When the Fed announced QE2 late last summer with intent to achieve inflation targets regardless of cost, that gave even deflationistas like me cause for pause. Since then risky assets like stocks and commodities have taken off in anticipation of the print fest.

It feels like the market is at an important juncture. Either risky assets run out of upside gas and begin a new deflationary leg lower. Or, after a brief siesta, and perhaps ignited by darkening skies in the Middle East, they sprint higher.

While I still favor the former, I must say that I've been eyeing commodities (again) as a hedge in case we climb the latter ladder.

Have re-established small positions in gold and general commodity ETF positions. Depending on how the Egypt picture shapes over the weekend, I may be a buyer of energy early next week. If commodities get their groove on, I may be prone to pyramid (!) higher.

position in GLD, RJI

Friday, January 28, 2011

No Savings, No Investing

"It's easy to get in. It's hard to get out."
--Gordon Gekko (Money Never Sleeps)

Following up on yesterday's post, how does one know that today's government programs constitute spending rather than investing?

An income of economic resources, earned from productive activity, can be used in one of two general ways. It can be consumed, thereby facilitating today's standard of living. Or it can be saved, thereby facilitating tomorrow's standard of living.

From those resources that are saved, some fraction may be put at risk toward improving productivity in the future. That fraction put at risk is called investing.

More consumption facilitates higher standard of living today. To elevate standard of living beyond the level obtained by consuming 100% of income (let's call this ultra high consumption), economic resources must be borrowed from someone else.

Borrowing resources for consumption today burdens future standard of living. To pay back the lender and still maintain today's living standards, future productivity must increase to a level that enables ultra high consumption plus repaying debt. This is very difficult to do, and this difficulty increases in direct relationship to the quantity of economic resources borrowed.

When debt is high, it is likely that future consumption will have to be curtailed while income is diverted toward paying back lenders. Moreover, it is likely that there will be little residual income left over for savings--and by extension investment.

For years, the United States has been indulging in ultra high consumption. We have borrowed huge amounts of economic resources to treat ourselves to a living standard far beyond what is possible from consuming our income alone. Stated differently, we have been consuming our income, plus some of the incomes of others.

Now, our savings rate is essentially negative as we divert ever higher portions of our income toward debt service. Our problem, however, is that we don't want to give up ultra high consumption. So we keep borrowing from those creditors willing to lend.

This cycle can only persist until creditors refuse to lend.

While we do not know when this state of affairs will end, we do know two things. It will end. And until it ends, our capacity for investment is tiny, since we have no real savings to invest with.

On its best day, government's capacity for allocating savings toward prudent investment alternatives is miniscule. Government is more apt to deploy savings toward programs that consume those resources rather than invest them. This is called capital consumption.

Our current field position suggests that most capital has long been consumed.

Thursday, January 27, 2011

Investing in Propaganda

But I'm a substitute for another guy
I look pretty tall but my heels are high
The simple things you see are all complicated
I look pretty young but I'm just back-dated, yeah
--The Who

One characteristic of propaganda is that it often employs 'positive substitute symbols.' Let's say that you're the president of the United States, and that you want to increase spending on government programs.

Flatly stating that 'we need to spend more' could be a problem, however, because a large portion of the country (very much to your chagrin) has been catching on to the reality that government spending is thru the roof and that the nation already shoulders a crushing debt burden.

So you open your dog eared copy of Rhetoric for Government Propogandists in search of a word that could replace 'spending'-- one that would be more palatable to an increasingly austere citizenry. Let's see...ah yes, here it is: 'investing.' Investing connotes optimism and building for the future. By proposing investment programs rather than spending programs, then perhaps the public will be more prone to get behind your proposals.

Investing, therefore, becomes a positive substitute symbol for spending.

Let the spin begin.

Will it work? Politicians spew spin because they know that it often works. On the other hand, level of public engagement in political happenings has been increasing. Engagement means active minds.

And active minds are the propagandist's worst nightmare.

Baltic Breakdown

So we sailed on to the sun
Till we found a sea of green
--The Beatles

The Baltic Dry Index (BDI) is a price index of international oceanic shipping rates. When the BDI goes up, it implies generally higher prices to ship stuff via cargo vessels around the world.

Many market participants regard the BDI as an indicator of global trade. Higher BDIs imply stonger trade patterns.

During the 2008 credit market collapse, the BDI experienced a jaw-dropping decline--falling from over 11,000 to under 1000 in just a few months.

Over the past few months, the BDI has been weakening. Thus it represents a divergence in the thesis that economies are generally strengthening worldwide.

Another metric that may be worth watching...

Wednesday, January 26, 2011

Inflation Gyrations

Now that ain't workin'
That's the way you do it
Let me tell you
Them guys ain't dumb
--Dire Straits

This article touches on why inflation, as measured by the Consumer Price Index, is chronically under-reported.

Did you know that the dominant definition of inflation has not always been linked to 'change in prices?' A century ago, inflation was commonly defined in terms of the quantity of money and credit.

You can decide which definition makes more sense...

Tuesday, January 25, 2011

Silver Streak

So hold on here we go
Hold on to nothing we know
I feel so lonely way up here
--The Motels

A couple weeks back we noted that SLV was close to breaking its uptrend line. This has since occurred.

Am now eyeing the support line in the $24-25 range created from last November's gap higher. Technicians like to say that all gaps are meant to be filled. SLV is about a buck away from the gap. May represent interesting trade if/when...

no positions

Monday, January 24, 2011

Divergence Emergence

And if I should falter
Would you open your arms out to me?

Small cap stocks have been leading domestic markets higher. The Russell 2000 (RUT) is up well over 100% since the early 2009 lows.

Over the past week, the RUT has shown some weakness. In fact, the multi-month uptrend line in place since last summer was violated last week.

On the other hand, larger cap stock indexes such as the S&P 500 (SPX) continue to show strength. Uptrends are still technically in place.

This is an example of a 'divergence.' Divergences occur when market indicators that are 'supposed' to move together fail to do so. Often, divergences portend a change in market character. Perhaps investors are rotating out of small caps because they see relative value in large cap stocks. Maybe weak small caps reflect declining risk tolerance among investors.

Of course, perhaps this divergence is just a random phenomenon that merits no meaningful interpretation...

In any event, I've found it useful to look for divergences and keep them in mind when making sense of the tape.

position in SPX

Shovel Ready

Here comes the rain again
Falling in my head like a tragedy
Tearing me apart like a new emotion

Nice article from John Mauldin on our fiscal situation. I found the data on govt vs private sector jobs particularly interesting. Check out that USA Today table showing avg salary difference govt vs private sector.

As John notes, the old assumption was that govt jobs paid less but were more secure. Private sector jobs paid more but were more volatile. The old risk:reward axiom.

Bureaucrats seem to think they can obsolete that axiom. Market forces will likely beg to differ...

Sunday, January 23, 2011


Drawn into the stream
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

The capital asset pricing model (CAPM) focuses attention on reducing non market (or security-specific) risk by managing the 'beta' content of a portfolio. However, this approach does not address market (or systemic) risk. This is the risk that is shared by all positions in a portfolio.

Degree of market risk can be estimated by examining the correlation between portfolio components. The higher the correlation between components, the more they move together. Higher correlation suggests higher market risk.

Data suggest that correlation between risky assets has been increasing for years.

First, check out the average correlation between components of the S&P 500 (blue bars). Correlation between S&P 500 stocks has about doubled in the past decade.

Next, the Russell 2000 (blue line). Once again, correlation has about doubled in the past 10 years. Note that the internal correlation of the Russell is higher than the internal correlation of the S&P.

What about foreign stocks? Below we see the correlation between the S&P 500 and the EAFE (Europe Australasia Far East) Index. Once again, we observe a steady march higher in correlation. The correlation between the S&P and the EAFE current stands at a stunning 0.9!

One historic attraction of commodities and other hard assets has been their negatively relationship with stocks--which has made them good diversification vehicles. That attraction has been waning. The gold line below shows the average cross correlation between various asset classes including S&P 500 stocks, gold, oil, 10 yr Treasury rates, and various foreign exchange (forex) cross rates. Prior to 2005ish, these cross correlations were indeed negative. Over the past few years, however, correlations between broad asset classes has turned positive--and the relationship appears to be increasing.

An important question you should be asking is why--why are correlations increasing among risky assets?

In any event, results suggest that, when investors are long risky assets, they are taking on ever greater levels of market risk.

position in SH

Saturday, January 22, 2011


And when the night is cold and dark
You can see, you can see light
'Cause no one can take away your right
To fight and to never surrender
--Corey Hart

State pushback against the federal health care law continues to escalate. In Virginia, a federal judge has declared the insurance purchase requirement to be unconstitutional. Another 25 states have sued the federal government asking various federal judges to invalidate the statute. Six states are preparing to declare the health care law uncontitutional and defy the federal government outright.

Judge N observes that this defiance of the federal government by the states is unprecedented in modern times. It indicates that there is still some semblance of federalism present in our system. Our country was founded as a federation of states--13 sovereign entities that decided it was in their best interests to delegate limited authority to a central government so that the federation would operate more effectively. The limits of that central government authority are specified in the Constitution.

As expressed by the Tenth Amendment, those powers not expressly delegated to the federal government by the Constitution remain with the states and with the people.

A federalistic design enables markets to be made for various policies enacted by the states. If you like the socialistic style health care system offered by Massachussetts then you can move there. If you don't like the high taxes in your locale, then you can shop for one with lower taxes. Those states that 'sell' policies that citizens aren't willing to 'buy' must adapt to market demands, lest they risk losing their 'customers.'

Federalism preserves free choices.

Since the Civil War, and particularly since the rise of the Progressive movement in the early 20th century, the federal government has been trampling on state sovereignty. It has been suggested that the passage of the Sixteenth Amendment in 1913, that granted the federal government virtually unlimited power for taxing incomes with no commensurate regard for tax revenue distribution among the states, decisively tilted the scales of power away from the states and toward the federal government.

Perhaps the oppressive actions of the federal government w.r.t. health care have awakened long dormant desire for sovereignty among the states. If so, a revival of federalism could help reverse our march toward socialism and point us once more in the direction of freedom.

Friday, January 21, 2011

Discretionary Government

And the men who spurred us on
Sit in judgment of all wrong
They decide and the shotgun sings the song
--The Who

In societal contexts, laws are rules of conduct that are enforceable by a governing authority. In order for a law to be enforced, the authority must compare an individual's behavior to the rules. The authority then renders judgment as to whether the behavior was legal or not. If the behavior is deemed illegal, then the individual has 'broken the law' and is subject to reprimand by the authority.

Clearly, an important feature of law is the extent to which it can be consistently interpreted. If interpretation is subject to personal whim, then law is arbitrary. Arbitrary law is enforced at the discretion of the authority.

Arbitrary law is not really law at all, as it leads to societies where despots, rather than laws, rule.

The founding of the United States was steeped in this understanding. The colonists had experienced the woes of discretionary government firsthand. They knew that a nation conceived in liberty could not persist under arbitrary rules. Their intention--to be a nation governed by laws rather than by men--pervades historical records of the founding period.

The product of their intention was the Constitution. As the supreme law of the land, the Constitution limited central government authority so as to reduce the likelihood of discretionary power. The powers granted to the federal government were carefully specified. A system of checks and balances sought to restrain any branch from assimilating discretionary power.

An ingenious design--one intended to persist with the ages. But only effective if followed.

The ink was barely dry on the Constitution before those interested in harnessing discretionary power began pursing ways to evade the limited government principles. This pursuit reached a critical mass during the Progressive era. It was during this period that those who sought discretionary power broadly criticized the Constitution and those who developed it as being out of step with modern times.

Congress learned that they could pass laws by ignoring Constitutional principles, or by interpreting snippets of the Constitution out of context. The president learned learned that he could rule by decree via a morass of executive agencies, and that he could 'pack the court' with judges willing to interpret law in his party's favor. Disinterested judges became a thing of the past; judges learned that interest pays.

Today, the rule of law has been replaced by discretionary government. The principled Constitution has been replaced by arbitrary rule--rule that is for sale to the highest bidder.

We give lipservice to liberty while practicing despotism. Absent a return to the rule of law, the result will surely be chaos.

Thursday, January 20, 2011

Federal Farmer

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

Two hundred and seventy nine years ago today, Richard Henry Lee was born. It was Lee's motion in June 1776 that called for the colonies' independence from Great Britain that led to the Declaration of Independence.

Lee was a Virginian. Virginians were not bashful in voicing their suspicions of central government. During the ratification process, Lee sided with the Anti-Federalists, those who wanted to limit the authority of the federal government even more so than the Constitution as drafted did.

He expressed his views under the pen name Federal Farmer. Like many Anti-Fed writings, the work of Federal Farmer appeared in both in newpapers and in pamphlet form.

Two select quotes from FF:

"We must consider this constitution, when adopted, as the supreme act of the people, and in construing it hereafter, we and our posterity must strictly adhere to the letter and spirit of it, and in no instance depart from them."

"The powers delegated to the central government must be precisely defined...and clearly be of the extent that, by no reasonable construction, they can be made to invade the rights and prerogatives intended to be left in the people."

Today's big government proponents often claim that the founders left the Constitution vague and unprincipled so that it could evolve with the times. These claims find little basis in historical fact.

Federal Farmer's writings are but one drop in an ocean of evidence suggesting that the founding intent of the United States was to strictly and explicitly limit central government authority, and that the intent behind these restraints was binding into posterity.

Break It Down Again

When it's all mixed up
Better break it down
In the world of silence
In the world of sound
--Tears for Fears

Yesterday the House voted to repeal the Health Care Law. Next, it goes to the Senate. Senate majority leader Harry Reid has vowed to prevent a vote in the Senate.

One motivation for blocking a vote is to keep senate Democrats from revealing where they stand on the health care issue. Given high levels of negative public sentiment against the health care law, some Democrat senators may not want to go on the record here. Vote to uphold the health care legislation, and risk alienating voters in the next election. Vote to repeal it, and decrease solidarity among Democrat ranks.

Senate Republicans have indicated that they can work within current rules to bring a vote for repeal to the floor.

In the event that the Senate does vote on the bill and the repeal passes, then the bill would head to the White House where President Obama has indicated that he would veto it. Like all prior points in the process, however, the president's actions would leave him open to scrutiny by the citizenry.

In the event that the law survives this process, then Republicans are likely to bring forth legislation to defund portions of the health care program. Stated differently, they would seek to starve the program of resources.

Meanwhile state lawsuits challenging the Constitutionality of the health care law continue thru the courts.

Clearly, momentum is building on multiple fronts to break down a law that has been clearly illegal from the get go.

The terribly flawed character of the health care law, and current efforts to repeal it, reflect a larger issue as well--one likely to shape the relevance of the Constitution as the 'Supreme Law of the Land' henceforth. Are the limits imposed on the Federal government by the Constitution real restraints, or can Congress, the President, or the Court get around these restraints whenever they want?

Wednesday, January 19, 2011

Expose Underway

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

It's approaching fish or cut bait time for many GOP members on Capitol Hill. Many Republican leaders have indicated a willingness to raise the Federal debt ceiling in exchange for promises of spending cuts that get us back to 2008 levels.

Huh? A grade schooler can grasp the concept that borrowing more and spending less are incompatible. Of course, grade schoolers can also regularly observe adults, especially those in Washington, pretend otherwise.

When the Tea Party movement was gaining traction we posited that many big government Conservatives were riding the coat tails of this groundswell movement. Because Tea Party tenets threaten the Establishment, those Republican free riders would be shaken off and revealed at some point.

That process of separation is now in play. Now that Tea Party ideals are actively influencing the political agenda, it will now be easier for people to judge which politicians back those ideals with action.

As always, actions speak louder than words.

Tuesday, January 18, 2011

Early Retirement

Doing the garden, digging the weeds, who could ask for more?
Will you still need me, will you still feed me, when I'm sixty four?
--The Beatles

I have an uncle who took early retirement from Ford (F) in the 1970s. He's in his late 70s now, and he and his wife (also a former F employee) have basically been retired my entire adult life. I do not know the specifics of his retirement package, but I'm pretty sure that he's been collecting pension payments plus health insurance coverage from F for the past 35+ years.

If he had retired at 65, then he would only be ~10 years into his retirement benefit.

Policies that let employees retire while they are still in their productive years shoulder firms with additional cost. Larger streams of economic value must be diverted towards retirement obligations. This leaves less capital for other purposes such as investing in the future. This weakens the firm's competitive position. If business subsequently turns down in a secular fashion (as it has for the domestic automakers), then chance of survival--both for the firm and for the benefit plans--is reduced.

When private sector managers decide to offer early retirement packages, they must shoulder this risk for better or worse. In unhampered markets, early retirement programs would reach some limit due to increasing costs and plan failures.

In the public sector, instances of early retirement have been rising as well. The design of some government agency retirement plans permits employees to retire in their mid 40s with rich benefits.

The problem here is that decisions to offer early retirement packages to public sector employees do not face the same risk profile as do similar decisions made in the private sector. If city government bureaucrats, for example, decide to extend retirement benefits to young productive workers, then resources to cover this program do not come out of revenues from operations that produce economic value. Instead, these resources are obtained from taxpayers.

Stated another way, the risk associated with offering early retirements in the public sector is socialized. People in the private sector must work harder to support a burgeoning pool of retirees in the government sector.

Even those with rudimentary understanding of economics should whiff the ponzi of such a scheme.

Policies that promote early retirement from government jobs should be among the first under the knife of spending cuts.

no positions

Luster Buster

You must be my lucky star
Cause you shine on me wherever you are

Hedgies think gold is losing its luster. The thinking appears to be interest rates worldwide will rise, which will be bad for gold.

Not sure a historical study of long rates vs gold would bear that out...

Personally, I see risk in gold here too. Hard for me not to look at the chart above and eye 1000 as a logical landing zone. Should we get there, I'll likely be active.

position in gold

Monday, January 17, 2011

Defaulting on Freedom

No more running down the wrong road
Dancing to a different drum
Can't you see what's going on
Deep inside your heart?
--Michael McDonald

The founding thesis for this country is that all people were born to be free. As famously observed by Jefferson, this freedom is a self-evident truth that is operationalized through various unalienable rights--rights that are the property of each individual. The proper role of government, as Jefferson noted, is to secure those rights against abuse.

That those rights are subject to abuse is another self-evident truth. Humans constantly seek a more abundant life, and in their endless quest to satisfy their desires, people strive to get the most satisfaction per unit of effort spent. If people perceive an opportunity to satisfy their desires by putting forth less effort themselves while forcing others to labor on their behalf, then they will be tempted to do so.

Because the core competence of government is force, then people will gravitate toward political means to achieve their get-more-for-less objectives.

The temptation to abuse the freedoms of others via government force is so great that even those who drafted the Constitution could not resist the opportunity to infringe on the very liberties that they espoused to secure. Thus the Constitution was written in a manner that condoned slavery and tilted voting processes in favor of special interests.

Since then, we have been engaged in an epic struggle of hypocrisy--espousing liberty while consistently acting in ways that destroy it.

By definition, its self-evidence should make freedom 'obvious.' Oddly, however, even within the underlying document that specifies how government secures liberty, we have found it necessary to amend the Constitution to elaborate in more detail what freedom look like in practice. The first ten amendments (Bill of Rights), plus the 13th, 14th, 15th, 19th, 21st, 24th, and 26th amendments all make explicit individual rights that should have been 'obvious' from the outset.

Writing these freedoms down, it seems, closes the hypocritical divide a bit. But it does not eliminate the gap.

Borrowing from Martin Luther King, government consistently defaults on its guarantees that secure our unalienable right to freedom. This default is driven by that other self-evident truth: that, in their quest to satisfy self-interests at the expenditure of minimal effort, people are tempted to exert force on others.

As long as government force can be recruited to satisfy the interests of some at the expense of others, then our hypocrisy will persist.

Sunday, January 16, 2011

Reason Without a Face

I make my living off the evening news
Just give me something, something I can use
People love it when you lose, give me dirty laundry
--Don Henley

After the Constitution was drafted in 1787, it circulated among the states for debate. While much of the debate was informal and took place over dinner tables, taverns, town halls, etc, there was also a more formal stream of written discourse that found its way into newspapers, pamphlets, and billings.

The primary issue concerned the proper size of the central government that would oversee the federation of states. The arguments fell into two general camps. The Federalists, today commonly associated with James Madison and Alexander Hamilton, argued for the central government as specified by the Constitution. The writings of this groups are well captured in the body of work known today as the Federalist Papers.

The other camp, known today as the Anti-Federalists, was a less organized group that included Patrick Henry and George Mason. The Anti-Federalists thought that the central government specified by the Constitution was too powerful, and they argued for designs more likely to limit that power. Because Anti-Federalist writings were not published by a central authority, they have been harder to capture, although various collections of Anti-Federalist Papers are available (here's but one list).

An interesting characteristic of this discourse is that most of the Federalist and Anti-Federalist papers were written anonomously, with authors commonly assuming pseudonyms that evoked patriotic or classical imagery. Works were signed by the likes of Publius, Sentinel, Federal Farmer, Brutus, and A Plebian.

A primary reason for anonymity was that people believed that the debate would be more lucid if the ideas were not associated with personalities. A letter might hold more influence if it was signed by Thomas Jefferson than by Agrippa or Cato, even if the contents were not well thought out. If authors used their real names, then readers may have been distracted by what they knew or didn't know about the author--rather than focusing attention on the ideas conveyed in the papers.

It is hard not to wonder how today's political debates would differ if we were to follow similar customs of anonymity. If people today could no longer level criticism on the people behind the ideas, and had to critically analyze the ideas themselves, then my sense is that many of these 'policital thinkers' would be totally lost.

Capacity for reason in the political domain is so under-developed that I doubt many could do much more than speculate about who the faces were behind anonymous missives. Like robots, these critics would launch their tired, programattic personal attacks on imaginary strawmen.

Many people seem to believe that the Constitution has been rendered largely irrelevant by today's world--that humanity has advanced beyond the Framers' capacity to design a governmental system that anticipates modern problems and change.

Those who bother to read discourse penned during the country's formative years know otherwise. Writings of the Federalists and Anti-Federalists indicate a degree of thought process that puts today's political discussions to shame. 

Saturday, January 15, 2011

More Borrowing Equals More Taxes

'Cause I'm the taxman, yeah, I'm the taxman
And you're working for no one but me
--The Beatles

Judge N rails on the insatiable spending habits of politicians. As he observes, this is a bipartisan addiction that bureaucrats, thru their budgeting behavior, signal every intention of keeping.

An important point made by the judge is the intellectual dishonesty in proclaiming that, as a result of recent Congressional compromise, taxes are not increasing. They are surely increasing. Borrowing more money today raises the tax burden tomorrow.

Judge N reminds us that taxation is legalized theft. And like sheep, we've mindlessly let the government take more.

People seem to be slowly waking up from their slumber. The November elections demonstrated increased interest among voters to populate Washington with representatives who will say no to additional spending.

Will this voice be loud enough to turn the tide? Dunno. History suggests that the odds are against it.

What is certain, however, is that if we don't proactively say no, then at some point in the future natural forces will say no for us.

Friday, January 14, 2011

Federal Resolve

Acting on your best behavior
Turn your back on Mother Nature
Everybody wants to rule the world
--Tears for Fears

I think John Hussman may be correct. Markets are levitating higher on the thesis that the Fed wants (needs) higher asset prices and is willing to pull out all stops to achieve that goal.

Few seem to doubt Fed Chair Ben Bernanke's resolve in this regard. And confidence in the Fed chairman seems to grow by the day (and with higher asset prices).

But what if Bernanke flinches?

Since the Fed announced its QE2 program in August with the stated goal of buying down long term interest rates, yields have actually gone in the opposite direction (divide the TNX value above by 10 to get the 10 yr T-note yield which currently stands at about 3.3%). Yields have risen because the bond market smells either a) increased economic activity, or b) inflation. Either way, the higher the yield, the higher the borrowing cost to the US government. At some point, higher yields could effectively shut down the bond market to US borrowing.

If interest rates continue higher, then, Bernanke may start to send signals that the Fed may have to cool things off. His problem now is that if the stock market gets even a whiff that Big Ben is having second thoughts, then stocks are likely to broadly come for sale.

The other thing that could make the Fed flinch is growing anti-Fed activism in Congress. Ron Paul is soon to be chair of the House committee that oversees the Fed. A number of Congresspeople are increasingly hostile of the Fed. If this hostility gains traction, then markets may become less confident of the Fed's all-encompassing power.

Either way, it seems that any doubts that the Fed will be able to prop up the world will be met with signficant selling.

position in TLT, SH 

Hand Stand

Downpour on my soul
Splashin in the ocean, I'm losing control
Dark sky all around
Can't feel my feet touching the ground
--Jars of Clay

The tape has an unnatural feel to it. Even the shallowist of dips bought. Monlithic price movement. Charts have a strange low intraday range, steady march higher pattern since Sept (which corresponds to QE2).

A few yrs back there was speculation that the Fed was buyin' 'em clandestinely. I would not be surprised if that was happening now. The Fed needs asset prices higher to prevent large-scale margin calls from debt declines. Moreover, the Fed loves the 'wealth effect' theory--that people will engage in more spending if they feel richer.

Some believe the Fed has already overstepped its legal (not to mention Constitutional) authority with its quantitative easing programs. Buying stocks would merely extend already extreme behavior.

That said, it would seem that nefarious buying by government sources could only 'work' at certain junctures when market participants are uncertain about what to do. Absent other info, confused market players are more likely to see higher prices as a signal to jump on board and follow the trend. If however, a general proclivity to sell hits the tape, then government price support tactics no longer work. Even an invisible hand by govt can't push markets around when big time selling pressure hits the tape.

Meanwhile, the muni bond market is listening to more chin music. The new Congress is in session, and new Tea Party elects are talking tough about bailing out flailing states. Muni markets appear worried that the tough talk will morph into tough action.

Stocks either don't believe it, or they are just don't see it.

position in TLT, SH

Thursday, January 13, 2011

The Perfect Crime

"Fact is, all lies, all evil deeds, they stink. You can cover them up for a while, but they don't go away."
--Dalton Russell (Inside Man)

Make sure you understand what is going on here.

Big banks levered 10:1 or more lost $ trillions when the housing market rolled over. The value of their real estate holdings (mortgages, mortgage backed securities, etc) dropped in some cases to pennies on the dollar. When you're highly levered, declines like this easily push assets lower than liabilities. Most of these institutions faced margin calls and were technically insolvent.

On top of that, many firms had sold catastrophic insurance policies to holders of bank debt that would make those bond holders whole in the event of default. This insurance policy is better known today as a credit default swap (CDS). Many big banks were short credit default swaps in such size that, if they weren't already underwater from the decline of their real estate longs, then the exploding value of their CDS shorts would surely break them.

Enter the government, with the Fed and Treasury as lead agents.

Permanent short term lending facilities were established so creditors would not lose confidence in bank abilities to honor their obligations. Lest a bank run.

Accounting rules were altered so that banks did not have to mark their holdings to reflect the losses. Lest pending financial reporting cycles would certainly reveal conditions of insolvency.

Using money printed out of thin air, the Fed bought troubled assets from banks (a.k.a. QE1 and TARP) to the tune of about $1.2 trillion. The prices paid for those assets are unclear, but were surely favorable to the banks (lest the banks would not have sold in such large numbers).

The Fed dropped borrowing rates to nearly zero, permitting big banks to borrow essentially unlimited quantitites at virtually zero cost. Banks then used the proceeds to buy risk free Treasury securities yielding 3 percent or more. Banks have been raking in hundreds of billions on the spread.

Recently, the Fed initiated QE2, where essentially the US Treasury sells government bonds to the banks, and then, in Ponzi fashioin, the banks turn around and sell them to the Fed--all with money that the Fed prints out of thin air. At least $700 billion worth is in motion.

Currently, banks are reporting record profits.

No wealth is being created here. IT IS BEING TRANSFERRED. The benefit of first user advantage means that those $ trillions being created out of thin air benefit bankers and politicians at our expense.

Hard to see how these actions don't constitute the largest theft in history. It certainly places among the most inscrutable.

Indeed, future generation looking back on this operation will surely wonder how a crime of this size went unrecognized by so many for so long.

Wednesday, January 12, 2011

Government Force

"The irony is so thick you could choke on it."
--Mitch Leary (In the Line of Fire)

The core competence of government is force. Government either forces individuals to do things that they don't want to do, or it forces them to not do things that they want to do.

In a free society, some amount of government is necessary to help individuals protect their property rights (broadly construed to mean life, liberty, as well as property). Absent some degree of government force in this regard, people would not be free, as they would spend much their time fending off those who want to appropriate their property.

However, when the scope of government moves beyond the protection of an individual's natural rights and into the realm of confiscating property for the benefit of special interests, then government force becomes a threat, rather than a facilitator, of freedom. Government force comes for sale, and the State essentially becomes a mercenary for hire.

A large group of people currently proclaim that they are peaceful and loving while labelling others as violent and hateful. However, many in this group actively recruit government as their strong armed agent to advance their interests. As such, this 'peace-loving' group routinely sanctions violent acts on others via government force.

I often wonder whether these people recognize the irony. Are they being disingenuous? Perhaps they are delusional or ignorant of their duplicity.

Why should it be surprising that those partial to liberty often use words like 'threat,' 'enemy,' 'defend,' 'attack' when expressing thoughts about this situation? Such rhetoric has a long history, btw--dating back to the likes of Jefferson and earlier. Government force and those who sanction it for personal gain are adversarial to freedom. Imagery of conflict and violence express the situation accurately.

As such, it seems straightforward to posit that the use of violent imagery/rhetoric is positively related to the intensity of government force exerted on the people.

Such a hypothesis would attract a decent amount of confirmatory support from our empirical situation, I think.

Tuesday, January 11, 2011

Rhetorical Refuse

Guy de Lusignan: "Give me a war."
Reynald: "That is what I do."
--Kingdom of Heaven

The sad Arizona shootings find opponents of freedom once again seeking to exploit a tragedy for political gain. Over the past few days, the logic has unfolded on a predictably twisted path. First came proposals that the shooter had Tea Party ties, since such a linkage conveniently fits Leftist claims that those associated with the Tea Party have violent underpinnings.

But subsequent media frenzy to uncover 'the truth' revealed no direct Tea Party ties. So the thesis drifted toward the supposedly 'harsh rhetoric' of Republican politicians that must have indirectly motivated a sympathetic gunman into action.

Then information surfaced that the alleged shooter had a long record of unstable behavior, including the issuance of death threats to various officials, and appeared to favor books by Marx and Hitler. So the party line shifted once more, this time suggesting that harsh political rhetoric, primarily spewed by Republicans, helped compel an unstable individiual into irrational action.

An all-too-predictable conclusion is that, because of the 'obvious' connection between inflammatory rhetoric presumably present in the environment and the perp's actions, that the environment needs to be more carefully controlled--perhaps even w/ government 'assistance.' By doing so, we can avoid offending those with 'delicate sensibilities' who are capable of unleashing a string of irrational violence at the drop of a hat.

That tortured thought process barely registers on the scale of reason. Precisely what constitutes 'inflammatory rhetoric' is an obvious issue. What is perceived as violent or inflammatory by one person may be altogether non-combustable to another. For example, gun imagery might motivate threatening feelings for some while sparking feelings of safety for others.

It would then need to be shown that the perpetrator was exposed to the rhetoric and interpreted it in a manner consistent with potential for violent response.

Finally, even if there was agreement on what constitutes inflammatory rhetoric and that the perpetrator was exposed to it and interpreted it in violent context, proponents of this theory would have to establish a decisive connection to action. In the Arizona case, no empirical evidence of such a linkage has been produced. Nor will it--because there can be no such evidence. Social or suggestive pressures emanating from the environment do not directly affect human behavior. Between environmental pressures and human action is personal choice. Even in situations where an environment may be 'loud' with suggestive pressure, an individual must choose whether to bend to that pressure.

Which brings us to an important, perhaps the most important, way that we differ from the rest of the animal kingdom. Creatures lower in the food chain instinctively react to environmental stimuli. Stimulus->thoughtless response. Humans, on the other hand, possess capacity for self-awareness. We can interpret a situation, exercise judgment, and choose our response. Potential stimulus->judgment->thoughtful reponse (which may include no response at all).

Stated another way, social pressures can not move our behavior unless we allow them to do so.

From a spiritual standpoint, many believe that the human qualities of self-awareness and judgment are central to how our Creator will hold us accountable for our behavior here on Earth.

Meanwhile, Progressives are trotting out proposals that resemble those offered in past situations with tragic or crisis character. These proposals aim at restricting freedom--in this case primarily First and, of course, Second Amendment freedoms--in the name of security. We have noted it before: security is not a right. Whereas speech and self-defense are rights with which we are born--and rights that the Constitution was designed to protect.

Indeed, for those who value freedom highly, calls for more government power and control constitute perhaps the ultimate expression of violent, inflammatory rhetoric.

Monday, January 10, 2011

Debt Reduces Freedom

Nice TJ quote picked off from a recent Russell tidbit:

"I place economy among the first and most important public virtues and public debt as the great danger to be feared. To preserve our independence, we must not let our leaders load us with perpetual debt. We must make our choice between economy and liberty or profusion and servitude."
--Thomas Jefferson

Economy as TJ uses it here means living within one's means. He is hitting on a fundamental axiom: debt reduces freedom.

Indiana's Templar Knight would likely suggest that, over the past few decades, we have chosen poorly...

Sunday, January 9, 2011

Silver Lining

I've been looking so long at these pictures of you
That I almost believe that they're real
I've been living so long with my pictures of you
That I almost believe that the pictures are all I can feel
--The Cure

Hard not to view silver's current price action as a critical juncture. Depending on how you draw your trendline, the uptrend that began last summer is either broken or in jeopardy.

wrt SLV, would think many folks have stops resting in the 27s, which is where the 50 day moving avg currently resides. Trigger those, and it looks to me like the gap at 25ish is in play.

Currently have no 'paper' silver on the books, and have been trimming some physical silver over the past few wks.

position in silver

The Influence of Confiscation on Production

There's a room where the light won't find you
Holding hands while
The walls come tumbling down
When they do, we'll be right behind you
--Tears for Fears

Reread this excerpt from Chodorov's (1959) excellent book. This work is so good--teeming w/ insight.

One axiom so obvious once read yet seemingly impossible for Statists to grasp:  Production must fall in the amount of State confiscation.

When the State intervenes in the economy, which it always does by means of confiscation, it hinders consumption and therefore production. The output of a producer is in proportion to his/her intake.

Stated another way, the more resources that the State forcibly takes from the people, the poorer society gets.

This relationship is immutable, as it is grounded in natural laws that do not bend to political whims.

Yet those married to large government configurations constantly scratch their heads when interventionary programs fail to generate broad societal improvements that these people hope for. Their only conclusion seems to be that government simply must not be doing enough--that the State needs to 'do more.'

As Chodorov observes, such thought process has brought down State after State throughout history.

And that dynamic is certainly in play today.


Chodorov, F. 1959. The rise and fall of society. New York: The Devin-Adair Company.

Friday, January 7, 2011

Right Cross

And the parting on the Left
Is now parting on the Right
And the beards have all grown longer overnight
--The Who

Lew Rockwell discusses how the Right is similar to the Left in terms of favoring liberty in some areas while promoting government expansion in others. He highlights the Right's proclivity toward military-related govt expansion but, like the Left, when you look closer the scope is much broader (both sides legitimize govt expansion by employing both domestic and external rationales).

We've said it before. For all the back and forth rancor between the two sides, it can be hard to tell who's on what team without a scorecard.

Rockwell posits exceptionalism or partisanship as possible reasons for the Right's expansionist bent. When you get down to it, however, the root cause is straightforward. Just as on the Left, those on the Right seek to advance their self-interests when political favor can be held for sale.

Dissenting Opinion

Crossing the bridge
With lessons I've learned
Playing with fire
And not getting burned

While I thought reading the Constitution on the House floor was a good idea that should be done routinely, Judge N opined on his show last nite (can't find a vid clip this specific monologue) that it was a waste of time. He argued, if I understood him correctly, that incoming Congress people take an oath to uphold the Constitution, so presumably they should already know what it says.

Maybe they should, judge, but my sense is that if we tested their actual understanding of the Constitution a sobering picture might emerge.

Moreover, the first time I read the Constitution from end to end (which sadly was only a few yrs ago), I understood very little of what I was reading. Now, hundreds of additional reads later, and in conjunction with research on the context of the times, my grasp is much greater--although I seem to still learn something new with each additional pass.

To the extent that a simiilar process of learning befalls others, the case for routine reading of the Constitution by those empowered to uphold it seemingly strengthens.

Judge N ended his monologue pessimistic about incoming Tea Party types holding the line on a thumbs down vote on raising the debt ceiling. Based on interviews he's had with a number of them, the judge thinks that they are already showing signs of being co-opted by the establishment.

An interesting early test of fortitude seems eminent.

Thursday, January 6, 2011

Where Costs are Savings

"That's right. Brantley is Whitfield. Whitfield is Brantley."
--Brantley Foster (The Secret of My Success)

House Republicans are out of the gate w/ spending cut and deficit reduction proposals. Democrats are predictably resisting.

One mode de resistance is claiming that any GOP efforts to repeal the recently passed health care law violates Republican promises to cut the deficit--since govt projections show that the health care law will save over $100 billion over the next 10 yrs.

Excuse me briefly while I enjoy my daily giggle compliments of bureaucratic ineptitude.

There has never been a large scale government sponsored social welfare program enacted in this country that has saved money. The primary reason for this is that, by definition, these government sponsored programs are not driven by markets. They are driven by bureaucratic planners. With certainty, we can forecast with certainty that costs of this program will increase and quality/innovation will decrease.

When Medicare was first enacted, the cost for the first year was $3 billion. At the time, the House Ways and Means Committee forecast that Medicare would cost about $12 billion in 1990. Actual 1990 Medicare expenditures clocked in at about $107 billion--nearly a 10 fold miss.

In 2010, Medicare and Medicaid expenditures accounted for over $700 billion--about 20% of the $3.6 trillion (!) in total Federal govt outlays.

Repealing the health care law is wholly consistent with breaking the spending habit. Hopefully the young turks will not fall victim to political drivel to the contrary.

Write Me Some Sides

Richar Vernon: "Now this is the thought that wakes me up in the middle of the night. That when I get older, these kids are going to take care of me."
Carl the janitor: "I wouldn't count on it."
--The Breakfast Club

In school days long past, students who behaved badly in class would serve time in detention. As part of detention, they would often be required to write a sentence over and over on the chalkboard such as "I will not shoot rubber bands across the classroom."

I remember having to write 'sides' (as in sides of paper: "Write me 5 sides...") aimed at sparking similar types of repetitive reform.

When Federal government officials are sworn into office, they promise to uphold the Constitution. Like those misbehaving students, government officials routinely break their promise. Were it up to me to meter out the penalty for such misbehavior, I might very well require each of them to write me some sides repeating their Constitutional oath: "I promise to uphold the Constitution."

Every time they break that oath, they would owe me more sides.

Today, for the first time in Congressional history, the Constitution was read aloud on the House floor. A symbolic gesture in some ways, I suppose, to mark the entrance of an incoming class of representatives that has expressed more interest in Constitutional behavior than in many years.

Upon further thought, though, it seems to me that the practice of routinely reading the Constitution on the House and Senate floors should be institutionalized. It is almost shameful that it currently isn't. Personally, I can't think of time better spent. Today's exercise quickly sparked debate about what exactly should be read (i.e., the original or amended versions) because some language seems no longer relevant (e.g., the 3/5 compromise--why has that language not been amended out?).

In fact, if I were Congressional Disciplinarian, I would require the Constitution to be read aloud on the floor once per week--maybe even daily--until Congresspeople demonstrated that their behavior was Constitutionally consistent.

Until that time, folks on The Hill would be writing me plenty of Constitutional sides.

Wednesday, January 5, 2011

Debt Dependence

We tried to speak between lines of oration
You could only repeat what we told you
Your axe belongs to a dying nation
They don't know that we own you
--The Who

Last night I saw two talk show segments that built on yesterday's thoughts about the country's addiction to spending and debt.

The first was O'Reilley's opening remarks positing that, despite the focus of many on dismantling the health care program, the biggest problem facing America is Federal government spending. During his monologue (at about 1:25), O'Reilley included a clip from Nancy Pelosi who claimed that "deficit reduction has been a high priority"--presumbly for the Federal government during her tenure as Speaker of the House.

That incredible statement found the usually focused O'Reilley fumbling around a bit--although he did suggest that such a claim is "outrageous" and anyone believing it "is a moron." Not sure if I guffawed more at Pelosi's statement or at O'Reilley's response. Pelosi's claim did remind me that, regardless of whether she was being disingenuous in her remarks or whether she was merely in denial about the actions taken during her watch, this is how addicts operate when their behavior is questioned.

The second was Judge N's closing remarks in which he summarized the history of debt in the US and its recent astronomical increases. Last year, I analyzed public debt data to better understand our debt history. Although the judge claimed that we've always had some debt, there was a period in the early to mid 1800s when we were essentially debt free.

The judge is correct that the real inflection point was the early 1900s, the so called Progressive Era, during which absolute debt levels and debt as a percentage of GDP began to take on pathological, addictive character. Judge N observes that it was during this period, 1913 to be exact, that the Federal Reserve and the Sixteenth Amendment were enacted. These became primary tools for growing government to previously unimaginable levels. The exponential growth in our borrowing habit is starting to hug the vertical asymptote (add a 2010 data point of $14 trillion to the top two graphs here for a current sense of the pattern).

Certainly, a step in the right direction would be people speaking out against raising the debt ceiling, as Judge N suggests. However, until the real resources that facilitate borrowing (i.e., the monetary printing press and taxation) are removed from government hands, fundamental enablers of our addiction remain in play.

Tuesday, January 4, 2011

United States of Addiction

A one track mind
You can't be saved
Oblivion is all you crave
If there's some left for you
You don't mind if you do
--Robert Palmer

Addictions are habits that are extremely difficult to break. Addictions are pathological, meaning that they are disease-like. They generate negative, perhaps even life-threatening, consequences.

A perverse characteristic of addiction is the continued involvement with addictive substances or behavior despite the negative consequences. Moreover, dependence on addictive substances or behavior escalates with use, which correspondingly drives an upward spiral in consumption in order to achieve satisfaction.

It is often said that the United States is acutely addicted to spending and debt. But the fundamental addiction is consumption--our seemingly insatiable demand for living ever larger in the present.

We are consuming economic resources at a rate far in excess of what our incomes permit. Thus, the only way we can fund our consumption addiction is thru borrowing those economic resources from willing lenders.

At the national level, public debt is in the process of crossing the $14 trillion mark--which makes it roughly equal to US GDP and growing at a rate much faster than GDP.

In comical fashion, Congress periodically specifies a 'debt ceiling' beyond which we can't legally borrow. I don't know how many times we've established that ceiling in the past, but I do know that we've never been able to respect the limit. When we reach the ceiling, Congress merely votes to raise it.

We're approaching the national debt ceiling, currently ~$14.3 trillion, once again. Predictably, many in Washington are once again chanting that not raising the debt ceiling would be 'catastrophic' for the country.

If you're an addict, of course, then failure to score another fix is about as catastrophic as it gets...

There are those who suggest that we score another fix while developing a plan that will get us off the junk over time. But voluntary behavior changes rarely cure addiction since addicts lack discretionary discipline. Far more likely is that addiction ends when access to facilitating resources ceases.

For the US, the likely scenario is that the debt ceiling continues to be raised until creditors cut us off. If/when this occurs, then our addiction must be dealt with in 'cold turkey' style. The withdrawal symptoms could be fatal.

A far less likely scenario is that the incoming class of congresspeople, and the voters that put them there, exert enough influence to hold the debt ceiling at bay. Substantive plans could then be made cut spending and consumption so that we can be weaned off the addiction at a pace that, while unpleasant, would be less life threatening.

One way or another, however, laws of nature bring addictions to an end.

Monday, January 3, 2011

Atlas Ben

The ice we skate is getting pretty thin
The water's getting warm so you might as well swim
--Smash Mouth

Year end review in WSJ has a pic of Fed chair Ben Bernanke standing on a pile of USDs in superhero garb holding up the world.

Dunno about the superhero suit, altho am sure that is how many perceive him. But the overall imagry seems pretty accurate.

What happens if this Atlas shrugs?

Sunday, January 2, 2011

2011 Goals

We always had time on our side
But now it's fading fast
Every second, every moment
We gotta, we gotta make it last

Last year was a good one from a personal finance standpoint. Looking ahead, here's what I'd like to accomplish financially in 2011.

Build current assets. Previous generations used to carry enough cash to cover liabilities and present needs. Currently, most households operate in an illiquid state. They may be socking away lots of cash in retirement accounts but those funds are not readliy accessible for present day needs. As such, many households--even many 'high income' households, live paycheck to paycheck and struggle to make ends meet without borrowing.

Now that the mortgage is in the rear view mirror, I want to focus on building current assets--those readily available for present needs. In other words, I want to save. Yes, the income gets taxed on the way to the bank. But but once taxed, those funds are in my control--which provides some advantage over 401ks and IRAs. As current assets grow, so does freedom...

Trade opportunistically. With respect to current financial markets, I share John Hussman and Mr Practical's views that risk. As such, I currently can't be long stocks, or even commodities for that matter, for anything more than a trade. Despite gargantuan money printing programs of central banks, my sense is that risks of deflation outweigh inflationary risks in 2011--particularly after the way things unfolded last year.

This finds me entering 2011 with financial assets (i.e., securities rather than physical property) that are 90% in cash. The remainder is currently split between an equity index short position (5%) and longer term treasuries (5%) as I sense a decent chance of a downside move early in the year.

While there may be some decent values here and there in stocks, it's difficult for me to own them for the long term when my big picture views are bearish. Broad price declines generally take down the good with the bad, particularly when systemic leverage is high (like now).

I'm hopeful that some day valuations will come down to levels where buy and hold investing once more makes sense. Until then, I'll try to choke up on the risk bat and try to pick up a few sheckels along the way.

Add gold bullion. I'm not enamored with gold at these prices after the run we've had. However, I would like to add a bit more physical this year--perhaps 3-5% by weight. I'll likely pick up the pace if gold prices take a significant hit (which very well could happen).

Keep an eye on housing. This one is way out there, but I'm keeping my eye on the local real estate market just in case a 'dream house' comes on the market at a price that is irresistable. I'm certainly in no hurry to take on debt again, and my position will be much stronger if I'm able to sock away cash for a few years, but I want to keep an open mind to the possibilities here...

position in SH, TLT, gold

Saturday, January 1, 2011

Language of Deception

"You people shoud consider yourself lucky that I'm granting you an audience tomorrow instead of 20 years from now."
--The Wizard (The Wizard of Oz)

Points made here remind me that the language used by bureaucrats to describe government programs typically shares certain characteristics. Government language is meant to deceive. 'Quantitative Easing' is inflation, pure and simple. But labeling the program as such would certainly raise even more eyebrows than have already been raised.

Government language is also meant to intimidate. Quantitative Easing sounds complicated. Many people presume that the program is far beyond their capacities to comprehend it, so they don't bother. Citizens disengage their brains and increase their dependence on the wizards that head these programs goes up.

Opaque language thus is an important tool for the State to gain power at liberty's expense.

2010 Personal Financial Goal Review

These changing years
They add to your confusion
Oh and you need to hear
The time that told the truth
--Level 42

Had a fortunate 2010 from a personal finance standpoint. Was able to achieve my biggest annual goal: to pay off the home mortgage. Mortgage was off the books in September and am currently debt free. It feels gooood.

A noticeable difference w/ being debt free is how much quicker savings accumulate. This may be 'obvious' but, until I didn't have mortgages and other debt sources siphoning off big chunks of income, I didn't fully grasp how much I was running on the hamster wheel when it came to building liquid assets.

My other primary goal in 2010 was to increase physical gold levels. I was more aggressive here than originally planned. Bullion stock increased by over 50%, most of it added in Q1 and Q2.

Physical gold is harder to trade--an advantage if you're looking to stay involved in this asset class for the long term (as I am). While I was only able to capture some of the big lift in precious metals by trading 'paper' ETFs like GLD and SLV, my position in physical gold helped me participate nonetheless.

My other 2010 goal was to deploy more capital should a deflationary downleg occur in the markets. We had a couple of these downlegs in 2010, and I was 'there' to some degree. I also traded the uplegs, of which there were several as well.

In fact, the theme of my investing/trading behavior during 2010 might best be described as 'trend catching.' I tried to catch at least part of the major market lifts and declines, and I was fortunate to some degree. This approach netted high single digit returns during a year when the SPX increased about 13%. Fine with me given my overall risk profile.

All in all, a year to be thankful for.

position in SH, gold