Thursday, January 31, 2013

You and Who Else?

Seems the time is right for palace revolution
--The Rolling Stones

Interesting article by Gary North. He claims that attempts by liberal politicians to enact laws against ownership of assault weapons is spawning the most remarkable resistance movement that he can recall.

He also suggests that if there is any credence to the claim of American exceptionalism, then perhaps it rests with the country's strong views on the right to own guns. While large groups of Americans have slept while their freedoms have been taken away in other areas, when their right to bear arms is threatened, they wake up and resist. Even if restrictive bans became law, it is likely that many, many Americans would not comply.

North proposes an interesting thesis that the Left is taking a big risk in pushing sweeping gun controls here. If Americans stand strong and defy gun control laws, then they may realize that the power of the federal government is just a myth. Broad disobedience of laws that restrict freedom might follow.

The Left's power would vaporize. And Americans would once again understand that they are in control of their lives, not the government.

Let's hope that the Left continues waking people up.

Wednesday, January 30, 2013


"So, here's to the men who did what was considered wrong, in order to do what they knew was right...what they KNEW was right."
--Benjamin Franklin Gates (National Treasure)

Tyrants are people in positions of authority who forcefully take freedom from others. The force is offensive rather than defensive in nature.

While it can take place in various contexts, tyrannical rule is usually associated with government. Governments that invade the freedoms of individuals engage in tyrannical behavior.

There are degrees of tyrannical behavior. The more freedom taken from individuals, the more despotic the government. For example, a government that forces people into internment camps is more tyrannical than a government that restricts production of certain kinds of light bulbs.

Because some people are more sensitive to loss of freedom than others, those who value freedom the most will be the first to recognize tyrannical government behavior. These people are canaries in the coal mine of sorts, since they warn at relatively low levels of despotism. Unfortunately, however, claims of tyranny voiced by this group are likely to sound shrill, radical, and misguided to a majority that has yet to sense loss of freedom.

As despotic government grows, however, so does recognition of tyranny. As Jefferson observed, when the "train of abuses and usurpations" escalates to an unbearable level, then those who value freedom will "throw off" the tyrannical government.

This repetitive process: escalating tyranny, growing recognition of tyranny, and the overthrow of tyranny has been the story of mankind.

We are cycling through it once again.

Tuesday, January 29, 2013

Is Immigration a Natural Right?

On we sweep, with threshing oar
Our only goal will be the western shore
--Led Zeppelin

This morning Judge Nap wrote on his Facebook page that "immigration is a natural right." I'm not sure I quite agree with him.

First, let's define immigration as changing country of residence. Leaving one country to settle in another.

Certainly, the 'leaving' side is a natural right. If people dislike where they live, then they should be free to leave.

It is entering someone else's country that is problematic. The existing borders of a country can be seen as a property right. If people inside that country impose restrictions on who can enter, then those restrictions must be respected. If those restrictions are not respected, then those entering the country are unwanted intruders, and it is the right of those inside the country to defend against unwanted intrusion.

Of course, a country that truly values freedom would put no restrictions on entry. Immigrants would be welcome as long as they respected the life, liberty, and property of others.

For countries who believe otherwise, however, it is not right for unwelcome outsiders to intrude.

Monday, January 28, 2013

T-Note Yields Flirting with 2%

"You really should flirt with someone unitl you're ready."
--Meg Harper (Joe Somebody)

Ten year yields are flirting with 2% this am following a strong durable goods report. Last week long bond yields popped thru near term resistance at about 1.8%.

Next stop appears to be about 2.5%.

The higher interest rates go in a levered system like ours--with the Fed trying to buy rates down at the rate of almost $100B per month--the greater the strain on the system.

And on inflation expectations.

Tempted to start a bond short right around here.

no positions

Sunday, January 27, 2013

Printing Money to Repay Debt

But don't be fooled by the radio
The TV or the magazines
They show you photographs of how your life should be
But they're just someone else's fantasy

To combat deflation over the past 5 years, the Fed has been printing money like there's no tomorrow. Several reports now indicate less leverage in the system than previously. For example, some media outlets report that leverage as a fraction of household income has fallen. Some people view this as a bullish sign that we're turning the corner.

It would be bullish if the deleveraging occurred by paying off debt with real economic resources earned thru productive effort.

But when debt is payed down simply by printing money, leverage in the economic system does not go down. Paper money is not an economic resource. It is a claim on economic resources.

When newly minted cash is used to pay creditors, the economic system is still short the resources which were previously borrowed. Standard of living for either the lender or borrower remains constrained until those resources are produced and repaid to cover the short position.

Money printing creates the illusion that economic liabilities have been cancelled and that increased prosperity is just around the corner.

Saturday, January 26, 2013

Offensive and Defensive Force

Guinevere: How many Britons have you killed?
Arthur: As many who have tried to kill me. It's the natural state of any man to want to live.
Guinevere: Animals live! It's the natural state of men to want to live free in their own country.
--King Arthur

Force is the infliction of violence. Violence can be inflicted offensively or defensively.

Offensively, force is initiated by one entity on another. The entity who initiates force is the aggressor and is engaging in attack. The motivation for initiating violence on another entity is that the offender perceives some benefit from invading the other's person or property.

Defensively, force is used to counter violent aggression. Rather than initiating violence, the defender uses force for self-defense purposes. The motivation is to stave off the aggressor's attack of person or property.

In a free society, there is no legitimate cause for the use of offensive force. All people have the inalienable right to liberty. No one can legitimately invade the interests of another.

Should someone be attacked, then that person can legitimately use force to counter the violence initiated by someone else. All people are free to develop self-defense capacity within their means as they see fit.

Anyone seeking to limit someone else's self-defense capacity through the use of force becomes an attacker--an initiator of violent force on someone else.

In a free society, the proper role of government is to help individuals defend their person and property. When the scope of government extends beyond this into the realm of taking from some for the benefit of others, then government becomes the aggressor.

Of course, government is just a strong armed agent for those seeking to employ offensive force. The principals who back the agency of offensive government force are the true aggressors.

Friday, January 25, 2013

Majority Opinion. So What?

Louden Swain: Can 800 million people be wrong?
Tanneran: Frequently.
--Vision Quest

Nice missive on why the 'majority opinion' decision rule (a.k.a. democracy) is problematic. Humans are social beings, and we have a strong need to belong. However, this need to belong often finds ourselves abandoning the search for truth in favor of conforming to what other people think.

Those who refuse to comply with majority opinion are seen as being behind the times, social deviants, or just plain crazy.

Yet, as the author notes, the majority opinion is usually wrong, particularly at society's pivotal moments. Great discoveries and innovations are always the product of individual thought that breaks from the majority view.

Motivation to think creatively in groups is low. Instead, collectives are prone to groupthink that aims to preserve their institutions at all costs. This groupthink takes the form of propaganda, lies, and deceit.

As noted many times on these pages, America was born as a republic, not as a democracy. In a republic, the rights of individuals are protected so as to not be subject to the mood swings of the masses.

As the author correctly observes, even if 99%+ of all people believe that, say, certain forms of weaponry should be abolished, such a strong majority opinion does not make it true or legitimate. Minorities that believe otherwise are not required to conform to majority opinion.

This country was founded on the principle of individual liberty. A free person is not held hostage to 51% of the population, or any other claimed percentage.

When a politician claims that the majority of people favor gun control or other government sponsored initiatives, a free person responds, "So what?"

Thursday, January 24, 2013

Rotten Apple

Now our bell was ringing
Our souls were singing
Do you remember every cloudy day, yow
--Jackson 5

As Apple (AAPL) stock zoomed over the past year, its mega cap status gives it outsized influence on the performance of market indexes. We've been keeping an eye on AAPL, positing that weakness in this name should take the tape with it.

That's been wrong as rain so far.

AAPL has been for sale for the past few months, punctuated by a -12% move today after disappointing earnings that drove it below important support at 500. The stock seems destined to fill the gap created a year ago at 425. The stock is down almost 40% from its late September kiss of $700.

Meanwhile the overall tape has been stronger than a mule's breath. Today, the SPX touched 1500--a mark last occupied in late 2007.

Is AAPL irrelevant or is the tape destined to play ketchup? It shouldn't take long to find out. The Dow has been up 10 out of the last 11 days, measures of sentiment are stretching to the bullish side, and the recent euphoric moves into SPX 1500 seemingly qualifies Tom DeMark's preferred scenario for upside trend exhaustion.

Stated differently, many classic ingredients are in place for a tape reversal.

position in SPX

Time Preference and Survival Mode

Hundred dollar car note, two hundred rent
I get a check on Friday but it's already spent
--Huey Lewis and the News

Time preference is the value that you place on the here and now. High time preference means that you are very focused on the present. You will shift resources and consumption into the current period. You may even borrow from others to elevate your present well being.

Life threatening conditions are likely to elevate time preference. People facing serious illness, catastrophic financial loss, or a pointed gun will dedicate their energies toward now in order to elevate their chances of survival.

As people shift into survival mode, they will seek to marshal the resources necessary to get them through the present period--at the expense of preparing for a better future.

Wednesday, January 23, 2013

Phase Change

A place for a moment
An end to a dream
Forever I loved you
Forever it seemed
--The Motels

At 32 degrees, water turns to ice with little transition. Temperature drops a fraction of a degree and liquid turns to solid.

Crowd behavior is similar. The herd moves in particular direction until a small, perhaps indiscernable stimulus prompts the masses to change course.

Throughout history, all major inflations, defined here as large declines in purchasing power of money, have occurred relatively suddenly. Although plenty of warning signs go up that the value of money is being destroyed, the public continues to believe that the institution called the dollar will remain stable.

Then, something causes confidence in the currency to rapidly disintegrate. People being unloading dollars in their wallet in favor of things perceived to hold more value. The dollar falls more. Then more dollars are sold.


We are headed toward a repeat of history. Central banks are printing $trillions. We see it but don't act. Suddenly, one day, we will act en masse.

And the dollar quickly joins the list of currencies that are no more.

Tuesday, January 22, 2013

Welfare Does Not Free Us

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

Among the many laughable statements in the president's inaugural address yesterday was this one:

"The commitments we make to each other through Medicare and Medicaid and Social Security, these things do not sap our initiative, they strengthen us. They do not make us a nation of takers; they free us to take the risks that make this country great."

Welfare programs are not commitments that we make to each other through voluntary choice. They are programs of force. Economic resources are confiscated from some by point of a gun and redistributed to others. Those who point the guns and those who receive the resources are indeed takers.

Plainly, freedom does not increase under a regime of force. In a free society, individuals voluntarily engage in mutually beneficial exchange. In a society of welfare, some are forced to work for others while others depend on the outcomes of that force.

Moreover, income that is taken at the point of the gun robs the nation of savings that forms the capital that makes us more productive over time. It is that higher productivity--more wealth available per person--that improves standard of living over time.

But when savings are taken from some and given to others, capital is consumed. Minus this capital, the 'risks that make this country great' that the president notes (i.e., entrepreneurial investment) cannot be taken.

The only people taking risks are those who believe that their risky behavior is insured by government. The risk posed by this moral hazard are ultimately borne by those whose economic resources are subject to confiscation at gunpoint.

Meanwhile, as productivity suffers, we must borrow increasingly more to pay for government programs of force. The massive cost of these programs ensures that we will borrow ever more until creditors lend no more.

Debt enslaves; it does not free.

What the president describes is a state of despotism, not of liberty. He is either an economic dunce, or he hopes you are.

Monday, January 21, 2013

Inflation Expectations

Stormtrooper: Let me see your identification.
Obi-Wan: You don't need to see his identification.
Stormtrooper: We don't need to see his identification.
Obi-Wan: These aren't the droids you're looking for.
Stormtrooper: These aren't the droids we're looking for.
Obi-Wan: He can go about his business.
Stormtrooper: You can go about your business.
Obi-Wan: Move along.
Stormtrooper: Move along, move along.
--Star Wars

Because governments are perpetually inflating the money supply, one has to wonder how they get away with it. Why doesn't the citizenry catch on and either demand a halt to inflation or dump the currency?

People would likely do one or the other of these things if they understood what was going on. But inflation sometimes unfolds slowly over long periods of time. Its insidious nature reduces detectability. However, even low rates of inflation destroy wealth over time.

Even if inflation was readily detectable and rapid, governments try to convince the public otherwise by managing 'inflation expectations.' This is the Fed-i Mind Trick. If people are told that inflation is low and that officials in power do not expect inflation to rear its ugly head in the future, then perhaps people will believe it and keep those colored pieces of paper in their wallets rather than furiously unloading them for things of value.

The federal government engages in such a propaganda campaign and has been doing so for many years. The first step was to control the semantics of inflation, and shift the conversation away from the expansion of money and credit supply (the classical definition of inflation) to the increase in prices of consumer goods and services (one of the many possible consequences of inflation).

Next, control how inflation is measured. The headline metric is based on what has become known as the Consumer Price Index (CPI). The CPI is supposed to reflect changes in the price of a hypothetical basket of consumer goods. It takes no PhD to realize that this metric can be subject to severe manipulation, i.e., what goods are included in the basket, how to adjust for product innovations improvements, how to compensate for substitution effects (people eat more hamburger when steak gets expensive), etc.

Finally, populate the Federal Reserve with impressively credentialed people and have those people constantly state that they support a strong dollar policy and foresee no inflation on the horizon.

What we know from history is that managing inflation expectations works until it doesn't. Confidence in a currency can change on a dime (!). When it does, no amount of propaganda can keep people from swapping out of colored paper and into things of greater value.

Sunday, January 20, 2013

What A Hero Looks Like

"There, at the end of the world, you are not what you were born, but what you have it in yourself to be."
--Godfrey of Ibelin (Kingdom of Heaven)

Yesterday Stan Musial passed away at the age of 92. Stan 'the Man' was a baseball legend. His achievements on the field are among the best: .331 lifetime batting average, 475 home runs, 3630 hits, 20x All Star, 3x MVP.

And he did it all with a single team, 22 years (23 counting his missed yr for WWII military service) with the St Louis Cardinals.

My dad kept a copy of Bob Broeg's biography of Musial down in the basement and it was one of the first baseball bios I read. Dad thought that Musial was the greatest left handed hitter that he had ever seen. Although he was largely' hands off w.r.t. to my baseball pursuits growing up, Dad did pull me aside a couple of times and suggested that I hold the bat with my hands back--in a manner resembling Musial's cocked, coiled stance.

I probably should have listened...

There is also a family tale that my uncle and his buddy gave Musial and other Cardinal great Red Schoendienst a ride back to their hotel after a Reds game. Not sure how true though.

The most admirable thing about Musial is how he carried himself on and off the field. No flash, no press conferences, no off field antics. Willie Mays notes, "I never heard anybody say a bad word about him - ever."

Generations of Americans felt that they knew The Man. No weird surprises. Someone they could count on.

Just a man being what he had it in himself to be.

Saturday, January 19, 2013

Out of Ammo

"You wanna know what I think? Don't really matter what I think. Once that first bullet goes past your head, politics and all that shit goes right out the window."
--Hoot (Black Hawk Down)

When President Obama was elected in 2008, there was something of a run on ammo. Many retailers like Walmart (WMT) were stocked out of commodity rounds like 9 mm for months. However, ammo was still available thru many online sites.

In the wake of events since the Newtown shooting, we have seen what a real run looks like. Ammo sold out across the board. Guns too. Pistols, ARs, bolt actions.

In a way they probably did not anticipate, the gun control crowd is driving the firearms supply chain toward a gun and ammo free state...

Firearm background checks, concealed carry class enrollments, and NRA memberships are also going thru the roof.

People are catching on.

no position

Friday, January 18, 2013

Crowded Theater

I try so hard to keep it inside
So no one will hear
--Til Tuesday

Several times now, I have heard or read an argument from those in favor of gun control that goes something like this. "Nearly all of our freedoms are restricted in some way. Take freedom of speech, for example. You can't yell 'fire' in a crowded theater."

The analogy is meant to support restrictions to the Second Amendment right to bear arms.

First, we should observe that you can rightly yell 'fire' in a crowded theater. For instance, if you smell smoke or see flames then you might choose to alert others to the danger. Some people might suggest that you have the moral obligation to do so under the circumstances.

What you cannot rightly do is to yell 'fire' to deceive or harm. This is wrong because you have intruded on the pursuits of others. Not only have you interrupted the right of others to enjoy a movie that they voluntarily contracted to view (i.e., you are interfering with free trade and property ownership), but you might jeopardize their physical well being as people scramble to exit the theater.

In a free society, people can pursue their interests as long as they do not invade the interests of others. When you yell 'fire' when there is no fire, you have forced your way into the pursuits of others. You have initiated violence--done them harm with your words.

All legitimate restrictions on freedom share this principle. You are free to pursue your interests unless you invade the pursuits of someone else. It is wrong to initiate violence on others.

Deceptively yelling fire in a crowded theater is not analogous to restricting gun ownership. Individuals who purchase semi-automatic pistols or assault rifles are doing no harm. They are engaging in trade. Although the objective may be to acquire self-defense capacity, the reason for the trade does not matter. The right to own property without explanation is the right to be free.

Owning a gun does not invade the interests of others. It does not initiate violence.

On the other hand, employing government to restrict ownership of guns does invade the interests of other people. If you are in this camp, then you are initiating violence toward others.

Thursday, January 17, 2013

Dine and Dash

You think you're mad, too unstable
Kicking in chairs and knocking down tables
In a retaurant in a West End town
Call the police there's a mad man around
--Pet Shop Boys

Peter Schiff provides a thoughtful add-on to our previous missive about the absurdity of President Obama's 'deadbeat nation' comments. In his press conference, the president likened Republican refusal to raise the debt ceiling to a diner who eats a meal at a restaurant and dashes before paying the bill.

Once again the president demonstrates either his financial ineptitude or his reluctance to articulate the complete story.

The reality of the situation is that the diner has been consuming beyond his/her means, and has no cash from income to pay the bill. The bill must be charged to a credit card. Moreover, the diner has already run up massive debts in pursuit of a profligate lifestyle, and intends to keep charging meals until lenders refuse to foot the bill.

The diner has a spending problem. The diner has consumed all of his/her income and then some to obtain a high standard of living in the here and now.

To avoid being the president's 'deadbeat,' the diner must stop borrowing and curtail consumption so that some income can be diverted to pay the bills.

The president, of course, is proposing nothing of the kind.

Wednesday, January 16, 2013

Defending Against Tyranny

"I don't go looking for trouble. But if trouble comes looking for me I bite its head off."
--John Hatcher (Marked for Death)

Add two more to the list of recent situations where people used guns to protect themselves and their property. A Fresno store owner, who happens to be a competitive pistol shooter (bad choice by the perp), shot and killed an armed robber and wounded another who had fired at the counter. A Miami man shot and killed an armed man who along with another perp had entered a gas station convenience store with guns blazing.

As noted previously, the media rarely lifts these stories from local news.

Professor Walter E Williams reminds us that the founders did not write the Second Amendment so that people could go hunting. The Second Amendment was written so that people could defend themselves against violent aggression--with a particular emphasis on force initiated by the federal government. Prof Williams has compiled a nice list of related quotes here.

Government is legalized force. Any policy that a government wishes to enact requires use of force or threat of force. Stated differently, government must use guns to get its way.

As such, people need to arm themselves appropriately to defend against the violent aggression of government.

Williams asks the question, "Are we under any less a threat of tyranny from Washington that we were in 1787?" I would say no."

Peaceful people dislike guns. Unfortunately, others are prone to initiate violence on peaceful people. Those peaceful people can either surrender their freedom, or defend it.

Tuesday, January 15, 2013

Deadbeat Nation

You thought I'd be naive and tame
But I beat you at your own game
--Aretha Franklin

We are buying $90 billion in our own debt with money created out of thin air. Creditors are being paid back with devalued dollars. Over the past five years, individuals and corporations have defaulted on upwards of $1 trillion in loans.

Yet, this president claims that we are not a nation of deadbeats.

Who's zoomin' who?

Monday, January 14, 2013

Debt or Default: A False Choice

It's not in the way you look
Or the things that you say that you'll do

There is chatter that Congressional Republicans are warming to the idea of letting the US default on bond payments and/or shutting down federal government operations rather than raise the debt ceiling without substantial spending concessions from Democrats and the Obama administration.

Of course, we have heard this before. In summer of 2011 Republicans vowed to hold a similar line...before they caved.

Make sure you understand that 'the debt ceiling or default' drama as staged by the administration and the media is a classic false choice. Per OMB, Interest expense in 2012 amounted to about $225 billion, or about 6% of outlays and 9% of revenues. If the debt ceiling is not raised and the federal government could only operate with the ~$2.5 trillion that it collects in revenues (imagine that!), then paying interest on outstanding debt is quite doable.

We should also note that the US has defaulted multiple times in the past 100 years. In fact, if the definition of default involves paying back debt with currency that has been devalued (a.k.a. inflation), thereby reducing the economic resources promised to lenders in the initial contract, then we are already in default and have been for years.

Sunday, January 13, 2013


"You shouldn't have come here. This is a civil war. This is our war, not yours."
--Atto (Black Hawk Down)

Exceptionalism is the condition of being different or unique. Because variation is axiomatic of nature, all things, living or not, are exceptional in some way, lest one thing would not be distinguishable from another.

As founded, the United States was exceptional from other countries in a number of ways. It actively pursued a government that would enable equal treatment under the law. In other countries, political and legal systems favored people of particular wealth levels, geographies, or blood lines.

The United States also openly welcomed immigrants and permitted them to become citizens. In other countries, outsiders might be permitted to visit or even take up residence but they were broadly denied citizenship.

Finally, the United States was founded on the self-evident truth that individual rights were endowed by our Creator or by our humanity. Other countries operated under the assumption that rights were conferred by rulers.

These features made the United States quite exceptional in the descriptive sense.

In the context of world affairs, exceptionalism takes on a more normative sense. Exceptionalism is the theory or belief that a particular country, region, or political system is so good that it should be actively spread to others around the world.

Those who pursue normative exceptionalism become missionaries or evangelists or sorts seeking to spread the good word as they perceive it to others.

There is nothing inherently wrong with spreading the word as long as the exchange of ideas is voluntary. If, however, an entity seeks to spread its values to others via force, then exceptionalism is just another word for conquest.

To the extent that the American brand of normative exceptionalism requires force to enact, then it contradicts the very characteristics that describe what made America exceptional in the first place.

Saturday, January 12, 2013

Right of Revolution

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

People are born with natural rights to their lives, liberty, and property. When free people form a government, they do not do so to give their freedoms away. Rather, they do so to preserve their freedoms (as stated in the preamble of the Constitution, "to secure the Blessings of Liberty to ourselves and our Posterity").

Should the government act to disenfranchise people of their natural rights, then, as Jefferson wrote, "it is the right of the people to alter or to abolish it" in favor of new forms more likely to effect the people's "Safety and Happiness."

This is what is known as the right of revolution. The right to "throw off" an unjust government is a necessary attribute of individual sovereignty that serves as the ultimate guarantee of all other rights.

The right to revolution is the central theme of the Declaration of Independence. It is the ultimate expression of liberty, of the sovereign individual.

Friday, January 11, 2013

Reporting on Guns and Self Defense

I wear my sunglasses at night
So I can, so I can
Watch you weave
Then breathe your story lines
--Corey Hart

Last week there was the story of a mom who shot a home intruder in self defense. Earlier this week a Milwaukee store owner pulled a gun on a robber, causing him to flee.

While it is good to see some of these stories making the news, these cases continue to be under-reported, and when they are reported, use of guns in actions of self-defense are often downplayed. When asked why this might be, one liberal reporter responded that it was just bad reporting.

But more than one reporter on more than one story has 'reported badly' on this type of situation.

This is what systemic media bias looks like. Such bias is not necessarily conspiratorial. It is more likely the result of a group of reporters viewing the world through a similar ideological lens, which causes these reporters to interpret information in a similar manner.

Groseclose suggests that such biases can be reduced by mixing reporters with other biases into the media mix, or by getting reporters with certain biases to hang with people who have different biases. This is probably occurring, albeit slowly, as the industry fragments.

Meanwhile, here is a report that compiles various cases where guns were used in self defense. The interactive map is particularly interesting.

TD 13 for the World

You got me running out of my mind
You got me thinking that I'm wasting my time

It appears Tom DeMark's trend exhaustion signals are flashing warning signs. TD 13s are popping up in various markets around the world, and Tom D has slapped sell signals on many world markets.

US stock markets are one count away from joining the rest. DeMark specifies an SPX close above the September highs (which I thought we had yesterday) and a blow off move into SPX 1490ish to seal the deal.

Personally, I've already sold most of my discretionary equity exposure. May consider adding to index short position should we get that 'blow off.' I continue to sprinkle some new commodity buy onto the sheets, with emphasis on gold and silver.

position in SPX, gold, silver

Thursday, January 10, 2013


"Unfortunately, the further you run from your sins, the more exhausted you are when they catch up with you. And they do."
--Dalton Russell (Inside Man)

In no year was more damage done to liberty in the United States than 1913. Newly elected President Woodrow Wilson was quick to add to the foundation of the Progressive Era that Theodore Roosevelt had built. Wilson's contributions were whoppers.

Although the Sixteenth Amendment was ratified a month before Wilson took office, Wilson had strongly supported it. The Sixteenth Amendment gave the federal government the power to tax individual incomes. This opened a huge resource stream to central government that was not previously available. Markets for political favor via wealth redistribution could now be made on a much larger scale. Today, this is a multi-trillion dollar market.

A month after Wilson took office, the Seventeenth Amendment was also ratified--also with Wilson's strong endorsement. Article 1, Section 3 of the Constitution assigned the power to elect US senators to each state legislature. The wisdom of this is that the longevity of senators' tenures were tied to the defense of their states' interests rather than to federal interests. The Seventeenth Amendment changed the process, opening senatorial elections to popular vote. This has eroded balance of power between federal and state governments because people tethered to federal government programs are more likely to vote in federal government lackeys rather than strong supporters of state interests.

In December of 1913 the Federal Reserve Act was signed into law. Politicians understand that the power to tax is limited by citizens' tolerance for having their property forcefully taken from them by government. If government's appetite for economic resources exceeds its power to tax (and it always does), then a central bank with authority to print cash offers the perfect confiscatory weapon. Instead of taxing property directly, government uses the freshly minted cash to claim economic resources, leaving less resources and more currency for the citizenry at large. Inflation is often called 'the invisible tax' because people have difficulty recognizing its confiscatory effect on their wealth.

It is inconceivable that the federal government could have grown into its Leviathan state today without these three events. For lovers of freedom, 1913 was a very bad year.

One hundred years later, we pay a steep price for that misfortune.

Wednesday, January 9, 2013

How to Kill Economies

Meeting you with a view to a kill
Face to faces, secret places, feel the chill
--Duran Duran

Nice list of various ways to kill economies. The list includes:

Propping up failing organizaitons and industries
Intervening in foreign trade
Minimum wage laws
Income taxes
Socialized health care
Kicking out immigrants
Abolishing interest rates (nice way to state it)

The sad thing is that this is not a theoretical list. We are doing all of these.

Scratching your head as to why we're not getting anywhere economically? Study the list.

Also, to those of you fingering 'unfettered capitalism' as the cause of our problems, you are being disingenuous. Markets have been trending less free for decades.

Tuesday, January 8, 2013

US Inflation Since the American Revolution

I stood and watched the dark sky rise
With glaring sunlights in my eyes
I thought of all the times gone by
And laughed aloud at the crimson sky
--Modern English

This below chart (source here) provides an excellent 'before...after' look at the impact of the Federal Reserve on inflation.

Because the CPI data are being manipulated to supress reported inflation, the 'after' period displays a conservative effect on inflation.

This institution is the great enabler of policies that, if permitted to continue, will surely end us.

Monday, January 7, 2013

Getting Stretched

I started drifting to a different place
I realized I was falling off the face of your world
And there was nothing left to bring me back
--The Plimsouls

Many market indicators are getting pretty stretched. Doesn't mean prices can't float higher on the ocean of central bank liquidity.

What it does mean is that head winds to higher prices get stiffer--even in markets that are being manipulated by policy-makers and black box algo traders. If the rubber band snaps back in the other direction, then prices could retreat in a hurry.

Personally, I'm looking to use price to my advantage to add to commodities (lower prices) and short equity positions (higher prices).

positions in SPX, commodities

Sunday, January 6, 2013

Mom Shoots Intruder

Just hold on loosely
But don't let go
If you cling too tightly
You're gonna lose control
--38 Special

When people use guns in self-defense, media coverage usually does not spread far. Example here as a Georgia mom shot an intruder multiple times with a .38 last Friday.

As long as evil walks the earth, liberty is enhanced when people can defend themselves against invasion.

Freedom goes up and bad guys go down.

Saturday, January 5, 2013

Compromise, Gradualism, and Liberty

"So, Spaniard, we shall go to Rome together and have bloody adventures. And the great whore will suckle us until we are fat and happy and can suckle no more. And then, when enough men have died, perhaps you will have your freedom."
--Proximo (Gladiator)

The Left often declares that the Constitution was developed by a group of racists and slaveowners, presumably to discredit the legitimacy of the design. While it is certainly true that some signees were pro-slavery, other signees opposed slavery (Benjamin Franklin notably among them).

Moreover, all 13 states subsequently ratified the Constitution, including states with significant anti-slavery sentiment.

The accurate statement is that the Constitution was developed despite significant opposition to slavery.

So why did we do it? If the Constitution was intended by the framers to put the principles of the Declaration into practice, then why did people who strongly believed in liberty sign off on an incomplete expression of the Declaration's principles?

The reason lies in common outcomes of political calculation: compromise and gradualism.

Madison and others present at the time argued that compromises with respect to slavery were necessary to secure the ratification of the Constitution, lest slave-holding states would have bolted the Constitutional Convention. Many in the anti-slavery camp probably determined that, absent a central government that was stronger than the one enumerated by the Articles of Confederation, the likelihood of ever bringing the Constitution into complete harmony with the Declaration was remote. "We'll compromise now," they reasoned, "and then gradually amend the Constitution in service of eventual abolition of slavery."

Unfortunately, the Three-Fifths Compromise and visions to gradually undo it cost the lives and liberties of millions of individuals. Despite wars and countless legislative remedies, it can be argued that the ill effects of that original compromise are still being felt today.

Where would we be today had the original anti-slave founders stood their ground? If they had possessed more resolve with respect to their principles, perhaps we would have gotten it right the first time.

History suggests that compromising liberty today with the intent of gradually reclaiming it tomorrow is a losing strategy--one that enslaves rather than frees.

Unfortunately, we have yet to learn that lesson.

Friday, January 4, 2013

Liberty and Equality

And when you're looking for your freedom
Nobody seems to care
And you can't find the door
Can't find it anywhere

Nice discussion of liberty and equality from a philosophical perspective. Are liberty and equality compatible? If liberty is defined as individual freedom to pursue one's interests unencumbered by forceful interference from others, then the answer to this question depends on your definition of equality.

There are two primary definitions of equality. One is equality under the law. You are equal to others if the law does not discriminate based on your wealth level, skin color, pedigree, etc. This definition is compatible with liberty. Because no one can can use the law to benefit themselves at the expense of another, freedom is enhanced.

The other definition of equality is a material one. You are equal to others if you have the same amount of economic resources as others. When economic incomes are similar, people are equal. This definition is generally incompatible with liberty.

Because variation among people is axiomatic, people are born with different skills, interests, backgrounds, opportunities, etc. If  people with more voluntarily share with people who have less (a.k.a. charity) to the point where the sharing equally distributes economic resources among all then, yes, liberty and equality are compatible--since those with more voluntarily gave to those who had less.

However, if people with more are forced to surrender resources to those who have less, then liberty and equality are obviously incompatible--the freedoms of some are compromised for the benefit of others.

Naturally, if such plunder is also legalized, then people are not being treated equally under the law.

Generally, then, equality under the law and material equality are unlikely to co-exist.

Thursday, January 3, 2013

Money for Nothing

That ain't workin,' that's the way you do it
Lemme tell ya them guys ain't dumb
--Dire Straits

Nice followup from yesterday's missive by Bill Gross. He notes, "$54 trillion of credit in the US financial system based upon trusting a central bank with nothing in the vault to back it up. Amazing!"

What the Fed and other central banks are doing is pure Ponzi, with big time inflationary consequences.

Wednesday, January 2, 2013

Why Hold Dollars?

And as our bridges turned to dust
A useless theme was quite enough
--Modern English

Increasingly, I find myself questioning why I would want to hold significant quantities of dollars given our untenable situation. Pondering our collective monetary and fiscal and monetary actions, I have difficulty not concluding that, contrary to popular rhetoric and spin, we have long since left the cliff, and that a primary casualty of the inevitable crack up at the bottom of the chasm will be the dollar.

Yet, in the face of rampant money printing, runaway government spending, and massive debt issuance and monetization, people generally remain sanguine about the greenback.

Lessons from Weimar and elsewhere suggest that people hold onto depreciating currency long after warning signs become clear. Whether this is due to ignorance, denial, hope, et al does not matter. We know that generally people stick to failing courses of monetary action far longer than they should.

We also know that confidence in a depreciating currency changes quickly. When people finally catch on that their money is quickly losing value, then there is a rush to swap out of paper and into things. It is at this point that garden variety inflation ends and hyperinflation begins.

God willing, I do not want to be one of those casualties that future generations, with benefit of hindsight, curiously question. "How could Ford have held onto his dollars, given the warning signs all around him that those dollars would become worthless?"

This is a significant change for me. These pages have often considered the inflation/deflation debate with deflation generally maintaining an edge. From where I sit, chance no longer favors deflation.

As such, my primary personal finance resolution this year is to reduce exposure to the dollar. I plan to lower cash balances in favor of other asset classes. I am not enamored with financial securities such as stocks and bonds here as their prices have been severely distorted. These distortions are likely to become, um, undistorted when people broadly recognize the dollar as a seriously flawed store of value and forces of natural law subsequently kick in to reclaim systemic balance.

Instead, I prefer hard assets. Gold, silver, other commodities, other 'alternative' assets. I will also consider several improvements to my home as I would rather do those improvements now before prices rip higher.

The trade off is that I will have a smaller cash cushion for daily living, and less financial firepower to buy bargains should I be wrong and we get a general price decline (i.e., dollars worth more) rather than a general price increase (i.e., dollars worth less).

Given my view of the world, however, I would rather sacrifice some liquidity than be left holding worthless confetti falling from a paper blizzard.

position in SPX, gold, silver, commodities

Party to the Bottom

Yeah, everybody's got a bomb
We could all die any day
But before I'll let that happen
I'll dance my life away

Markets partying hard out of the gate on passage of fiscal cliff bill by House. Yes, House Republicans folded like tents.

Moral hazard has reached epic levels, as markets have been thoroughly conditioned to expect bailouts. Risk taking behavior has been consistently reinforced by the notion that government has the backs of investors.

For now, markets are ignoring the fiscal drag of higher tax rates on the majority of earners. Personally, I'm using this lift to trim stock and add gold.

position in SPX, gold

Tuesday, January 1, 2013

Cliff Thirteen

Nothing changes on New Year's Day

Mainstream media is hailing last night's fourteenth hour passage of a 'fiscal cliff deal' by the Senate. However, just a tiny bit of scrutiny suggests the celebration as premature. There is no guarantee that the bill (which passed the Senate by a vote of 89-8) will get thru the House. Moreover, the 'deal' focuses on the tax side of the ledger, and postpones resolution of the spending side for another 60 days. (Care to wager what will be happening 59 days and 11 hours from now?)

As I see it, there are two primary changes to tax policy worth noting:

Families earning more than $450K ($400K for individuals) will see their marginal tax rates increase to 39.6%.

All earners will see a 2% increase in payroll taxes.

The Obama administration can now take official credit for presiding over the first broad tax increase in two decades. And, per the Supreme Court, more tax increases are pending in the form of funding Obamacare.

Estimates are that the payroll tax increase takes $125 billion/yr out of taxpayer's pockets. And the marginal tax increase on the rich means less capital for investment. Hard to drink this pretty w.r.t. economic strength going forward.

An ominous start for a new year ending in 13.