Thursday, April 30, 2015


"Transportation is a precise business."
--Frank Martin (The Transporter)

Early in the month we highlighted the Trannies as they toed the line at TRAN 8600. Like many times past they subsequently lifted off support.

However, rather than getting their mojo on and marking new highs like the major stock indexes, The Trannies bounced relatively weakly, and recent heavy trading finds them back in that 8600ish area.

Stochastics suggest 'potential energy' available to push them lower. Should know soon...

position in SPX

Progressives vs Radicals

Jack Trainer: Power to the people.
Tess McGill: The little people.
--Working Girl

Sheldon Richmond differentiates between American progressives and American radicals. Progressives lament the conditions of working people and propose to sustain those people by further empowering government. Radicals lament the conditions of working people and propose to empower those people by diminishing government power.

He demonstrates using minimum wage laws.

By proposing increases in the minimum wage, progressives reinforce the power of government while leaving low skilled people dependent on such 'benevolence.'

Radicals understand that that low wages can't be solved by mandating them higher because the Law of Demand intervenes.

Instead, wages increase by eliminating institutional barriers that impede low skilled people from working and advancing. In addition to repealing minimum wage laws, actions such as eliminating government run schools that can poison minds for life, and removing barriers to self-employment and neighborhood entrepreneurship (e.g., occupational licensing, land use rules and zoning, regulations and taxes, and intellectual property laws (penalize imitation)) encourage initiative and voluntary cooperation thru trade that form the basis for economic advancement.

Wednesday, April 29, 2015

Bernanke's Payday

Now did you read the news today
They say the danger's gone away
But I can see the fire's still alight
Burning into the night

Two weeks ago it was announced that former Fed chair Ben Bernanke was going to work for the high frequency trading (HFT) powerhouse hedge fund (and long rumored Federal Reserve agent) Citadel. Today we learn that Bernanke is also scoring a gig with bond fund giant Pimco. 

Rothbard liked to observe that understanding the body of work of a government official is more complete when one examines the official's behavior outside his/her bureaucratic tenure.

Perhaps some people see more clearly today...

Tuesday, April 28, 2015

Subsidized Shortages

"Be like water, my friend."
--Bruce Lee

While examining California's water problems, Prof Williams makes an observation that I wish interventionists would grasp:

"Whenever there's a shortage of anything - whether it's water or seats at a baseball stadium - our first suspicion should be that the price is too low."

Forcing prices below market rates amounts to a subsidy. ECON 101 tells us that when behavior is subsidized, expect more of it. Subsidize it enough, and shortages occur.

That axiom holds for water, healthcare, education, welfare benefits, investment, borrowing, unemployment coverage...all behavior subsidized by the State.

When shortages occur, look first for force in the system that subsidizes overuse.

Monday, April 27, 2015

Looping Deflationary Capacity

Got a bet there?
I can meet it.
Gettin' high?
You can't beat it.
--The Who

Taken from this interesting article, not a bad way to think about how central bank money printing leads to deflationary conditions.

QE and ZIRP drive yields lower which causes investors to pile into risky assets. In the near term, this funds even junkiest of borrowers and drives excess capacity buildouts (e.g., shale oil). Commodity prices decline because of increase supply.

Rinse and repeat.

Causal loop diagrams such as the one above helps explain why CPI has not rocketed higher in the midst of epic money printing. Price increases have been limited to risk assets in true Cantillon Effect fashion.

It also explains the reinforcing cycle that building leverage in the system for an epic deflationary bust.

Sunday, April 26, 2015

Barry Larkin

Well, beat the drum and hold the phone
The sun came out today
We're born again
There's new grass on the field
--John Fogerty

This weekend the Reds are honoring the 1990 team that went thru the regular season 'wire to wire' in first place and swept the heavily favored Oakland A's in the World Series.

Central to that team was shortstop and future Hall of Famer Barry Larkin. Larkin was the table setter, hitting .301 while fielding .967 at SS across 158 regular season games.

Since we played baseball together in high school, my memories of BL precede his MLB career. I recall an early season game as a senior playing right field. The freshman team was playing on a diamond on the other end of the field. I remember looking over and seeing Larkin playing CF for the frosh. This, of course, didn't last long. Next year he was starting on the varsity at SS while batting near the top of the order.

A decade later he would lead the Reds to a world championship.

Saturday, April 25, 2015

Central Bank Dominion

All our times have come
Here, but now they're gone
--Blue Oyster Cult

A trader who writes for Bloomberg notes that he's increasingly scared about central bank intervention in financial markets. Markets are hitting all time highs while economic indicators plummet and sage investors warn about extreme market risk.

He observes that "central banks and their sovereign wealth funds have become the major players dominating market activity. One central banker after another has admitted they are fixated on market reactions to their comments and actions."

What if markets don't react positively to those actions? Simple. If you're a central banker, then you create some modern day stock pools and start buyin' 'em.

The trader notes, "A wise central banker told me I should learn to live with central banks being the dominant force in the market, whether I like it or not."

This is like being told to learn to live with despotism.

Confidence in central bank despotism has been high. When it turns, the hubris of planners paves the road to ruin.

Friday, April 24, 2015

War on Cash

The deception with tact
Just what are you trying to say
You've got a blank face, which irritates
Communicate, pull out your party piece
--The Fixx

Central banks have been implementing negative interest rate policies (NIRP) that effectively penalizes cash on deposit with the CBs. Intellectuals are proposing that cash be banned altogether.

J.P. Morgan (JPM) is joining the fray with policies that ban cash from being used for some financial transactions. The bank is also prohibiting storage of cash in safe deposit boxes.

Some might view JPM's program as their prerogative that will be rewarded or punished by the market. But big banks are joined at the hip to the State.

When States wage war on cash, banks are instruments of aggression.

Thursday, April 23, 2015

Extending the Habit

You like to think that you're immune to the stuff
Closer to the truth is that you can't get enough
--Robert Palmer

The primary concern of financial markets right now is whether their addiction to easy money will permitted to continue. This why bad news is celebrated, as it suggests to the addict that the flow of narcotics will continue.

The central bank enablers are dependent on the addicts as well, lest they lose their legitimacy as market mavens.

Both sides muddle along in hopeless states of co-dependence.

Wednesday, April 22, 2015

Phased Deflation

Fearless people
Careless needle
Harsh words spoken
Lives are broken

Properly defined, deflation is contraction in supply of money and credit. In financial markets where security prices have been boosted by inflation (expansion of credit money), then a period of deflation is likely to follow whenever appetite for speculating with leverage declines.

There will likely be two phases to this deflation.

The first phase involves speculators moving out of securities deemed riskiest and into securities deemed less risky. Out of equities and junk bonds, for example, and into sovereign debt. Out of bonds and into cash. This phase is only slightly deflationary because, other than the decrease in debt capitalization caused by price declines, most of the inflated money and credit supply remains. It has merely been shifted from one asset class to another.

The second phase involves speculators closing out their debt-funded projects or defaulting on those projects. This phase promotes large scale deflation because credit money is being destroyed. Deep, correlated price declines are merely a symptom--not the definition--of this deflationary phase.

Note also that the natural direction of interest rates is higher, not lower, as bonds, by definition, get sold during deflation.

Tuesday, April 21, 2015

Minimum Wage Literacy Quiz

Standing in line, marking time
Waiting for the welfare dime
'Cause they can't buy a job
--Bruce Hornsby & the Range

1) Increasing the minimum wage that employers can legally pay employees will drive employers to seek ____ productivity enhancing machines that can be substituted for human workers.
a) more
b) less

2) Increasing the minimum wage that employers can legally pay employees will drive employers to outsource ____ work to providers in other jurisdictions with lower minimum wage requirements.
a) more
b) less

3) Which of following is most likely to be hurt by an increase in the minimum wage that employers can legally pay employees?
a) a professional earning high wages
b) a marginal worker earning low wages
c) both of the above are equally likely to be hurt

Monday, April 20, 2015

Identity Politics

Ellsworth Toohey: Mr Roark, we're alone here. Why don't you tell me what you think of me in any words you wish.
Howard Roark: But I don't think of you.
--The Fountainhead

Interesting to ponder how many people would be capable of voting for (or against) a candidate if they did not know their gender, skin color, ethnic background, wealth levels, and other demographic characteristics. Voters like to profile.

During the debates surrounding ratification of the Constitution, people on both sides wrote anonymously and often underwrote their work using pseudonyms. Anonymity helped debates focus on ideas rather than on people.

Wouldn't it be refreshing if ideas and character once again trumped persona in politics?

Sunday, April 19, 2015


Just to hit the ball
And touch them all
A moment in the sun
It's gone and you can tell that one goodbye
--John Fogerty

Watching some recent highlights that featured Phillies manager Ryne Sanderge brought back memories of the Hall of Fame second baseman's stellar career as a player.

As I played out my baseball dream in the woods of Wisconsin in the 1980s, there was no player I admired more than Sandberg. His numbers, of course, spoke for themselves. But it was his approach that caught my eye. Quiet, unassuming. He played the game on the field rather than in the press. Consummate professional.

My best memory of Ryno was Memorial Day weekend, 1990. I had met up with my brother in Chicago, and a good friend who worked for Ameritech (remember them?) at the time scored corporate box seats at Wrigley.

There we sat, behind the first base dugout, on a glorious early summer afternoon at the Wrig as the Cubs played the Astros. Sandberg went 4 for 5 that day with two HRs. He went on to hit a career high 40 round trippers that year while batting .306.

Ryno modeled the game.

Saturday, April 18, 2015

Short Sightedness

Years go falling in the fading light
--Al Stewart

"Why are people so shortsighted these days?" "It seems like people are becoming so short-term oriented."

I hear these kind of statements frequently. One factor that contributes to a shrinking time horizon is debt and leverage.

Borrowing resources enables people to further satisfy their 'now preference' by elevating consumption today. Saving is sacrificed in the name of instant gratification.

Debt also creates conditions of leverage. People are more sensitive to changes in the here and now because of increased risk of insolvency. People must react quickly and sometimes extremely to avoid balance sheet collapse.

Time preference increases as people shift into survival mode brought on by leverage.

As debt and leverage increase, so does shortsightedness.

Friday, April 17, 2015

On Margin

"The mother of all evils is speculation - leveraged debt."
--Gordon Gekko (Wall Street: Money Never Sleeps)

For two years now, margin debt has been hitting all time highs. Markets are now much more leveraged than they were in 2007.

Let that factoid sink in.

position in SPX

Thursday, April 16, 2015

Reforming Slavery?

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

A common pro-tax argument is that taxes enable the federal government to take care of people and keep them safe. As Jacob Hornberger observes, pro-slavery arguments can readily follow similar rationalization. For example, aren't slaves typically provided jobs, food, clothing, housing, healthcare, and retirement?

Yet, every slave knows that freedom entails the inalienable right to decline that type of guaranteed security. Freedom entails the right to leave a plantation and engage freely in economic enterprise.

Various proposals for 'tax reform' are similar to calls for 'slavery reform.' Reform might make the slave life less objectionable, but it still keeps the institution in place.

Same thing for tax reform. Abolition is the only measure that provides genuine freedom for today's slaves.

Wednesday, April 15, 2015

Taxation and Theft

Should five percent appear too small
Be thankful I don't take it all
--The Beatles

As usual, Rothbard says it well:

Excerpted from The Ethics of Liberty.

Where Should My Taxes Go?

Don't ask me what I want it for
If you don't want to pay some more
--The Beatles

Interesting proposal for letting taxpayers decide where their confiscated wealth should go. Schools? Military? Healthcare? Debt reduction?

Such a measure would motivate policymakers to focus spending on programs that interest those who are being forced to surrender resources.

Discretion over tax payment destination merely makes an unjust situation more palatable, of course. The right thing to do to eliminate force from the system entirely, and let people exercise their natural right to dispose of property as they wish.

Tuesday, April 14, 2015

Institutionalized Lies

"Define irony."
--Garland Greene (Con Air)

Paul Craig Roberts demonstrates the extent to which lies can be institutionalized in history books, movements, and causes by considering the myth of Abraham Lincoln as a civil rights hero.

Drawing from the work of Thomas DiLorenzo, much of which has been discussed on these pages, Roberts presents the case of Lincoln as a racist dictator who issued the Emancipation Proclamation out of desperation to save an empire that was in danger of losing a war. Roberts posits that Lincoln, had he not been assassinated, would likely have championed plans to deport blacks.

Yet, today Lincoln is hailed as a civil rights champion. That Martin Luther King chose the Lincoln Memorial as the site for delivering his "I Have a Dream" speech signifies how far off the rails the Lincoln story has gone.

Shelving history books that perpetuate such departures from the truth in the 'non-fiction' section of libraries cements the irony.

Monday, April 13, 2015

Anything That's Peaceful

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

Consistent with recent discussion on these pages, some nice observations in this missive regarding freedom of association. A simple truth here: "Tolerance does not mandate association."

For example, business owners who refuse service to people for whatever reason are, in fact, peacefully exhibiting tolerance. They are also refusing to associate with those people.

Intolerance occurs when aggression is applied. Using state power to force business owners to serve others is the height of intolerance.

If I am bothered by the behavior of those who refuse to deal with others for whatever reason, then I show tolerance by engaging in peaceful acts of persuasion or disassociation rather than in acts of violence.

Tolerance does not mean that we must like what others do. It means that we shouldn't stop them from doing anything that's peaceful.

Sunday, April 12, 2015

Earth and Property

On the first part of the journey
I was looking at all the life
There were plants and birds and rocks and things
There was sand and hills and rings

Some argue that property ownership in unnatural because the earth's resources preceded human existence. As such, the bread we eat and the cars we drive must be collectively shared.

One problem with this argument is that the bread we eat and the cars we drive are not earthly resources in their natural form. Those resources have been converted into consumable forms by productive labor.

In their raw state, earthly resources do not reflect abundance if abundance is taken to mean wealth that can be consumed to advance prosperity. In their raw state, the natural state of earthly resources reflects scarcity. Unless labor is applied to them, these resources are capable of supporting only a tiny fraction of the people currently walking the earth.

Conditions are only alleviated through production--combining human effort with other factors of production to transform earthly resources into consumables.

If the argument is that the collective owns the bread and cars produced from this labor, then by extension the collective owns the labor itself.

Stated differently, the collective is a slave master.

Property rights naturally alleviate the slavery condition implied by collective ownership.

Saturday, April 11, 2015

Blue Bloods

"I'm the PC. I know everything."
--Frank Reagan (Blue Bloods)

No better weekly series than Blue Bloods. Current and controversial issues. Value centered. Irish catholic family. Weekly family dinner scenes some of the most enjoyable TV I've seen in years.

Good to know that network television is still capable of producing value.

Friday, April 10, 2015

Policy Bound

Relax, said the night man
We are programmed to receive
You can check out anytime you like
But you can never leave

By now, it should be clear to any objective observer that the Fed cannot raise rates. And that markets know it.

For the better part of a decade, the Fed, while occasionally voicing hawkish rhetoric, has been nothing but dovish in action. Rates have been near the zero bound since 2007. The Fed knows that its policies have provided little positive influence on real economic activity.

But it keeps the pedal to the medal anyway.

Markets have levered up on cheap Fed funds and bid security prices to the moon. Even a tiny increase in borrowing rates will bring this leveraged house of cards down. Thus, markets buy all (bad) news that would keep rates suppressed, and sell all (good) news that would motivate central banks to raise rates.

We are too big to fail, markets are saying. Keep credit easy, lest we will collapse and make you look bad.

Central banks, ever image conscious, comply like indentured servants.

Thursday, April 9, 2015

Comprehending Catatastrophe

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

In his nightly Rap last night, Fleck commented, "One can only imagine once the news turns bad enough and the market becomes weak enough what a unanimous opinion on the downside might look like. How anyone thinks we are going to avoid a crash is beyond my comprehension."

Mine too.

An epic train wreck approaches.

position in SPX

Wednesday, April 8, 2015

Duty to Be Free

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

William Faulkner suggests that freedom is a duty and requires hard work. Although our founding ancestors understood this well, we do not. He quotes Irish statesman John Curran:

"God hath vouchsafed man liberty only on condition of eternal vigilance; which condition if he break it, servitude is the consequence of the crime and the punishment of his guilt."

We are still capable of living freely. But first, we must recognize the responsibility involved with doing so.

Tuesday, April 7, 2015

GOP Disruption

"There's no place out there for graft, or greed, or lies, or compromise with human liberties. And if that's what the grownups have done with this world that was given to them, then we'd better get those boy's camps started fast and see what the kids can do."
--Jefferson Smith (Mr Smith Goes to Washington)

Do early Republican presidential candidates, such as Ted Cruz and Rand Paul, symbolize a shift in how the GOP identifies candidates for higher office? Hopefully so. Both Cruz and Paul have been shunned by the establishment in the past. That they can legitimately step into the fray with significant early support is a positive sign.

Years ago these pages posited that establishment Republicans would ride the coat tails of Tea Party and other unconventional types only to the extent that it helped the establishment survive. That time has past.

Now that anti-establishment candidates threaten to disrupt the GOP status quo, you can bet that Cruz, Paul, et al face more than just opposition from Democrats.

Monday, April 6, 2015

Wide Open

If you wake up and don't want to smile
If it takes just a little while
Open your eyes and look at the day
You'll see things in a different way
--Fleetwood Mac

Easter, spring, Opening Day. A symbolic trilogy of new life.

Daylight on fresh beginnings.

Sunday, April 5, 2015

Live New

Clear out the old yeast
--1 Corinthians

Today Christ has risen and wiped the slate clean.

Our challenge is to live new and free, rather than old and in bondage.

Saturday, April 4, 2015

Draggin' the Line

Makin' a living the old hard way
Takin' and givin' day by day
--Tommy James & the Shondells

Trannies closed the holiday-shorted trading week on the lows--thru the 200 day moving avg and on top of aforementioned 8600 support.

This has been the springboard zone for months. Will this time be different?

position in SPX

Friday, April 3, 2015

Freedom to Exclude

And you didn't have to stoop so low
Have your friends collect your records
And then change your number
I guess I don't need that though
Now you're just somebody that I used to know

The right to discriminate can also be called freedom to exclude. The 'reason' (skin color, religious beliefs, non-paying customer, etc) doesn't matter. Assigning a judge to determine 'right' or 'wrong' reasons for exclusion plainly leads to problems.

Discrimination and exclusion are central to property rights. Ownership must include the ability to exclude others from using property. If owners cannot exclude others from using the property, then they do not own it.

Lessening the negative effects of discrimination involves reducing barriers to entry in industries that discriminate--so that entrepreneurs can exploit the stupid discrimination decisions of others. This means cutting, not increasing, regulations and interventions that discourage competition and protect franchises of operators that discriminate in unwise ways.

Thursday, April 2, 2015

Discrimination and Intolerance

Judge Mel Coffy: I hope counsel does not mean to imply that this court is bigoted.
Henry Drummond: Well, you honor has the right to hope.
Judge Mel Coffy: I have the right to do more than that.
Henry Drummond: You have the POWER to do more than that.
--Inherit the Wind

Recent passage of a religious freedom restoration act in Indiana has once again ignited debate about the legality of discrimination in society. In this context, discrimination can be viewed as refusal to associate with certain people perceived to possess some categorical characteristic. Because these characteristics tend to be readily observable (lest their discriminatory power would be low), they usually involve demographic categories such as age, race, gender, nationality, and sexual orientation.

Popular arguments against discrimination, such as the one employed here by Apple CEO Tim Cook, claim that refusing to associate with a person because of their race, gender, et al violates the principles of freedom and equality upon which America was founded. Laws, such as the Civil Rights Act of 1964, are therefore necessary in order to force people to not discriminate.

It doesn't not take a genius to recognize the inconsistency in such an argument. Truly free people can decide who they want to associate with--regardless of how idiotic their rationale might seem for doing so. If people are forced to associate with others, then they are not free.

Those wanting to employ the strong arm of government to force people not to discriminate are the intolerant ones. They want to impose their values (religious or secular) on others using aggressive means.

As correctly observed here, the right to discriminate is the very essence of freedom. Being offended by someone else's discriminatory behavior manner is something that free societies must tolerate.

Wednesday, April 1, 2015

Transportation Problem

Got to pay your dues
If you want to sing the blues
--Ringo Starr

Keeping an eye on the Trannies here. This group has been trading heavy compared to the overall market and is now back down near multi-month support and the 200 day moving avg.

Let's call the line in the sand TRAN 8600ish.

position in SPX