Sunday, May 31, 2015

Help Wanted: Robots

"Life is NOT a malfunction."
--Stephanie Speck (Short Circuit)

Following up on yesterday's post and reinforcing a previous thought, a former GE employee concludes that cheapening of credit by central banks reduces the attractiveness of labor and increases the attractiveness of automation.

I would add that this is particularly true when other regulations such as minimum wage laws or mandatory health care coverage increases the cost of labor.

As cost of labor goes up and cost of fixed investment goes down, employers will hire more robots.

Simple ECON 101, cookie.

Saturday, May 30, 2015

ACA and Productivity

If you drive a car, I'll tax the street
If you try to sit, I'll tax your seat
If you get too cold, I'll tax the heat
If you take a walk, I'll tax your feet
--The Beatles

U of C prof Casey Mulligan discusses effects of the Affordable Care Act (ACA) on economic productivity. The ACA creates 'tax distortions' in the labor market. Tax distortions are changes in behavior for the purpose of decreasing taxes or increasing subsidies.

The employer mandate creates a tax distortion because employers are prone to hire less full-time employees in order to avoid buying health insurance as mandated by the ACA or paying associated penalties. The ACA essentially amounts a tax on having full-time employees. Employers will hire either part-time employees or seek to find ways to get by with less workers (e.g., implement more automation).

Subsidized health insurance exchanges also creates a tax distortion because workers may choose to work less in order to qualify for discounts (subsidies) offer by the exchanges. Stated differently, working less hours might actually improve some people's financial condition by providing health insurance subsidies that more than compensate for income gained by working more hours.

This is what economist sometimes call a perverse incentive. The ACA raises marginal tax rates that anchors marginal workers in poverty in what essentially amounts to a welfare trap.

The Supreme Court concluded that the ACA amounts to a tax. ECON 101 tells us that when you tax a behavior, you will will get less of it. The ACA taxes work, so we will get less of it.

The ACA represents a drag on productivity.

Friday, May 29, 2015

More Bricks

I have seen the writing on the wall
Don't think I need anything at all
--Pink Floyd

Bricks continue to be added to the wall of the economic downturn thesis. Most ominous perhaps is that the Q1 GDP number has been revised negative (-0,7%):

Commercial activity continues to slow, as evidence by this morning's Chicago PMI:

Various consumer confidence series are also turning lower:

Markets, of course, might actually like this, as it implies that the Fed won't be tightening anytime soon--despite the fact that central bank money printing policies are not sustaining the economy.

position in SPX

Thursday, May 28, 2015

Roadside Stand

"Crazy is on the bus."
--Danny Roman (The Negotiator)

Sums it up nicely.

Interesting thing is that most devout statists refuse to admit that it is interventionary policy that is leaving Everyman on the side of the road.

position in SPX

Wednesday, May 27, 2015

Propped Up

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

I continue to believe stock markets worldwide are being bought by central banks in order to keep prices high. We know some central banks (i.e., Swiss, China, Hong Kong, Japan) are doing so either directly or thru 'sovereign wealth funds.' But others, including the Fed, are surely involved as well.

It is my sense that central bankers view stock prices as a vital input for consumer (and voter) confidence. As worldwide economic engines sputter despite massive monetary and fiscal stimulus, these bureaucrats believe that if they lose stock prices here, they lose complete control of the system.

And you know what, they may be right.

position in SPX

Tuesday, May 26, 2015

Broken Cars

There is no sense in pretending
Your eyes give you away
Something inside you is feeling like I do
We said all there is to say
--Tom Petty

Even if one is using the thickest crayon rather than a pencil, it's hard not to conclude after today's action that the Trannies have officially broken down. The Transportation Index is now south of 8600ish support by about 200 pts.

While it remains to be seen what this means for the general tape, hard not to view this as bearish.

position in SPX

Cable Concentration

Chip Douglas: Hi. Is there a problem with your service?
Steven Kovacs: Yeah, my cable went out.
Chip Douglas: Really? So you call me? Ha. Funny how you call when you NEED something. Is that how you treat people?
--The Cable Guy

This morning Charter Communications Inc announced that it will buy Time Warner Inc for about $55 billion in cash and stock. As ZeroHedge observes, one interesting thing about this deal is that Charter is less than half the size of Time Warner.

How can Charter afford to buy such a behemoth? Cheap money and leverage. When credit it ultra cheap, then the little guys can borrow more to buy the big guys. The problem is that higher leverage for the little guys increases risk and reduces margin for error. Small hiccups can bring the entire deal down.

This is also a nice demonstration how cheap money leads to increased industry concentration. The bigger get bigger and the small entrepreneurs get crowded out.

Monday, May 25, 2015

Inward War

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

I have seen several studies recently claiming that the world is in the midst of an unprecedented war-free period. At first, these claims drew double takes from me. However, if one defines war as formal military conflict between two or more countries then these claims may be true, as we haven't had large scale 'outward wars' in some time.

Of course, there have been hundreds of conflicts that look like war that might not qualify under the above definition. Drug wars in Central and South America, East European conflicts, the War on Terror, etc. The social and economic impact of these 'non-wars' has been huge. For example, the US alone has spent more than $1 trillion on the War on Terror. Imagine applying that pile of economic resources toward voluntary, peaceful concerns.

More significant yet has been the 'inward wars' being waged by governments worldwide against their own citizens. The core competence of government is force--force that can be employed in either offensive or defensive manners. Overwhelmingly, governments are using offensive force. They are acting aggressively against citizens.

Because they are usually not called such, government programs of aggression sometimes fool people into thinking governments are keeping peace rather than waging war. Taxes, for example, are viewed by some as just means of acquiring resources for various interests rather than as confiscation of resources by strong armed agents. However, taxes constitute violent acts against the citizenry--as our founding ancestors ably recognized.

Expansion of the money supply by central banks is also seen as peaceful. However, when money is printed it lowers the value of money already in people's wallets. Those who get control of newly minted cash first effectively confiscate resources from others. Because the gradual theft of resources can be difficult to recognize, inflation is sometimes called the 'invisible tax.'

Sovereign debt is perhaps the most egregious indicator of today's inward war. Governments borrow on promises that it enslave citizens in order to obtain resources to make creditors whole. Sovereign debt levels have never been this high in history. And they are growing thanks to QE..

While outward wars may infrequent at the moment, intensity of inward wars has never been greater.

Sunday, May 24, 2015

Twenty Years

Nothing's so cold
As closing the heart when all we need
Is to free the soul
Be we wouldn't be that brave I know
--Toad the Wet Sprocket

Two decades ago I left a life to pursue a dream. After tendering my resignation at work, I spent two difficult weeks saying goodbyes to so many good friends and packing things up. Then, on this day 20 yrs ago I set sail for home.

I'd be lying if I said it wasn't scary. After all, I was walking away from a successful executive career in a large company that was (at the time) supremely stable. The opportunity cost of future income streams foregone was difficult to swallow. Layer on top of that a comfortable lifestyle and community that had adopted me with open arms and it was no wonder that I was emotionally spent on the day I left.

But it was the best decision I have ever made.

I'm living the dream daily. Often I'm guilty of taking for granted just how blessed I have been. Today I'm very grateful for the spark that moved me twenty years ago.

Saturday, May 23, 2015

War To End War

All the burning bridges that have fallen after me
All the lonely feelings and the burning memories
Everyone I left behind each time I closed the door
Burning bridges lost forevermore
--Mike Curb Congregation

World War I was labeled 'The War To End All Wars." The label is attributed to British author and social commentator H.G. Wells who suggested that defeating the Central Powers via military conflict would bring permanent end to war.

The mindset lingered in American thought after the Treaty of Versailles was signed. Experiencing the bloody consequences and ugly social aftermath of WWI, many Americans no longer had taste for war--particularly war fought on foreign soil. Never again will the United States become entangled in conflicts involving other nations, many vowed.

1921 $1 Peace PCGS MS66 CAC

To signify the notion, a new silver dollar design, a 'peace dollar,' was developed. The coins was first struck in 1921. The Peace Dollar is the only circulation coin minted in US history inscribed with the word 'Peace.'

1935-S $1 Peace PCGS MS66 CAC ex Jack Lee

Of course, we now know that the peaceful mindset didn't last. The Peace Dollar itself fell out of favor and was discontinued after 1935--appropriate enough as the world was gearing up for a new global conflict that would put the War To End All Wars to shame.

We haven't learned it yet. War begets war, not peace.

Friday, May 22, 2015

How Much Cash?

I'm out of money, out of hope
It looks like self-destruction
How much more can we take
Of all of this corruption?
--Molly Hatchet

How much cash to hold continues to be a difficult decision for me. In unhampered markets cash is backed by hard assets and therefore a reliable proxy for production. More cash means more economic resources set aside and saved. Those savings can be applied toward future consumption or for investment projects. Although it resembles just a piece of paper, cash in unhampered markets becomes a store of value.

In hampered markets cash is not backed by hard assets. Instead, it is printed by fiat. In this situation cash is an unreliable proxy for production because the quantity of economic resources that can be bought with cash declines as more cash is printed by fiat (a.k.a. inflation). Under fiat money conditions, people are prone to save less because they are hesitant to hold cash that will buy less resources over time. Because cash no longer stores value, people will be prone to consume income rather than to save it, and/or convert cash into other assets (e.g., gold) thought to hold their value and be better proxies for saved production.

Right now I would like to be a significant saver of cash. However, the world of financial repression that we live in has me concerned that saving cash today is an increasingly losing proposition for tomorrow. My cash savings could be indirectly confiscated through inflation as greater supply of fiat currency renders each dollar that I save worth less in terms of economic resources that can be purchased. Indirect confiscation by process of gradual monetary devaluation is why inflation is sometimes called the 'invisible tax.'

I am also increasingly concerned about the prospects of direct confiscation of cash. The situation in Cyprus two years ago showed us that governments might enact capital controls that impair ability to withdraw cash during times of crisis. Worse yet, there is the possibility that physical cash could be banned in favor of purely electronic transactions. That could give desperate governments even more confiscatory control. Cyprus also demonstrated that governments could simply dip into cash deposits and take some. For example, government might expropriate, say, 20% of cash balances to help fund bailout programs in times of 'national crisis.'

The present economic environment, defined by extreme monetary and fiscal policies alongside record leverage, makes me increasingly wary of holding cash. Risk associated with holding cash, as I see it, is extremely high. As such, my cash balances are currently lower than they have been in some time.

position in gold

Thursday, May 21, 2015

Ninth Amendment

Abigail Chase: People really don't talk that way, you know.
Benjamin Franklin Gates: I know. But they think that way.
--National Treasure

During his recent filibuster, one of Rand Paul's points was respect for the Ninth Amendment, which reads:

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

The Ninth Amendment was authored by James Madison, who worried that people would assume that rights not listed in the Bill of Rights would assigned to the federal government. Adding the Ninth Amendment told all that rights not enumerated in the Constitution belong to the people.

While constitutional powers of the federal governments are "few and limited," said Paul yesterday, "it's the opposite of your rights. Your rights are many and infinite."

While that fact pervaded thoughts of our founding ancestors, it has been sorely missing in rhetoric in Washington. How refreshing to have someone bring it to the floor.

Let's hope that it stays and grows among the people.

Filibuster Patriot

"You see, boys forget what their country means by reading 'The Land of the Free' in history books. Then they get to be men and they forget even more."
--Jefferson Smith (Mr Smith Goes to Washington)

Extending his filibuster practice, Rand Paul led a 10+ hr filibuster against renewal of the Patriot Act. Several Democrats joined him on the Senate floor.

His arguments center on the blatant unconstitutionality of the Patriot Act.

Hopefully the impromptu bipartisan support that joined Paul on the floor motivates forgetful minds to remember first principles.

Wednesday, May 20, 2015


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

Follow up on previous post. After trying to lift midday, the Trannies closed on the low tick at 7 month lows.

Others beginning to comment on this divergent action...

position in SPX

Line Dance

It's not in the way that you hold me
It's not in the way you say you care

Dow divergence continues with the Trannies once again down on support while the Industrials tickle new highs.

Hard not to see this as a significant non-confirmation.

Stated differently, all systems are not 'go' for higher prices.

position in SPX

Tubman Twenty

John Rawlins: Where about you from?
Trip: I'm from around Tennessee. I ran away when I was 12 years old and I ain't never looked back.
Jupiter Sharts: What you doin' since then?
Trip: I run for President. Didn't win though.

Recent polls suggest antislavery activist Harriet Tubman as a front runner for the addition of women pictures on American currency. That would be a great choice, and not because she happened to be a woman.

Not only did she tirelessly promote liberty and fight unjust laws, but Tubman would represent, to my knowledge, the first American citizen other than a politician to appear on a Federal Reserve Note. This is significant because in our current monetary system paper currency gets more circulation (and visibility) than coins.

A ridiculous argument against Tubman is that she did not respect American capitalism so putting her picture on US currency would be insulting.

The fact is that capitalism is grounded in economic liberty, which is repressed under systems of slavery. Tubman's actions increased economic liberty for many. It is likely that Tubman saw freeing slaves as restoring individuals' unalienable right to pursue their interests in a free economy.

It would be great to see the Tubman Twenty and other denominations where politicians are removed in favor of figures more consistent with the preservation of liberty.

Tuesday, May 19, 2015

Institutional Racism

Sgt Major John Rawlins: I ain't sure I'm wantin' this, Colonel.
Col Robert Gould Shaw: I know exactly how you feel.

As he has done times before (e.g., here, here), Prof Williams criticizes popular claims that poor socioeconomic conditions among many blacks are primarily caused by racism lingering from times past. This does not make sense, he observes, because the pathologies evident in black neighborhoods are relatively recent phenomena.

Parents. 1880s three quarters of black families two parent. 1925 NYC 85% of black families two parent. Today overwhelming majority of black families are single parent.

Illegitimate child birth. 1940 illegitimate birth rate among blacks 14%. 1965 25%. 1980 56%. Today nearly 75%.

Poverty rate among black married couples since 1994 has remained in single digits.

Black youth unemployment. 1948 9.4% vs 10.2% for white teens. Today black teen unemployment exceeds 50% in some cities. Since the 1960s both employment and labor force participation rates among black youths have been falling to where they are today.

Associating these data with institutional racism is a tall order. For starters, one would have to argue persuasively that racism has been increasing over the past few decades in order to fit black socioeconomic trends. While racism certainly hasn't been (and never will be) completely eliminated, claims that racial discrimination has been on the rise over the past half century should strike most as ludicrous. Moreover, locating compelling data to support such claims would be challenging. Explaining socioeconomic inconsistencies between single parent and married black households using a racial discrimination overlay will prove difficult.

As Prof Williams demonstrates, straightforward explanations of socioeconomic trends among blacks can be developed by examining various interventions concocted by the welfare state and constructing economically grounded propositions about the effects of those interventions. For instance, having children outside of wedlock is less burdensome when housing subsidies, welfare payments, and food stamps reduce the cost of unproductive behavior. Minimum wage laws and other labor regulations force black teens and other low skilled blacks out of the labor market. Such compulsory unemployment effectively cuts off the bottom rungs of the economic ladder, disabling the poverty stricken from climbing toward higher standard of living.

Suppose that you are a bigot intent on restraining progress of a particular class of people. I can think of few better strategies than what progressives and race hustlers have implemented and continue to promote with respect to the black community. Subsidize unproductive behavior. Create economic dependency. Lock workers out of the job market.

Those who support such policies reflect actions of true institutional racists.

Monday, May 18, 2015

Created Equal

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

Jefferson et al observed various self-evident truths--first among them being that all people are created equal. Given that, in social contexts, equality can mean either equality of treatment or equality of condition, which meaning was on the minds of our founding ancestors?

Their statement that people are created equal  provides a good sense of their thrust. We can reason that they are not talking about equality of condition. Because variation is axiomatic in nature and under God, individuals are created with different characteristics both physical and mental that provide for various talents and capacities for achievement. People are also born into quite diverse social situations. To claim that people are created with equality of condition is not only not self-evident but easy to disprove.

It is also instructive that Jefferson et al state that people are created equal rather than can be made equal. They list no subsequent self-evident truth that the interests of some must be forcibly compromised for the benefit of others via programs of leveling.

Instead, they state that all are endowed with the unalienable rights to life, liberty, and the pursuit of happiness, and that governments are instituted to protect those rights. The only way that individuals can pursue their interests in unencumbered manners is if people are treated equally under the rule of government. Any law that grants privilege to a subset of individuals, regardless of socioeconomic condition, violates the unalienable rights of others because people are being treated unequally.

It can only be construed that Jefferson et al mean equality of treatment--equality under the law.

Sunday, May 17, 2015

Summer Tinder

Hot summer streets
The pavements are burning
I sit around
Trying to smile
But the air is so heavy and dry

As the curtain raises on summer break, can't help but wonder whether markets will make it to the other side. To be sure, central banks are pumping by the trillion$ ans major US indexes are tickling new highs. But marginal gains per dollar printed seems to be declining.

Moreover, leverage is also at all time highs, raising the chances of an accident somewhere in the system.

Gobs of tinder vulnerable to a hot summer spark.

position in SPX

Saturday, May 16, 2015

Equal Opportunity

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

A significant thread runs through these pages on the subject of equality. As observed by Hayek, equality assumes one of two competing notions in the social context.

One notion is equality of legal treatment. Rules should not grant legal privilege to any particular interest. Government does not have the right to limit what a person can achieve. The working principle is that no person or group should have the legal power to decide what another person's status should be. This principle must not be sacrificed to gratify a particular sense of social justice, envy, or resentment. All people must be treated equally under the law.

The other notion is equality of socioeconomic condition. Because the natural state of the world is variation and diversity, rules backed by force must be enacted to grant privilege to some people or groups in order to achieve sameness. This privilege legally authorizes government to limit what some people achieve, sometimes by confiscating property, in an attempt to advance the interests others (i.e., the privileged). These privileges help 'level the playing field' in some people's minds as it creates a sense of fairness.

Clearly, these two notions are diametrically opposed. Striving for equality of condition requires that people are treated unequally under the law. Rules grant legal power to decide a person's status, and force is authorized to limit what some people can achieve by stripping them of property and associated decision rights.

Some people might object to this dichotomous treatment of equality. There is also 'equality of opportunity,' they argue. Popular use of the term 'equal opportunity' dates at least as far back as the Civil Rights Act of 1964 where language related to equal opportunity is sprinkled throughout various sections of the act such as Title IV on public education and Title VII on employment. Institutionalization of the equal opportunity concept was enhanced by the formation of various commissions such as the Equal Employment Opportunity Commission to enforce various provisions of the act.

The general idea behind the equal opportunity concept is that all people should have an equal chance to compete within a given social framework. If people are born into low income family circumstances, for example, then that is deemed unfair. To equalize their opportunity versus those born into more favorable circumstances, then people born into more austere conditions should be given resources (money, education, special employment oversight, etc.) that helps them better compete in the marketplace.

It is easy to see that equality of opportunity is not a third, previously ignored concept of equality. Instead, it merely a repackaging (or positive substitute symbol) of the equality of condition concept. Rules must be tilted to grant some legal privilege over others. Resources must be taken from some for the benefit of others. Discrimination with respect to private property is forcibly restrained. Government has power to forcibly limit what some people can achieve. As observed by Tocqueville and others, liberty declines under such constructions of equality.

Like the equality of condition concept, the notion of equal opportunity necessitates unequal treatment under the law.

Friday, May 15, 2015

Employed and Worried

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

ZeroHedge observes growing chasm between federal govt-reported initial jobless claims and UMich Consumer Sentiment Survey question asking people if they are worried about losing their job.

The larger the gap between two series that are typically correlated, the easier it is to question the measurement quality of at least one of the data sets.

Will leave it up to you to assess which series is more likely to have issues.

Dow Theory Divergence

Truckin,' got my chips cashed in
Keep truckin,' like the do dah man
Together, more or less in line
Just keep truckin' on
--Grateful Dead

Interesting divergence taking place between the Dow Industrials (DJI) and the Dow Transports (TRAN). Currently the Industrials are tickling all time highs as they challenge upside resistance in a 'pennant' pattern.

At the same time, the Trannies are in danger of breaking down as they chew thru downside support in a 'pennant' pattern.

Dow Theory suggests that, in healthy markets, upside moves in the Industrials should be confirmed by the Trannies. The theory is that industrial and transportation stocks should be joined at the hip as they both operate in similar supply chains.

Right now, one is leading the other. Will be interesting to learn which is the leader here and which is the follower.

position in SPX

Thursday, May 14, 2015

Dollar Drop

We're talkin' 'bout the dollar bill
Now what are we all to do
When the money's got a hold on you?
--Simply Red

One contributing factor to gold's recent strength has been the dollar's drop. The USD is down about 7% over the past month or so.

Some view this weakness as a temporary set back while others see it as the beginning of the end of the USD. It is hard to confidently make either case in a world where all currencies are printed by fiat.

On the other hand, it is easy to foresee the future of all fiat regimes vis a vis gold.

position in gold, silver

Perky Gold

Better get yourself together
And hold on to what you've got
Once the music hits your system
There's no way you're gonna stop
--Miami Sound Machine

Action in gold and silver has been perking up. The yellow metal is currently trying to chew thru various near term resistance levels--particularly the 200 day moving avg.

If it gets thru there, then next reference point becomes the January highs.

position in gold, silver

Wednesday, May 13, 2015

Recession Charts

I close my eyes
Oh God I think I'm falling
Out of the sky
I close my eyes
Heaven help me

Several compelling charts suggesting that the US is already in recession. What makes charts like the one below so compelling is not only that they show decent face and predictive validity, but they are less subject to deflators and other bureaucratic adjustments that corrupt many 'top tier' macro series issued by the federal government.

Either the charts will once again be proven right or this time is truly different...

Trade Deals

"This is a country where the secretary of defense can go on TV and tell the American public, 'This is about freedom, it's not about oil.'"
--Senator Charles F. Meachum (Shooter)

Associating trade deals such as the proposed Trans-Pacific Partnership with 'free trade' is wrongheaded. Free trade is voluntary exchange between buyers and sellers with no strings attached. Non aggression is the only requirement.

Trade deals are 'controlled trade.' Not only are regulations part of the deal, but they also involve privileging those inside the trade bloc while excluding others.

Free trade requires no 'deal' between countries. Our founding ancestors' maxim comes to mind:

Free trade with all, entangling alliances with none.

Tuesday, May 12, 2015

Nowhere Work

Hey, I'm not complaining 'cause I really need the work
But hittin' up my buddy's got me feeling like a jerk
Hundred dollar car note, five hundred rent
I get a check on Friday but it's already spent
--Huey Lewis & the News

Some interesting charts here particularly w.r.t. employment. One shows full time median weekly real earnings since 1986. Compound annual growth rate in real wages over the past 30 yrs is 0.1%.

Because inflation numbers are under-reported, median wages have actually been declining for decades.

The other interesting chart shows percentage of prime work age population holding any kind of job. Since peaking in 2000, employment has dropped ten percentage points, or about 20% from the apex.

The headline jobs numbers are misleading and manipulated. Not only are we nowhere near 'full employment,' but the long term trend is toward less, not more, work.

Monday, May 11, 2015

Massive Fight?

Suddenly now it seems
I'm sleeping with the enemy
--Kylie Minogue

In response to recent criticisms that a proposed trade deal would reverse effects of financial regulations implemented since the 2008 credit meltdown, President Obama responded in part with this one:

"Think about the logic of that, right? The notion that I had this massive fight with Wall Street to make sure that we don't repeat what happened in 2007, 2008, and then I sign a provision that would unravel it? I'd have to be pretty stupid."

The actual 'logic' of trade deal effects, particularly this one, on regulated markets is fodder for another day. Here let's consider the president's claim that he has engaged in a 'massive fight' with Wall Street to eliminate risk of a repeat market meltdown.

The president is almost surely referring to the Dodd Frank legislation and other regulation which does nothing to eliminate the root cause of the 2008 collapse: leverage many times in excess of what would be possible in unhampered markets.

Not only has that root cause not been eliminated but policies enacted under the Obama administration have increased leverage to levels far above where they stood before the 07-08 wipeout.

Add to that a couple of additional tidbits. Like all regulation, the supposed burden of Dodd Frank et al regulation is actually a boon to established players as it raises barriers to entry against innovative entrepreneurs who would otherwise enter the industry and chop down inefficient incumbents.

Moreover, the Obama administration has supported various policies that bailed out the supposed 'enemies' that this president has warred with. Wall Street profits, salaries, and bonuses are way up. Income disparity has widened. Many of Obama's Wall Street enemies have been large campaign donors.

With enemies like this, who needs friends?

Sunday, May 10, 2015

General Warrants

"You want the truth? The plain truth? You're over."
--Keith Nelson (Some Kind of Wonderful)

Small victory on the path to liberty last week as the Second Circuit ruled that bulk records collections by the NSA are illegal. This is a step in the right direction to declare that the Patriot Act itself is unconstitutional.

Essentially, the Patriot Act enables government agents to write general warrants. A general warrant, for instance, could be written by an NSA agent and served to Verizon, authorizing the government to collect all phone records that it wants for any purpose deemed important to 'national security.'

General warrants are tools of repression because they enable the invasion of person and property at the issuers discretion. Our founding ancestors were quite familiar with the restrictions on liberty posed by general warrants and wrote the Fourth Amendment expressly to forbid them.

The Fourth Amendment clearly states that warrants must be specific as to the person and place to be searched, that warrants must be accompanied by evidence of 'probable cause' to motivate the search, and that warrants must by issued by a judge who weighs the evidence and decides whether the probable cause argument justifies the warrant.

The Patriot Act depends on general warrants. If the Supreme Courts, which is where this issue is ultimately headed, declares these general warrants as unconstitutional, then the Patriot Act is over.

Saturday, May 9, 2015

Urban Blight

When it feels like the world is on your shoulders
And all of the madness has got you going crazy
It's time to get out, step out onto the street
Where all of the action is right there at your feet

Good thoughts on what could be done right now to reduce urban blight and poverty.

1) Remove all minimum wage laws and licensing requirements and other forms of compulsory unemployment from blighted areas. This would create immediate competitive advantage for workers in blighted areas.

2) Eliminate taxes. Remove sales, property and other taxes from blighted areas. Moreover, allow any person under the poverty line to opt out of Social Security to further reduce the tax burden on them and prospective employers.

3) Eliminate mandatory education. Allow urban students to opt out of their last three years of high school if they work at least 32 hrs per week. Allow students in grades 7-9 to opt out of afternoon classes if they pass a basic competency test and maintain a part time job.

4) Remove gun restrictions from urban areas to allow citizens living in urban areas to carry guns and defend themselves.

5) Legalize marijuana. I would expand this to ending the war on drugs. Legalizing drugs removes a lucrative violent alternative to inner city youth seeking to build wealth.

6) Sell off city property. By privatizing land and facilities, people who own it determine how to make their property productive.

7) Phase out welfare. Welfare remains a primary cause of family and social disintegration. It creates perverse incentives and dependency that hollow out poor neighborhoods.

Blight is an artifact of the State. It can be reversed by increasing economic liberty.

Friday, May 8, 2015


I sit there staring and there's nothing else to do
--The Vapors

Japan's Ministry of Finance reports that Japan debt is now north of one quadrillion yen. That's 15 zeros: 1,000,000,000,000,000

Get used to it. In a world drunk with debt, we must quickly learn how to verbalize additional places to the left of the decimal point.

Quad is the new trilly.

Thursday, May 7, 2015

Family Privilege

"They are going to take you."
--Bryan Mills (Taken)

Socialists like to evoke the notion of 'privilege' when justifying programs of redistribution. In the socialist sense, privilege is a benefit or advantage endowed on a person that the person did not rightfully earn. Because they are undeserving, privileged people should not have complete authority to dispose of their endowment as they wish. Instead, privileges must be forcibly shared with those less privileged in the name of 'fairness.'

Pushing this thought process toward completion conjures ludicrous scenarios such as this one that suggests good parenting as a set of unfair privileges endowed to some children but not to others. One solution: abolish the family to level the playing field and increase 'social justice.'

Such follies arise when confused minds commingle the concepts of rights, property, and privilege. True rights exist simultaneously among people and impose no obligations on others--except for that of non-interference. Property consists of person, wherewithal to produce, and production that the owner has the authority to dispose of as he/she wishes as long as that disposition is not aggressive in nature. The distribution of property is uneven in nature and in God.

A privilege is an exception to the right of property. Privileges are granted by government, and permit the privileged to forcibly take property from its rightful owners.

Families have the right to peacefully dispose of their property as they wish. People who want to interfere with this right are the ones seeking privilege.

Wednesday, May 6, 2015

Zero Sum Fallacy

Thoughts that leave me
Chasing after
My dreams disown me
Loaded with danger
--The Fixx

Redistributionists seem to believe that in markets, when X and Y trade, one benefits (say, X) and one loses (say, Y). This is the zero sum fallacy.

We know this is a fallacy because, if the above proposition was true, then there would be few if any transactions on the market. Y wouldn't trade if no benefits were perceived. Voluntary exchange occurs when both X and Y see benefit.

While a political favorite, the zero sum fallacy has no true place in reasoned economic thought.

Abolishing Cash

Be running up that road
Be running up that hill
Be running up that building
--Kate Bush

Reasoned thoughts on the progression toward abolishing cash. Basically these steps:

1) Central banks set negative interest rate policy (NIRP) that penalizes bank deposits. Why? Central bankers believe that NIRPs penalize saving, thus increasing consumption.

2) Depositors withdraw cash from banks to avoid paying banks for holding their deposits. Unfortunately for the banks, this results in bank runs.

3) To stop bank runs, policymakers outlaw the use of cash--or at the vary least limit the amount that can be withdrawn (a la Cyprus).

Bond Yields

I close my eyes
Oh God I think I'm falling
Out of the sky, I close my eyes
Heaven help me

Sovereign bond yields have been rising worldwide (meaning bond prices are falling). On an absolute basis, yields are still miniscule. But on a relative basis, some sovereign bond yields are higher by 100% or more over the past month or two.

Ten year T-note yields are just under near term resistance. If this level should happen to be taken out, then that would raise an eyebrow or two--given the near term oversold level of bonds.

no positions

Tuesday, May 5, 2015

Presidential Candidate Announcements

"Well, if Kissinger can win the Peace Prize, I wouldn't be surprised to wake up and find out that I'd won the Preakness."
--Conrad 'Connie' Brean (Wag The Dog)

Interesting graphic from The Economist showing timing of US presidential candidacy announcements since the 1950s.

Two things stick out. One is that announcements have gradually occurred earlier in election cycles as campaigns lengthen. It would be interesting to piece this together all the way back to the founding of the republic. My sense is that earlier announcements and lengthening campaign cycles are recent phenomena--directly related to the increasing power of the chief executive.

The other observation is that, generally, timing of presidential candidate announcements has little bearing on who wins.

Monday, May 4, 2015

Narratives and Collectivism

In my head the voice is waiting
Waiting for me to set it free
--Russ Ballard

Collectivists love narratives. Narratives are stories that are often, at best, loosely grounded in facts. Because they frequently appeal to emotion, narratives are attractive to collectivists because stories can be admitted to the collectivist mind quickly without being subject to critical thought.

In mantra-like fashion, collectivists repeat narratives among themselves. If enough people repeat the story, they seemingly believe, then fiction can become fact.

Sunday, May 3, 2015


Another night in any town
You can hear the thunder of their cry
Ahead of their time
They wonder why

Major League Baseball is running a 'Franchise Four' contest this year, where fans can vote for their top four players in franchise history. The Reds players to select from differs slightly from the list I would have posted (e.g., Eric Davis rather than Ed Roush?). With about a week to go in the voting, the top four vote getters so far are Pete Rose, Joe Morgan, Johnny Bench, and Barry Larkin.

All great choices to be sure. After all, how can you argue with four Hall of Fame selections? However, it is difficult for me not to find a spot for fellow Hall of Famer Frank Robinson on the list.

Sure, Robby spent only the first half of his career with the Reds, but his overall body of work stacks up very well against the other four candidates. Moreover, his Reds years helped build the franchise. Robinson led the Reds to their first pennant in over 20 yrs during his MVP season in 1961.

Unfortunately, I was too young to recall Robby's time with the Reds, as he was traded after the 1965 season to the Baltimore Orioles in what remains perhaps the worst trade in MLB history (quick quiz: who did the Reds get for Robinson in that trade?). Robinson responded classically by leading the O's to World Series victory in 1966 in an MVP season where he also won the Triple Crown. His previous Reds tenure, plus his performance and style made Robby the obvious choice as my first 'favorite player' as a youngster.

For ten years, the Reds built their franchise around Frank Robinson. The Orioles subsequently did the same. As such, weird to think Robby can't make a 'franchise' list.

Saturday, May 2, 2015

Language Thugs

Fearless people
Careless needle
Harsh words spoken
Lives are broken

A common characteristic of progressives is their desire to control language. They generally seek to promote words that bring them positive psychic income and ban words that bring them negative psychic income.

In business contexts, for example, progressives dislike the word 'secretary' as it conjures visions of subordinate roles for women in the office. Instead, 'administrative assistant' appears to relieve psychic pain and elevate status in the progressive mind. (Of course, in positions of government authority, the word secretary (e.g., secretary of state) is perfectly fine with progressives.)

Another bout of this rhetorical psychosis appears to be forming around the word 'thug.' Commonly defined, a thug is someone who engages in violence, usually on the street and often as part of a group. Words with similar connotations include vandal, hoodlum, and gangster.

For me, the origins of the word thug date back to watching shows like Superman, Batman, and old black and white action movies, where henchmen of crime bosses and strong armed characters who made street trouble and pushed people around were often called thugs.

Progressives are now claiming that thug is a racial slur. On the back of recent incidents centered around street violence involving blacks, progressives insist that labeling blacks engaged in street violence as thugs amounts to racism.

How holes in logic on this one will be puttied is anyone's guess...

Meanwhile, progressives continue to try to push people around with respect to words. They are language thugs.

Friday, May 1, 2015

Locking In Burger Flippers

Dr Peter Venkman: Janine, I'm sure that someone with your qualifications would have no trouble findings a top flight job in the housekeeping or food service industries.
Janine Melnitz: I've quit better jobs than this.

As a follow up on yesterday's post, Sheldon Richmond addresses a common argument in favor of minimum wage laws. As exemplified here, the argument is that minimum wage laws keep low skilled workers in 'burger flipping' jobs that they would otherwise leave for other jobs, thus leaving those 'other jobs' for other workers.

Of course, any policy oriented toward locking in people to burger flipping jobs for extended time should disturb the reasoned mind.

One of many challenges to the above line of thought is this: suppose wages weren't forced higher. Wouldn't burger flippers look for better jobs as their productivities allowed? And as they found jobs that better match their productivities, then wouldn't that free burger flipper openings for new low skilled entrants into the job market?