Better Sold

You say goodbye right now
I'll still survive somehow
Why should we let this drag on?
--Tom Petty

The wedge pattern forming in the major indexes went the way of the banks--lower.

Until proven otherwise, rallies (such as today's morning lift) are better sold than bought.

position in SPX

HBD Mises

"Scientific criticism has no nobler task than to shatter false beliefs."
--Ludwig von Mises

On this day in 1881, one of the greatest economic and social science minds in history was born.

 

HBD Ludwig von Mises.

Watermelon Socialism

Another promise fallen through
Another season passes by you
--Big Country

In the previously discussed article by Tom DiLorenzo, TD also observes that, after the collapse of socialist states in the 1980s, many socialists took the advice of ecologist and one-time presidential candidate Barry Commoner.

Commoner suggested that socialists no longer advocate central planning in the name of "the people." Few people would likely climb aboard to support a vision that was falling apart in the Soviet Union and elsewhere. Instead, he advocated central planning in the name of "saving the planet" from capitalism.

Good idea, said the socialists. We can change our stated means to obtain the same ends. That will get people on board.

And watermelon socialism was born. Green on the outside. Red on the inside.

Paradox of Common Good

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

Tom DiLorenzo discusses the farce of 'the common good' in lieu of recent dicta from Pope Francis. In the political context, the common good implies unanimity. There is no such thing as unanimity in politics--or in life for that matter where diversity is axiomatic. If everyone agreed on a course of action, then there would be no need for government coercion. There would be no need for government to enforce the common good.

Politics is better viewed as activities seeking to benefit some at the expense of others--of using force rather than personal effort and voluntary cooperation to get what one wants.

DiLorenzo observed that the common good concept can be traced to Jean-Jacques Rousseau, whose The Social Contract (1762) and other works provided a foundation for the intellectual development of communism. Rousseau argued that the common good was something that only the elite in society could recognize. This special knowledge gave the elite the right to impose their will on all others.

So, the common good is known only to a few. And it requires force in order to implement.

Quite the paradox.

Capitalism and Environment

I need to laugh
And when the sun is out
I've got something I can laugh about
--The Beatles

As observed here, the notion that capitalism destroys the environment is mistaken. In dirt poor countries, people scratch out enough resources each day to survive. If that means dirtying the environment to do so, then it will occur.

As affluence increases via capitalism, more resources are available for environmental quality. Moreover, buyers in the market will demand cleaner water, air, etc. as they become more prosperous.

The relationship between wealth and environmental quality is straightforward to explain in theory and overwhelming in empirical evidence.

Threat to Liberty

"Why should I trade one tyrant 3000 miles away for three thousand tyrants one mile away? An elected legislature can trample a man's rights as easily as a king can."
--Benjamin Martin (The Patriot)

Gallup poll reinforces 10+ year trend in concerns among Americans that government poses "an immediate threat to the rights and freedoms of ordinary citizens. Currently about half share that view, up from less than 1/3 in 2003.

Not surprisingly, political party affiliation influences perception here.

Too bad this survey has not been conducted since the founding the United States. Viewing levels and trends over a longer time period would prove even more interesting.

Empty Promises

Second time around
I'm still believing
Words that you said
--Naked Eyes

Annual family health insurance premiums have increased nearly $5000 on average since 2008. In 2008, President Obama promised, "We will start by reducing premiums by as much as $2500 per family."

Another completely predictable empty promise. Initiated by Medicare and Medicaid, Government spending as a percent of total health care spending has increased from about 10% in 1960 to nearly 50% today.

An axiom that reveals itself on the road to truth: Increased government involvement in a market always raises prices.

The natural tendency of unhampered markets is just the opposite.

Ditch Zero

Stretched by fewer thoughts that leave me
Chasing after my dreams disown me
Loaded with danger
--The Fixx

Bill Gross argues that central bankers should ditch zero interest rate policy (ZIRP) but quick. Why? "Because zero bound interest rates destroy the savings function of capitalism."

Indeed, it should be obvious that without savings to provide capital for investment, there is no capitalism.

ZIRP is hurting mainstream Americans. People are less prone to save and invest in their future when interest rates are low. As Gross observes, "They are not so much in a pickle barrel as they are on a revolving spit, being slowly cooked alive while central bankers focus on their Taylor models and fight non-existent inflation."

Gross is wrong about inflation. Thru ZIRP policies, central banks have increased money supply by trillions--the essence of inflation. This inflation has increased wealth disparity as it has promoted higher security prices while slowly devaluing dollars in the wallets of the masses.

Ditching ZIRP increases savings and economic growth and reduces inflation.

Helping the Poor

Feed the babies that don't have enough to eat
Shoe the children with no shoes on their feet
House the people livin' in the streets
Oh, oh, there's a solution
--Steve Miller Band

Related to the previous post, nice comparison of the force vs freedom alternatives for helping the poor.

To improve the accuracy of the Big Government panel, the pic should show guns being pointed at people up top being forced to produce food for those below.

Why Prosperity?

"Your grandfather scratched the mill out of the naked earth."
--Mary Rafferty (The Valley of Decision)

The dicta of Pope Francis includes blaming capitalism for many problems of the poor. Capitalism is seen as creating or extending conditions of poverty among "the poor."

Thomas Sowell observes that review of history shows that it is not poverty that needs explaining. We know why poverty exists. It is the default condition of the human species due to axiomatic scarcity.

Instead, what needs explaining is prosperity. Prosperity stems from production--the combination of labor with other factors of production to generate goods and services that, through their consumption, alleviate scarcity.

But how to determine which goods to produce and how to get them to market? In socialistic systems bureaucrats make those decisions for consumers. In capitalistic systems it is the consumers themselves who guide production and distribution decisions. It should be apparent that people making their own choices and voluntarily cooperating with others are superior to central planners when determining what production enhances prosperity.

It is capitalism that explains man's climb out of poverty into more prosperous conditions. Capitalism enlarges the economic pie much more effectively than alternative designs.

The Pope suggests that the best way to help the less fortunate is to forcibly cut them a bigger slice of pie. But which has a better track record of helping the less fortunate over time: fighting for a bigger slice of pie, or producing a bigger pie?

Breaking Banks

When it gets too much
I need to feel your touch
--Bryan Adams

While the major indexes remain caught in a trading wedge, the bank index (BKX) broke lower out of its wedge last week.

Am using today's lift to add exposure to the sector.

position in JPM

Papal Dicta

"I put no stock in religion. By the word religion I have seen the lunacy of every denomination be called the will of God. Holiness is in right action and courage on behalf of those who cannot defend themselves, and goodness. What God desires is here (points to head), and here (points to heart), and what you decide to do every day, you will be a good man...or not."
--Hospitaller (Kingdom of Heaven)

In light of Pope Francis' upcoming visit to the US, Judge Nap, who is a traditional Catholic, discusses the pope's well publicized views on economics as well as his recent actions related to divorce and abortion.

In traditional Catholicism, the pope is seen as the vicar (direct agent) of Christ on earth. As such, he should be infallible on issues of faith and morals. However, because popes are human beings operating in an imperfect world, it is possible for them to overstep their bounds and stray into areas beyond their authority and competence. Since the papal institution has been established, the forays of several popes have in fact been epic.

In his public statements, Pope Francis often engages in dicta, meaning that he expresses opinions unrelated to the issues at hand. In several of his formal communications, for example, the pope has espoused views about economic issues and about the role that government force could play in advancing his socioeconomic vision.

As Judge Nap observes, not only do these views constitute dicta, but they directly conflict with Catholic belief in free will--i.e., "the absolute freedom of the individual to make his or her own choices."

Unfortunately, because papal positions carries the aura of supreme authority, it is likely that papal dicta concerning economics is likely to be treated quite literally as 'gospel' by many.

Pope Francis has also recently acted to speed the process of marriage annulments and to endorse the authority of Catholic priests to unilaterally absolve the sin of abortion. On these issues, I do not quite share the alarm of Judge Nap. Annulment and confession are formal, rule-based processes of an earthly church that are likely to imperfectly reflect, and sometimes seem directly at odds with, an all-loving, forgiving Creator. From scripture, it seems clear to me that, while on earth, Christ was not a proliferator of rules. He was a simplifier of them.

Prescribing and condoning solutions that involve government-sponsored aggression to combat economic need and climate change are other issues entirely. Willingness to use the trappings of papal office to lend the air of legitimacy to policies of force is inappropriate as it conflicts with the teachings of Christ.

Wedgie

One foot on the brake
And one on the gas
There's too much traffic
I can't pass
--Sammy Haggar

Appears the fade trade was selling the post FOMC love fest, which may have temporarily signaled to the trading crowd that an upside breakout from the recent wedge pattern was taking place.

Instead, the initial move higher may have been a cruel head fake. After yesterday's big volume reversal, the SPX has lost 60 handles and is now a kitten's whisker from breaking thru the wedge to the downside. Add to that the spectre of trapped longs and options expiry hangover and it feels like that path of least resistance is lower.

Will be alert for opportunities to add downside exposure.

position in SPX

Federal Firestarters

Relax said the night man
We are programmed to receive
You can check out any time you like
But you can never leave
--Eagles

John Succo explains why the Fed can't raise rates.

Modern money printing is primarily credit money--i.e., creation of debt. ZIRP has facilitated $trillions in speculative, debt-based projects. If the Fed raised rates, cost of creating and maintaining debt-based projects goes up, causing many to unwind projects (a.k.a. deleveraging), which drives prices lower. As prices go lower, more and more project holders face margin calls. Which drives more selling.

Stated differently, the Fed's inflation of credit money is followed by a deflation of credit money when risk appetite diminishes.

It happened in 08. It will happen on a larger scale this time because debt and leverage are much higher.

The Fed would prefer not to be the one to put this vicious cycle in motion by raising rates. But make no mistake, regardless of where the spark comes from, the Fed has lined the tinderbox.

position in SPX

Max Foolishness

But what a fool believes he sees
No wise man has the power
To reason away
--Doobie Brothers

Once again, spineless bureaucrats at the Fed left interest rates at the zero bound. One politician cheering the move was Maxine Waters, who stated that the Fed was exercising a "prudent and cautious approach to safeguarding our economy." Moreover, she suggested that ZIRP was what minorities need.

The opposite is in fact true. ZIRP widens the chasm between the rich and poor.

Foolishness of the Federal Reserve is only exceeded by politicians such as Maxine Waters who support this institution.

Constitution Day

I'll tip my hat to the new Constitution
Take a bow for the new revolution
--The Who

On this day in 1787, 39 of the original 55 delegates to the Constitutional Convention signed the document. The Constitution would subsequently be forwarded to the states for ratification, a process that took until June of the following year to obtain the nine state minimum necessary to make the document the law of the land.

While imperfect, the Constitution remains the strongest government design conducive to liberty yet devised. The parchment is old. The ideas remain fresh.

And radical.

One Percent Hypocrisy

"You know, it occurs to me that the best way you hurt rich people is by turning them into poor people."
--Billy Ray Valentine (Trading Places)

Nice question posed by Tom Woods. Even many of those classified as 'poor' in the US possess more than most people in other parts of the world.

Why shouldn't the Ninety Nine Percent worldwide be entitled to take the property of those better off than them?

Those who believe property should be forcibly taken from those better off from them while at the same time doing all they can to protect their property from the same forcible theft (or abstaining from voluntarily donating their property to those who are less well off for that matter), is one of the world's great hypocrisies.

Progressive Racism

Sometimes I think it's a sin
When I feel like I'm winning
When I'm losing again
--Gordon Lightfoot

In a timely follow-up to Prof Williams' data-driven challenge of the Progressive racism narrative, Prof Anderson presents a case that it has been Progressive policies that have increased socioeconomic disparity among blacks. Economic regulation imposed by Progressives created monopolies where none existed and Progressive polices created new and harmful barriers to entry that blocked groups from climbing the economic ladder.

Some of these policies were intentionally racist, as demonstrated by quotes from Progressive icons such as Margaret Sanger. Similar to Lincoln, many Progressives saw the black population as negative influences on American society and sought to eliminate blacks thru both overt and covert policies. The history of Progressive labor laws, including minimum wage laws, can be viewed as a blatant attempt by powerful white coalitions to protect their franchises from competitive black labor.

Like Williams, Anderson notes that the real spread between black and white unemployment rates became more noticeable in the 1950s--after Progressive policies had a generation or so to take hold.

The irony of it all is that many blacks and well meaning Progressives embrace the very political philosophies that have widened the socioeconomic inequality that they purport to oppose.

Joint Economic Committee Report

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

Interesting Joint Economic Committee report that discusses federal spending and debt since the country's founding. Several interesting graphs and charts, including this chart on federal spending, revenue, and public debt:

Dan Mitchell isolates the spending piece here:

Table that shows fraction of economic output consumed by government spending:

One thing that should be evident is that it hasn't always been the way it is today. The United States prospered for over one hundred years without reckless borrowing and spending.

The recklessness is a phenomenon of the last 100 years, beginning with the onset of the Progressive movement and establishment of the Federal Reserve.

Gridiron Glory

"And on the fifth day, God created cheerleaders. And they wore short skirts. And that was very good. And on the sixth day, He created the football player. And people paid to watch them hurt. And that was good. And on the seventh day, they played football! Six-two stack monster! Six-two stack monster. Ready, BREAK!"
--Stefen Djordjevic (All the Right Moves)

Once again celebrating the return of football. College last week. Pros this week.

Harvest season is upon us.

False Racism Narrative

"That dog won't hunt."
--Wade Garrett (Roadhouse)

As in times past, Prof Williams challenges the popular narrative that problems encountered by black Americans today are mostly rooted in racism and a legacy of slavery. Instead, he presents data suggesting that these problems are grounded issues such as:

Breakdown of family structure. Female headed households as a percent of total black households: 1950 18%, today close to 70%. In 1925, 85% of black households in NYC were two parent households. Poverty rate among black married households has been in single digits since 1994.

Out-of-wedlock births. Percent of black children born to single mothers: 1938 11%, today 80%+.

Youth unemployment. Nationally, black unemployment averages 40% and tops 60% in some cities. Youth unemployment in 1948: blacks 9.4%, whites 10.2%. Labor force participation rates among black teens: early 1900s equal to or higher than white teens, today a fraction of white teens.

Williams' point is this. If racism was the primary underlying cause of black socioeconomic problems today, and the data suggest that these problems are getting worse, then the implication is that racism has been on the rise for the past half century. Claiming such will strike most as ludicrous. Gathering evidence to effectively support this claim is an uphill battle.

Which is why supporters of the institutional racism myth don't do so. Instead, they prefer to chant the narrative and believe the fiction.

Rescued

When my teeth bite down I can see the blood
Of a thousand men who have come and gone
Now we grieve 'cause now it's gone
Things were good when we were young
--Von Bondies

Nice blue sky this morning, although not the cobalt hue that colored the heavens on that day. Somber thoughts remain. Where I was. The people I knew. Feelings of helplessness, anger, vindictiveness. I don't suppose these thoughts will, or should, ever completely go away.

For me, however, this is not a time for hand wringing. I am grateful for this day. It plucked me off the path of indifference and placed me on the road to truth. There have been detours, to be sure. But I know where I'm supposed to go.

Fourteen years ago today, I was rescued.

Pennant Race

When it gets too much
I need to feel your touch
--Bryan Adams

Many traders eyeing the triangular wedge or pennant pattern forming in the major indexes. Textbook technical analysis posits that the pattern will resolve in the direction of the prevailing trend.

Perhaps that is the question that traders are noodling. Just what is the direction of the prevailing trend?

position in SPX

Evolution of Liberal

Will you recognize me
Call my name or walk on by
Rain keeps falling, rain keeps falling
Down, down, down, down
--Simple Minds

These pages have discussed the hijacking of the word 'liberal' by progressives (e.g., here, here, here). Nice analysis here by GMU econ prof Dan Klein of the evolution of the word using Google's ngram tool.

A simple ngram of 'liberal' reveals that usage of the word nearly quadrupled in the late 1700s. Klein links this pattern with the development of political and economic meanings of the word put forth by authors such as Locke and Smith. In this context, liberal was clearly associated with concepts of freedom and liberty.

The ngram then indicates that usage of the word liberal declined somewhat in the 1800s only to pick up again in the 1900s. Klein connects the second wave to the collectivist, statist movement which was becoming popular by the turn of the 20th century. Klein's 1894 quote of a Fabian socialist ("Laissez-faire individualist political philosophy is dead") helps capture the sentiment.

Because people still remembered what liberalism had been, progressives invented the term 'new liberalism' to reflect socialistic reform.

As memories of 'old liberalism' faded, progressives were able to clip the off the 'new.' And voila, liberal joined the stable of a positive substitute symbols that have become embedded in the American mind.

Central Bank Stock Pool

All the paintings on the tombs
They do the sand dance don't you know
If they move too quick
They're fallin' down like a domino
--Bangles

Discussion of why and how central banks could send stocks soaring from here. Central banks can't let stock prices fall in a over-leveraged financial system that makes the 2008 backdrop look like a Sunday school picnic. In other words, CBs are 'all in' and believe that they need high stock prices if they are to have a fighting chance at holding their Keynesian fantasy together.

As these pages have discussed, the 'how' involves a variation of the old stock pool arrangement. At least two colluding players trade buying and selling stocks to each other, hoping that they can lure others into the game. All the while, prices spiral higher.

I believe that central banks, including the Fed, have been playing this game. It can work in low volume situations until outsiders lose their risk appetites and begin to sell. Or until colluding players soak up so many shares that Everyman no longer associates stock prices with economic well being.

The question is whether we're on the cusp of central bank stock pool irrelevance.

position in SPX

Enriching Labor

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

There is only one way to enrich labor peacefully: capitalism. As Tom DiLorenzo explains, capitalism has been responsible for pulling the working class from destitution, for increasing wages as worker productivity grows from investment, for shortening the work week, for the demise of child labor, and for safer workplaces.

However, because individuals generally favor less work than more work, they are tempted to acquire resources through political means (read: aggression) rather than through peaceful cooperation, production, and exchange. For example, labor unions and proponents of minimum wage laws, with the assistance of strong armed government agents, seek to force the wages of those in their interest groups above market rates. Perversely, such interventions reduce reduce the amount of labor demanded to the extent that wage rates are indeed forced above the productive capabilities of workers.

Regulations generally impoverish workers as well. For instance, safety regulations impose unnecessary costs on producers who are well motivated in competitive environments to make workplaces safer to reduce compensating difference and retain talent. As unnecessary costs rise, demand for labor declines and workplaces become more dangerous as less incentive exists for markets to create innovative solutions to workplace hazards.

Indeed, it is straightforward to view such interventions as anti-labor. Remove the aggression and encourage voluntary cooperation, along with the investment that it attracts, and the living standards of workers will flourish.

Lincoln's Italian Prospect

"You're like the thief who isn't the least bit sorry he stole, but is terribly, terribly sorry he's going to jail."
--Rhett Butler (Gone With The Wind)

Tom DiLorenzo discusses Lincoln's attempt to outsource command of the Northern army to an Italian mercenary named Giuseppe Garibaldi. After a string of defeats and firing McClellan, Lincoln offered the command to Garibaldi who had built a reputation for paramilitary forays and terrorism during both an Italian civil war and campaigns in South America.

Garibaldi declined Lincoln's offer. Perhaps he didn't savor the prospects of engaging Lee's army rather than the unarmed civilians that he was used to.

Unable to hire an international mercenary, Lincoln subsequently settled on domestic generals willing to enact the president's version of domestic terrorism.

Quantitative Tightening

Relax said the night man
We are programmed to receive
You can check out any time you like
But you can never leave
--The Eagles

Quantitative easing (QE) constitutes central bank bond buying to force long-dated interest rates lower (and provide a buyer for government and agency debt). Peter Schiff suggests that the unwinding of QE, i.e., when central banks unload bonds from their balance sheets, should be called "Quantitative Tightening."

I suppose, although I'd wager that we're much more likely to see more QE before any QT.

Money Printing Regimes

How can you just leave me standing
Alone in a world that's so cold?
--Prince

Nice perspective on base money supply by Fed regime.

Recent Bernanke/Yellen tandem makes Greenspan look like a hawk by comparison.

Government and Scapegoats

No message could have been any clearer
If you want to make the world a better place
Take a look at yourself
And make the change
--Michael Jackson

When was the last time a government official stepped up and said that he/she owned a problem? Jacob Hornberger suggests that the answer is never. Government is always looking for scapegoats.

Credit crisis, Iraq/Middle East, Holocaust, immigration, drugs, et al.

While interventionism brings death and suffering, the interventionists avoid the mirror.

Gross Distortions

Oh, see the fire's sweepin'
Our very street today
Burns like a red coal carpet
Mad bull lost it's way
--The Rolling Stones

Bill Gross notes two primary distortions of the extremely low interest rates forced on markets by central banks over the past few years. One is lower propensity to save. "If savings wither then so does its Siamese Twin - investment - and with it, long term productivity."

The other is asset prices. "Artificially low interest rates have propelled financial markets."

His view is that the imbalances caused by low interest rate policies are beginning to push back, with financial markets reeling in response.

He likes cash or 'near cash' (i.e., short term corporates) here.

position in SPX

Never Enough

So glad we've almost made it
So sad they had to fade it
--Tears for Fears

Never short enough on these gap down moves. Did reload some INTC puts yesterday to gain some exposure.

Feels like the bulls have put a call in to Snapper. Whether he picks up is another thing entirely.

position in SPX, INTC