Saturday, October 31, 2015


"And, Lenny, you will have saved the lives of millions of registered voters."
--Dr Peter Venkman (Ghostbusters)

Every day is Halloween in Washington DC. People seeking to trick others in order to treat themselves and their interests.

Th marquee trick this week involved increasing the debt ceiling to over $19 trillion so that some may enjoy their treats.

The real scare occurs when the bill comes due.

Friday, October 30, 2015

Breadth Still Declining

Some try to tell me
Thoughts they cannot defend
Just what you want to be
You will be in the end
--Moody Blues

In a pattern evident for months, stock market breadth continues to weaken despite the current rally. For example, on an an equal weight basis, the SPX is marking near 3 year lows.

The implication is that a few mega cap names are propping up the major market cap weighted indexes.

Support dwindling toward fewer names is typically bearish--sometimes severely so.

position in SPX

Thursday, October 29, 2015


"You gotta get with the program if you wanna catch this guy."
--Luther Whitney (Absolute Power)

Consumers of mainstream media last week were largely led to believe that Hillary Clinton made a mockery of the House Benghazi hearing last week and strengthened her presidential position. Judge Nap thinks otherwise.

In particularly, he suggests that Clinton ignored an important audience to the hearings: the FBI and federal prosecutors. That audience was looking for evidence of perjury, misleading statements, and federally defined 'bad acts.' The judge thinks that they found such evidence. He believes that Clinton perjured herself by saying that she didn't know that the US was supplying arms to Libyan rebels. In several related questions, he thinks that she uttered misleading statements to Congress.

In times of trouble, the Clinton family strategy has been to lie as long as possible and hope that a) its mainstream media minions get behind the cause, and b) that the public attention span tires of the process.

Such a strategy ignores the specter of federal investigators who may be unwilling to play along.

Wednesday, October 28, 2015

Raising the Debt Ceiling (Again)

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

Despite Jacob Hornberger's fine argument as to why the debt ceiling should not be raised, the House jammed thru a budget bill that would raise the debt ceiling for the 79th time. The new debt ceiling would be $19.6 trillion.

Rand Paul says that he will filibuster the bill when it hits the Senate floor. Paul does have some experience with this practice.

However, absent a miracle from RP or others, the mortgage on our future is getting more burdensome once again.

Tuesday, October 27, 2015

Canada Spending

I took it all for granted
But how was I to know
That you'd be letting go
--Bryan Adams

When measured as a % of GDP, federal government spending in Canada has trended lower vs the US. Since the mid 1990s, the Canadian government has cut spending programs, privatized government activities, reduced tax rates, and slashed debt. In 2015 Canadian government spending had fallen to 14% of GDP compared to 21% of GDP for the US.

Perhaps the gap will narrow now that a new Liberal regime was elected last week in Canada. The Liberals have promised to raise taxes on high earners, spend more on infrastructure, and run deficits to stimulate the economy.

It would be a shame to see the progress made by our northern neighbors wiped out in a shift from prudence to profligacy.

Monday, October 26, 2015

Producitivity and Price

I'm not expecting to grow flowers in the desert
But I can live and breathe
And see the sun in wintertime
--Big Country

Nice example of what happens to price as productivity improves. Price of a bushel of corn has declined as productivity (bushels of corn produced/acre) has gone up.

We have been conditioned to believe that the natural direction of prices is higher. Nothing could be further from the truth. As long as productivity improves, there should be downward pressure on prices.

If prices are going up instead of down, then it is either because a) productivity is declining, or b) someone is interfering with market pricing mechanisms (e.g., price ceilings/price floors, increasing money supply).

Corporate Prepper

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

Outspoken CEO Patrick Byrne's company reveals that it is keeping $10 million in small denomination gold and silver coins that can be used to meet payroll and other expenses in the event of a banking system meltdown.

It is also keeping 3 months of food for every employee.

Casts a different light on the notion of 'corporate responsibility.'

no position

Sunday, October 25, 2015

Draining the Dollar

There are things we won't recall
And feelings we'll never find
It's taken so long to see it
'Cause we never seemed to have the time
--Phil Collins

Another portrayal of the decline in purchasing power of the US dollar--this one indexed to the passage of the Mint Act of 1792.

As previously observed, save for periods of war when currencies are always debased by warring regimes, the value of the dollar remained stable, and sometimes even exceeded the original $1.00 worth of purchasing power for its first century or so of existence.

Then came a stream of institutions and policies, such as the Federal Reserve and detachment of the USD from gold, aimed at inflating away the currency's value.

Thus, here we are today, with tha original 1792 dollar now worth about 7 cents.

position in gold

Saturday, October 24, 2015

Emotional Capture

Dr Peter Venkman: Ray has gone bye bye, Egon. What have you got left?
Dr Egon Spengler: Sorry, Venkman. I'm terrified beyond all capacity for rational thought.

Emotional capture involves situations where people can be persuaded to support actions that they would not support otherwise because they are emotionally distraught. For example, an economic crisis might cause people to condone unilateral interventions in markets because people fear for their livelihoods.

A school shooting might drive some individuals to sanction laws that impair people's right to defend themselves with firearms.

Personally, I was emotionally captured following the 9/11 attacks to support war on other countries out of feelings of rage and revenge.

Policymakers understand the power of emotional capture. During the credit market meltdown, President Obama's former chief of staff famously uttered that "you never want a serious crisis to go to waste. And what I mean by that is that it is an opportunity to do things you think that you could not do before."

The State is motivated to create situations that enable it to prey on people's emotions.

Friday, October 23, 2015

Climate Justice

Welcome to your life
Even while we sleep
We will find you 
Acting on your best behavior
Turn your back on mother nature
Everybody wants to rule the world
--Tears for Fears

Watermelon socialists have coined a new term: climate justice. The idea is to restrict liberty on a global basis in the name of 'climate change' (formerly global warming).

The most developed nations are assumed to have already used up their fair share of carbon emissions and therefore must compensate lesser developed countries. Current proposals call for the US to completely eliminate greenhouse gas emissions including those from electric power plants and automobiles by 2030.

If these fair share activists hope to enforce their fantasy of climate justice, then they will need to obtain more guns.

Thursday, October 22, 2015

Undoing Obamacare

Now we'll try to stay blind
To the hope and fear outside
Hey, child, stay wilder than the wind
And blow me in to cry
--Duran Duran

Interesting essay suggesting that the Supreme Court's recent King v Burwell ruling might actually be the undoing of Obamacare. Because the Roberts et al argument was that the ACA must be viewed holistically, the thesis is that the ruling will make the act easier to repeal in whole rather than in parts. Congress appears to have the votes to repeal the act via reconciliation, and a willing president in 2017 could ink the deal.

Wednesday, October 21, 2015

Voting Lesser Evil

"It is a kingdom of conscience, or nothing."
--Balian of Ibelin (Kingdom of Heaven)

On the back of yesterday's post, nice quote from Frank Chodorov.

Compromising by accepting the lesser of two evils still results in evil.

Tuesday, October 20, 2015

Warfare, Welfare, and Compromise

Now's the time that we need to share
So find yourself
We're on our way back home

The State can be divided into two wings: the warfare wing and the welfare wing. Statists generally possess strong affinity for one wing while opposing the other wing. Those who believe in welfare policies, for example, usually do not share the same affection for warfare policies.

This dichotomy may be grounded in philosophical differences. For instance, supporters of warfare might believe that strong militaristic abroad paves the way for a less intrusive State at home.

The dichotomy might also be grounded in economics. Resources that go to the other wing mean less for my wing.

Over time, however, partisans in the warfare and welfare wings come to understand that they need the cooperation of the other side in order to advance their agendas. Because neither side possesses a substantial majority necessary to commandeer resources by democratic vote, the warfare and welfare wings engage in processes of compromise to get what they want. Thus, spending bills and budgets are typically jammed with items from both sides in tit for tat fashion.

It is ongoing compromise between the warfare and welfare wings that grows the State.

Monday, October 19, 2015

Squeezing Suppliers to Pay Wages

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

Building on last week's missive, another example of consequences likely unanticipated by those seeking to force minimum wages higher. Earlier this year Wal-Mart (WMT) raised wages for bottom-level employees in response to external pressures and in advance of legal wage hikes. At the time, it was observed that, because WMT competes using a low cost strategy, that passing along those cost increases to customers in the form of higher prices would be unlikely.

Instead, WMT has been squeezing its supply chain for more efficiency. A particularly noteworthy initiative is to charge suppliers storage fees for locating inventory in WMT distribution centers (DCs) and retail stores prior to sale. btw, the idea of suppliers getting actively involved in restocking DCs and store shelves was initially WMT about a decade ago.

Predictably, suppliers have been complaining. Ultimately, there will be less employment in WMT's supply chain as a result of these initiatives.

The lesson: force minimum wages higher and there will be less people employed--either with the targets of that force or with their trading partners.

no positions

Sunday, October 18, 2015

Expansion of Copyright

"I don't create. I own."
--Gordon Gekko (Wall Street)

Chart shows how the duration of copyright grants has increased over the years. The original 1790 Copyright Act specified a maximum term of 14 years plus a renewable term of 14 years.

Current version of the Act runs for the life of the author plus 70 years.

Saturday, October 17, 2015

Offshore Wealth Storage

Face to face
Each classic case
We shadow box and double cross
Yet need to chase

An earlier post discussed the pending establishment of a bullion depository in Texas. Here is an interesting discussion about offshore precious metals storage. One of the discussants operates Strategic Wealth Preservation (SWP) in the Cayman Islands.

Some noteworthy points:

Confidence in bank storage options, particularly domestic ones, is declining as escalating legislation and regulation increase risk of control or outright confiscation of stored property.

Laws may make it legal for banks to confiscate precious metals, but it is isn't legal for wealth storage facilities to do so.

The original concept of banks was that they owned a secure facility and people would pay them a fee to keep their valuables safe. They served as money warehouses. Subsequently realizing that chances of all depositors demanding to withdraw their property at the same time were relatively low (but not zero of course in the case of bank runs), bankers began lending deposits and making money on the interest. That practice in and of itself is not unfair unless depositors do not want their money lent out, and are willing to accept the risk of loss in the event that bankers trade poorly. Of course, the configuration of banks into centrally managed syndicates coupled with the notion of deposit insurance paid by non-depositors have completely distorted the original entrepreneurial concept of leveraged banking.

A wealth storage facility provides what banks originally did--safe storage.

Although US regulations have intensified regarding reporting requirements financial institutions, gold and silver held at a storage facility rather than a bank is not legally reportable (at least for now). Quantities, trades, locations remain anonymous.

A checklist for selecting an offshore wealth storage facility should include selection of an ideal jurisdiction based on proximity, stability, security, history of investor friendliness, freedom from taxes and tariffs, and available of world class storage facilities. The message: finding the right jurisdiction comes first.

Jurisdictions within easy reach are usually attractive. While being perhaps the most ideal jurisdication according to the checklist factors enumerated above, Singapore is half way around the world, which makes quick access to stored property difficult (and more costly).

Not only does SWP appear to be a well thought out class storage facility that is located in an attractive, nearby jurisdiction (Cayman Islands), but some of the world's most prominent precious metals dealers store with them as well. As such, there is opportunity for buying and selling bullion on site which should reduce transaction time and costs.

Diversification across jurisdictions is desirable as size of wealth to be preserved increases.

positions in gold and silver

Friday, October 16, 2015

Trump's Card

Would I lie to you?
Would I lie to you honey?
Now would I say something that wasn't true?
I'm asking you sugar
Would I lie to you?

To many people, the attractiveness of Donald Trump as a presidential candidate boils down to his being an outspoken outsider--someone who has not been a government employee and who is willing to speak in non-politically correct terms. Some of that is indeed refreshing and something that other candidates might learn from.

Thus, when Trump challenges that effectiveness of recent monetary and fiscal policies in promoting real economic growth, and suggests the complicity of the Fed in facilitating pending financial disaster, it is tempting to think that this guy has a solid grasp of problems confronting us and what to do about them.

However, Trump's record places him in the authoritarian camp, and authoritarians often have a keen habit of appealing talk to help them get elected followed by opposing behavior once they are elected. Thus, we found FDR campaigning on planks to cut federal government spending and balance budgets prior to initiating his massive New Deal spending programs. More recently, candidates Bush and Obama both railed against crony capitalism and corporate welfare before approving massive bailout programs and programs that protect big business on their watch.

Trump's calling card, rhetoric with shock value, distracts from his statist core.

Thursday, October 15, 2015

Minimum Wage Frontrunning

"Janine, someone with your qualifications would have no trouble landing a top-flight job in either the food service or housekeeping industries."
--Dr Peter Venkman (Ghostbusters)

Getting in front of pending hikes in minimum wages, a NYC restaurateur plans to eliminate tips and raise menu prices. To the extent that these prices increase employee costs and raise landed prices to consumers such that lower productivity results, two consequences are predictable: demand for fine food and for fine food employees at these restaurants will decline.

Wednesday, October 14, 2015

Hedge Against Disorder

When the walls come crumblin' down
When the walls come crumblin,' crumblin'
When the walls come tumblin,' tumblin'
Crumblin, tumblin' down
--John Cougar Mellencamp

What Paul Singer is saying here is that gold is a hedge against disorder. While disorder could have many causes, it manifests in systems of exchange and wealth preservation. The properties of gold have made it the preferred choice of managing risk of disorder for thousands of years.

As trust in institutions goes down, the value of gold goes up.

position in gold

Tuesday, October 13, 2015

Corporate Welfare and Progressives

"The government's been in bed with the entire telecommunications industry since the forties. They've infected everything. They get into your banks statements, computer files, email, listen to your phone calls. Every wire, every airwave. The more technology used, the easier it is for them to keep tabs on you. It's a brave new world out there. At least it better be."
--Brill (Enemy of the State)

As noted in this article, progressives often rail against corporate welfare but act in ways that support it. Democrats, for example, voted for the TARP bailouts at a far higher rate than did Republicans.

Obamacare, cap and trade, and regulation in general all serve to protect the franchises of incumbents at the expense of entrepreneurial innovation.

As the author observes near the end of his piece: "Big government is not a hedge against big corporations. Generally speaking, they work together against the consumer."

Indeed, big business is an attractive transmission mechanism for progressive policy.

Monday, October 12, 2015

Pete's Laugh Fest

Clowns to the left of me
Jokers to the right
Here I am
Stuck in the middle with you
--Stealers Wheel

This vid is guaranteed to brighten your day.

You still got it, Pete.

Sunday, October 11, 2015

Helping Others

If you wanna make the world a better place
Take a look at yourself
And then make a change
--Godfrey of Ibelin (Kingdom of Heaven)

Many people are passionate about helping the poor and sick. Unfortunately, that passion is often misdirected toward others.

Rather than focusing on their personal actions to help the downtrodden, energy is wasted on what others should do to contribute. Worse yet, aggression is often employed to force others to join the cause.

Conscription and slavery in the name of helping others is not the way of Christ.

Saturday, October 10, 2015

Around the Corner

Trying to make sense of it all
But I can see that this makes no sense at all
Is it cool to go to sleep on the floor
'Cause I don't think I can take anymore
--Stealers Wheel

The chant is familiar. We're almost there. The recovery is just around the corner.

This is not just an Obama administration phenomenon. All bureaucracies hoping to revive economic depressions thru intervention utter similar chants. For example, no group chanted louder than FDR's New Deal minions.

Money printing and debt are never solutions to problems brought on by money printing and debt.

Friday, October 9, 2015


And it won't matter now
Whatever happens will be
Though the air speaks of all we'll ever be
It won't trouble me
--Toad the Wet Sprocket

Little interests me on the long side currently beyond the metals. However, one old friend that's popping up on my radar is Gap (GPS). I have owned this name several times over the years when 1) I'm bullish on general economic direction, 2) the balance sheet is cash rich, 3) valuation is attractive. When those conditions are in place I find GPS one of the most attractive operators in the retail space. Excellent brands, nice market segmentation in fashion retail, solid free cash flow generation.

Unfortunately, the three conditions noted above are not solidly in place--particularly the first one. However, I must admit that in an overvalued world, the relative value of GPS appears interesting. Alongside other fashion retailers, shares have been sold hard as investors worry about product mix, same store sales, and other usual suspects. Negative sentiment is an attractive feature as it typically creates value. Indeed, from a valuation standpoint, current enterprise value of about $11 billion seems inline with annual FCF generation of $1 billion or so over the past few years.

Although the company has been adding debt to its balance sheet like all other operators in a ZIRP world, it still holds about the same amount of cash as it does debt. In the past, management has shown proclivity for paying down debt. It has the cash to do so once again.

Technically, the stock appears oversold on both short and long term time frames. Recent selling has the stock currently perched on a 50% retracement of the 5 year price range. Monthly stochastics are crossing low.

Am not a buyer currently. But if this issue gets more washed out--particularly down to the 62% retracement level at $22ish where it has some support, my position might change.

no positions

Controlling Others

Let me be your ruler
You can call me queen bee
And baby I'll rule, I'll rule, I'll rule, I'll rule
Let me live that fantasy

The extent to which some people seek to control the lives of others never ceases to amaze. Some feel obligated. They view others as incapable of making 'correct' decisions for themselves and therefore in need governance. These are the nannies.

Others get satisfaction in manipulating the behavior of others. These are the puppeteers.

Others obtain pleasure from positions of power. They believe that there is a natural role in society for some to govern others and that this position is rightly theirs. These are the rulers.

One tendency nannies, puppeteers, and rulers share is a willingness to use the strong arm of government to realize their control objectives and associated psychic income.

Thursday, October 8, 2015

Desperate Revisionism

She musters a smile
For his nostalgic tale
Never coming near what he wanted to say
Only to realize
It never really was
--Doobie Brothers

Former Fed Chair Ben Bernanke has been floating op eds recently defending FOMC actions during his tenure. No different from Greenspan's desperate attempts at revisionism, really. Of course, it will take more than some well placed editorials to revise history.

One of his claims is that the most meaningful contribution of the Fed's quantitative easing programs has been to the labor markets.

Perhaps, Ben, but almost surely not in the way you'd like people to believe.

Wednesday, October 7, 2015

Free Trade Treaties

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

Salient point made here. Free trade does not require a treaty. Genuine free trade involves voluntary exchange between individuals. By definition, they need no permission to do so.

Treaties impose limitations on trade--limits on who, what, where, or how things can be exchanged. And how these limitations will be enforced.

Free trade is grounded in peace. Treaties are grounded in violence.

Tuesday, October 6, 2015

Charlatans and Sheep

I'll be your savior, steadfast and true
I'll come to your emotional rescue
--Rolling Stones

Thomas Sowell observes that social justice, equality of outcome charlatans would have no influence were it not for sheep-like followers who do not reason for themselves. Heavy reliance on emotionally driven, System 1 thinking by large groups of people is what keeps charlatans in business.

Monday, October 5, 2015

Risk and Reward

Hear the echoes and
Feel yourself starting to turn
Don't know why you should feel
That there's something to learn
It's just a game that you play
--Al Stewart

'Common wisdom' in mainstream financial advice is that stocks, while being riskier than other asset classes such as bonds, handily outperform over time. Thus, investors should buy and hold equities for the long term because the longer one holds stocks, the more likely they are to outperform bonds.

Anyone who understands the relationship between risk and reward should see problems with this thought process. Axiomatically, riskier asset classes present prospects of higher reward. After all, who in their right mind would invest in a high risk, low reward proposition? But risky investments also carry higher potential for loss. If they did not, then by definition these asset classes would be low risk and high reward and everyone would pile into them, driving prices higher and reducing reward (which would bring the risk:reward relationship back in line).

Of course, proposing stocks as low risk and high reward in the long run is likely to draw doubts from even gullible clients.

A more truthful statement is that risky asset classes like stocks have potential for high returns over time but also potential for high losses over that same time horizon. In other words, investors heavily into stocks should prepare themselves for the prospect that their portfolios could just as easily be down big after 30 years as they might be up big.

If that were not the case, then the risk:reward axiom would be wrong.   

Sunday, October 4, 2015

Monetary Disorder

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

The always thoughtful Jim Grant offers several insights relative to the current state of financial and economic affairs.

Portfolio balance channel. This is a fancy phrase for central bank sponsoring of higher asset prices in hopes that it will spur consumer spending. Another name for this is the 'wealth effect' which enjoys marginal empirical support at best. Central bank administration of asset prices, as demonstrated by the ham-handed interventions of the Chinese, has reached epic levels.

Aggregate supply. Central bankers have implemented policies aimed at boosting aggregate demand. They forget or ignore the effects of their polices on aggregate supply. Cheap credit motivates expansion which could easily put downward pressure on prices despite the monetary inflation. A nice example of this can be witnessed currently in US shale oil production. Lower capacity utilization helps explain why 'headline' CPI numbers have not gone thru the roof. Monetary inflation has resulted in excess supply versus demand which, as ECON 101 suggests, weakens prices.

Helicopter money. Traditional monetary policies have not brought about hoped for economic strength. This leads central bankers toward increasingly radical ideas. If the existing monetary system grounded in credit money creation isn't working, then aren't ideas of bypassing the banking system altogether and simply mailing checks to citizens a 'logical' next step. Grant suspects so. These pages have thought so for some time.

Saturday, October 3, 2015

ZIRP Dependence

You can't eat
You can't sleep
There's no doubt
You're in deep
--Robert Palmer

When yesterday's dismal job numbers were first released yesterday morning, futures immediately tumbled more than one percent. That surprised me because it seemed obvious that poor job numbers would once again imply that the Fed would be inclined to keep their zero interest rate policy (ZIRP).

Didn't take long for traders to figure that out, as the initial dip was bought and markets ground higher all day, closing with gains of 1%+.

Another demonstration of market dependence on ZIRP.

position in SPX

Friday, October 2, 2015


"I always say, the way a man treats his car is how he treats himself."
--Inspector Tarconi (The Transporter)

Don't think I've ever owned an automotive stock--at least w.r.t. the car makers. From where I sit the most attractive operator is BMW. In the US, BMW trades as BAMXY on the pink sheets.

Some analysts are out recommending the stock, as it is off its highs and has fallen in sympathy with the Volkswagen debacle.

Despite the recent price decline, the security still seems significantly overvalued. About $50 billion market cap expands to at least $80 billion in enterprise value once cash vs debt taken into account. The company has generated negative free cash flow for the past three operating years. Maybe $2-3 billion in annual FCF prior to that. If capitalized as a perpetuity, then this amount of FCF is well below current enterprise value.

Stated differently, from a valuation standpoint, either FCF needs to go up or price needs to come down.

Technically, the multi-year uptrend has been broken. Stock currently trades near a 38% Fibo retracement of its 2009-2015 price range, with monthly stochastics ready to hook at the bottom, which may make it ripe for a trade.

As an investment, seems more interesting near the 62% retracement area ($20 share price) as it coincides with other lines of support and a price more commensurate with fundamental value.

no positions

Thursday, October 1, 2015

Novelty and Truth

Step right up and don't be shy
Because you will not believe your eyes
--The Tubes

As Judge Nap alludes at the end of this screed, truth is immutable. It does not change with the winds of progress. Truth is durable and final. It can not be disconfirmed by reason.

Novelty, on the other hand, is what is interesting today. It is popular because it is different. It often makes people feel modern or 'leading edge.' Once the newness wears off, however, people shed today's outdated novelty for new fashion.

In time, novelty bows to truth.