Pending Home Sales

And I remember how we'd play
Simply waste the day away
--Madness

Found the timing of this piece curious as I've noticed anecdotal evidence of pending home sales declines in my neighborhood. In fact, several properties that were listed as pending almost as soon as they were posted are now back on the market.

Article suggests limited supply and associated higher prices as key factor in pending sales decline. Perhaps, but I'm now seeing properties listed at prices that would have been lifted by buyers a few months ago now sitting there.

Small sample of higher end market to be sure, but has caught my attention nonetheless.

Political Violence and Government Importance

Benjamin Franklin Gates: Of all the ideas that became the United States, there's a line here that's at the heart of all the others. "But when a long train of abuses and usurpations, pursuing invariably the same Object, evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government and provide new guards for their future security." People don't talk that way anymore.
Riley Poole: Beautiful. I have no idea what you said.
Benjamin Franklin Gates: It means. if there's something wrong, those who have the ability to take action have the responsibility to take action.
--National Treasure

This article posits that, to curb political violence, government needs to be made less important. This proposition ignores the idea that, in a democracy where majorities claim legitimate control of human action, peaceful reduction of government scope is unlikely.

Instead, conflict will continue to escalate between parties seeking to gain control of the strong arm of government until society devolves into chaos.

The reverse of the article's proposition seems more valid. To make government less important, political violence may be necessary. Witness, for instance, the American Revolution.

Lost Generation

"I can tell you now one reason why I think you've been having hard luck. I saw it in your faces last night. I can see it there now. You've been looking at a lot of air lately, and you think you ought to have a rest. In short, you're sorry for yourselves. Now, I don't have a lot of patience with this 'What are we fighting for?' stuff. We're in a war--a shooting war. We've got to fight. And some of us have got to die. I'm not trying to tell you not to be afraid. Fear is normal. But stop worrying about it and about yourselves. Stop making plans. Forget about going home. Consider yourselves already dead. Once you accept that idea, it won't be so tough."
--General Frank Savage (Twelve O'Clock High)

Saw one of my favorite movies last nite, Twelve O'Clock High. The film is a story about the early days of strategic bombing in northern Europe during WWII. A 'hard luck' bomb group is failing, and a veteran general is sent in to turn things around. From where I sit, this is one of the best management movies ever made, particularly in the context of turnarounds.

The film is also a reminder of the utter waste of war in terms of human life. Bomb groups at that time sought to put up 21 planes per mission. Casualties were considered 'good' when 19 of 21 planes returned from a mission. Losses were frequently much worse. With the requirement being 25 completed missions before a bomber crew's tour was done, it should of little surprise that fear was high and morale was low when loss rates/mission were 10%+.

By the end of the war, the Eighth Air Force, which undertook most bomber and fighter plane missions for the United States in northern Europe, had realized more than 47,000 casualties, including 26,000 dead. Seems inordinately high until one realizes that casualties pile up quickly when each heavy bomber that went down carried a ten man crew with it.

Memorial Day finds me thinking about a particular subset of the Silent Generation--call it the Lost Generation of human potential.

Cultural Appropriation

Beatrice Pullman: You'll be the death of me with these pancakes.
Delilah Johnson: I'm glad you finds 'em to you taste, ma'am. 
Beatrice Pullman: I've never tasted anything so good in my life. How do you make them?
Delilah Johnson: It's a secret. Them pancakes is my granny's secret. She passed it down to my mammy, and my mammy told me. But I ain't tellin' nobody. No sir.
Beatrice Pullman: I don't blame you. I wouldn't either.
Delilah Johnson: Down South, my mammy was famous for her pancakes. White folks come from miles around just to taste 'em. Yes'm. It's a secret and it's gonna die with Delilah.
--Imitation of Life

As our entitlement mindset has escalated, it was probably only a matter of time before people in one group began accusing people in other groups of 'cultural appropriation.' In this context, cultural appropriation is seen as having customs and routines 'ripped off' by people perceived as not belonging to your group. You view this as theft--them profiting at your expense.

In Portland Oregon, for example, white people who run restaurants that serve ethnic cuisines have been put on a 'white-owned appropriative restaurants' list. The list's authors use the 'white supremacist culture' moniker to accuse the restaurateurs of unjustly using, for example, Mexican recipes to produce food that customers like.

"These white-owned businesses hamper the ability of [people of color] to run successful businesses of their own by either consuming market share with their attempt at authenticity or by modifying foods to market to white palettes. Their success further perpetuates the problems stated above. It's a cyclical pattern that will require intentional behavior change to break."

Local media are embracing the 'appropriation' concept.

Boycotting white owned ethnic restaurants seems to be the preferred strategy for trying to limit the competition. Seems only a matter of time before movements to sue for intellectual property violations are conjured.

What this is really about, of course, is trying to use bigotry to one's advantage.

Unfortunately, the last thing likely to be considered by this group is head-to-head competition on the merits of product, service, and peaceful exchange.

Fiction as Fact

People say believe half of what you see
Son and none of what you hear
--Marvin Gaye

Timely example of media influence on politics. Recent survey data show that nearly 60% of Democrat respondents believe that Russia tampered with vote tallies in order to get Donald Trump elected president. Moreover, 35% of Independents and 15% of Republican respondents also indicated belief in Russian tampering.

This is despite no supporting evidence and multiple on-the-record denials by FBI and DHS officials.

What there has been, of course, is a deluge of grapevine journalism that has been reporting rumors and hearsay related to Russia and Trump to information consumers.

The above results are consistent with strategic information transmission research. When consuming information presented by politically motivated media, people can be fooled into believing lies.

Politics, Media, and Influence

"I'll make public opinion out there within five hours. I've done it all my life. I'll blacken this punk so that he'll--You leave public opinion to me. Now, Joe, I think you'd better go back into the Senate and keep those senators lined up."

--James Taylor (Mr Smith Goes to Washington)

Heard a proposition recently that Democratic Party and their strategists do not control the mainstream media. Instead it is the opposite. MSM predominantly shape the Democratic Party and their strategists.

The theory might be explained as follows. Intellectuals and their associated intelligentsia control the large media pipes for putting their socialist ideology in front of information consumers. Research suggests that not only will leftist journalists distort information conveyed thru the pipe, but they will likely grossly exaggerate it in order to influence consumers.

Even if consumers know that media is biased left, they are still likely to be influenced by it. One reason is that information consumers generally underestimate the extent to which media sources are operating strategically. This would hold true even for seemingly sophisticated media consumers such as politicians.

Sprinkle in propositions regarding the dominant direction of resource dependence in media:politician relationships, and you have the makings of an interesting theory. 

A more general form of the theory might posit that any influential media source with a particular political ideology is likely to influence political parties that share some of those beliefs. When that is the case, the media source 'hooks' the party and that party can be subsequently shaped. 

That would suggest, for example, a Fox News:Republican Party dyad that parallels the originally proposed MSM:Democratic Party dyad.

Unitary Executive Theory

FBI Director Voyles: Are you asking me to ignore a suspect, Mr President?
The President: If the press...gets wind of what you're after and starts digging, I'll be--we'll be crucified.
FBI Director Voyles: So you're asking me to back off?
The President: Back off and chase the real suspects. Ignore it for a few weeks, that's all.
--The Pelican Brief

In the context of allegations that Donald Trump obstructed justice by interfering in various DOJ and NSA investigations, Judge Nap discusses the concept of the unitary executive.

Unitary executive theory holds that the president is the chief executive officer of the federal government and, therefore, everyone in the executive branch works for him. Because the president is the only one in the executive branch that is accountable to voters, there can be no people in the branch who are not under the chief executive's authority. It this weren't so, then vast areas of governance would not be accountable to the people. This would violate the right of people to be governed by the consent of the governed.

Under unitary executive theory, the director of the FBI and other directors of various agencies in the executive branch serve at the pleasure of the president. They are obliged to follow all orders and requests of the president or resign. Upon resignation, they may reveal the reasons for the resignations.

In opposition to unitary executive theory is the argument that people who serve underneath the president have an ethical duty to pursue wrongdoing even if the president demands or requests that they 'back off.' This is especially the case if the president is suspected of being involved in the wrongdoing. This argument posits that the president does not need to intervene because he ultimately has the power of the pardon, and can constitutionally terminate sentences of those who may be convicted of crimes prosecuted by executive branch agencies.

Here is an informative give-and-take between the Judge and Juan Williams on the matter in the context of Trump's troubles.

Widespread Unmasking

Evey Hammond: Who are you?
V: Who? Who is but the form following the function of what and what I am is a man in a mask.
Evey Hammond: Well I can see that.
V: Of course you can. I'm not questioning your powers of observation. I'm merely remarking upon the paradox of asking a masked man who he is.
Evey Hammond: Oh. Right.
--V for Vendetta

Deranged media are using the escapades of Donald Trump as an excuse to ignore stories that truly hold blockbuster potential. One involves growing evidence that the NSA under the Obama administration illegally unmasked the identities of US citizens in their surveillance of digital communications. A newly released FISA court order finds that what amounts to illegal searches were 'widespread' and created a 'very serious Fourth Amendment issue.'

The FISA court findings were the outcome of a hearing dated October 26, 2016--just days before the presidential election. Why the findings were 'sealed' until now is not explained in the article and unclear to me.

The discoveries and their timing cast additional suspicion on previous administration's possible use of surveillance apparatus to gain information about political adversaries.

Grapevine journalists, of course, prefer to discount factual court documents in favor of rumor and innuendo.

Compassion by Gunpoint

Feed the babies
Who don't have enough to eat
Shoe the children
With no shoes on their feet
House the people
Livin' in the street
Oh, oh, there's a solution
--Steve Miller Band

Penn Jillette states it well. Pointing guns at people and forcing them to surrender wealth to help the poor is compulsion not compassion. Forced charity is an oxymoron.

Charity involves voluntarily helping people on one's own. This is true compassion.

When you stand accountable before God, it seems likely, as Jillette put it, that you'll "get no moral credit for forcing other people to do what you think is right."

Calling it compassion equates to rationalizing robbery. When you vote in favor of strong armed government agents to do your bidding, the voting booth becomes a lever of aggression.

And you become a principal of violence.

Political War and Markets II

"Goddammit, when is somebody going to go on the record in this story?"
--Ben Bradlee (All the President's Men)

Following up on last week's missive involving all-out political war and markets, Fleck had additional exchange with 'Mr Skin' about the issue. Mr Skin writes in big blocks of text, but I want to reprint the exchange once again as published in its entirety because I plan to reference some of it in future posts.

Mr Skin: I am not a special trump fan - (more of an extreme case of Hillary phobia) - but the witch hunt going on now is almost exactly the same "play book" they (media and Democrats) used against Nixon. Given that many of today's "pundits" or self-proclaimed "political analysts" plus biased media editors and reporters were in kindergarten or not even born when Nixon blew up, they have no context for pursuing this thing, regardless of substance. This "thing" will not go away. In fact, even without anything tangible to hang something on, "they" don't need anything. Just make something up, spin it well out of context, broadcast the "accusation", thus attempting to force a denial, that in turn will be spun, twisted, "inflamed-on-social-media" for all the idiots to absorb, leading to more "sponsorship" for the witch hunt. The progression of time, heading toward the off year elections, merely aggravates Trump's problem. The Grahams and McCains, plus several other "fearful" or outright leftie congressional Republicans (RINOs - Republicans in Name Only) render Trump's "New Reality" - "It-Ain't-Happening-Dude". When he was elected I figured he may have a few months of peace, probably not any sort of "honeymoon", but I never thought his political opponents would, in effect, deliberately try to sabotage his presidency from day one. The "Rachel Madow" media lunatics and the "Maxine Waters" political lunatics are understandable but it also seems that everyone has out the "long knives". When the Nixon "playbook" started, there were mostly mild suggestions that he might be vulnerable. It took a while for the momentum to build up to the point where everyone piled on. The media always had a "thing" about Nixon, from his days as Ike's VP back in 1956-60. He was perceived as "slick" or phony and had earned the title "Tricky Dick". BUT, their displeasure was nothing like the outright venom shown Trump. Nevertheless, "they" started after him right after he was inaugurated in 1973. The relentless barrage of negative "Nixon Stories", filled with innuendo and speculation, gained momentum into 1974. He resigned in late summer of 1974, whereupon a market already down more than 25%, simply went straight down into September. The big indices lost about 50% from day one of the "witch hunt" in early 1973 until the bottom in September 1974. Of course, there were economic problems along the way, such as an oil embargo, but the assault on the President was unprecedented in modern times and it scared the wits out of both domestic and foreign investors.

Great opportunities grew out of that bear market. And our little money management firm was lucky enough to be in the right place at the right time. Today's "players" have never seen values like those found in late 1974. For context, consider Polaroid - the greatest growth stock since RCA in the 1920s. It had a lock on instant photography (doomed by Texas Instrument's digital revolution a few years later). PRD traded at 149 at the top in early 1973. It bottomed at 13+ in late 1974. It had no debt, and the stock price was not only lower than its working capital per share but also lower than its NET CASH in the bank. In effect, you got paid to own it, and EPS was $1.50. The most absurd value was Boeing - whose market cap was LESS THAN the selling price of three 747 airliners. Of course, such "stone age" stories are forever irrelevant these days, given direct sponsorship of markets by CB bureaucrats, but if enough panic hits a market, similar stories will appear again.

Fleck: So, the bottom line is you think the die is cast, that now, this will be 4 years of hand to hand media/Trump combat nearly 24/7 and that will take its toll at some point? Do I have that right?

Mr Skin: Yep. I think the media will keep trying to outdo each other going after Trump and his enemies will never give up looking for a way to destroy his agenda. Reagan was wildly popular and "they" even tried to get him. When Woodward and Bernstein went after Nixon, and gained "fame" by running a President out of office, "journalism" became a career ambition for a whole generation of "giant killers". The big question is whether the underpinnings of the stock market can remain strong if the "witch hunt" theme keeps playing. Of course, we have grown a new crop of "players" over the last few years, including a Fed (Bullard, etc.) that seems to panic every time the market dips. In any case, I can't see any logical reason for investors to ignore the possible threat that "they" might actually do serious damage to the political process. The whole thing makes me want to puke.

Grapevine Journalism

"If that's all you got, you got nothing."
--Detective Harlan Regis (Murder at 1600)

Mainstream media are largely engaging in grapevine journalism. Reporting rumors and heresay. Treating innuendo as fact. Reciting fictional narratives. Reporting stories before corroborating them.

Grapevine journalists trap words in order to promote political agendas. They traffic in empty claims.

All-Out Political War and Markets

It ain't nothing but a heart breaker
Friend only to the undertaker
It's an enemy to all mankind
The point of war blows my mind
--Edwin Starr

Fleck avoids politics in his daily commentary except when he sees politics as influencing market movements. Recently on Ask Fleck, a well-regarded contributor affectionately known as 'Mr Skin' shared his assessment of the Washington turmoil and its potential effect on markets. In response to several reader comments about the the post, Fleck posted his own missive yesterday.

I want to reproduce it in its entirety because Fleck captures what he terms the 'all-out' political war and its prospective impact on markets well, I think.

"Several people commented on [Mr Skin's] views on the Trump witch hunt (most favorable, but some not). However, I'm only posting this one so that I can clarify what I think the big point is that Mr Skin was making, that being the all-out warfare now underway.

"First, Trump has flaws, plenty of them. That isn't new news. What is new is the near hysteria from the MSM (and many politicians) about virtually anything he does (e.g., many Democrats and Republicans said Comey should go, due to what he did during the election campaign, and now most of those same people are defending him because Trump canned him, in their mind, for the wrong reason). But, the fact is, it almost doesn't matter WHAT he does. This group of people is against it, period.

"Second, Trump is a thin-skinned egomaniac and that will continue to cause problems. BUT, even given his flaws, he should at least get a fair shake on news items. Yet he does NOT (which of course gets him even madder). People who hate him feel like he couldn't possibly have beaten Hillary without somehow 'cheating' (i.e., the Russians stole the election) and they are mad as hell and want revenge, when in fact he beat the Republicans, Hillary, and the MSM because the so-called silent majority was fed up with how the country has been run.

"Now, WHY this matters is because the market ran up to the moon on hopes he would accomplish things that he could never have achieved even if he were a saint (which he ain't), but the absolute hatred on the part of the Democrats, MSM, some Republicans and the GOVERNMENT BUREAUCRACY means that he will be lucky to get any meaningful legislation passed for quite some time, if ever. At some point, the market will have to adjust to reality (and it will tank) and then maybe some people will see that the economy sucks. Of course, Trump will lose it even more when he gets blamed for all of that, too.

"So, this bit of politics looks like it will matter to markets, potentially in a big way, which is why I am addressing it. This could become a very big deal, as an all-out war among these various groups, which is what is taking place, is not only NOT bullish, it is very bearish, period."

Idea Markets and Interference

"And where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance coercing your conformity and soliciting your submission."
--V (V for Vendetta)

Ideas are fungible and, like goods, naturally trade on markets. When these markets are free and unhampered, ideas trade liberally between buyers and sellers seeking to mutually benefit from the exchange. Competing ideas are considered, discussed, revised. Some ideas win, others are rejected.

Those fearful that their ideas will be rejected may be tempted to interfere with free, uninhibited exchange of thought. They seek to regulate trade by restricting what can be said and by whom. They want to restrict access to venues for broadcasting ideas. They twist words, quote out of context, report events in incomplete or dishonest manners. They try to shout down speakers with differing viewpoints.

When ideas can't compete on their own merits, then the purveyors of those ideas will seek to shut down markets where competing designs are likely to be judged as superior.

Exhausting Possibilities

Inspector Richard: You're not too tired?
Jessica Kamen: Oh yeah, for sure. I could probably sleep for a week.
--Kiss of the Dragon

Domestic stock markets lost a couple of percent yesterday. Popular cause assigned to the slippage was the turmoil in Washington.

While Trump and the hysteria that he sponsors might help ignite selling, the truth is that this is a market has been operating under its own manic brand for quite some time. When that mania exhausts itself, then any news can reverse the trend. And once the trend is reversed, all news will be seen as bad by market participants.

Whether yesterday constituted the 'this is it' moment remains to be seen. Note that a down day of similar magnitude back in mid-March fostered no material follow-on effect.

Technically, yesterday's decline did no significant damage, and markets are bouncing moderately this morning after opening slightly red. Bears, who have been in hibernation for months (years?), will need more than yesterday's action to crawl out of their caves in size.

no positions

Obamacare's Greatest Impact

Ever have that feeling
Almost broke in two
Said that you were leaving
Like you do, like you do
--ABC

Judge Nap suggests that the greatest impact of Obamacare may be that it convinced more Americans that healthcare is an entitlement to be provided by government (i.e., provided by forced labor of others). The Judge conceptualized Obamacare as a stool with four problematic legs.

Constitutional leg. The premise that the federal government has lawful power to regulate the delivery of healthcare.

Legal leg. The premise that the federal government is obligated to provide health insurance to everyone in America.

Economic leg. The requirement that everyone in the US purchase and maintain health insurance.

Orwellian leg. The requirement that all health care providers in the US shall retain all patient records in digital format and the the federal government shall have access to those records.

None of those legs were repaired/replaced by the recently passed GOP-led House healthcare bill. That same GOP-led House voted multiple times to repeal Obamacare when they knew that it had no chance of making it thru the process.

Such fecklessness occurs when politicians sense that voters think that the public treasury has become the public trough.

Defying State Sanctity

Step into a life of maybe
Love is hard to find
In the church of the poison mind
--Culture Club

Interesting piece by Jeff Tucker on the root cause of Trump Derangement Syndrome--the left's ceaseless hysteria over the the actions of Donald Trump and his administration. Tucker thinks that the left, and really statists of all stripes, sees Trump as a threat to the institution of government.

Government is the statists' preferred tool for achieving their aspirations. Statists have at least 100 years invested in building government's image not as a taker, but as a giver. The president is seen as a high priest of political process with a duty to reflect the sensibility of government as good.

Trump is an outsider who, since his early days on the campaign trail, made it clear that political correctness is not part of his M.O. Unlike his predecessor who carefully adhered to institutional protocol, Trump has done anything but. Among other things, observes Tucker,

"[Trump] overthrew the respective establishments of two parties, tore right into the legitimacy of the national press, humiliated every expert who predicted his demise, and is now stumbling around Washington like a bum in a jewelry store."

As Tucker notes, Trump has not cut back on the size of the state in any meaningful way, and many of his policies (e.g., healthcare, infrastructure spending) largely preserve or increase central government scope.

What Trump is doing is ruining the statist vision of how a president should act, thereby discrediting a sacred institution in the eyes of many. As institutional prestige associated with the federal government declines, so does the state's legitimacy in the eyes of many.

For many statists, this is simply unacceptable. Trump is a threat that must go. The conclusion that many disciples have reached is that saving the old faith requires that this president be removed from office. Thus, impeachment chants from the statist church grow louder by the day.

Lions and Sheep

"Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep. And sheep get slaughtered."
--Gordon Gekko (Wall Street)

Not a bad way to express the principle of not taking anything personally.

Don't run with the mindless herd.

Liberty and Safety

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

Several versions of the below quote are attributed to Franklin.

The real issue is not whether liberty is deserved in such an instance. It is whether liberty is even possible.

Rank Amateurs

"Hornbeck, I'm getting tired of you. You never push a noun against a verb without trying to blow up something."
--Henry Drummond (Inherit the Wind)

People who have had a subject that they know something about covered by the media are likely to agree with Hayek. Journalists, being one type of intellectual that traffics in ideas, are prone to be rank amateurs in the subjects that they cover.

Journalists have presentation skills. They tend to have little content skill. As such, journalistic coverage is prone to error and incompleteness.

It is also prone to bias. Lacking deep smarts in the subject matter, journalists will be prone to lean on their view of the world to fill in the holes.

The resulting product is therefore likely to be slanted.

Finding Yuri

"Tom is that one who saw you at Susan's. He's known about you all along, isn't that right? We do know what that means. If Commander Farrell is the man who was with Miss Atwell, then Commander Farrell is the man who killed Miss Atwell. And we know that the man who killed Miss Atwell is Yuri. Therefore, Commander Farrell IS Yuri, quod erat demonstrandum."
--Chief of Staff Scott Pritchard (No Way Out)

In the 1987 film No Way Out, the Secretary of Defense kills his mistress in a fit of jealous rage. His chief of staff concocts a scheme that accuses an imaginary Russian spy with code name 'Yuri' of the murder. Yuri is proposed to have used the mistress to access US military secrets.

The Secretary and his chief bring in a young navy commander to head an investigation. By dumb luck, it turns out that the commander was also having an affair with the mistress, and before long evidence emerges that could implicate him in the murder.

The conniving politicians celebrated their good fortune. Their cover-up might work. It appeared that there was a Yuri who could be blamed for the murder. Their fictional story was becoming fact.

Thirty years later, it seems like the Left is embracing a similar storyline. To divert attention from a political disaster, people on the Left seek to offload blame on a fictional Russian nemesis. A witch hunt is underway in search of a scapegoat. Maybe, just maybe, a Yuri will emerge.

Perhaps the Left should keep in mind that finding Yuri did not auger well for the antagonists on the silver screen.

Comey's Self-Destruction

Sam Crandall: Good luck. I hope the fish are biting.
Chip Hardesty: I was kinda hoping they wouldn't be.
--The FBI Story

Judge Nap observes what the mainstream media fails to grasp (or admit) about the firing of FBI director James Comey by President Donald Trump. Comey dug his own grave.

As the Judge recounts, Comey's handling of the Hillary Clinton email scandal was highly unprofessional and violated policies that have been in place in the DOJ and FBI for decades. One rule says that if the FBI chooses not to indict someone, then it passes the determination on to the DOJ silently. Procedure does not permit the Bureau to publicly announce that a person is not going to be indicted, and then present evidence against the person.

This is, of course, precisely what Comey did last July 5. By doing so then and on subsequent dates (here, here), Comey politicized the FBI, and injected himself and the institution into a presidential election.

Once an institution becomes politicized, then it is like tossing bleeding fish into water inhabited by sharks. Politicians circle the bait and then attack, thrashing about and sinking their teeth into their institutional prey for political gain.

Comey's also damaged the culture of the Bureau. By breaking off an investigation that appeared to many agents as headed toward indictment, Comey fostered conditions of internal mutiny that motivated further disjointed actions by the Bureau chief.

There is no doubt that James Comey's mismanagement of this case, and perhaps others, constituted grounds for dismissal. The important question that few seem to be seriously asking is what took so long? Why didn't Trump fire Comey on his first day in office? Why didn't Barack Obama fire Comey last summer?

By postponing the proper course of executive action, both presidents permitted the situation to escalate into something worse.

VIX Tricks

I'll hold on to you
Till the mountains crumble flat
I'll hold on to you
Until you figure out just where you're at
--Ric Ocasek

As indicated by the 20 yr chart below, the Volatility Index (VIX) has moved below 10 and is marking historic lows. The VIX measures how much investors are willing to pay for options--particularly put options for hedging or protecting long positions.

When the VIX is high, as it was during the 2008 credit collapse, then investors are willing to pay thru the nose for options. As such, the VIX can be construed as a measure of fear.

When the VIX is low, as it is now, then investors are willing to pay little for option protection. In fact, recent reports suggest that buying option protection is increasingly seen as a waste of money. As such, the VIX can be construed as a measure of complacency.

Although the measure currently suggests a fearless, highly complacent market, experience suggests that the VIX is not a good forecasting tool. Stated differently, a fearless, complacent market can continue in that direction for some time.

What we do know is that, when sentiment turns, it is likely to turn on a dime. Increasingly fearless, complacent sentiment helps explain Minsky's theory that stability breeds instability.

Be ready.

Money Supply and Inflation

New car, caviar, four star daydream
Think I'll buy me a football team
--Pink Floyd

Frank Shostak discusses the relationship between money supply growth and inflation. In the 'olden days,' inflation was defined in terms of money supply--not prices. Growth in money supply that exceeded productivity growth was considered inflationary.

While the definition of inflation has since shifted toward a focus on price-related outcomes, shouldn't the relationship between money supply and modern 'measures' of inflation such as the consumer price index (CPI) be straightforward? After all, more money chasing a set amount of goods should raise prices, right?

As Shostak notes, not necessarily. One thing that could cloud the relationship is change in productivity. As productivity improves, prices naturally decline. Thus, it is possible that in an era of improving productivity that growth in money supply may translate into higher prices.

Stated differently, higher prices from more money in circulation could be offset by lower prices from productivity gains.

It is also possible that popular measures of price inflation such as the CPI might not capture the effects of money supply growth. Since the credit collapse, for example, much of the growth in money supply engineered by central banks around the world has been confined to the banking system. The effect has been a surge in prices of financial assets rather than in prices of consumer goods.

What is safe to conclude is that growth in money supply distorts prices and generally makes them higher than they would be otherwise.

Higher and Lower Ed Bias

Gone are the dark clouds that had me blind
It's gonna be a bright, bright, sunshiny day
--Jimmy Cliff

Column re-plows much ground covered on these pages about the left skew of the ideological spectrum on higher ed campuses. The article's title suggests that parents 'prepare' their offspring for the ideological that they will experience.

It is likely that kids have already been prepared, however, as many have been immersed in leftist educational settings since kindergarten. While this is particularly true for kids who have come up thru public school channels, minds that have been developed in private school settings have also been subject to significant skew as well.

In fact, many students will move from lower to higher ed and sense no difference in ideological position of the institution at all.

Healthcare Delusion

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

A common argument among proponents of socialized medicine is that, with healthcare costs so high and going higher, large portions of the population would not be able to afford healthcare if they had to pay full price out-of-pocket.

I am not sure whether these people are ignorant about the wholly predictable effect of socialized medicine on healthcare costs or simply choose to look the other way.

We've shown the above chart before. Healthcare prices have been increasing at rates greater than the CPI for decades. But it hasn't always been this way. There was a time when people paid for much of their healthcare out-of-pocket.

The divergence in prices began with the onset of Medicare and Medicaid in the 1960s. It was easy to prognosticate at that time that healthcare costs were destined to go thru the roof.

People who cheer for the current government controlled healthcare system and/or desire even more state involvement are fooling themselves if they believe that this 'solution' makes healthcare more affordable for all. This delusion may be funded, literally, by the current arrangement of spending other people's money on healthcare.

I wonder if these people would feel the same way if they knew that those 'other people' were their children and future generations.

Lethal Determination

Meeting you with 
A view to a kill
Face to face in secret places
Feel the chill
--Duran Duran

Nearly a year ago we noted that Venezuela constitutes the latest failed country-level experiment in socialism. Fast forward to today and things have only gotten worse. Famine. Hyperinflation. Crime.

Sadly, cases like this only seem to make socialists around the world more determined.

It is a determination that is lethal.

Ongoing Productivity Decline

Some days won't end ever
And some days pass on by
I'll be working here forever
At least until I die
--Huey Lewis & The News

A few months back we discussed downtrends in domestic productivity. We noted that, over the past few years, US productivity had been declining in a manner not seen in the last 70 years.

Fast foward a couple quarters and the trend hasn't changed. This week, non-farm business output/hr printed a -0.6% change in Q1 2017 compared to the same period a year ago.

Opinions vary widely as to why the productivity slowdown is occurring. From where I sit, the most straightforward explanation is that declining worldwide saving has reduced the pool of capital available for productivity improvement projects.

In fact, there is a case to be made that negative savings rates (debt) have left us in a state of capital consumption that cooks the goose that lays the golden eggs essential for future productivity gains.

Purdue Acquires Kaplan

"What are you looking at? You're laborers. You should be laboring. That's what you get for not having an education."
--Dr Jerry Hathaway (Real Genius)

Interesting acquisition in higher ed as Purdue buys Kaplan University. Kaplan U. is primarily invested in on-line education although it operates 15 facilities across the US.

The obvious objective is to expand Purdue's footprint in online higher ed. Most schools have elected to do this thru internal growth. Purdue is among the first to expand in this manner thru external acquisition.

The new online university will use the Purdue name in some fashion that has yet to be identified. Purdue also intends to rely solely on tuition and fundraising to cover operating expenses. No state appropriations will be utilized.

I have wondered for some time whether a publicly funded institution with broad accessibility mandates can compete with more focused, privately funded rivals. Now we have a public/private hybrid that seems to further complicate matters.

Will be interesting to see how this one unfolds.

Slanting Lincoln's War

Take another look
Tell me, baby
Who's zooming who?
--Aretha Franklin

Driven by Trump remarks suggesting that better leadership might have prevented the Civil War, the mainstream media unleashed a flurry of pieces once again defending Lincoln's War as just. As 'proof,' journalists cited a bevy of leftist 'historians' who have concluded the inevitability of the Civil War expressly to abolish slavery.

Of course, the practice of quoting from like-minded pools of 'experts' is what motivated Groseclose to develop his slant quotient measure of media bias.

There is simply too much contradictory evidence for the "Lincoln had no choice but to fight the Civil War...and it was just...and it was all about slavery" thesis to fly.

Fly among well reasoned individuals, that is.

RINO Stampede

I spend so much time
Believing all the lies
To keep the dream alive
--Billy Idol

Many voters who elected the current bloc of Republicans to Washington are disgusted by the group's recent antics. Despite campaign promises to shrink the size and influence of central government, many in this group have refused to repeal Obamacare, supported only 'revenue neutral' tax cut plans, and funded another round of profligate federal spending.

"RINOs!," exclaim the voters. "These Republicans In Name Only talk about smaller government but act like they want bigger government."

But when has it been any different? After all, the Party of Lincoln was built on the American System platform that favored central government largess. With few exceptions (e.g., Coolidge), Republican administrations and GOP majority congresses have always acted in manners that leave the federal government larger at the end of their tenure than at the beginning.

Our two party system is a semantic illusion. Regardless of the party 'in charge,' the dominant coalition in Washington is the Big Government Party.

Global Wronging

"Yeah, we're here! Jesus H. Christ! We're still here!"
--Airman Dougherty (WarGames)

On the back of last week's post, here's a longer list of some of the wrong predictions of environmental 'experts.'

To watermelon socialists, making dramatic, scary predictions about global warming is what matters. Being correct doesn't.