Saturday, September 30, 2017

Blue Blooded Family

"Everything you need is right here."
--Frank Reagan (Blue Bloods)

Previously these pages suggested that Blue Bloods offered the best in network television. Last night's season opener reinforced that proposition.

The ending scene in the new house around the dinner table was a powerful moment. A family picking up one of its own, and Danny finishing it off by offering grace.

Lotta lessons worthy of reflection.

Friday, September 29, 2017

Institutions of Capitalism

You see dimensions in two
State your case in black or white
But when one little cross leads to shots, grit your teeth
You run for cover so discreet
--The Fixx

In the sociological context, institutions are structures that promote social order. They define rules, customs, and traditions that govern behavior. In capitalistic societies, these institutions include:

division of labor
limited government
private ownership of property
profit motive

As Prof Reisman observes, most of these institutions have been under attack for years. Without these institutions, standard of living suffers.

Thursday, September 28, 2017

Paul Plan

Has he taken
Any time
To show you
What you need to live?

After the failure of another flawed 'Obamacare Lite' healthcare bill, it appears that President Trump is preparing an executive order to allow people to purchase health insurance across state lines. Essentially, this is Senator Rand Paul's 'association health plans' proposal.

This would be very positive and possesses far more potential impact than any health care reform discussed to date. Why? Because it fundamentally improves the system. As Paul observes, this plan frees the market by giving individuals the ability to club together in groups that would increase their bargaining power with a larger stable of insurance providers.

The plan is thought to not require congressional approval because authority for it already exists. The Employment Retirement Income Security Act (ERISA) already permits multi-state corporations to buy insurance across state lines. Paul thinks that the president can act on his own with an executive interpretation of existing law that expands the definition of who can form an association.

"The good thing about my plan is that it costs zero dollars," Paul adds.

That may be true, Rand, but it will take money out of the pockets of myriad special interests. It also subtracts from state power as it adds to social power. As such, expect those who a) benefit from the current arrangement, b) aspire toward a single payer healthcare system in the object.

Wednesday, September 27, 2017

Golden Pullback

She's got a heart of gold, she'd never let me down
But you're the one that always turns me on
You keep me comin' 'round
--Bryan Adams

After an early September breakout, gold has pulled back and is currently hovering above the $1300 breakout point.

As it stands, appears a healthy pullback. Of course, a decisive break below support would darken the technical picture.

position in gold

Tuesday, September 26, 2017

Scripts of Paradox

Evey Hammond: Who are you?
V: Who? Who is but the form following the function of the what, and what I am is a man in a mask.
Evey Hammond: Well I can see that.
V: Of course you can. I am 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

Several students at Virginia Commonwealth University were arrested last week while protesting at a neo-confederate rally. Their alleged crime: wearing masks. In Virginia, wearing masks to conceal your identity is considered a felony.

This is ironic for a couple of reasons. One, the trial for the students has been set for...Halloween.

Two, the law that they were accused of breaking was passed in 1952 in an effort to stymie activities of...the KKK.

Stupid laws are scripts of paradox.

Monday, September 25, 2017

Wounded Knee

Because a vision softly creeping
Left its seeds while I was sleeping
And the vision that was planted in my brain
Still remains
--Simon & Garfunkel

Some sports fans are pushing back against NFL players who chose to take a knee or sit during the playing of the national anthem before yesterday's games. Players shouldn't be making a political statement during a sporting event, goes the complaint.

I sympathize with that argument. When I sit down to watch football, I'm not interested in observing political protests by players on the sidelines.

The problem is that I already have to endure political statements during NFL games--and those statements are sanctioned by the NFL itself. It begins with the national anthem, which can be viewed as a pledge or oath to a political collective.

It continues with regular events that honor military personnel, particularly those who have fought in government-sanctioned wars.

Even the Super Bowl is not immune, as the president is routinely granted a 5-10 minute television slot during pregame festivities to make a political speech. This is always my cue to hit the snack tray.

The NFL is not the sole purveyor of political statements in professional sports, of course, as most other sports leagues engage in similar activities.

For those wishing to remove politics from sports, perhaps their first stop should be the owners' box.

Sunday, September 24, 2017

National Anthem

Duke of Norfolk: Thomas, look at these names! Why can't you did as I did and come with us, for fellowship?
Sir Thomas More: And when we die, and you are sent to heaven for doing your conscience, and I am sent to hell for not doing mine, will you come with me...for fellowship?
--A Man for All Seasons

A country's national anthem can be seen as a remembrance and celebration of heritage. This is surely a reason why many people, particularly conservatives, are attracted to it.

But a national anthem can also be seen as a tool of indoctrination--a pledge of allegiance to a collective entity that demands surrendering one's self for the good of the state.

Those who refuse to take that pledge are called unpatriotic. Of course, patriotism itself can be seen as an instrument for driving isomorphism in collective regimes.

In a true land of liberty there can be no such mechanism of compliance. People are not required to swear allegiance to the collective because, by definition, liberty puts the interests of each individual first.

When anthems, pledges, oaths, et al are required of citizens to demonstrate that they are subservient to the whole, then that country is no longer the land of the free.

Saturday, September 23, 2017

Flawed Again

When the truth is found
To be lies
And all the joy
Within you dies
--Jefferson Airplane

Judge Nap outlines why Rand Paul is once again correct to stand in opposition of the latest GOP-sponsored Obamacare 'repeal and replace' bill circulating around the Senate. He notes that Obamacare has been built on four flawed requirements:

1) The federal government has the obligation to provide healthcare coverage for every American.

2) The federal government can mandate that all citizens purchase healthcare coverage.

3) The federal government can micromanage healthcare production and distribution.

4) The federal government has access to all provider and patient medical records.

The latest Graham-Cassidy bill changes none of those flaws.

The correct response, as Judge Nap observes, is straight repeal of Obamacare, and then reliance on the free market, or at the very least regulation by the states, for healthcare provision.

As he has noted previously, the Judge suggests that the insidious victory of the Obamacare legislation is that it has persuaded Republicans, and a large group of Americans for that matter, that it is the duty of the federal government to assure healthcare coverage for all.

The federal government has nothing rightfully to do with healthcare. That's not according to the Judge, as he adds, it's according to the Constitution.

Friday, September 22, 2017

Bearing Down

Go on
Take the money and run
--Steve Miller Band

Yale's Robert Shiller discusses three current market conditions similar to those preceding most historical bear markets. One condition is valuation. Using his CAPE metric, the value of the S&P 500 has only been higher before the 1929 crash and the pop.

Another condition is high earnings growth. Huh? Shouldn't high earnings growth be good for stocks? Unfortunately, earnings growth is often highest just prior to big market declines. Shiller notes that in 13 prior bear market cases, annual earnings growth averaged over 13%. Over the past 12 months S&P earnings growth has averaged...13.2%.

Finally, average stock market volatility is low. In terms of the standard deviation of monthly percentage stock price changes, volatility is about 1.2%. From 1872 until 2017, the average is about three times as high at 3.5%. Lower vols lead to compression, which leads to...higher vols.

The message: For investors, things may not be as good as they appear.

Thursday, September 21, 2017

Pooling Assets

"Just when I thought it was safe to go back in the water."
--Brantley Foster (The Secret of My Success)

Yesterday the Fed announced that it will begin unwinding the $4+ trillion of assets that it accumulated during its various 'quantitative easing' programs since the credit collapse. It will begin by selling $10 billion worth of paper in October and gradually increasing sales in subsequent months.

It is difficult to fully appreciate the enormity of the Fed's balance sheet. For instance, even at a $50 billion/month sell rate, it would take the Fed nearly seven years to unwind a $4 trillion book.

My sense is that the Fed is selling only because other central banks continue to buy. As shown in the graph above, BOJ and ECB balance sheet assets have blown past the Fed with no end in sight.

Central banks buying and selling assets to each other constitutes a modern day stock pool.

Wednesday, September 20, 2017

Rebuttal vs Retraction

A time to build up
A time to break down
--The Byrds

Interesting piece discussing growing tendency for academics to demand journals to retract published articles that they do not agree with. The traditional academic way has been to rebut research that contains what are considered falsehoods. This is what scholars are supposed to do--use their thinking skills to argue their way thru competing hypotheses and propositions on the way to the truth.

Emotion or ad hominem do not apply in this process.

Unfortunately, cries for retraction rather than rebuttal are wholly consistent with trends toward intolerance of ideological diversity in higher ed.

Tuesday, September 19, 2017

Home Formation and Student Debt

"Christ. Seven years of college down the drain. Might as well join the Peace Corps."
--John 'Bluto' Blutarsky (Animal House)

Mike Shedlock reviews a recent study on college student debt. Student loan debt now totals $1.4 trillion, which amounts to about 35% of non-housing debt. More than half of all student borrowers have debt greater than $50,000.

One consequence of student debt is that it postpones family and home formation while students pay down their loans. The delay in buying a first house is estimated at about seven years. This is a headwind to economic growth.

While cheap student loans certainly benefit the colleges and universities who receive the borrowed funds as payment for services rendered, college grads who struggle to dig out from underneath student loans serve as a long term drag on the economy.

Monday, September 18, 2017

Miner Revision

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

Have been itching to add to my Pan American Silver (PAAS) and finally did so this am as the stock pulls back a bit from near term highs.

May be a bit early as the moving averages are still a coupla dimes below. Like the technical setup nonetheless with stochastics reaching low.

And fundamentally, continues to operate with one of the best balance sheets in the sector. Net cash of over $100 million and an enterprise value of about $2.5 billion continues to make this my favorite name in the mining sector.

position in PAAS

Sunday, September 17, 2017

Prices in Nascent Markets

On another day, c'mon, c'mon
With these ropes tied tight we can do no wrong
Now we grieve 'cause now it's gone
Things were good when we were young
--Von Bondies

Saw an insightful comment the other day. Prices are set by supply and demand in mature markets. In nascent markets, supply and demand has yet to be established. Instead, entrepreneurs post initial prices based on where they think buyers will perceive value.

Apple might price a new iPhone model at $1000 but customers may not show up to buy them. Or customers might show up in such quantities that prices go up with demand.

When markets are young, prices can be volatile.

Saturday, September 16, 2017

Squawk Box

America, have your heard?
I got a brand new dance and it's called 'The Bird'
--Morris Day and the Time

Classic example of excessive regulation. An Obama era 2014 regulation limits the number of chickens that can be processed in a plant to 140/minute. A trade group representing poultry companies is petitioning the USDA for an increase to 175.

Rationale for the limit includes worker and food safety. Poultry companies cite pilot plant results that no adverse safety impact of higher production rates.

Regardless, government has no rightful role in dictating these production rates. If producers lose control of their processes at higher production rates, then they will be penalized in the market (for both labor and product).

Government's rightful role is settling legal disputes that may result. For example, if consumers sickened by bad birds, then then it is their right to seek recompense in the courts.

Stated differently, let markets (buyers and sellers) set proper production rates, not government.

Friday, September 15, 2017

On the Margin

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

Dow vs margin debt. Strong correlation between the Dow and margin.

New high in Dow corresponds to new high in margin debt. Margin debt also peaked at previous two bubble highs.

Thursday, September 14, 2017

Becoming the Market

"You don't go half way, do you kid?"
--Mace Ryan (Rapid Fire)

Ponder the magnitude of the below levels and trends for a moment. Central banks worldwide are not just influencing the market. CBs are becoming the market.

What happens when they own it all?

Wednesday, September 13, 2017

$20 Trillion and Rising

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

Earlier this week federal debt topped $20 trillion. We're so used to talking about government spending and debt in the trillion$ that we tend to lose perspective on just how immense and intractable this level of borrowing is.

The primary losers, on this planet, are the young. Because it will primarily be their production that must be surrendered to pay back debt, young bears the brunt of old's profligacy.

However, the primary losers, on Judgment Day, may be the old. The old will have to answer for saddling their children with unpaid bills and turning them into debt slaves.

Tuesday, September 12, 2017

Sentimental Journey

It's time for the good times
Forget about the bad times, oh yeah

Gallup study indicates investor optimism has journeyed back up to dot com levels. Sentiment among retirees particularly bubbly.

Ducks continue to line up for an epic event.

Monday, September 11, 2017

Remembering the Unforgettable

Remember when the days were long
And rolled beneath a deep blue sky
Didn't have a care in the world
With mommy and daddy standing by
--Don Henley

Once again remembering what can't be forgotten. Sixteen years ago, my world changed.

Would I go back to the pre 9/11 age of innocence if I could? Tempting to be sure. But no thanks. The terrible sights and sounds of that day woke me up.

I remain awake.

Sunday, September 10, 2017

Kickoff Cometh

"And on the sixth day, He created the football player. And people paid to watch them hurt. And on the seventh day, they played FOOTBALL!"
--Stefen Djordjevic (All the Right Moves)

We usher in pro football once again today on a sunny late summer Sunday.

Crowded gridirons coincide with the harvest season--a season for which we are grateful for all that we have been blessed with.

Saturday, September 9, 2017

Managers and Entrepreneurs

Dream baby dream
Of all that's come and going

Baumol (1968) distinguished managers from entrepreneurs. Managers oversee existing processes. They are efficiency minded, and tasked with ensuring that traditional technologies are employed to their utmost to produce outputs that achieve current goals.

Entrepreneurs, on the other hand, are tasked with searching for and implementing new ideas. They are always looking to improve today's practices through innovation.

Baumol goes on to note that entrepreneurs are generally absent from economic theory--a theory that views managers as calculators of optimal values for all decision variables in the firm. They do so, he says, "until exogenous forces lead to an autonomous change in the environment. Until there is such a shift in one of the relationships that define the problem, the firm is taken to replicate precisely its previous decision, day after day, year after year." (67)

Although he does not explicitly say so, Baumol implies that entrepreneurs are the ones that respond to environmental forces pushing against the status quo and demanding adaptation.


Baumol, W.J. (1968). Entrepreneurship in economic theory. American Economic Review, 58(2): 64-71.

Friday, September 8, 2017

Marx and Redistribution

"Look, what does a capitalist do? Let me ask you that, Mike. Huh? Tell me. I mean, what does he make, besides money? I don't know what he makes. The workers do all the work, don't they?"
--John Reed (Reds)

Nice point made here that Karl Marx was not a proponent of forced redistribution of privately made output. Instead, Marx's brand of socialism specified no private ownership of capital. Productive assets would be the property of the state.

At the outset, according to Marx, planning boards would make production and distribution decisions. Over time, however, as people adjusted to a life of serving others and void of self interest, they would cooperate amongst themselves to produce according to each person's ability and distribute according to each person's need. Like what happens in a commune...thus 'communism.'

Both theory and empirical evidence demonstrate just how wrongheaded socialism in general, and Marx's version in particular, is.

Thursday, September 7, 2017

Immigration and Welfare States

We come from the land
Of the ice and snow
From the midnight sun
Where the hot springs blow
--Led Zeppelin

In the wake of President Trump's rescinding of his predecessor's executive order aimed at keeping illegal immigrants in country, I am reminded of a principle attributed to several people. It says that you can't have open borders and a welfare state at the same time.

In unhampered markets, people are free to cross borders in search of opportunity. Those opportunities involve those related to production and trade. Those countries that offer the best opportunities attract the most productive people. Open border policies, then, create competition among various free states for productive people with capacity to increase standard of living for all.

If a welfare state is available, then some people cross borders into that country in search of a free ride. Rather than attracting producers, welfare states are magnets for those who would rather live on the backs of others. Consequently, standard of living is restrained as productive people are forced to work for others as well as for themselves. In addition, conditions of moral hazard encourage loafing over work.

It follows that, in a society of welfare states, unrestricted travel and immigration will face considerable resistance--much of it justified. Though counterintuitive to some freedom lovers, open borders in welfare states can compromise, rather than preserve, liberty.

Wednesday, September 6, 2017

Fin Weight

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

Financials trading heavier than general market. Sign of supply.

Technical pattern also looks head-and-shouldersy.

position in XLF

Tuesday, September 5, 2017

Corporate Debt

I saw the sign
And it opened up my eyes
I saw the sign
--Ace of Base

Although the size of federal debt grabs much attention, corporate debt is not far behind. As shown by the graph below, corporate debt is quickly approaching $15 trillion and 75% of GDP.

ECON 101 says lower the price of a commodity and demand will rise. So it goes with debt. Like individuals and nations, corporations have been assimilating more debt as rates have been forced lower.

The question nagging the reasoning mind is can this go on indefinitely? And if answer is negative, then what stops it?

Monday, September 4, 2017

Korean Trade Sanctions

"You're in deep kimchi, buddy. Better have it all in one sock for this one."
--Captain Spellman (Under Siege)

Yesterday President Trump indicated that the US would consider ceasing trade with any country doing business with North Korea.  Presumably, that would include big trading partners like China.
My first thought was good luck marshaling enough support for that.

But beyond the political difficulties involved, such a move would set back standard of living for the United States and its trading partners. Sanctions, tariffs, and boycotts prohibit people from engaging in production and trade that advances prosperity for all.

There is also the proposition that 'when goods don't cross borders, armies will.' Sanctions promote conditions of war, not peace.

Sunday, September 3, 2017

Lacking Real Capital

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

Why don't we have exploding capex when money has never been easier? Because money does not equal capital, and we have been consuming capital for years.

Plus, the world is swimming in unused capacity. Why build more when we already have too much?

Saturday, September 2, 2017


It was thirty days around the Horn
The captain says it's thirty five more
The moon looks mean and the crew ain't stayin'
'There's gonna be some blood' is what they're sayin'
--Jay Ferguson

Energy supply chain disruption remains in motion down south. Not only are refineries struggling to produce and pipelines struggling to pump, but raw material in the form of crude oil sitting in tankers is piling up in the Gulf.

Currently close to 60 tanker ships are anchored in the Gulf waiting for ports to open. Interesting dynamic view here.

With perhaps 20% of US refining capacity not producing, refined product unable to find its way downstream, and lots of raw material sitting offshore, easy to imagine how this situation reaches out to touch lots of people.

Friday, September 1, 2017

That Seventies Dollar

Mike Brady: I honey. What's for dinner?
Carol Brady: Pork chops and applesauce.
--Peter Brady (The Brady Bunch)

Nice reminder of what happens to purchasing power as money supply goes up.

By this particular account, a 1971 dollar is worth less than 20 cents. Stated differently, That Seventies Dollar has lost over 80% of its value.