Eve of Gratitude

Louis Winthorpe III: My god, the Dukes are going to corner the entire frozen orange juice market!
Ophelia: Unless somebody stops them.
Coleman: Or beats them to it...Eggnog?
--Trading Places

Much to be grateful for as we bring this year to a close.

"Winter in Cincinnati" (John Ellsworth Weis, 1920s)

Giving thanks for it all on New Year's Eve.

Over-Caution Bias and the Invisible Graveyard

"Well, Baby-O, it's not exactly Mai-Thais and Yahtzee out here, but let's do it!"
--Cameron Poe (Con Air)

Prof Williams discusses over-caution bias in the context of the FDA. Policymakers in general and FDA officials in particular can make two types of errors. In the context of the drug approval process, a type I error involves delaying approval of a medicine that is safe and effective (i.e., over-caution, or not acting when one should). A type II error is approving a medicine that subsequently exhibits unanticipated side effects (i.e., under-caution, or acting when one shouldn't).

In the case of FDA officials, incentives favor erring to the side of over-caution. If the FDA approved a drug that had unanticipated side effects, then the victims of the agency's mistake would be readily visible. Political uproar would ensue and heads would likely roll.

On the other hand, if the FDA delayed approval of a safe and effective drug, then the victims are all of those who suffered and died because they were denied access to medicine that would have otherwise been available on the market. Because these victims stem from 'errors of omission' and are not readily visible not connectable to the FDA process, the associated type II errors do not attract anywhere close to the political fallout that type I errors do.

To minimize political fallout, FDA officials will clearly prefer making type II mistakes.

Consequently, the over-caution bias embedded in the FDA's regulatory process sends victims to what Prof Williams calls 'the invisible graveyard' on a routine basis.

Intraday Volatility

Here comes the rain again
Falling on my head like a memory
Falling on my head like a new emotion
--Eurythmics

Bear markets are often associated with increased 'volatility.' In the context of markets, volatility refers to the degree of variation in prices measured over some period of time. On an intraday basis, this variation is usually captured by the range (i.e., high minus low) in price.

From the charts, the increase in intraday price ranges since the early October highs is unmistakable. Over the past several trading days the intraday range in the Dow has been 500 pts or more--punctuated by a 1000 point surge in the last two hours of Wednesday's session.

One explanation for increased intraday volatility in bear markets is that optimists constantly want to believe that the worst is over, thereby bidding prices higher off of intraday lows only to get their heads handed to them when more supply subsequently hits the tape. On the other side of the trade, bears get jittery over the prospect of snappers (snap-back rallies) meaning shorts are generally in weak hands and prone to cover positions quickly--thereby creating self-fulfilling short covering rallies like the one on Wed.

At the end of the day, intraday volatility in bear markets finds both bulls and bears carried out on stretchers in epic numbers.

Christmas Season Celebration

"That's what Christmas is all about, Charlie Brown."
--Linus Van Pelt (A Charlie Brown Christmas)

The Catholic Christmas season begins with the Christmas Eve vigil mass and ends with the feast of Christ's baptism. That's 20 days.

"The Midnight Mass" (Edward Timothy Hurley, Cincinnati, 1911)

As our priest observed at Christmas Eve mass, Catholics really know how to celebrate Christmas. I will endeavor to maintain a celebratory posture throughout this very special Christmas season.

End It

Too many shadows
Whispering voices
Faces on posters
Too many choices
--Pet Shop Boys

Thomas Massie has the appropriate solution for those wringing their hands over Fed policy.

end it! https://t.co/6FGm0JJsij

— Thomas Massie (@RepThomasMassie) December 24, 2018

Unfortunately, ending the Fed is not what the president nor any other politician displeased with the Fed has in mind. Instead, politicians want central bankers who will do their bidding--i.e., to intervene in markets to their liking.

Algo Rhythms

So if you see me acting strangely
Don't be surprised
I'm just a man who needed someone
And somewhere to hide
--Styx

Monday's 600+ pt down day in the Dow was the worst Christmas Eve showing since the Great Depression. The pre-market gap higher in the futes this am was probably not what the bulls really needed as it has been getting sold out of the gate.

WSJ article speculates that automated trading, which makes up over 80% of daily volume, is exacerbating downside movement. The thesis, something that these pages have discussed for some time, is that black box trading is largely grounded in trend-following algorithms.

Just as they amplified moves on the way up, the robots are likely to amplify moves on the way down.

In the near term, stochastics suggest an oversold condition ripe for a snapper (i.e., snap-back rally). Then again, in bear markets, oversold often becomes more oversold.

no positions

Hosanna in Excelsis

The people who walked in darkness have seen a great light, upon those who dwelt in the land of gloom a light has shone.

You have brought them abundant joy and great rejoicing; they rejoice before you as with joy at the harvest, as people exult when dividing spoils.

For the yoke that burdened them, and the bar across their shoulders, the rod of their oppressor, you have broken as on the day of Midian.

For every boot that tramped in battle, every cloak rolled in blood, shall be burned as fuel for for the fire.

For a child has been born for us, a son given to us; upon his shoulders dominion rests. They name him Wonderful Counselor, Mighty God, Everlasting Father, Prince of Peace.

His dominion is vast and forever peaceful for the throne of David and his kingdom. He will establish and uphold it with justice and with righteousness from this time onward and forevermore. The zeal of the Lord of hosts will do this.

Isaiah 9:1-6

Early Immanuel

"My soul magnifies the Lord
     My spirit rejoices in God
          my Savior"
--Luke 1:46-47

While we await His coming in two days, our family's Christmas arrived early this morning before dawn.

Immanuel. Truly.

Leaving Syria

"We walk, and Afghanistan reverts back to the Taliban. Only now the Taliban has metastasized into something infinitely more vicious and potent because they're now 2-0 versus superpowers. They butcher the people who helped us, who voted and were stupid enough to put their faith in our word. So call it not only the end of hope for tens to millions of Afghans, but the end of American credibility, the end of America as a force of righteousness in the world. And when we're forced to go back in a couple of years, and please quote me on this, we'll be squared of against a shattered Iraq, a hopeless Afghanistan, and a nuclear Iran. How many troops are we going to need then? I guarantee you'll be adding some zeros."
--Senator Jasper Irving (Lions for Lambs)

Earlier this week, President Trump announced that he is ordering the withdrawal of US troops from Syria. The uproar from the military/industrial complex predictably followed.

Defense Secretary James Mattis, a card-carrying member of the complex, subsequently resigned, citing irreconcilable differences with the president on foreign and military policy.

Joining the chorus, other war proponents claim that a delicate balance in the Middle East will be upset, implying that the only way the world can operate smoothly is if U.S. troops are deployed around the globe and put at risk while pounding the beat as world policemen.

I join Rand Paul in applauding this move. Trump is doing something that his predecessor could have done but never did.

Hopefully the president can withstand the criticism. And make this the first in a string of withdrawals.

Fatal Conceit Exemplified

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

The fatal conceit of bureaucrats is well exemplified by yesterday's FOMC statement. The image that this statement attempts to convey--that a group of central planners is capable of effectively monitoring and controlling a complex economy is pure folly. Even more ludicrous is that many onlookers actually believe it.

Perhaps some are waking up, because at the moment it appears financial markets might be doubting the Fed's omnipotence. The Dow has dropped about 1000 points since the FOMC statement was released yesterday afternoon.

Gold is chiming in as well. Remember, gold is essentially a bet on disorder--including disorder caused by the Fed's fatal conceit.

Perhaps gold is telling us that confidence in the Fed's conceit may be fatal.

position in gold

Protectionism and Prices

"I hope you had a hell of a piss, Arnold!"
--Brad Hamilton (Fast Times at Ridgemont High)

One of the many consequences of protectionism, whether it be in the form of tariffs, minimum wage laws, etc, is higher prices.

Confused as to why? Using tariffs as an example, complete the following quiz. As trade barriers go up,

Specialization of work inside a country goes a) up b) down.

Diversification of work inside a country goes a) up b) down.

Potential to learn by doing goes a) up b) down.

Cost of switching between tasks goes a) up b) down

Consequently, productivity of work inside a country goes a) up b) down.

Competition goes a) up b) down.

It doesn't take a PhD to sum up the impact on prices and, consequently, standard of living.

Gold and Disorder

And so we turn on the TV one more time
And we see that everything is fine
--Flesh for Lulu

WSJ observes that, with gold up nearly over the past three months, the yellow metal is outperforming stocks on a quarterly basis for the first time in years.

When it really gets its groove on, financial analysis of gold is likely to look more like this:

And perhaps people will suddenly remember gold's historical position in the monetary hierarchy:

This 'golden rule' is grounded in the primary thesis for owning gold. Gold is a bet on disorder--whether that disorder is narrowly monetary or broadly social in nature.

Sadly, people tend to figure this out only after this disorder is well underway.

position in gold

Triple Bottom Breakdown

We chased our pleasures here
Dug our treasures there
But can't you still recall
The time we cried
Break on through to the other side
--The Doors

Took nearly a week, but today's nasty intra-day action suggests that the triple bottoms appear to be history on the major indexes. One could argue that there could be some right around here at SPX 2550.

Not much below that but tree branches  hanging from cliffs for a while. Next meaningful support from where I sit appears to be SPX 2100. This level was defined by the Trump election rally way back in November 2016.

Personally, and perhaps ironically, I suspect that is where the Fed gets cold feet if/when.

no positions

Upside Down Fed

Respectfully I say to thee
I'm aware that you're cheating
But no one makes me feel like you do
--Diana Ross

When the Fed was in the middle of expanding its balance sheet amid various 'quantitative easing' (QE) programs, we observed that prices of the fixed income securities on the Fed's highly leveraged balance sheet would not have to fall much to render the Fed technically insolvent.

It appears that has occurred. The latest quarter financial statements indicate that bonds purchased and held by the Fed have  unrealized losses of over $66 billion, which eclipses its tiny sliver of $39 billion in capital. Can you say upside down?

Most people view this as a technicality because the Fed can literally print money out of thin air to cover those losses. As the author concludes, however, it is difficult to imagine a consequence-free future in this money-printing regime.

Epic Media Bias

I've been trying oh so long to let you know
Let you know how I feel
--Phil Collins

Although 'never before' statements carry the risk of recency bias, President Trump's claim may be correct, at least with respect to the mainstream media.

Never in the history of our Country has the “press” been more dishonest than it is today. Stories that should be good, are bad. Stories that should be bad, are horrible. Many stories, like with the REAL story on Russia, Clinton & the DNC, seldom get reported. Too bad!

— Donald J. Trump (@realDonaldTrump) December 15, 2018

Seems ripe for academic research. It would be interesting, for example, if Groseclose's (2011) methodology were applied to panel data.

Suspect that a beta coefficent estimating the relationship between media bias and time would be positive and significant, which would position recent slant at top of trend.

Legal and Judicial Rot

It's time we stop, hey, what's that sound
Everybody look what's going down
--Buffalo Springfield

If one believes in divine providence, then one way to make sense of the improbable election of Donald Trump, a Washington outsider and renegade, to the office of President of the United States was that it was supposed to wake people up to the corruption of the federal government that has been robbing people of their liberty--a God-given gift--while they sleep.

The desperate pursuit of Trump by the deep state and its media lackeys via the 'Russian collusion' folly provides no better example of the rot that impairs our legal and judicial system. People are able to view tactics by government agents, lawyers, and even judges that, if you or I sought to do them, would land us in jail for a long time. Lies, blackmail, selective investigation, use of government deep pockets (read taxpayer funds) to threaten people with financial ruin. Freedom can be snatched with a blink of an eye.

This rot is being exposed before our eyes. We are being urged to open them and see.

Albatross Banks

Reached out a hand to touch your face
You're slowly disappearing from my view
Disappearing from my view
--A Flock of Seagulls

Hard not to notice the heavy action in the banks. The BKX continues to drift lower despite the heroic stand of the bulls still above the recent major index triple bottom.

Laggy banks constitute an albatross around the bulls' necks.

no positions

Freedom is not Free

"You think you're free? You're not."
--Nathan 'Diamond Dog' Jones (Con Air)

To maintain freedom, individuals must allocate personal resources (time, money, attention, etc.) to protect their freedom against threats. Those allocations build two groups of defensive skills.

One group of skills is focused on detecting threats. For example, being aware of surroundings, studying history, consuming news media help people stay vigilant and aware of potential intrusions on their freedom.

The other group of skills is geared toward developing capability to ward off threats. Learning how to defend oneself, obtaining public office, and persuasion skills are among the varied talents that can neutralize actual or potential threats.

Because allocating scarce resources toward protecting freedom necessarily subtracts from resources that could have been allocated toward higher priority among freedom lovers--i.e., unhampered pursuit of personal interests--individuals will be tempted to skimp on self-defense skills. Instead, they might roll the dice and go for the increased reward associated with specialization (focused pursuit of personal interests) at the expense of increased risk (not having self-defense skills ready if threats actually materialize).

It is also possible that people might choose to outsource self-defense to someone else. This, of course, is supposed to be the primary role of government. There is some logic to this choice. Retaining agents who specialize in defense are likely better than those who do defense alongside other tasks.

However, there are problems with this outsourcing arrangement as well. Principals who hire agents to do their bidding are subject to the 'agency problem,' whereby agent goals differ significantly from the goals of the principals. It could be extremely tempting, for example, for strong armed government agents to use their muscle to shake down, rather than to protect, their principals. After all, the agents are the specialists with the guns.

It should be noted that the efficiencies gained by outsourcing to specialists in this case may be consumed in costs to monitor the hired guns for prospective mischief.

In the case of modern government, another problem is that government agents no longer specialize in protection. Because the scope of government has broadened considerably, state employees engage in myriad activities which could in fact diversify (i.e., de-specialized) them more so than the principals that hired them.

Some of these problems can be reduced by outsourcing protection to private, rather than public, organizations.

Nevertheless, because freedom is not free, individuals must grapple with how best to allocate resources toward defending that freedom before it is forcibly taken away.

Blinded by Political Affinity

With this very unpleasing
Sneezing and weezing
The calliope crashed to the ground
--Manfred Mann

One sure sign of partisanship: accusing some people of biased behavior or judgment that you know they have political affinities different from yours, while not making similar accusations of people that you know have a political affinities similar to yours.

There is perhaps no better expression of the core tenets of social identity theory than politics.

Flag Recaptured

You got me running
Going out of my mind
You got me thinking
That I'm wasting time
--Electric Light Orchestra

Although the indexes broke thru their triple bottoms in a big way yesterday morning, the bulls had the bears backpedaling the rest of the day. By the day's end, the bulls had recaptured the flag and closed in the green.

Many traders are eyeing SPX 2600 as the near term Maginot. With yet another layer of demand stripped away on the most recent test, bulls are hoping to keep the battle well north of that weakend level of support.

no positions

Global Warming Premises

"There is a WALL of water headed toward New York City!"
--Radio announcer (The Day After Tomorrow)

As observed here, global warming is based on three premises: 1) the earth's atmosphere is warming, 2) humans are responsible for that warming, 3) warming is inherently bad.

Despite what some pundits have claimed, none of these premises have been decisively proven. Indeed, if global warming enthusiasts had to bring their case before a court of law they would surely lose for lack of conclusive evidence.

But suppose those premises were accepted. What would be some of the consequences of proposed policy responses such as heavy carbon taxes, outlawing cheap fossil fuels, and mandating expensive 'green' technologies, or one child policies?

Some of the economic trade-offs might include: surrendering consumer comforts such as air conditioning, outlawing personal automobiles, higher cost of living, less mobility, and, most certainly, slower economic growth in the world.

Less prosperity.

Stealing Prosperity

"No matter how bad it gets, we don't steal."
--Jim Braddock (Cinderella Man)

Smart answer to Bernie Sanders' question by Prof Reisman. Sanders, an avowed socialist, asks why people are comfortable giving tax breaks to corporate billionaires but don't think we can afford to pay for health care for everyone.

The answer is simple. When billions are added to the means of production, the supply of products we buy, and the demand for the labor we sell, are increased, resulting in our being better off. When we have to pay for the health care of others, we are worse off. https://t.co/XpZMqSwuDz

— George Reisman (@GGReisman) December 5, 2018

Reisman replies that those billions in tax breaks can be added to the means of production thru savings and investment.Those productivity gains fuel more goods and services, including those related to healthcare, at lower cost, thereby improving prosperity for all. Spending those savings today amounts to capital consumption, which amounts to cooking the goose that lays golden eggs.

Notice the words Sanders uses. 'Giving' tax breaks to billionaires. 'We' can afford to pay for healthcare. He implies that those billionaires don't rightfully own their $billions. 'We' do.

This is the rationale of a thief displaying a pathology of resentment with hopes of capturing supporters with songs of envy and covetousness.

Perspective

So I guess the fortune teller's right
I should have seen just what was there
And not some holy light
--Natalie Imbruglia

Lotta angst out there after Thursday's intraday comeback couldn't stick on Friday. It's near term triple bottom time in the SPX.

But let's put current levels of apprehension in perspective. When examining the entire bull run that began nearly 10 yrs ago with the March, 2009 lows, very little technical damage has been done. You almost have to squint to see the current volatility.

The uptrend defined by the early 2016 lows, although currently under assault, is still intact. The entire bull market uptrend from the 2009 lows is defined by support down at about SPX 2200. That's about 20% down from here.

That people are freaking out already by recent price action demonstrates just how conditioned psyches have become to ever higher prices. It also makes one wonder what happens to the collective investment mind if/when prices really get moving to the downside.

no positions

Yield Curve Flattening

"A brilliant man would find a way not to fight a war."
--Admiral Isoroku Yamamoto (Pearl Harbor)

With long bond rates collapsing over the past few days, and short rates steadily rising over the past year or so, the yield curve is flattening--and right quick. The difference between Twos...

...and Tens...

...stands at about 10 bips.

Because they reduce the attractiveness of carry trades, flattening yield curves are rarely construed as bullish in leveraged economies.

no positions

Triple Bottom Test

I'm sick and tired
Of you setting me up
Setting me up just to
Knock-a, knock-a, knock-a me down
--Bruce Springsteen

Gap and go lower out of the gate on major indexes. Recent lows being challenged in what resembles a triple bottom pattern.

Rule of thumb is that support gets weaker with each successive test. Bears wondering whether third time will be the charm.

Also worth noting that daily stochastics are nowhere close to indicating oversold, suggesting more potential energy behind a downside thrust.

no positions

Tariff Man

"You can't do this to me. I'm an AMERICAN!"
--Marion Ravenwood (Raiders of the Lost Ark)

Well, the $billions in tariffs may be enriching the federal government coffers, but it reduces prosperity among Americans. As Ron Paul deftly notes, voluntary trade is not a 'raid.' A raid occurs when one party uses violence to confiscate someone else's property. Tariffs are taxes paid by consumers.

Moreover, trade that no longer occurs because of the higher prices involved hurts both sides since they can no longer take full advantage of the productivity gains from specialization.

Taxes do not create wealth, but destroy it.

With tariffs, the U.S. federal government is "raiding" the American standard of living.

— Ron Paul (@RonPaul) December 4, 2018

Tariff-makers are the true raiders. Through taxes, higher prices, and reduced trade, tariff-makers raid standard of living.

Slay Ride

"And then...it hit!"
--Sam the Snowman (Rudolph the Red Nosed Reindeer)

After yesterday's 'Tariff Truce' lift inspired bulls to perhaps get long and ride the Santa Claus Rally sleigh into the new year, the longs had their heads handed to them today as markets took a 3% haircut and closed on their lows.

Some blame Trump tweets implying a tougher stance on Chinese tariff talk. Others continue to blame the Fed's interest rate increase program.

There does seem to be increasing concern (and pockets of evidence) about the economy slowing down--and right fast. It is consistent with the movement we're starting to see in various macro indicators.

Will be interesting to see whether Santa can get his reindeer team back in the air--or whether they will remain grounded.

no positions

Macro Movement

We thought just for an instant
We could see the future
We thought for once we knew
What really was important
--Til Tuesday

Big rally in long bonds. Ten year yields have broken below 3% and are flirting with the 200 day moving avg.

Might be a sign that investors think the Fed will indeed reverse interest rate policy sooner rather than later. Or perhaps it's a 'flight to quality' as investors seek to reduce risk and pile into Treasuries.

With gold showing signs of life as well, 'macro' indicators beyond stocks are beginning to stir. Precisely why remains to be seen.

position in gold

SPX Performance Around Recessions

I saw the world crashing all around your face
Never realizing it was always mesh and lace
--Modern English

ZeroHedge article includes analysis from Credit Suisse on behavior of the S&P 500 index (SPX) around recessions. The gist of it is this. On average, the SPX continues to make gains until about 6 months before the start of a recession.

In those final six months, the SPX tends to tread water. A downtrend commences just prior to recession onset which subsequently continues toward a 15-20% loss after 12 months.

Since 1968, declines in the SPX of 20% or more have been associated with recessions in all cases but one (1987).

Thus far from its October highs (which also marked an all-time high), the SPX has fallen about 12%.

no positions

Regime Politics

I must have dreamed a thousand dreams
Been haunted by a million screams
But I can hear the marching feet
They're moving into the street
--Genesis

Political scientists sometimes distinguish between normal politics and regime politics. Normal politics takes place within an existing political order. The ends are agreed upon but the means are debated and form the basis for political division.

Regime politics questions the nature of the existing political order itself. Who rules and for what purpose? What are rights? Who has them? What principles do we value?

The original vision of the United States was grounded in the natural rights idea of liberty captured by the Declaration of Independence and ratified in the Constitution. An alternative vision has been under development for about 100 years now. It is grounded in the doctrine of progressive politics and socialism and stresses submission to the state.

These two visions share no middle ground. Consequently, regime politics in America has been escalating.

History suggests regime politics rarely concludes peacefully.

Affiliation Plantation

Trim life shadows flicker and fall
But you still can't turn away
Get up and run before you stall
Before the edges fray
--Ric Ocasek

Affiliation makes it hard to think straight. Our group is better than yours. Wrongs in our group are the exception; in yours, they're the rule. We're smart; you're stupid.

Commitments to failing courses of action can't be broken. In fact, they are likely to escalate.

Individuals are sacrificed for the sake of the group. Mobs rule.

Escape the affiliation plantation and be free.

Printing Press Preference

The deception, with tact
Just what are you trying to say?
--The Fixx

Chris Rossini explains why politicians prefer the monetary printing press for extracting wealth from the populace. It is confiscation by stealth.

Direct taxation, on the other hand, is overt confiscation. People can readily see how much of their wealth is being taken. There is a limit to direct taxation beyond which politicians are reluctant to venture because the people will push back.

Wealth confiscation via inflation is much more difficult for people to discern in the near term. They cannot easily recognize how much of their wealth is being taken when the government prints dollars and spends them while they still have value. Only later do people figure out that the purchasing power of the dollars in their pockets has been eroded.

Inflation is the invisible tax. Using the monetary printing press to confiscate wealth could very well constitute the ultimate in political expedience

Easy Does It

Know it sounds funny 
But I just can't stand the pain
--Commodores

Fed chair Powell hints yesterday that Fed may be closer to ending rate hikes than previously expected and the Dow lifts 600 pts.

Is Powell kowtowing to President Trump's frequent claims that the Fed's tightening program has been hurting stock market performance--to the extent that the president now says that he is disappointed with his pick for Fed chair?

Maybe. What we can be sure of is that the Fed will cave at some point and reverse their policy. They will not just cease raising rates; they will begin easing them back toward the zero bound.

Yesterday's blast off amounts to positive feedback on the prospects of returning to easy.

Improving Immigration Policy

There I was at the immigration scene
Shining and feeling clean
--Crosby & Nash

Some interesting ideas here on how to improve immigration policy that are grounded in freedom of association and market exchange. They include:

1) Expedited entry to immigrants who agree to forfeit access to all publicly funded subsidies and amenities including public schools, public healthcare, and similar programs.

2) A sponsorship program where private individuals and organizations formally invite and vouch for immigrants that they sponsor. If these immigrants turn out to be criminals or users of public funds, then the sponsors would be held legally and financially liable.

3) Eliminate all immigration ceilings, but limit admission to those immigrants who are sponsored, who have agreed to forfeit access to public funding, or who can demonstrate financial independence.

Of course, a simpler policy would be to dismantle taxpayer-funded public programs to reduce incentive for immigrant free riders.

That said, the above ideas is thought provoking in that they provide for greater freedom among US citizens for engaging in trade and exchange with immigrants worldwide while limiting risk to taxpayers. Moreover, polices based on these ideas naturally limit immigration volume since sponsorships and bonding would be constrained by availability of private resources.

Why Don't People Care About Inflation?

It ain't no use
We're headed for disaster
Our minds said no
But our hearts were talking faster
--Donnie Iris

In response to an Ask Fleck post yesterday, Fleck admits to wondering about this question often: Why don't people seem to care about inflation? It is perplexing. Because it reduces the purchasing power of money in people's wallets, inflation amounts to theft. One would think that people would be outraged about their property being ripped off.

But it doesn't generally work that way for several reasons. One is that low-to-moderate inflation rates can be difficult to notice in daily transactions. Only over large periods of time where the cumulative effects can be seen, or until the inflation rate really picks up, do people begin to notice. This is why inflation is sometimes called the 'invisible tax.'

Another reason is that government measures generally under-report inflation, which makes people think that their purchasing power is not being lost at rates as high as they actually are. Moreover, we are told that a 'little' inflation is generally good. People tend to believe this and forget how the compounding effect of even a 'little' inflation can erode purchasing power and wealth over time.

Most people are also debtors. Debtors generally welcome inflation because it allows them to pay back loans with money that is less valuable than the funds that they originally borrowed. For instance,  borrowing $100 dollars that can initially buy, say, 50 cans of soup can be paid back with $100 (plus interest) that can buy only 30 cans of soup.

Unfortunately inflation rates must often begin to go vertical before people wake up to the dangers wrought by their permissiveness. By that time the toothpaste is out of the tube.

Invasion USA

Oh Rio, Rio
Hear them shout across the land
From mountains in the north
Down to the Rio Grande
--Duran Duran

Invasion: an incursion by a large number of people or things into a place or sphere of activity. Synonyms: influx, inundation, flood, rush, torrent, deluge.

or, alternatively,

Invasion: an unwelcome intrusion into another's domain. Synonyms: violation, infringement, interruption, intrusion, encroachment, disturbance, disruption, breach.

An invasion is certainly taking place at our southern border. Bear in mind, however, that while today's events provide blatant images, this invasion has been going on for some time.

Corrective Forces Building

But if I can't swim after 40 days
And my mind is crushed
By the crashing waves
Lift me up so high
That I cannot fall
Lift me up
--Jars of Clay

Whether Peter Schiff's prediction comes to pass remains to be seen, of course. But his premise is intuitive.

The U.S. is about to finish the financial crisis and Great Recession that began in 2008. The Fed merely succeeded in interrupting the market's cure for 10 years while allowing the underlying disease to get much worse. As a result, the relapse will be far more severe!

— Peter Schiff (@PeterSchiff) November 20, 2018

Market forces destined to relieve the distortions caused by years of intervention have been further restrained over the past decade. Further restraint has increased the potential energy of those corrective forces accumulating behind the dam.

When the dam ultimately does break, far more destruction will be wrought when that potential energy turns kinetic.

Judge Shopping

Jake Lo: What judge is going to believe that?
Agent Wesley: My judge
--Rapid Fire

After a US District judge in San Francisco issued a TRO to block a presidential proclamation that asylum requests would no longer be granted to those arriving the US illegally, President Trump criticized the decision of the Obama-appointed judge and added that he considered the rulings of the Ninth Circuit "a disgrace."

Subsequently, Chief Justice of the Supreme Court John Roberts issued a rebuke of Trump's comments. "We do not have Obama judges or Trump judges, or Bush judges or Clinton judges, Roberts said. "What we have is a group of extraordinary group of dedicated judges doing their level best to do equal right to those appearing before them."

He concluded, "The independent judiciary is something we should all be thankful for."

Not only was openly commenting on a president's remarks an extraordinary measure for a chief justice, but Roberts is plainly wrong.

'Judge shopping' goes on all the time, with the Ninth Circuit being the frequent destination of leftist cases looking for friendly rulings--rulings that frequently get overturned in higher courts. Everyone knows it, including Trump, who responded to Roberts with a series of tweets:

Sorry Chief Justice John Roberts, but you do indeed have “Obama judges,” and they have a much different point of view than the people who are charged with the safety of our country. It would be great if the 9th Circuit was indeed an “independent judiciary,” but if it is why......

— Donald J. Trump (@realDonaldTrump) November 21, 2018

.....are so many opposing view (on Border and Safety) cases filed there, and why are a vast number of those cases overturned. Please study the numbers, they are shocking. We need protection and security - these rulings are making our country unsafe! Very dangerous and unwise!

— Donald J. Trump (@realDonaldTrump) November 21, 2018

There are a lot of CRIMINALS in the Caravan. We will stop them. Catch and Detain! Judicial Activism, by people who know nothing about security and the safety of our citizens, is putting our country in great danger. Not good!

— Donald J. Trump (@realDonaldTrump) November 21, 2018

“79% of these decisions have been overturned in the 9th Circuit.” @FoxNews A terrible, costly and dangerous disgrace. It has become a dumping ground for certain lawyers looking for easy wins and delays. Much talk over dividing up the 9th Circuit into 2 or 3 Circuits. Too big!

— Donald J. Trump (@realDonaldTrump) November 21, 2018

Trump is right. We do not have an independent judiciary. Instead we have judges motivated by political interest--as John Roberts himself has demonstrated.

Maven Musings

Who do you need
Who do you love
When you come undone?
--Duran Duran

Interesting interview with the always insightful Stephanie Pomboy of MacroMavens. Responding to concerns that central banks around the world are reversing ultra easy money 'quantitative easing' policies and, as in the Fed's case, initiating 'quantitative tightening,' Pomboy observes these anxieties are nothing new.

Ever since Alan Greenspan began employing monetary policy with the objective of stimulating economies and markets, investors have grown accustomed to the 'Fed put' and get nervous when it appears that central banks are reversing policies that backstop investment risk.

Stock declines just getting started? https://t.co/wCDUm8bFZa @MorningsMaria @FoxBusiness

— Maria Bartiromo (@MariaBartiromo) November 21, 2018

She thinks that stimulus provided by fiscal policy in 2018 (e.g., the Trump tax cuts) served to offset the increasingly hawkish central bank policies worldwide. Once the calendar turns to 2019, however, much of the one-off benefits of the fiscal stimulus will subside. Consequently, attention will once again refocus on the negative influence of monetary policy.

Pomboy notes that the degree of leverage in the economy has effectively lowered the threshold of pain related to rising rates. We're only at 3% on the 10 yr and already people are crying 'uncle' and pleading for lower rates from central banks.

She thinks that the stock market decline is "just getting started." She thinks that sudden downward forward earnings estimates reflect uncertainty about where growth will come from once the fiscal stimulus effects diminish.

At the end Maria asks Steph where investors can hide in case things get rough. When the Maven says gold, note the ridicule.

position in gold

Grateful for Freedom

"Aye, fight and you may die. Run, and you'll live--at least for a while. And dying in your beds, many years from now, would you be willing to trade ALL the days, from this day to that, for one chance, just one chance, to come back here and tell our enemies that they may take our lives, but they'll never take...OUR FREEDOM!"
--William Wallace (Braveheart)

At the end of his Thanksgiving Day screed, Judge Nap suggests that we should not be grateful for a government that mocks our freedom and steals our property. Instead, we should give thanks to God for giving us freedom and the power to reason.

Be most grateful that we are free creatures made in God's image and likeness--so free that we can reject government's assault on our liberty.

Bias Response Teams

Time can never mend
The careless whispers
Of a good friend
--Wham

Prof Williams shares results of a recent report from the Foundation for Individual Rights in Education (FIRE) on 'bias response teams' operating on college campuses. Bias response teams are groups of students, faculty, and staff invited by school administrators to report on conduct or speech taking place on campus that might be considered offensive.

FIRE reports that over 200 bias response teams were operating on US college campuses in 2016. Nearly 3 million students enrolled at these schools are thus being subject to speech surveillance.

In a separate study, FIRE's annual speech code survey found that 92% of the 449 schools surveyed maintain policies that restrict or punish speech.

It's not just students who are being watched. These Orwellian systems ask students to report not only on their colleagues and neighbors, but also on professors for speech that can be construed as biased and oppressive.

Why burn books when you can simply burn the authors of ideas?

Elevator Shaft

Al Powell: What was that?
John McClane: Remember that plastic explosive I told you about? There you go. Is the building on fire?
Al Powell: No, but it's gonna need a paint job and a shitload of screen doors.
--Die Hard

Domestic equity markets getting the shaft, as in elevator shaft, out of the gate today. Down over 500 pts early, the Dow is now testing its late October lows.

The Nasdaq has already broken thru those lows.

This is in synch with the principle that bear markets in their earlier stages tag the racier markets harder than the stalwarts.

The stalwarts are starting to catch up though.

no positions

Kennedy's Coin

"You're looking at a living legend, Lilly. The only active agent who ever lost a president.”
--Frank Horrigan (In the Line of Fire)

This Thursday, Thanksgiving Day, will mark the 55th anniversary of John F. Kennedy’s assassination in Dallas. Within hours of the president’s death, there was already discussion of depicting JFK on one of the larger U.S. coins in circulation. Jackie Kennedy preferred that her late husband appear on the half dollar, a denomination previously occupied by Benjamin Franklin.

 In less than a week, the project was authorized. Mint engravers Gilroy Roberts (obverse) and Frank Gasparro (reverse) collaborated to modify designs previously developed for the Mint’s Presidential series. By the time the congressional bill passed in late December to authorize striking of the Kennedy half dollar, work on the dies was already underway.

1964-D 50c PCGS MS66

Coins for circulation were first minted on January 30, 1964—barely two months after JFK’s death. Initial release to the public through the Treasury Department and large banks were quickly sold out. Although production increased throughout 1964, the coins were rarely seen in circulation as people hoarded great quantities for both their link to JFK and for their 90% silver content. Production of 1964 Kennedy halves continued into early 1965. Nearly 430 million pieces were struck at the Philly and Denver mints—more than the quantity struck for the entire sixteen years of the Franklin half. In 1965, the silver content of the Kennedy half was reduced from 90% to 40% on its way to its 0% silver content today. Per Gresham’s Law, that reduction virtually guaranteed that those hundreds of millions of 1964 Kennedy halves would disappear from circulation.  The sheer number of hoarded Kennedys keeps their premiums over spot silver low today, making 1964 Kennedy halves one of the best ways to put back silver bullion—while still contemplating the Camelot that was. position in silver

Virtual Saving Vehicle

So true
Funny how it seems
Always in time
But never in line for dreams
--Spandau Ballet

Ron Paul poses the following hypothetical. Suppose you were gifted $10,000 and were required to keep it for 10 years without touching it. If you had to choose between dollars, gold, bitcoin, and T-notes, which saving vehicle would you choose?

A wealthy person gifts you $10,000. You get to choose in which form you’ll accept the gift. But there’s a catch: You must keep the gift in the form that you choose for 10 years without touching it. In which form would you accept the gift?

— Ron Paul (@RonPaul) November 15, 2018

The most preferred choice among almost 95,000 survey respondents was bitcoin.

Sign of the times, I suppose, that the top preference was for a virtual saving vehicle. Also helps explain the muted action in gold despite rising inflation signs.

position in gold

Corporate Interest Burden

And when one little bump
Leads to shock 
Miss a beat
You run for cover
And there's heat
--The Fixx

Ponder this chart for a minute. Baa (midtier) corporate bond yields have been in secular decline while corporate interest expense has been in secular incline.

Ever more corporate bonds issued despite lower coupons. How exactly does this work? Hint: look at over central bank interest rates policies (e.g., ZIRP, NIRP) for clues.

Consider this, despite lower coupon payments per bond to bondholders, interest expense is way up. This can only be true if corporations sell (choose one): a) small quantities of bonds of low rates, b) large quantities of bonds at low rates.

For those who have argued that it is good for companies to issue debt when interest rates are low because interest expense will also be lower, how's that working?

Press Pass Revoked

Arjen Rudd: Diplomatic immunity!
Roger Murtaugh: It's just been revoked.
--Lethal Weapon 2

Pat Buchanan discusses the White House decision to pull the press pass of a CNN pundit and CNN's subsequent lawsuit against the president. The suit claims that First Amendment rights have been violated.

This is laughable. Read the amendment. There is no violation.

The president has chosen to revoke a privilege, not a right. The White House press corps is granted a privilege (i.e., personal access to the president) that is not available to other media. The president can set the rules of the game and take away privileges from those deemed not to follow those rules.

As Buchanan correctly observes, the First Amendment guarantees that media can say what they want about Donald Trump. It does not entitle anyone in the media to a front row seat at a White House press conference.

Nor does it force a president to respond to the media's questions.

Mind Numbing Debt

"He's going vertical. So am I."
--Maverick (Top Gun)

Hard not to just stare at this chart. Simply mind-numbing.

Thanks @GrantsPub imp chart of #debt @spomboy @MorningsMaria @FoxBusiness @dagenmcdowell pic.twitter.com/4kRTlZTq31

— Maria Bartiromo (@MariaBartiromo) November 12, 2018

The gift to our young and future generations that keeps on giving...

Tariff Wagon

Wasted
Sacrificed for the new nirvana
Night time
Send the sun away
--Icicle Works

These pages have frequently observed that tariffs are taxes. Consumers pay these taxes. Ron Paul shares how much the federal government has collected in tariff tax revenue over the past 20 years.

Tariffs are a tax paid by the American consumer.

You -- Your money -- goes into Uncle Sam's pocket.

The American standard of living *must* go down when taxes are increased. Taxes don't create wealth and raise the standard of living.

They're a drain! pic.twitter.com/sCcXRs3ryS

— Ron Paul (@RonPaul) November 13, 2018

Although tariff tax revenues have spiked under the Trump administration, they have been trending higher for the past 20 yrs.

Stated differently, the tariff wagon depart with this administration. It has been rolling for some time. Its speed is merely accelerating under Trump. Recessions have been the only time the brakes have been tapped.

Of course, tariff tax revenues alone don't tell the entire story. At current run rates the federal government will collect about $60 billion in tariff revenue annually. That is only a tiny fraction of the income tax revenue collected by the federal government.

However, what isn't captured is the trading economies that are lost because prices with overseas trading partners are too high. And loss of benefits of specialization as the domestic economy must diversify to become more self-sufficient. And the inflation that follows. And the economic slowdown that flows from that.

You get the picture. Revenue is really just a component of the tariff wagon.

Hesitation Station

On our first trip I tried so hard
To rearrange your mind
But after a while I realized
You were disarranging mine
--Rolling Stones

Yesterday's melt headlined by the 600 pt Dow drop means that major indexes have retraced about 50% of the rally off the lows from a couple weeks ago.

Some hesitation in this zone would be intuitive.

no positions

Forest Management

Some say she's alright, some say she'll never learn
Some rush into things, some stand and wait their turn
I've been here all along, standing here all this time
But you never noticed, just let the same tired flames burn
--Bruce Hornsby & the Range

Thirty five years ago I was completing my first six months in the working world following college graduation. I was a process engineer working for a large paper manufacturer in Wisconsin. The company had an excellent orientation for new management hires that included a road to our timberland operations. Me and another half dozen of that year's cohort jumped in a van and headed north to the woodlands as the fall leaves lit up the countryside.

Two lessons learned from our foresters on that trip stuck with me. One was that trees are like any other crop. They can be planted and harvested. The difference between growing trees and, say, corn is the time it takes for a crop to mature. Forest product companies and the consumers of their products are no more 'killing trees' than farmers and their consumers are killing corn.

The second lesson involved practices in good forest management. Remove dead and blighted trees. Thin out growth. Create space and buffers. Many of these practices were oriented toward containing damage caused by wildfires. Companies in the area had painfully learned this lesson thru experience. In fact, I regularly drove thru thousands of acres of unmanaged forestland south of town that had been decimated by wildfire 10-20 years earlier.

Today's 'environmentalists,' particularly the younger generation brainwashed by an equally ignorant older generation of grade school, high school, and college instructors, revolt at the notion of messing with the natural 'look' of a woodland.

As such, we are vulnerable to catastrophes like the current wildfires raging across California. That's the PCH at Malibu above.

The president is correct in calling such ignorance out.

Armistice of Destruction

"I fought the Germans in France. And I fought 'em in the trenches. And I pray to God no one ever has to see the things that I saw."
--Danny Walker's father (Pearl Harbor)

Today marks the 100th anniversary of armistice between the Allies and the Germans that ended the fighting in World War I. The war propaganda that still clouds historical memory paints WWI as an unavoidable conflict perpetrated by Imperial Germany.

Intelligent studies of the times suggest otherwise. The primary instigators were Britain and France. The British Empire, who controlled nearly one quarter of the world's surface, feared German commercial and naval competition. France sought revenge for its defeat in the Franco-Prussian War more than 40 years prior.

The Germans feared being crushed between two hostile powers--France and Russia. Germany began to sense that the longer they waited to respond to their border threats, the higher the military odds became stacked against them.

The ensuing bloodbath and its aftermath changed the course of history, ushering in dictators, economic depressions, and further wars that claimed multiples of the nearly 40 million lives lost in WWI.

In many ways the armistice struck one hundred years ago today merely signifies a momentary pause and redirection of a building wave of destruction.

Home Invasion

John Hatcher: The way I look at it, you come home, mind your own business, watch your own yard. And then, if trouble finds you, you go after it and bite its head off...before it does the same thing to you.
Max: Look, Hatch. You haven't been here in a long time. And I'm telling you, trouble is tapping us both on the shoulder right now, and you don't want to turn around.
John Hatcher: Well, I hope you're wrong.
--Marked for Death

Earlier this week the home of a Fox News host was vandalized by an 'Antifa' (quite paradoxically short for 'anti-fascist') mob. This is another crime committed by an increasingly militant left encouraged by increasingly inflammatory rhetoric voiced by progressive leaders.

Signs continue to point to a building wave of politically motivated violence. That violence, as demonstrated by this case, could literally wind up at your doorstep. Be ready to defend yourself, your family, and your property.

For those wondering what a 'legitimate' use for so-called 'assault rifles' might be, protecting against home invasions is one of them.

Straight Up, Straight Down

Christy Wills: There is no right or wrong. There is only opinion.
Brantley Foster: You know, in some states you can get arrested for saying that.
--Secret of My Success

Sheryl Attkison discusses why the production of fake news, which involves so called news professionals committing gaffes that would not be tolerated in journalism school, is widespread today. She focuses on three factors.

Excellent breakdown of how #FakeNews is made.@SharylAttkissonhttps://t.co/7m1L7VaKCB

— PragerU (@prageru) November 8, 2018

First, firewalls that used to strictly separate news from opinion in media organizations have become blurred. Previously forbidden practices such as editorializing in straight news reports and the inclusion of opinion as fact are not only tolerated, but encouraged.

Second, regardless of their like or dislike for a politician, journalists are obligated to treat all politicians the same. Unfortunately this obligation has been discarded in favor of a double standard. Coverage with kid gloves for friendlies; hostile coverage for enemies.

Third is what Attkison calls transactional journalism. Journalists have become willing to slant coverage in order to get something in return--like favorable access to a particular person or information worthy of a scoop. Doing so, of course, constitutes a violation of basic ethics.

Because they can no longer get their news straight up, many information consumers are pointing their thumbs straight down at mainstream media sources that have completely abdicated their responsibility for objectivity.

New Scapegoat in Town

Some break the rules
And let you cut the cost
The insecurity is the thing that won't get lost
--Howard Jones

Ron Paul suggests that, with Democrats taking control of the House following the midterm elections, there is a new scapegoat in town once the economy and markets roll over. Whereas Donald Trump has recently been stirring up angst against the Fed, the president may find it politically expedient to divert blame for rough waters ahead to the opposition party.

Is The Fed Relieved?

Trump Can Now Blame House Democrats For The Coming Financial Storm pic.twitter.com/r83rVKUwZv

— Ron Paul (@RonPaul) November 7, 2018

Perhaps the Fed is breathing a sigh of relief.

Washing Thru

You don't really need to find out what's going on
You don't really want to know just how far it's gone
--Don Henley

On top of last week's evidence of price increases up and down the supply chain, wages are also on the rise. Signs of inflation continue to grow.

As Fleck noted on Monday:

"So it appears that folks are finally starting to become sensitized to rising prices, and once that happens it ought to be clear that prices have really been rising more than folks have realized for some time. Eventually it will be obvious to everyone that printing money leads to higher costs for goods and services after the money washes through the financial markets."

After the money washes through the financial markets. Great choice of words. It has taken a while for the trillion$ printed by central banks to be 'laundered' thru financial markets.

It is finally making it's way out of the laundry to a wallet (and price tag) near you.

Voting is not Consent

"Am I angry about taxation without representation? Well, yes I am. Should the American colonies government themselves independently? I believe they can, and they should. But if you are asking me, am I willing to go to war with England? Well, then, my answer is most definitely 'no.'"
--Benjamin Martin (The Patriot) 

Some argue that anyone who votes, regardless of the election outcome, consents to the system of governance that spawned the vote. By taking part in a election, the voter tacitly agrees to abide by the decision of a majority.

Of course, others argue that if a person doesn't vote then he/she doesn't have grounds for complaint because that person did not participate in the vote.

Imagine similar logic, i.e., 'yes' means consent, 'no' means consent, argued by criminals in courts of law.

One legitimate argument for voting is using elections as a means for peacefully keeping or removing aggression from the system. For example, voting against a tax levy keeps government aggression at bay.

The alternative is to acquiesce to the tax and become a slave. Or to fight back with defensive force.

Cup and Handle-ish Yields

I had another look
And I had a cup of tea
And a butter pie
--Paul McCartney & Wings

Ten yr yields looking increasingly cup and handle-ish.

Bullish for yields but bearish for just about everything else...

no positions

Next RCA?

And now we meet in an abandoned studie
We hear the playback and it seems so long ago
--The Buggles

The poster child for the stock market run-up in the 1920s was Radio Corporation of America (RCA). RCA, or 'Radio,' was the must-have stock for speculation class. RCA stock price increased more than 20 fold during the hey days of the Roaring Twenties.

In September 1929 the stock fell from 114 to 86 in ten days. In the subsequent crash it fell from 86 to 26. By mid 1932 it was trading at $2/share.

In the present stock market run-up, few stocks have captured speculator fancy more than Apple (AAPL). Its 20+ fold increase in share price finds AAPL flirting with a $1 trillion market cap.

Could AAPL be the present day analog to RCA? Impossible? Am sure that same word was uttered by Radio bulls when the tremors began.

no positions