Thursday, May 31, 2018

Rally in Treasuries

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

Treasuries staged a huge rally on Tuesday that knocked 10 yr yields down a couple of boxes. Although some of those gains were given back yesterday, prices are advancing again this am.

The proximate cause of the rally was renewed trouble in Europe, particularly in Italy, that motivated an old fashioned 'flight to quality' trade.

It is also likely that shorts who piled into bearish bond bets near the lows were caught off-sides.

And then carried off the field on stretchers...

no positions

Wednesday, May 30, 2018

Not Just Morally Superior

No more running down the wrong road
Dancing to a different drum
Can't you see what's going on
Deep inside your heart?
--Michael McDonald

In this screed against socialism, Prof Williams observes that capitalism is the morally superior system. Capitalism is based on volunteerism. It requires cooperation and peaceful exchange.

Socialism is authoritarian. It requires force to implement and maintain. People must cede liberty and property to the will of the State.

But capitalism is not just superior on moral grounds. Morality can be debated. As Mises observed, capitalism is also superior to socialism on scientific, utilitarian grounds.

It creates the most wealth per unit of effort, thereby making it the best way to advance prosperity for all.

Even if you don't have a moral bone in your body, a reasoning mind must conclude that capitalism moves society ahead while socialism restrains progress.

Tuesday, May 29, 2018

Volunteerism vs Authoritarianism

And in your dream of darkness
I came shining like the sun
Waiting for the laughter
But the laughter never comes

In this insightful interview, Ron Paul offers that he generally steers clear of labels for political groups such as conservatives, liberals, and libertarians because their imprecise meaning. He likes to think of social philosophies as falling into one of two groups, however.

Volunteerism is belief that life should be done on voluntary terms. People are free to do what they want as long as they reject aggression.

Authoritarianism is belief that it is possible for some person or group to know what is best for others. Some people are idiots and can't be responsible for themselves. Thus, it is the charge of people who 'know better' to force others, using the strong arm of government, to comply with their wishes.

Oddly, authoritarians act aggressively on others for what they feel is the others' own good.

Monday, May 28, 2018

Freemen Fighting for Liberty?

Years have passed and I keep thinking
What a fool I've been
I look back into the past and 
Think of way back then
I know that I lost everything I thought that I could win
I guess I should have listened to my friends
--Mike Curb Congregation

On Memorial Day, we remember those who fell in action in various conflicts that the United States has been a part of. What we don't remember is that many of those conflicts were not fought by individuals who were exercising their free will to defend liberty, as Washington reminded troops in 1776.

Many conflicts fought since the Revolution featured conscription. US troops were forced to fight against their will. In such cases, soldiers who were drafted did not 'give their lives for their country.' Their country took their lives.

Still other wars were fought in an offensive posture. Rather than defending the blessings of liberty, the nature of military action is often aggressive toward foreign lands. Battlefield conscience sometimes tells combatants that they are dying for the wrong reason.

Sadly, soldiers who have fallen in conflicts consistent with the conditions Washington elaborates above constitute a minority fraction of the total casualty list that we seek to commemorate today.

Sunday, May 27, 2018

Life Time

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

When we are young, we feel that we'll live forever. Time seems abundant, not precious. We pay less attention to what we do with it since it seems, literally, that we have all the time in the world.

As we age, we become increasingly aware that not only is time a scarce resource, but it is the ultimate scarce resource. Our time here is not infinite. In fact, it is not certain how much time we have left. Our time could end today.

The older we get, the greater the innuendo of time's scarcity.

God is talking to us. He is reminding us that life is His greatest gift. Don't squander it because you don't know how much you have left.

He is also telling us that it is never too late to begin making the most of our life time.

Saturday, May 26, 2018

Negative Correlation?

And as I try to make my way
To the ordinary world
I will try to survive
--Duran Duran

Common wisdom is that stocks and bonds are negatively correlated. When stocks go down, bonds go up, and vice versa.

Long term charts paint a different picture. Negative correlations have occurred over short time periods. Over the past 2-3 decades, however, stocks and bonds have gone up together.

The unheard of corollary is that they can go down together too.

position in SPX

Friday, May 25, 2018

Unproductive Solar

Little darling
It's been a long, cold, lonely winter
Little darling
It feels like years since it's been here
--The Beatles

Proponents of solar energy tout the fact that the sector has generated lots of 'good' jobs. In 2016 employment the number of solar energy workers was estimated to be 373,807, compared to 362,118 workers in natural gas and 160,119 in coal.

But just how 'good' are solar jobs? One measure of 'goodness' is productivity, in this case defined as the amount of output (in megawatt hrs of electric power) that a worker produces. In 2016 solar workers generated 36.75 million megawatt hrs of electric power. At the same time, coal workers made 1.24 billion megawatt hrs of electricity while natural gas workers produced 1.38 billion megawatts hrs.

Clearly, both coal and nat gas workers were more productive in 2016, generating output in the billions of megawatt hrs with less workers than the solar sector employed to make output in the millions.

How much more productive were coal and nat gas workers? The productivity comparison in megawatt hrs/worker is:

coal: 7744
nat gas: 3811
solar: 98

In 2016, coal workers were 77 times more productive than solar workers, while nat gas workers were 38 times more productive than their solar counterparts.

On strictly a productivity basis, it is not clear that solar jobs are in fact 'good.' Workers in coal and nat gas appear to be far more productive than solar sector workers.

Solar proponents would surely counter that current productivity comparisons don't tell the whole story. But it is difficult to see how the 'the rest of the story' can adequately bridge the productivity chasm.

Society prospers when people are engaged in high productivity work. Unless the relatively productivity of the solar sector improves significantly (and in a hurry), then economic forces will begin prying scarce resources away from solar toward more productive uses.

Thursday, May 24, 2018

Bonds vs CDs

You're emotion
Running cold running warm
The young just getting older

Article considers whether fixed income investors are better off with CDs rather than bonds. As shown below, CD yields are surprisingly close to bonds of similar duration.

Bonds have generally been favored for their liquidity and their capital appreciation potential if interest rates fall. On the other hand, bond investors are exposed if interest rates rise (as many have learned recently). Bonds also carry risk of principal fluctuation and defaults.

CDs are FDIC insured. And interest rate exposure can be hedged by 'laddering' CDs of various duration as discussed in the article.

For my money (literally), CDs are my preferred vehicle for fixed income purposes.

position in CDs

Wednesday, May 23, 2018

No Aggression, No Exceptions

Everywhere I hear the sound of marching, charging feet, boy
'Cause summer's here and the time is right for fighting in the street, boy
--The Rolling Stones

Ron Paul notes that liberty rests on one simple principle. No person or group of people may act aggressively against the person or property of someone else.

If society permits exceptions to that rule, then people with criminal intentions will flock to those exceptions in order to gain cover for their violent acts.

It is easy to construe that modern societies construct government to provide such cover. There are several reasons why government is attractive in this regard. Being a large institution endowed with powers of force, government offers scale economies for expropriating property that smaller criminal organizations cannot match.

Government also offers opportunity for criminally-minded principals to contract with strong armed government agents to do the dirty work. This arrangement affords a certain degree of causal ambiguity for perps. Casual observers can have trouble determining just who's behind the violence. The strong armed agents are often far more visible than principals who fund the crime.

Finally, government provides a means for rationalizing away violent behavior. Because most individuals do not view themselves as violent individuals, the cognitive dissonance problem that arises when people seek to aggress on others requires the concoction of an intermediary that is doing good things with a sort of 'benevolent force.' Thus, government acts in the name of social justice, equality, national security, et al in manners marketed as non-aggressive. Cognitive dissonance problem solved.

Being the popular exception to the non aggression principle, government has, predictably, wrought levels of death and destruction that smaller bands of criminals can only imagine.

Compromising the non-aggression principle is not possible. No aggression, no exceptions.

Tuesday, May 22, 2018

'Decrease the Likelihood' Gun Control

It's 2 AM
The fear is gone
I'm sitting here waiting
The gun still warm
--Golden Earring

Radio host and former congressman Joe Walsh observes that laws won't stop motivated criminals from doing evil.
Although Walsh claims that leftists don't understand this reality, most leftists would probably disagree. Instead, many counter with the argument that laws, in this case laws restricting gun ownership, while not eliminating crime, would decrease the likelihood that a bad guy or would-be bad guy would obtain a firearm to commit a crime.

There is some validity to this line of reasoning. After all, when we lock our home or car doors, only the most naive would expect that doing so would stop hardened thieves. Instead, we would more realistically expect to deter less capable thieves who possess neither the skill, patience, or time to circumvent the lock.

But if leftists take this tack then they must be prepared for the corollary. If restricting gun ownership decreases the likelihood of would-be criminals obtaining guns, then doesn't it also reduce the likelihood of good people obtaining guns in order to capably defend themselves against those motivated criminals who ignore the law? Why is decreasing the likelihood of a would-be criminal getting a gun more preferable to reducing the likelihood that a would-be victim has a gun to defend against crime?

'Decrease the likelihood' gun control advocates must also account for the dynamics that subsequently unfold. If gun ownership is restricted, then is gun augmented crime also likely to decrease? There may be fewer marginal criminals with guns, but there would be fewer law abiding people with guns as well. To motivated criminals, hasn't the potential victim pool vastly increased? Why should we expect less crime rather than more crime as a result?

Moreover, black markets for guns will surely form to fill demand that has been forcibly restrained by law. Do increases in black markets typically lead to more or less violence? If the answer is more, then why should we expect differently this time?

The 'decrease the likelihood' gun control argument faces a difficult road toward truth.

Monday, May 21, 2018

Boxed Up

Risin' up
Back on the street
Did my time
Took my chances

Ten year yields have been on the move again, piercing thru the 3.0 maginot last week and staying there. Applying classic 'box theory' shows that yields are now in a new box.

Analysts and pundits are busy ratcheting their interest rate forecasts higher.

no positions

Sunday, May 20, 2018

Speech and Aggression

Can you hear me?
Can you hear me running?
Can you hear me running?
Can  you hear me calling you?
--Mike and the Mechanics

Leftists increasingly argue that hurtful speech is a form of physical aggression. They cite research suggesting that people who hear/read speech they don't like can develop physical problems. This is supposed to 'prove' that unpalatable speech is no different than being physical accosted by an aggressor.

It follows, then, that speech needs to be controlled, presumably by government, to limit the physical damage.

But this argument conveniently ignores some important differences between speech and physical aggression. With a few notable exceptions, people on the receiving end of speech that they dislike can walk away. Someone being attacked on the street rarely has that luxury.

More to the point, speech can only 'hurt' if people choose to let it in. Between hurtful speech and actual 'hurt' is choice. Individuals who are hurt by words have made a decision. They have decided to admit those words to their internal psyches and let them do damage. The sender of those words has no control over that process.

Rather, it is completely in control of the receiver.

To rightly claim bodily harm, receivers of 'hate speech' must do far more than demonstrate that unpalatable words from a sender caused them physical harm. They must also demonstrate why they didn't leave or avoid the scene of those words and, even then, why those words were aggressively forced into their minds by someone else instead of being self imposed.

Wednesday, May 9, 2018

Crowding Out Charity

"Protect the helpless. And then maybe one day, when I am helpless, you will come and protect me."
--King Baldwin IV (Kingdom of Heaven)

Prof Williams observes that the welfare state crowds out charity. Prior to the inception of the US welfare state, Americans generously gave time and money to help the needy. De Toqueville was impressed at the extent to which US citizens voluntarily organized associations aimed at serving the public good and improving human lives. Families were tight and often lived in multi-generational households as children with kids of their own felt obligated to take care of aging parents.

Since the welfare state was instituted, sense of voluntary obligation associated with charity has declined. Young separate from old as there is belief that the state will take care of the aged. Associations to help the needy have given way to government agencies. Rather than being grateful, recipients of state-provided 'charity' are often arrogant and hostile toward 'donors' (taxpayers), particularly if they suspect that their resource flows will be cut.

That US voluntary giving statistics continue to indicate high levels of generosity compared to people in other countries provides a sense of the charitable capacity of the American people. Unfortunately, decades lost to welfare statism has hampered that capacity--particularly in terms of charitable entrepreneurship and innovation.

We would be much farther ahead if charitable resources were exclusively back in the hands of individuals.

Tuesday, May 8, 2018

Make Work or Basic Income?

"OK, Mister Porter, you got balls, man. So I'm going to let you decide. You wanna see it coming...or you wanna turn around?"
--Mercenary (Under Siege 2)

Dan Mitchell considers a question. Which is more harmful: make-work government jobs, or basic income schemes? Make-work jobs are unproductive, lest they would be funded by volition rather than by force. On the other hand, basic income schemes pay people not to work.

Stated differently, is it worse to have taxpayers fund people doing unproductive work, or no work at all?

The answer, of course, doesn't really matter because the question poses a false choice.

Monday, May 7, 2018

Monetary Malpractice Continues

Now I'm towing my car
There's a hole in the roof
My possessions are causing me suspicion
But there's no proof
--Crowded House

Real Fed Funds Rate continues its record run below zero--now at 120 months (10 yrs) and counting. Previous record: 39 months. This is monetary malpractice writ large.

Real rates have been negative for so long that it has become the norm, meaning that once things start breaking as rates inevitably rise back toward long term averages (and above), people will cry for a return to 'normal.'

Sunday, May 6, 2018

Directional Analysis

A thousand skeptic hands
Won't keep us from the things we plan
Unless we're clinging
To the things we prize
--Howard Jones

Good insight here. One way to evaluate the effectiveness of capitalism and socialism is to assess directional economic effects, i.e., what happens when a country moves more toward capitalism or socialism?

The general results are these. When a country introduces socialist 'reforms,' the country's economy tends to deteriorate. When a country introduces free market reforms, the country's economy tends to improve.

Stated differently, directional analysis suggests that half measures toward socialism make things worse. Half measures toward capitalism make things better.

Saturday, May 5, 2018

Total War

Otto Heidemann: Yes, I understand. But I don't agree with killing helpless men.
General Count von Klugermann: Otto, this is 1918. Things have changed. Unrestricted submarine warfare, bombing of civilians, poison gas. Ask your wife. She's a nurse. Ask Elfi about the mustard gas casualties.
Otto Heidemann: So you approve of this kind of ruthlessness?
General Count von Klugermann: We fight to win, Otto.
--The Blue Max

Article discusses the decisive German Spring Offensive of 1918 and its consequences. The offensive was the last great campaign of WWI. German leadership essentially bet the house on a massive assault on the Western Front that would end the trench warfare stalemate and win the war.

The author suggests that the German Spring Offensive was the product of a 'total war' idea that had infiltrated Germany over the course of time. Integrate the war effort with the economy by installing military heads in government seats, and cut deals with industry verticals to tilt economic output toward the military goods necessary for victory. Those who were not serving in the German military were essentially conscripted to produce output for military consumption.

The total war strategy is high risk. A country weakens as production veers away from satisfying everyday economic needs and toward a centrally planning focus on military victory. If that victory is not quickly achieved, then the feeble country is exposed to counter strikes by the enemy and, ultimately, conquest.

As we now know, that risk was realized when the German Spring Offensive failed. By the end of 1918, Germany had surrendered and the unfavorable terms of the Treaty of Versailles left the country broken and vulnerable to generations of economic and political distortion.

Unfortunately, the total war idea did not die when Germany 'went under.' In many ways, it has become the blue print for the prosecution of modern war both here and abroad.

Friday, May 4, 2018

Under 4%

Things are going great
And they're only getting better
--Timbuk 3

Market partying (after bouncing off the 200 day, of course) upon release of the jobs number this am. Headline unemployment printed under 4% for first time in almost 20 yrs.

Let's see, the last cyclical low in unemployment printed in 2007 and in 2000 before that. Hmmm.

position in SPX

Thursday, May 3, 2018

Here Again

Out in the distance
I could hear some people laughing
I felt my heart beat back
A weekend's worth of sadness
--'Til Tuesday

After a week's respite, major indexes doing battle with the 200 day once again.

Remember the adage. The more times support is challenged, the weaker it gets...

position in SPX

Wednesday, May 2, 2018

Our Spending Addiction

I'm travelin' down the road
I'm flurtin' with disaster
I've got the pedal on the floor
My life is runnin' faster
--Molly Hatchet

Rand Paul once again demonstrates wisdom all too rare on Capitol Hill. Empires ultimately fail because statesmen become addicted to spending. Because that spending always outstrips income, the difference must be borrowed. Economies are consequently crushed under the massive debt burden that empires accrue.

Paul observes that addiction to spending and debt infects both parties in the U.S. Democrats and Republicans mutually agree to fund each other's profligate ways.

The $21 trillion (and counting) question is what stops the pathology? We know that addicts rarely kick their habit without intervention. The most logical source of intervention would be US voters who remove Washington politicians who don't stop spending. Unfortunately, most voters have become dependent on government largess in one way or another. As such, voters act more like enablers rather than as an interventionary force.

Lacking interventionary will power, the country is permitting our spending addiction to escalate toward an inevitable crash of epic proportions.

Tuesday, May 1, 2018

Maximizing Trump

"You arrogant ass. You've destroyed US!"
--Bonavia (The Hunt for Red October)

Of the many ironies springing from the 2016 presidential election, few are more glaring than the strategy of the Clinton campaign to push candidate Donald Trump during GOP primaries. Because the Clinton campaign viewed other Republican candidates as greater threats, it thought that 'maximizing' Trump would eliminate competition.

Several times during the campaign, I heard DNC pundits echo the thought that they would love to see Donald Trump as the GOP nominee because he could easily be beaten in the general election. Be careful for what you wish, I remember thinking.

Call it what you want. Underestimating your opponent. Recklessly pursuing a flawed 'the enemy of my enemy is my friend' policy.

But by 'maximizing' Trump, the Clinton campaign helped destroy itself.