Tuesday, April 30, 2019

School Safety Policy Diversity and Tolerance

"There are no victims in this classroom."
--Louanne Johnson (Dangerous Minds)

Thomas Massie and John Lott support the proposition that teachers who carry guns help keep students safe. This proposition is intuitive to me. As Lott discusses, it is also supported by both reason and empirical evidence.
Obviously, some people disagree. Some parents adamantly oppose sending their students to schools where teachers carry. Some teachers oppose the idea too.

As we've discussed before, however, this does not put school safety policy at an impasse. In unhampered markets for school security, solutions would arise to cater to various market segments. For those who prefer learning environments with armed instructors, entrepreneurial solutions would arise to meet that demand. For those who prefer gun-free learning environments, supply would surely surface to satisfy that segment as well.

No policy-by-force is necessary. Let people decide what is best for them. In freely functioning markets there is room for a diversity of viewpoints. That capacity for diversity helps build tolerance for opposing viewpoints.

Monday, April 29, 2019

Of Pots and Kettles

And once you're gone
You can't come back
When you're out of the blue
And into the black
--Neil Young

Brazenness of politicians never ceases to amaze.

Pot, kettle, black...

Sunday, April 28, 2019

Negative Intel

"Always with the negative waves, Moriarity."
--Oddball (Kelly's Heroes)

Classic high-volume breakdown in Intel (INTC) following weak report and earnings guide down. Stock has a cushion of technical support between 50 and 51.5 that appeared to buoy the stock on Fri.

Thus far market has been treating Intel's negative news as company-specific. Should that negativity spread, then the multi-month sector run-up in chip names will be at risk.

no position

Saturday, April 27, 2019

Interest Rates

Peter Venkman: You won't regret this, Ray.
Ray Stantz: My parents left me that house. I was born there.
Peter Venkman: You won't lose the house. Everybody has three mortgages nowadays.
Ray Stantz: But at 19 percent? You didn't even bargain with the guy.
Egon Spengler: Ray, for your information, the interest alone for the first five years comes to $95,000 dollars.

Last time we discussed the centrality of prices to market functioning. Of the myriad prices powering market behavior, none is more important than those conveyed by interest rates. Interest rates indicate the price of money or, more precisely, the price of borrowed money.

As discussed in a previous post, borrowing requires that you pay back the original amount of a loan (i.e., 'principal') from the creditor along with a charge for borrowing those funds (i.e., 'interest'). The charge, or 'interest rate,' is usually expressed as the percentage of the principal that you pay in interest to the creditor on an annual basis.

For example, if you borrow $10,000 from a bank and you pay $500 annually for use of the money, then the interest rate is $500/$10,000 or 5%.

Previously we observed that prosperity increases when savings are invested in capital improvement projects that improve productivity. Since the cost of productivity improvement projects often exceeds what they can fund out-of-pocket, entrepreneurs commonly tap credit markets for the resources that they need.

Interest rates are vital to markets because they permit calculation of the cost of acquiring capital for investment and productivity improvement. Without the prices conveyed by interest rates, markets could not function.

While interest rates come in many shapes and sizes, there is one interest rate in particular that projects outsized influence on markets. We'll discuss this next time.

Friday, April 26, 2019

Progressives, Neocons, and Micromanagement

All for freedom and for pleasure
Nothing ever lasts forever
Everybody wants to rule the world
--Tears for Fears

As usual, a cogent point by Ron Paul. Progressives seek to micromanage lives of people inside the US. Neocons seek to micromanage lives of people outside the US.
Because people have been endowed by their creator with the unalienable right of liberty, they are not built to be micromanaged by anyone anywhere.

Ironically, both progressives and neocons can see the error in the ways of the opposing group--but not in their own ways. Social identity theory predicts as much, of course.

Thursday, April 25, 2019

Elite Club

I had some dreams
They were clouds in my coffee
Clouds in my coffee
--Carly Simon

With Microsoft (MSFT) gapping higher on the heels of a strong quarterly report, the stock is knock-knock-knocking on a $1 trillion market cap.

Mr Softee joins, I believe, Cisco Systems (CSCO), PetroChina (PTR), Apple (AAPL), and Amazon (AMZN) in the elite club of stocks that have touched $1 trillion in market value. None of the other club members have been able to hold it.

Yes, the economics of MSFT's business are among the most favorable on the planet. Its cloud business suggests a bright future for years to come.

Still, exceptional fundamentals do not necessarily translate into epic valuations. Let's see if MSFT can hold onto its club membership.

positions in CSCO, MSFT

Wednesday, April 24, 2019

New Highs

I got my mind made up
I need to feel your touch
--Bryan Adams

The seemingly inevitable retest of previous highs is here. Yesterday both the SPX...

...and the COMP...

...closed at new all-time highs. Intraday highs set last fall have yet to be bested, but that seems a matter of time--perhaps hours...

Bulls are ready to run in virgin territory. Bears, on the other hand, are eating some humble pie, as they had confidently boasted that last fall's highs marked THE highs and the end of the ten yr bull market.

Perhaps it would taste better a la mode...

Tuesday, April 23, 2019

SS Ponzi

Now if I don't get off alive
It's just as well
I'll be waking up in heaven 
'Cause I've been through hell
On this shakedown cruise
--Jay Ferguson

Dan Mitchell is correct. Social Security is a ponzi scheme that would find its execs behind bars were it a private sector endeavor.
Estimated cumulative shortfall is currently north of $42 trillion. The 'fund' will run out of money by 2035.

Meanwhile, Washington hypocrites will continue baling water from the sinking SS Ponzi.

Monday, April 22, 2019

Gell-Mann Amnesia Effect

I read the news today, oh boy
--The Beatles

Have you ever read an article that was written about a subject you know something about and found it riddled with error and misunderstanding--only to then move on to another article written about a topic you know less about and consume the information as if it must be completely accurate?

The late Michael Crichton labeled this the Gell-Mann amnesia effect.

"You read with exasperation or amusement the multiple errors in the story [about the topic in which you have some expertise], and then turn the page to national or international affairs, and read as if the rest of the newspaper was somehow more accurate about Palestine that the baloney you just read. You turn the page, and forget what you know."

Glad I'm not the only one to notice this.

Sunday, April 21, 2019

Dawn's Mystery

He is not here, for he has been raised.
--Matthew 28:6

The Holy Women at the Tomb (William Bouguereau, 1890)

Saturday, April 20, 2019

Covering Inflation

The times are tough now
Just getting tougher
This whole world is rough 
Just getting rougher
--Bruce Springsteen

Is inflation dead?

The more interesting question may be: Will the magazine cover phenomenon nail another one?

Friday, April 19, 2019

Freedom Never Dies

Judah Ben-Hur: Almost at the moment He died...I heard Him say, 'Father, forgive them, for they know not what they do.'
Esther: Even then.
Judah Ben-Hur: Even then. And I felt His voice take the sword out of my hand.

Freedom is not an arbitrary permission slip that is granted by a worldly entity. Freedom is a gift from God. God created each of us in His likeness. Just like He is perfectly free, so are we.

When government takes away freedom, either by fiat or by majority vote, it violates natural law--God's law. It steals a gift from God. It steals from God.

On Good Friday, Jesus demonstrated that, although our physical freedom can be stolen, our free will to pursue the truth can never be taken from us. He exercised His free will to accept a horrific death so that we might know the truth.

The truth is that He would rise from the dead. By doing so, He showed us that we can throw off physical oppression to liberate our souls. After we die, we too can rise to be with Him.

Even if worldly entities restrain our physical freedom, they can not take our free will unless we let them. Jesus didn't let them.

Today, Christ teaches us that freedom never truly dies.

Thursday, April 18, 2019


Maybe it's change
Or the time of the year
Or is it the way 
That you hold me so near
I swear it's the price of love
--Roger Daltrey

Prices reflect the current exchange rates between trading partners. Prices are usually set in monetary terms. The price of admission to a movie, for example, might be $10.

Without prices, markets could not function. Imagine trying to buy dinner at Chipotle if prices for various entrees were not available.

How are prices determined? In unhampered markets, prices are not set by mandate. Instead, they are determined by discovery. A seller might offer a cell phone model for $500, but if no one buys it, then there is no 'market' at that price. The seller will likely have to lower the phone's price in order to discover where to 'make a market.'

In financial markets, securities are often priced on a 'bid/ask' basis. Consider this recent price quote for Merck & Co (MRK) stock:

Bid: $74.60
Ask: $74.61
Last: $74.60

The 'bid' is the price where marginal buyers currently indicate that they are willing to purchase the security, while the 'ask' price indicates the price where marginal sellers are currently willing to part with the stock. Note that the difference between the bid and ask, also known as the 'spread,' is very narrow--only a penny. When spreads are narrow like this, markets are said to be 'liquid.' In liquid markets, buyers and sellers can do transactions very close to the bid/ask prices. Note that the 'last' price indicated above, i.e., the most recent transaction of MRK stock to be recorded, occurred at $74.60--the same as the current bid price and only a penny less than the ask price.

Liquid markets typically occur when there are lots of buyers and sellers looking to trade. The more buyers and sellers, the narrower the spread. Conversely, when there are few buyers and sellers in a market, spreads typically 'widen.' In housing markets, for instance, one seller and only a couple prospective buyers might result in very wide bid/ask spreads. The seller might offer a house for $300,000 while prospective buyers may only be willing to pay $250,000. Unless the seller is willing to come down in price or the buyer is willing to come up, then the house is likely to remain unpurchased for some time.

Complications arise when prices are set by force rather than through voluntary price discovery. We'll discuss this situation in a subsequent post.

position in MRK

Wednesday, April 17, 2019

Negative Yields

"Negative, negative!"
--Lt Chris Burnett (Behind Enemy Lines)

Graph showing fraction of all investment grade debt worldwide sporting negative yield. Currently, about 20% of total...
Negative yielding debt is a phenomenon of interventionary, rather than free market, forces.

Tuesday, April 16, 2019

Climate Data Corruption

Plastic tubes and pots and pans
Bits and pieces and
Magic from the hand
We're makin'
Weird science
--Oingo Bingo

Video discussing the corruption of US temperature data by NOAA to fit the global warming agenda--an issue that has been discussed on these pages previously (e.g., here, here, here). Some important graphs from the presentation appear below (source here).
First is a plot of the unadjusted US temperature data (blue) alongside the adjusted temperature data (red) reported as 'official' by NOAA using a 5 year (60 month) moving average since 1895.

The unadjusted blue series shows no significant warming trend while the adjusted red series does. This should raise the eyebrows of any critical thinker--particularly because it conveniently serves the global warming agenda. Why must the red series be adjusted and how?

NOAA's explanation is that raw US temperature trends do not correlate well with temperature trends in other places across the globe--despite the fact, as explained in the video, that the US has the best temperature data system in the world. Consequently, NOAA workers have rationalized the revision of US temperature to better fit global warming enthusiasts' claims that temps are rising alongside atmospheric CO2 readings. Here is what the relationship looks like after adjustment:

Voila! Nice and tight. Unfortunately, the presenter does not show what the relationship looked like pre-adjustment to provide an idea of just how much the data have been fudged.

Increasingly greater fractions of the data have been manipulated since the 1970s to provide the illusion of an uptrend:

It goes without saying that any such study submitted to a serious academic journal would be rejected outright for data manipulation.

For global warming enthusiasts, however, this is what qualifies part of the 'science' that these people claim to be 'settled.'

Monday, April 15, 2019

Inevitable Retest?

"You hear that, Mr Anderson? That is the sound of inevitability."
--Agent Smith (The Matrix)

We open the week a percent or two away from all time highs in the SPX.

A retest of the old highs at 2940ish seems inevitable. Soon.

Sunday, April 14, 2019

Judas and Peter

Peter: Let me tell you about the burden I carry. You heard Justus say I was steadfast and loyal. He didn't know. The night Jesus needed me most, I denied Him. Not once, but three times. I swore I never knew him.
Marcellus Gallio: But I crucified Him.
Peter: I know. Demetrius told me.  
Marcellus Gallio: And you can forgive me?
Peter: He forgave you from the cross. Can I do less? Now, does anything stand in your way? Can you be one of us?
Marcellus Gallio: From this day on, I am enlisted in His service. I offer Him my sword, my fortune, and my life.
--The Robe

A theme of Holy Week is betrayal. Within 24 hours of His death, Jesus is betrayed by two of his apostles. Judas betrays Jesus with a kiss that permits His arrest and subsequent trial and crucifixion. Subsequently, Judas is so enveloped in guilt and grief that he kills himself.

Peter betrays Jesus by denying that he knows Christ after His arrest. After the third time that he does so, Peter recalls that Jesus had even predicted the sequence. As the leader of the apostles, Peter likely felt as much shame, perhaps more so, than Judas. After all, he was Jesus's right hand man. That he did not stand up for Jesus at the moment when He appeared to desperately need support could easily have led Peter to elect a bitter end similar to Judas.

Instead, Peter cried out to God and begged for forgiveness. His Tears of Repentance marked Peter's true beginning as, so appropriately observed earlier by Jesus himself, the rock upon which His church would be built.

Each of us betrays God in our actions. How do we respond when we do? Disengage and destroy ourselves as did Judas? Or reengage and become rocks upon which God's will is realized as did Peter?

Saturday, April 13, 2019

Taken by the Welfare Con

"You have to keep this con even after you take his money. He can't know you took him."
--Henry Gondorff (The Sting)

One of the sharpest socioeconomic minds of our time belongs to Thomas Sowell. Larry Elder tweets several Sowell quotes regarding the welfare state and its affect on black people. The first tweet involves the con of the welfare state and its capacity to subsidize irresponsibility.
The second tweet focuses on cause and effect. Greater welfare state, reduced black prosperity.
One of Sowell's few intellectual equals, Prof Williams, has observed similar. Subsidize irresponsibility and you'll get more of it. The welfare state has subsidized irresponsibility among blacks--particularly black families--to their detriment.

Hopefully, blacks and people of all colors under the con of the welfare state will soon wake to the fact that they are being taken.

Friday, April 12, 2019

Repeating Epic Failure

Rita Hanson: Did you ever have deja vu?
Phil Conners: Didn't you just ask me that?
--Groundhog Day

Nice WSJ essay reviewing the failed path of socialism.

Robert Owen coined the term and founded the New Harmony, Indiana commune in 1825. 40-50  similar communes were founded and failed with a median lifespan of 2 years.

Marx's 'scientific socialism' revitalized the failing concept and inspired a wave of socialist political parties across Europe. Subsequently, Marx's predictions of poorer workers and a disappearing middle class in industrialized countries did not come true, and once again socialist enthusiasm began to wane.

Lenin picked up the dimming torch to pioneer modern communism. The subsequent repression snuffed out as many as 100 million lives.

'Democratic socialists' in various countries rejected Lenin's methods but still strove toward socialist goals thru labor party movements, moving large industrial verticals under state control, and lavish government spending programs. Austerity movements followed to reverse the debt pile up.

Scandinavian social democrats learned to settle for dense social safety nets necessarily funded by free markets (Denmark, Norway, and Sweden rank highly on pro-market scales).

Socialism in Third World countries has yet to produce a winning model while some  countries (e.g., North Korea, Zimbabwe, Venezuela) collapsed to economic lows under socialist regimes.

The author suggests that only Israel produced a socialist model that seemed to 'work' for a while. However, once the Jewish state stabilized, politicians steered the economy toward private enterprise in order to increase prosperity.

Socialism has been an epic failure--one that was imminently predictable. Socialist failure constantly repeats itself in Groundhog Day fashion under the auspices of eternal socialist hope that the next time will surely be different.

Thursday, April 11, 2019

Spy Games

"What can I say? I'm a spy."
--Harry Tasker (True Lies)

When they face unpleasant situations, people on the left like to change the language associated with the problem to something that is friendlier to them. Governments don't spend. Rather, they 'invest.' Instead of global warming, it's 'climate change.' They are not illegal immigrants; they are 'dreamers.'

A popular one right now is that the Trump campaign was not spied upon. No, it was subject to 'unauthorized surveillance.'

I often wonder whether leftists truly believe that their use of positive substitute symbols, spin, propaganda, et al will actually alter viewpoints of others in their favor. Or whether these games are inwardly focused therapies to ease the pain of a collective psychosis.

Wednesday, April 10, 2019

Vacuuming Votes

Something in the way you love me
Won't let me be
I don't want to be your prisoner
So baby, won't you set me free?

Nice portrayal of underlying motivation of 'open border' policy of Democrats.

Secondary motivation, of course, is to deny Trump a political victory.

Tuesday, April 9, 2019

Dividend Stocks II

It may take a little time
A lonely path, an uphill climb
Success or failure will not alter it
--Howard Jones

Previously we examined some of the major benefits and risks associated with dividend-paying stocks. Today we'll consider the implications of building dividend-paying stock portfolios for investors both young and old.

While it is common for investors to focus on capital gains possible from equity investments, studies suggest that roughly half of the returns from stocks are due to dividend payouts. Stated differently, investment strategies centered on dividends tend to be under-appreciated--and perhaps undervalued--by investors.

To see why this might be true, let's focus on the income-producing potential of dividend stocks. Although the annual dividend yield on the S&P 500 currently stands at about 1.9%, it is possible to build a diversified basket of solid dividend paying stocks that yield 3% or more. Consider, for example, the following list of stocks:

Cisco Systems Inc (CSCO) 2.5% annual yield
Dominion Energy Inc (D) 4.8%
General Mills Inc (GIS) 3.8%
Johnson & Johnson (JNJ) 2.7%
Coca-Cola Co (KO) 3.5%
Target Corp (TGT) 3.2%
Wells Fargo & Co (WFC) 3.7%
Exxon Corp (XOM) 4.0%

A portfolio invested in equal dollar amounts of these securities would currently yield a collective 3.5%. For every $1,000 in portfolio value of the above design, that's $35 in annual income. That may not seem like much, but keep adding zeros to those payouts for larger portfolios. For a $10,000 portfolio, cash payouts amount to $350 annually. For a $100,000 portfolio, $3,500 annually. For $1,000,000, the investor collects $35,000 each year at current yields.

Keep in mind that companies maintaining strong competitive positions in their industries are likely to increase their dividend payments over time. Should the above basket of dividend payers increase its payouts by 5% each year for the next 15 years, then the yield on the basket would double to 7%. You can do the math on how much that would increase annual dividend income on the various portfolio sizes mentioned above.

As noted last time, there is also the potential for share price appreciation among dividend stocks that sweetens the story even more. Personally, however, I like to view that sweetener as icing on the cake that I don't plan to eat. I like to own dividend paying stocks for their income producing potential over a lifetime. While capital gains are nice, I don't plan to sell these income producers (absent a substantial decline in their business fundamentals) because, to mix metaphors here, that would be like selling the goose that lays the golden eggs. If I sell the dividend-paying geese, then no more income eggs.

There are implications here for young and old alike. If you are a younger investor, then dividend income supplements the regular income earned from your everyday job. By taking some of your regular income and investing it in the production processes of others, you acquire additional income that essentially makes you more productive--and diversified--over time. A goal to consider: acquire as large a supplemental income stream from dividends that you can reasonably afford, and let it build over time. When you are a young, dedicated investor, the miracle of compounding works wonders for building wealth as you age.

If you are an older investor, then dividend-paying stocks offer an income replacement when your retire. Retirement essentially amounts to voluntary unemployment. Income from work disappears. Resources to fund retirement lifestyles typically come from pensions, mandatory IRA and 401(k) withdrawals, and government transfer payments such as Social Security. Dividend-paying stocks offer an additional source of regular income for retirees. Referring back to the example offered above, every $100,000 invested in the list yields $3,500 in annual income--an income that is likely to grow greater than inflation over time. A goal to consider: develop a stable of dividend-paying stocks in a taxable brokerage account that builds passive income-producing capacity for retirement. The more dividend payers that you acquire, the greater the income replacement coming from this source for retirement. This is where I am currently.

Finally, for both young and old, consider this. Capital invested in dividend-paying stocks should be patient. Don't buy dividend stocks to sell them. Buy them for keeps. Once your are done benefiting from your investment, pass it along to the next generation, and suggest that it does the same.

positions in CSCO, D, GIS, JNJ, KO, TGT, WFC, XOM

Monday, April 8, 2019

Young Minds and Socialism

They're seeing through the promises
And all the lies they dare to tell
Is it heaven or hell?
They know very well

Young people are routinely cited as favoring socialism. This is largely due to the pro-socialist, anti-market bias of the education system. However, it is easy to expose young minds to truth by proposing some 'what if' scenarios.

For example, what if your favorite sports team were forced to surrender half of their points scored to their opponents?

Or better yet, what if each student in a class received the average grade compiled from all individual student marks?

Sprinkling in stories of colonial experiments with socialism adds extra flavor.

Ask them to predict what is likely to happen to productivity (runs scored per game or average grade) , incentive to succeed, and tendency for free-riding (moral hazard), and young minds begin down the path toward truth.

Sunday, April 7, 2019

Condemnation and Hypocrisy

"And I felt His voice take the sword out of my hand."
--Judah Ben-Hur (Ben-Hur)

During Lent we are treated to many seminal works of the Bible. Last week we heard the magnificent Lost and Found parables from Luke 15. This week it is the equally magnificent account of Jesus and the Adulteress from John 8.

Once again, as he was teaching the masses, Jesus was confronted by the intellectuals of the day. They present to him a woman who had been caught in adultery. According to the law, claimed the intellectuals, the woman should be stoned to death. "What do you say to that?" they asked Jesus--obviously hoping that they could record a reply that could be used as evidence against him in the future.

As if he did not hear them, Christ initially bent down and began writing on the ground with his finger. But when the intellectuals continued to pursue the issue, Jesus finally stood and told them that those among them without sin should be the first ones to cast stones at the woman. He then bent down and continued writing on the ground.

One by one, the intellectuals walked away.

When only Jesus and the woman remained, he once again stood up and asked the woman where all of her accusers had one. Who had condemned her?

"No one," she said.

"Nor do I," said Jesus. "Go thou and sin no more."

Once again, there is much to reflect on. God's capacity for mercy regardless of the sin. Heavenly views on the law.

There is also a strong message for the stone throwers--us. We are characteristically quick to condemn others while being sinners quick to seek mercy for ourselves. Christ is advising us to realize the hypocrisy of our ways, drop our stones, and walk away.

He counsels that we resolve to sin no more, and leave judgment of sin to God in his infinite wisdom.

Saturday, April 6, 2019

Insuring Higher Healthcare Costs

Do you wanna know how it feels?
Do you wanna know, know that it doesn't hurt me?
Do you wanna hear about the deal?
--Kate Bush

Picking up on a previous post related to the history of health insurance and its ramifications on US healthcare markets, cost-plus health insurance payments ignited hospital capacity expansions that continue to this day. Cost plus payments mean that hospitals do not compete for patients on the basis of price. Doing so would force hospitals to downsize and specialize.

Instead they compete for doctor referrals. Because doctors prefer lots of empty beds to ensure immediate admission and the full gambit of equipment, all hospitals build lots of capacity in the same manner, such that each is configured more or less like other hospitals in the area. This keeps per-patient daily costs on the rise.

Meanwhile, insurers have been paying doctors on a 'reasonable and customary" fee basis. Doctors can essentially bill whatever they want as long as others charge roughly the same. It takes no genius to noodle the collusive effects of this approach on MD prices.

During WWII, employer-paid health insurance made its entrance into the American healthcare system. We'll discuss this in a future post.

Friday, April 5, 2019

Scarcity and its Alleviation

Thurston Howell III: What is this slop?
Skipper: It's Gilligan's own creation, Mr Howell. It's coconut pot pie.
--Gilligan's Island

Although it abounds with life and 'natural resources,' the earth in its natural state does little to advance human life. Human advancement requires people to transform earth's unconsumable resources into those that are. Man must work to alleviate a natural state of scarcity.

Imagine dropping a group of men and women into the middle of the wilderness with no supplies--including clothing. It will be difficult for them to survive. Extreme poverty is their default condition. There is only one way that they will survive and, over time, improve their standard of living: production, trade, and saving.

Production is work that alleviates scarcity. In the beginning, production for our struggling group will involve purely manual labor aimed at scavenging to convert readily available resources that are not consumable in their natural state into resources that are. Even edible berries growing on bushes are not consumable until they are picked.

Our group will naturally divide work, because it is intuitive that division of labor improves productivity. Some might pick those berries for food. Others might gather wood for shelter and heat, or hunt animals for food and clothing.

The workers will then naturally engage in trade--because productivity gains from specialization can not be realized unless specialists trade with each other to acquire from others what they did not produce themselves.

Because humans are blessed with reason and ingenuity, it will not take long for people in our group to realize that productivity can be further improved with tools such as shovels, axes, bows and arrows, etc. that can increase output per hour for each specialist. But tools require production just as consumable resources do. As such, some of those consumable resources must be saved to fund the production of tools.

Stated differently, food, clothes, shelter, etc need to be set aside for those who forego scavenging in order to make tools, lest they will be unable to survive on tool-making alone. It should be clear that, absent such saving, advances in standard of living will be limited.

Production, trade, and saving are natural responses to alleviate scarcity in the world.

Thursday, April 4, 2019

Peace, Government, and Paradox

Well they passed a law in Sixty Four
To give to those who ain't got a little more
--Bruce Hornsby & the Range

Most people do not view themselves as violent. However, many of those same individuals do use violence to get what they want. Instead of being direct aggressors, they employ strong armed government agents to do their dirty work. They become principals of violence.

To rationalize away their behavior, these people must view government as a force for good. When government is seen as acting in the name of social justice, equality, national security et al., it addresses the cognitive dissonance problem that arises when people who view themselves as peaceful outsource their aggression to others.

The institutionalization of aggression via government by so-called peaceful people creates one of the great paradoxes of social life.

Wednesday, April 3, 2019

Inevitable Test Coming?

"You hear that, Mr Anderson? That is the sound of inevitability."
--Agent Smith (The Matrix)

SPX currently trading close to 2880 intraday, up another ~0.5%. All time highs only about 60 pts away. As the relentless climb continues, testing those highs seems inevitable.

position in SPX

Tuesday, April 2, 2019

Dividend Stocks I

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

Last time we discussed two ways that investors can materially benefit from owning stocks: share price appreciation and dividend payouts. Since I have been investing, capital appreciation has been the popular money-making strategy. "How much can the price of that stock go up?" is the primary question to be answered when analyzing potential investments using that mindset.

However, recent circumstances have reminded me of the wealth-building power of portfolios grounded in dividend-paying stocks. Let's review what dividends are. Dividends are cash payments by companies to their shareholders, usually on a quarterly basis. Because they usually come from a company's earnings, dividends amount to a form of profit-sharing.

Consider Johnson & Johnson (JNJ). The health care company was founded in 1886, and has been paying a dividend since 1944. That dividend payout has increased in each of the past 56 years. After announcing this year's increase, JNJ will pay a quarterly dividend of $0.90/share, or $3.60 annually. With JNJ currently trading at about $137 per share, its annual dividend yield is $3.60/$137 = 2.6%.

While it may not seem like much, this 2.6% dividend yield beats the yield of many fixed income instruments. Moreover, JNJ's cash payout is likely to increase in future years. Over the past five years, the dividend has grown about 6.4% annually. If it continues to grow at a 6% annual rate over the next decade, then that $3.60/share payout will turn into $6.44/share. If JNJ's share price stood still during this period, then the new dividend yield becomes $6.44/$137 = 4.7%.

You will be hard-pressed to find other investment ideas in today's world that have that kind of profile for increasing cash-in-hand payouts over time.

Of course, JNJ's share price likely won't stand still over the next decade. It could decline, thereby reflecting an important risk associated with investing in dividend paying stocks: capital loss. A 2.6% decline in JNJ's stock price effectively wipes out a year's worth of dividends.

It should be noted, however, that dividend payouts serve to offset price depreciation to some degree. Here's what I mean. Suppose that you buy JNJ at today's price of $137/share and hold onto it for this year and the next ten after that. If the dividend increases as projected above, then you would collect dividends of almost $54 for each share that you own over the course of the period. For this investment to be a losing proposition 11 years from now, JNJ stock would have to decline $137 - $54 = $83. That's a nice buffer that cushions investors from price declines.

The other major risk associated with dividend-paying stocks is that the company could decrease or eliminate the dividend. Johnson & Johnson's business could turn bad thereby causing profits to decline and the source of dividend payouts to disappear. Because JNJ operates in competitive markets where entrepreneurial innovation regularly renders business models obsolete, it is certainly possible that the company's prospects could decline in the future.

By the same token, however, JNJ has prospered for over a century by being a dominant force in the industries that it serves. If JNJ's competitive position remains strong, then there is a good chance that the share price will go up in the future as the business continues to create value.

This presents a compelling case for owning dividend-paying stocks. Not only can investors benefit from collecting real cash payments that may grow over time, but shareholders can also participate in share price appreciation should the underlying company's business prospects improve in the future.

In part II of this discussion, we'll consider the implications of investing in dividend-paying stocks on portfolios for both young and old.

position in JNJ

Monday, April 1, 2019

Rival Gangs

"Why do you kids live like there's a war on?"
--Doc (West Side Story)

In a timely follow-up to our recent post, this article observes that socialists of different stripes (e.g., communists vs fascists) tend to dislike each other. Yes, they all advocate the use of aggression against private property and liberty. But the various socialist sects disagree on how that violence is to be administered and how the stolen loot is to be divided.

As Mises smartly noted:

"The worst thing that can happen to a socialist is to have his country ruled by socialists who are not his friends."

Thus we have Stalinists vs Trotskyists, Soviets vs Nazis, communists vs fascists, etc.

Differing brands of socialism foster what amounts to rival gangs, fighting each other to gain authority over all.