Monday, September 30, 2019

Metal Dandruff

Strange voices are saying
What did they say?
Things I can't understand

Head-and-shoulders patterns visible across much of the metals complex.

Pre-market weakness this morning suggests that the validity of the bearish set-up will be challenged soon.

position in PAAS

Sunday, September 29, 2019

Environmental Capitalism

"Hey, you know how I'm always trying to save the planet? Here's my chance."
--David Levinson (Independence Day)

Statists believe that free markets destroy environments and that governments are needed to minimize the damage. Evidence, however, suggests the opposite.

Why should we expect precisely this--that there is a positive relationship between free markets and environmental protection?

Saturday, September 28, 2019

Gang of Thieves

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

Who can accurately determine who has wealth that is 'extreme' and must be taken away by aggressive force.
If you vote for a politician with such a plan, then you believe that the answer is: you.

With your vote, you associate yourself with a gang of thieves willing to rob others at gunpoint for your benefit--whether that benefit be material or psychic.

All in this gang will ultimately be held accountable.

Friday, September 27, 2019

Cobra Kai

Sensei John Kreese: Mr Lawrence.
Johnny Lawrence: Yes, sensei.
Sensei John Kreese: Warm them up.
--The Karate Kid

I've never watched a premium internet TV channel...until this week. A post crossed my Twitter feed that included an image of a 50 something who looked a lot like Johnny from the original Karate Kid movie. Turns out it was, and he (William Zabka) has been co-producing a reboot of the original film with, yep, Daniel-san (Ralph Macho). Better yet, they both play leading roles reprising their original characters 35 years after the famed All Valley tourney where Daniel upset Johnny in the finals.

The series is called Cobra Kai (how can a KK aficionado not like that title?) and appears on the YouTube premium network. With Season 3 just lifting off, YouTube has been offering free episodes from Season 1 (first aired May 2018) and 2.

The show's proposition was so compelling that viewing S1E1 was, of course, irresistible. Within minutes I was hooked. Interesting story lines, frequent references to the original film, plus the credible projection of original character profiles multiple decades into the future.

Beyond Johnny and Daniel, the show is pulling in other original players as well. So far, we've seen Daniel's mom and, naturally, Kreese.

The original KK film ignited a martial arts boom that lasted the better part of two decades. While a premium YouTube series does not have the same reach (or budget) as a mainstream motion picture, Cobra Kai's underlying themes of perseverance, discipline, and achievement as countermeasures to bullying, lack of self-confidence, and oversensitivity to political correctness might once again raise awareness of the benefits of traditional (non MMA) martial arts training.

Thursday, September 26, 2019

This One Belongs To Marty

The time has come 
For closing books and long last looks to end
And as I leave
I know that I am leaving my best friend

When Marty Brennaman called his first game as the Cincinnati Reds play-by-play announcer, I was listening. It was Opening Day, 1974. Although Opening Day is always a gala in Cincinnati, this one was extra special. The Atlanta Braves were in town and my favorite player, Braves slugger Hank Aaron, needed one home run to tie Babe Ruth's all-time record.

Because it was a school day, I wasn't allowed to go to the game. For that same reason, it would have been unusual to hear the game as well. However, a few of my friends coaxed our 7th grade science teacher, who was also our junior high baseball coach, to let us listen to the game on radio during our afternoon class.

In the first half inning of his first regular season game as a Major League Baseball announcer, Marty Brennaman called Hank Aaron's historic 714th home run.

An appropriate harbinger of what was to become a Hall of Fame career behind the microphone.

Today, as he completes his forty sixth season as the Reds announcer, Marty Brennaman will call his final game this afternoon in Cincinnati.
If there is a single word that captures Marty Brennaman's style, then that word is genuine. Marty has captured the hearts of generations of Cincinnatians with his no nonsense, what-you-see-is-what-you-get approach. With no premeditation or political correctness, Marty has called it as he's seen it for listeners.

Today, Cincinnati celebrates, with a pang of sadness of course, a beloved institution who is moving on. Today, Marty, this one belongs to you.

Wednesday, September 25, 2019

Indoctrination and Compliance

We don't need to education
We don't need no thought control
--Pink Floyd

Building on our previous post, Amity Shlaes suggests that younger people's slanted views of the climate and environmental issues constitute a failure in education.
An alternative view is one-sided mindsets are precisely the goal of education systems grounded in political interest. In institutionally charged environments, education is about compliance and indoctrination.

Tuesday, September 24, 2019


Money, get away
Get a good job with good pay
And you're ok
--Pink Floyd

When civilization began, it did not take individuals long to determine that they would be more prosperous if people specialized when producing output. Gains in productivity obtained from specialization enabled all to be better off as long as producers could trade their output amongst themselves to obtain the diversity of goods and services necessary for better standard of living.

Early trade involved exchanging goods for goods. Today, this type of exchange is known as barter. People who chopped wood traded a portion of their incomes (i.e., logs) with people who baked bread. When they traded their specialized production, both lumberjacks and bakers became better off.

The direct trading of goods for goods presented some problems, however. Sometimes it was difficult to trade goods evenly. Perhaps one house was deemed to be worth 3.25 boats on the market, and it was difficult to trade a fractional house or boat. Spoilage was another problem. Many food producers were limited in trading capacity because their output had a limited shelf-life. That put them at a disadvantage on the market.

To address such problems, people created money to improve the fluidity of exchange. Money in this sense serves as a medium of exchange. The idea is intuitive enough: convert the value of goods into quantities of money and trade should flow easier.

Commodities became intuitive forms of money. Livestock, salt, eggs, and wheat functioned as mediums of exchange in some societies. In colonial America, tobacco was used as money.

Because commodities are products themselves, many of these early forms of money suffered from problems familiar to goods-for-goods trade. Some commodity monies were not readily divisible. Others were hard to recognize or subject to decay. Lack of portability made some commodity monies difficult to carry around.

Most commodity monies also lacked this important quality: scarcity. If a money is abundant and can be created easily, then prices--a key element of market structure--are unstable and difficult to predict as the supply of money changes. When money is easy to create, it is also subject to mischief--particularly mischief of a political nature.

Over time, the search for an effective commodity money has led many societies toward a particular solution: gold. Gold possesses all of the qualities of good money. It is divisible, portable, durable, recognizable, and scarce. It is difficult to produce legitimately and to counterfeit illegimately.

Although many gold-backed 'hard money' designs have existed throughout history, gold rarely serves as money today. In fact, there is not a single monetary system in the world that is currently backed by gold. The backstory as to why gold-as-money has fallen out of favor is a subject for another day.

In contemporary monetary systems, gold has been replaced by currencies that can be created out of thin air by government fiat. On the plus side, contemporary monies, such as the paper form of the US Dollar officially known as Federal Reserve Notes, facilitate huge volumes of trade on a daily basis. On the negative side, fiat monies are subject to politically-motivated manipulation that serves to debase monetary value. This is the other function of money, btw--it serves as a store of value. Debasement of money distorts markets in the short run and creates potential for enormous socio-economic problems in the long run.

Because of the centrality of money to trade, investors benefit from solid understanding monetary of history and of the pros and cons associated with contemporary monetary systems. We will surely focus more on monetary issues in future posts.

Monday, September 23, 2019

Manipulated Minds

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

Because they have yet to fully develop reasoning processes, young people have little choice but to outsource thought to other, presumably 'thoughtful,' people for information. Young people rely on parents, other elders, and particularly teachers to help shape their minds.

Consequently, the young often become ideal resources for those with political interests. Fill children's minds with misinformation that the kids are told is true, and then trot them out as spokespeople for political change.

Kids are ideal political pawns.
Last week's orchestration of young people speaking out against global warming demonstrates the scheme. Indoctrinated with a one-sided view of the situation, kids take the podium and speak passionately about saving the planet. Politically motivated adults subsequently chime in, arguing that we all need to fall in behind the passions of the young.

Few of these young people, of course, can articulate the other side of the argument much less defend their point of view against a reasoned opponent.

This is a failure-a crime, it could be argued--committed by those entrusted with helping the young develop their minds to the fullest.

It is sad to think about that future moment when many young people realize that they have been played.

Sunday, September 22, 2019

Fortune Teller

No more broken hearts
We're better off apart
Let's give it a try
Tell me, tell me, tell me lies
--Fleetwood Mac

In summer 2007 I was in NYC helping a friend with his fledgling business. You could feel early tremors of the pending credit crisis. Dining at BLT Steak one night with several friends, I noticed the grim look on many money managers' faces after a particularly ugly day on Wall Street. Those steaks were becoming much easier to stomach than those market downdrafts and those $1000 dinner tabs.

After dinner, my buddies decided to hit the club scene while I elected to walk back to my apartment on a warm evening in the city. A couple of things stood out during that stroll. Lots of boom cranes lifting new residential high rises out of the ground. Also, lots of For Sale and For Rent signs in existing units.

I bring this up because high end NYC real estate is softening anew. Large fractions of new units remain on the market and prices are softening. More capacity is pending.

An noteworthy tell prior to the last credit market meltdown may be telling us something again.

Saturday, September 21, 2019

Outsourcing Thought

Claire Standish: What's bizarre about you?
Allison Reynolds: He can't think for himself
Andrew Clark: She's right.
--The Breakfast Club

Gains to be had from specialization in combination with human tendency to economize scarce resources--including time and attention--find many people outsourcing their thinking on many issues to others. No issue provides a better example of this phenomenon than the so-called 'global warming' or 'climate change' proposition.

A popular mantra among proponents of the underlying thesis is that 'the science has been settled.' Yet, few climate change enthusiasts can recite the relevant science themselves. Instead, they usher in so-called experts to fill in the many blanks in their weak reasoning.

When you rely on others to do your thinking for you, then you leave yourself open to being played. Remember, however, that if you are played, you cannot say that you were deceived or that you were too busy to think things through.

Because God gave each of us the ability to think for ourselves, you have no one to blame but yourself.

Friday, September 20, 2019

Against the Trend

You want a better kind of future
One that everyone can share
You're not alone, we all can use it
Stick around we're nearly there
--Paul McCartney

Wells Fargo (WFC) trying to break free of multi-year downtrend. Price has moved above the line--even if drawn w a crayon.

Also challenging horizontal resistance as defined by the moving averages.

position in WFC

Thursday, September 19, 2019

Unity by Insult and Force

He say
I know you
You know me
One thing I can tell you
Is you got to be free
--The Beatles

Many people wax poetic about the need for us to 'come together' in one breath, and then accuse others of racism, bigotry, selfishness, et al in the next. It is difficult to understand how unity is achieved through insult.

Many of those same people also seek to employ the strong arm of government to force others to comply with their wishes.

How unity is achieved through use of aggression is even more perplexing.

Wednesday, September 18, 2019

Quarter Point Fix

When logic and proportion
Have fallen sloppy dead
And the White Knight is talking backwards
And the Red Queen's off with her head
--Jefferson Airplane

FOMC announced another quarter point rate cut to the 1.75-2.0% range. With newfound clarity concerning more stimulus, market rallied off their lows to close with modest gains--and within spitting distance of all-time highs.

The division among FOMC members about next steps is noteworthy. The FOMC statement did not provide clarity about future policy direction. Vote this time around was split between 7 members approving the 25 bip cut, one wanting a 50 bip cut, and two wanting no cut. Post seance press conferences offered no clear insight either.

Markets have become addicted to monetary policy stimulus. They got another quarter point fix today. Like all addicts, markets will now look forward to the next fix.

The last thing they want to hear is that Fed heads are not united in providing more.

Tuesday, September 17, 2019

Constitution Day

I'll tip my hat to the new constitution
Take a bow for the new revolution
--The Who

Today we celebrate Constitution Day. The Constitution reflects the highest ideals of mankind--freedom and liberty. These ideals remain radical amidst a status quo mindset obsessed with dominion and control over others.

Grateful today for the divine guidance that pointed our founding ancestors toward the truth.

Monday, September 16, 2019

Oil Patch Attack

Out where the river broke
The bloodwood and the desert oak
Holden wrecks and boiling diesels
Steam in forty five degrees
--Midnight Oil

Attacks on Saudi Arabian oil fields over the weekend find crude up about 10% this morning. The attacks are thought to have been the work of Iran, although there is no proof as of yet. The Trump administration has signaled that military response is possible if such proof were to surface.

Oil stocks are up in sympathy.

I like US integrated oils like Chevron (CVX) and Exxon Mobil (XOM). Not only are they a hedge on geopolitical instability, but also a play on commodity inflation--a real possibility with $trillions being printed for new rounds of QE.

Sprinkle in 4-5% yields and somewhat so-so sentiment about these names and you have an interesting story.

position in CVX, XOM

Sunday, September 15, 2019

Prosperity and Economic Freedom

Always searching for the real thing
Living like it's far away
Just leave all the madness in yesterday
You're holding the key when you believe it
--Michael McDonald

Rand Paul observes what any individual would conclude who reasons it through. Prosperity is directly associated with economic freedom. Empirical data reflect the logic.
Freedom is not just a moral or ethical construct of philosophical debate. It is an imperative factor for economic progress.

Saturday, September 14, 2019

Government Speech

The impression that you sell
Passes in and out like a scent
--The Fixx

Does government have freedom of speech--to voice opinions similar to individuals. As Judge Nap observes, no.

What? Don't people in government have the same free speech rights as the rest of us. Yes, and they are free to exercise them. However, they are not free to commandeer the machinery of government--local, state, or federal--to advance personal opinion.

When government speaks, it suppresses the voices of others who disagree with it. This is the very infringement that the First Amendment was written to protect. Using government as an instrument of speech makes it easier for some to speak louder than others. When this occurs, government is expressing favoritism or hatred in the marketplace for ideas.

Thus, government officials cannot rightfully weigh in on the NRA. Government buildings cannot rightfully fly confederate or LGBT flags. Government resources cannot rightfully capitalize nascent industries such as green energy.

Government is not elected to identify ideas that it loves or hates. It is elected to protect our freedom.

Friday, September 13, 2019

When Bonds are Gone

"Buy 'em."
--Louis Winthorpe III (Trading Places)

Yesterday the ECB announced that it would cut its deposit rate to -.5% (!) and reboot it bond buying program (a.k.a. 'quantitative easing') at the rate of 20 billion euros per month.

Beyond the insanity of negative interest rate policy (NIRP) that these actions reflect, there is growing concern that the ECB will soon run out of bonds to purchase. The ECB will essentially have cornered the bond market--with money printed out of thin air, no less.

When bonds are gone, then what? Fill in the blank,

When a central bank runs out of bonds to buy, it will then turn to buying _____.

Incidentally, ____ are higher on the news.

Thursday, September 12, 2019

Perky Small Caps

Forget about the worries on your mind
You can leave them all behind

Bulls have to be encouraged by recent perkiness of small stocks as reflected by the Russell 2000 Index ($RUT).

When small caps underperform their larger brethren for extended periods of time, it is indicative of dwindling risk appetites among investors. The racier small issues carry more reward potential but also more risk.

The uptick in small cap interest, if it continues, would reflect willingness among investors to take on more risk. This would augur well for the tape.

Wednesday, September 11, 2019


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

Remembering the day...the moment. In many ways my life is divided into before and after.

Always sad. But also grateful. Grateful for the awareness that this day brought.

Awareness of God's gifts of freedom and liberty. And of our obligation to forge ahead in pursuit of truth.

Tuesday, September 10, 2019

Changing Climate Change

I stood and watched the dark sky rise
With glaring sunlight in my eyes
I thought of all the times gone by
And laughed aloud at the crimson sky
--Modern English

Much of the climate change agenda, of course, is politically motivated.

But even well-intentioned science types ignore a big limitation with forecasting far out into the future: the Trumpet of Doom.

Monday, September 9, 2019

Gold:Silver Update

Only the beginning
Only just the start

With the recent higher in the precious metals, how is the gold:silver ratio doing? Long term average is about 65; during the bear market it increased to the upper 80s.

With the metals coming alive and silver has started to lead, as expected. But, as the chart observes, silver's move has hardly dented the ratio.

If a precious metals bull market is underway, then silver's out-performance is just beginning.

position in gold, silver

Sunday, September 8, 2019

Debt Weight Loss

"Only unbelievable, Louden! I'm going to do an editorial for the school paper: When determination becomes insanity."
--Margie Epstein (Vision Quest)

WSJ article observes that high debt levels worldwide are weighing on economic progress. Artificially low interest rates encourage borrowing and spending that pull economies out of tail spins like the 2008 credit crisis.

However, all of this borrowing merely serves to pull future demand into the present. Down the road, there is less capacity for funding consumption as balance sheets are laden with debt and incomes must be diverted to paying creditors.

Central banks are unable to raise rates back to previous levels as higher rates add even more burden debtors and discourage additional borrowing.

What the article ignores is that economic tail spins that suppressed interest rates and borrowing are supposed to solve, like the 2008 credit crisis, were themselves funded by easy credit and debt. How does more borrowing and debt solve a problem funded by borrowing and debt?

It does not take a genius to conclude that, at some point, such a ponzi-like pyramid is destined to collapse under its own weight.

Saturday, September 7, 2019

Mediating Uncertainty

Tell me why
This is a land of confusion

On cue from our previous post, President Trump suggests that a biased media can create or exacerbate 'uncertainty' as perceived.
This is a valid point and does serve to limit studies that use textual analysis of popular media sources to measure dimensions of perceived uncertainty.

Friday, September 6, 2019

Trade Policy Uncertainty

Here I am in silence
Looking 'round without a clue
--Information Society

Recently we discussed a measure of economic policy uncertainty developed by three high profile scholars. Now, a group of researchers at the Federal Reserve have developed a related measure more specific to regulatory issues related to trade called 'trade policy uncertainty (TPU).'

Their Trade Policy Uncertainty Index is derived from a textual analysis of seven large newspapers and is reported as the percentage of articles that contain particular key words proposed to reflect trade policy uncertainty. To complement their 'news-based' index, the researchers have also developed a smaller sample sized 'firm-based' TPU from textual analysis of quarterly earnings conference calls. Data for both can be found here and a .xls of new-based TPUcan be downloaded from this page.

To assess the validity of their new-based TPU, which they clearly prefer, the researchers compare it to their firm-level TPU:

and a categorical trade-related economic policy uncertainty measure from Baker et al:
These comparisons indicate reasonable relationship between the measures although the Fed's news-based research TPU measure is the most 'spikey' over the past three years of Trump policy. This is important because it is policy actions during the Trump administration that have clearly motivated this research.

The obvious limitation of the Fed's new-based TPU measure is that it sources data from seven large newspapers shown in other research to slant their content toward the political left. Couple this with the mainstream media's clear bias against Donald Trump, and it is easy to hypothesize that measures of trade policy uncertainty collected from large newspapers are likely to show exaggerated levels since Trump's election. Some evidence of precisely this appear in the second graph above. Note that the Fed's news-level TPU over the past three years is much higher than the Baker et al. measure (which employs a broader methodology) during the same period, and that the Baker et al measure experienced a larger jump back in trade policy uncertainty back in the mid-late 1990s than during the Trump years.

Nonetheless, these uncertainty measures are interesting and may have utility. The Fed researchers apply their new-based TPU measure in empirical analysis of various econometric data. Their results suggest that higher TPU creates a drag on economic activity by lowering trade and reducing fixed investment.

The later reflects what some scholars term the 'wait-and-see' approach to regulatory uncertainty--wait until the regulatory fog lifts before committing to significant investment.

Thursday, September 5, 2019

Zero Coupon Gold

Maybe someday
Saved by zero
I'll be more together
--The Fixx

In this Q&A, Jeff Gundlach explains one of the drivers currently at work on gold:

"The thing about gold is, the price movement of gold has been very highly correlated, not surprisingly, to the outstanding volume of negative yielding bonds. When you have $16 trillion of negative yielding bonds, that's $16 trillion where people might say, I think I'll go for the higher yielding thing that yields zero--that thing being gold."

A historic knock against gold is that it is just a rock that pays no dividend. Well, now that there's trillion$ in securities worldwide sporting negative yields, gold's zero coupon look relatively attractive.

Wednesday, September 4, 2019

Taxing Prosperity

Working so hard like a soldier
Can't afford a thing on TV
Deep in my heart I'm a warrior
Can't get food for the kid, good God
--Eddy Grant

Productivity improves when producers narrow their task portfolios and produce specialized output. Prosperity improves when that specialized output trades freely.

Taxes on any aspect of the process:

production (income tax)
consumption (sales, excise tax)
trade (tariff)

...amounts to a tax on prosperity.

If you oppose a particular tax, such as tariffs, but are ok with other taxes, such as income tax, then you should examine your train of logic.

Or your political motives.

Tuesday, September 3, 2019

Silver Stepping

Gonna make a move that knocks you over
Watch this turn this one's gonna put you away
But I'm doing my very best dancing
Every time you're looking the other way
--Breakfast Club

Silver stepping higher once again today. Gold also +25.

Miners moving in sympathy.

position in gold, silver

Monday, September 2, 2019

Follow the Money

All my instincts
They return
And the grand facade
So soon will burn
--Peter Gabriel

After former Fed governor Bill Dudley called for the Federal Reserve to ditch prospective interest rate cuts that might help Donald Trump get re-elected, he drew fire from those aghast that such a politically motivated move would compromise the Fed's 'independence.'

As these pages have observed on more than one occasion, the notion that the Fed, or any other government agency for that matter, is somehow independent of the very institution supplier of the resources that butters its bread is supreme folly.

Suppose that it was decided that Federal Reserve officials were elected by, say, top managers at J.P. Morgan (JPM) and that their salaries would be paid by the firm. All data collection and research activities conducted by the central bank would also be funded by JPM. We wouldn't want that, you'd quickly reply. If JPM were to make personnel decisions and provide the resources, then the Federal Reserve would become an extension of JPM.


A formal explanation for the phenomenon is grounded in resource dependence theory. Informally, we know just to 'follow the money...'

All purported independent branches and agencies of government are subject to influence. We see it routinely. Supreme Court. FBI. CIA.

If you buy into the story that these agencies are politically independent, then you're being played.

no position

Sunday, September 1, 2019

Return on Talent

"We had the tools and the talent!"
--Winston Zeddemore (Ghostbusters)

Yesterday's gospel reading featured my favorite story in the Bible: The Parable of the Talents. Jesus tells us that God gifts all of us with talents, although His endowment is uneven across individuals. Regardless of the talent level we have been blessed with, we are expected to use them to the utmost.

There is no mistaking the allegorical message associated with 'talent.' In biblical times, a talent was a monetary unit employed from ancient Mesopotamia to New Testament Rome. In the parable, Christ notes that the master gave his servants various quantities of talents--"to each according to his ability."

The two servants who were given more talents invested them wisely. Both, in fact, doubled their money. The master was pleased to learn how those servants had parlayed their talents into great returns.

The lesser endowed servant who buried his talents in the ground and did nothing with them was rebuked by the master for returning the talents unused. The master tells the servant that he could have at least put the money in the bank so that he could have returned it to the master with interest.

I suspect that even if the servant had genuinely put his talents at risk and wound up losing money, then the master would have been pleased that the servant had at least invested his talents on his master's behalf in a manner thought prudent.

The message could not be more clear. God has given talent to each of us. Talent is like capital--His investment in us.

God expects a return on talent.