New Dark Age

Dark side's calling now
Nothing is real
--John Cafferty & the Beaver Brown Band

The defining characteristic of a 'dark age' is stagnation, or lack of progress. In the medieval Dark Ages, general conditions of isolation led to lack of trade--of both goods and ideas. There were few written volumes or inventions. An intellectual darkness.

Today we have the opposite of isolation. The world has never been so connected. Yet, while much is being written, it seems that production and trade of ideas is in decline. Groupthink abounds as people plug into the echo chambers of social networks. Dominant logics shout down plausible rival hypotheses and evidence that conflicts with prevailing views. 

This time around intellectual darkness seems to be falling because of too much connection rather than of too little. Theory posits that institutional pressures for isomorphic behavior increase with connectedness (Oliver, 1991). 

Could conformity and compliance that flows from over connectedness be driving a different sort of intellectual darkness--one that leads to a new dark age?

Reference

Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management Review, 16: 145-179.

In the Name of Compliance

They like to get you in a compromising position
Well, they like to get you there and smile in your face
Yeah, they think they're so cute when they got you in that condition
But I think it's a total disgrace
--John Mellencamp

One lesson learned from this past year's events: how much authoritarianism still exists in the world. Not just among governments, but in everyday people. Individuals seeking to force others to do their bidding.

When those individuals cannot apply sufficient force on their own, they are willing to partner with strong armed government agents to get what they want.

This is a partnership in the name of compliance. 

Community Caretaking

John Anderton: Why did you catch that?
Danny Witwer: Because it was going to fall.
John Anderton: You're certain?
Danny Witwer: Yeah.
John Anderton: But it didn't fall. You caught it. That fact that you prevented it from happening doesn't change the fact that it was GOING to happen.
--Minority Report

Judge Nap recounts a case in Rhode Island of illegal search and seizure. After a man agreed to go the hospital for an evaluation only after the local police promised not to enter his house and confiscate his firearms, they did just that. The man left in an ambulance, and the police proceeded to enter his house without a warrant and took his guns.

When the man sued for unlawful arrest, search, and seizure, the police argued that they didn't enter the house to investigate a crime. Instead, they were engaging in 'community caretaking.'

The Fourth Amendment protects the right to be left alone. Absent a warrant, search and seizure is illegal.

Government being what it is, however, has attempted to find legal arguments around the plain and obvious language of the Bill of Rights. The argument is that there should be 'exigencies'--i.e., exceptions when there is belief that a crime will imminently occur.

This is laughable 'Minority Report' logic.

Nonetheless, the government has successfully pushed the law in its favor. It has done so to justify warrantless electronic surveillance. It has also been doing so to do 'community caretaking.' In this particular case, the police claim they were protecting the man from himself by entering his home and collecting his guns.

Federal and state courts have been upholding community caretaking arguments until last week when the Supreme Court unanimously overturned the First Circuit's ruling in the Rhode Island case. It did not go so far as to outright say that the language in the Fourth Amendment is clear (as that would threaten the warrantless surveillance institution). But it did say that the exigency notion could not be expanded to include the community caretaking notion.

This is a step in the right direction toward liberty.

In Motion

Just when you think she's yours
She's flown to other shores
To laugh at how you break
And melt into this lake
--Echo & the Bunnymen

Sure looks like gold wants to mount an assault on its mid 2020 record at about $2050. The near term downtrend line has been broken, and prices are tracing a cup-and-handle pattern.

As previously noted, we're on gold's time.

position in gold

Milligan's Mulligan

Now did you read the news today?
They say the danger's gone away
But I can see the fire's still alight
They're burning into the night
--Genesis

Judge Nap rails on government officials who have raised false flags of 'emergency power' to restrain freedom during the CV19 situation. He cites the Ex parte Milligan ruling that legally rejected the proposition that government can suspend constitutionally guaranteed liberties by declaring emergencies. 

However, he stops short of explaining how state governors have been able to get away with it this time around. Why haven't legal challenges stopped all emergency declarations in their tracks? 

This remains one of the most perplexing aspects of what has transpired over the past year.

Bitcoin Bubble Deja Vu

Dr Alexander Denny: You know you don't have to do this.
Doug Carlin: What if I already have?
--Deja Vu

In late 2017 we wrote about the bubble in Bitcoin. Price ultimately peaked at about $20,000 before collapsing.

Once a bubble pops, it is unusual to see it re-inflate--not for some time. But here we are again experiencing some Bitcoin bubble deja vu.

Same shape to the chart--but with triple the effect. Makes the previous run-up look amateurish. 

After touching $60,000+ a couple weeks back, price has since fallen by about half. 

With more pain almost certainly pending...

no positions

Not Too Late

Stayed in bed all morning just to past the time
There's something wrong here there can be no denying
One of us is changing or maybe we've stopped trying
--Carole King

When the results of the presidential election were being contested late last year, a major concern involved institutional deadlines. There were December deadlines for states to confirm their votes and pass them along to Congress. There was the early January vote in Congress to accept the results. There was the presidential inauguration in late January.

It seemed difficult if not impossible for investigations, and courts, to reach conclusions before time ran out.

However, I remember one person who was less uptight about those institutional deadlines: lawyer and Harvard professor emeritus Alan Dershowitz. Yes, he acknowledged that those dates made it difficult for Trump associates to beat the clock. But so what?

Dershowitz wondered what would happen if, say, in June after Biden was named president, compelling evidence surfaced that the election was in fact stolen?

I wondered too. And I'm still wondering as both Arizona's Maricopa Country and Georgia's Fulton Country have been ordered to undertake forensic audits of their votes.

What would happen if these audits, or other subsequent investigations, unearth evidence that casts further doubt on the election results?

Leftists would surely trot out some version of the tired playground claim: it's too late now! Near as I can determine, though, there is no statute of limitation on election results--except the next election.

I think back to the late sage's remarks the day after the election. His advice still resonates.

Millions of Billions

There are things we won't recall

And feelings we'll never find

It's taken so long to see it

'Cause we never seemed to have the time

--Phil Collins

Nice perspective on just how large one billion is.

Of course, our fiscal and monetary frame of reference is way past that. We now gauge federal debt and spending in the tens of thousands of billions (read: trillion$). When entitlements (social security, medicare, medicaid) are folded in, future obligations amount hundreds of thousands of billions.

What happens when inflation fires higher?

Next stop, millions of billions (read: quadrillion$).

Letting It Fly

Time keeps on slippin,' slippin,' slippin'
Into the future
--Steve Miller

The always insightful Stan Druckenmiller zooms with the USC student investment fund group. In the first 20 minutes he offers prepared remarks, primarily concerning his current macro view, while the remainder is Q&A.

Druck lets it fly in part one. After unprecedented monetary and fiscal intervention in response to CV19 last spring, he contends that both the federal government and the Fed are being reckless on a historic scale by continuing to pump stimulus into the system after indicators show that the economy no longer needs assistance. Debt has exploded and prices are rising. He is preparing his family trust fund (a few $billion large) for Big Inflation with bets against the US dollar and on commodities. 

Although he remains long stocks, Druck says that he'll be surprised if he isn't out of equities before year end. I'm not sure whether he thinks inflation will hurt stocks or whether he believes prices are too high (he mentioned that he sees bubbles in nearly all assets classes).

Several interesting notes from the Q&A. On lessons learned from his mentors, Druck highlighted the advice he received about envisioning what things will look like in 1-2 years rather than where things are today. Today has already been priced in. Also enjoyed the Soros story about sizing positionss accordingly. Attractive opportunities should be well funded.

Re digital currencies, he suspects that the dollar et al will be headed electronic. However, he isn't keen on Bitcoin or its brethren being the chosen one.

On unequal wealth distribution, Druck suggests there has been no greater facilitator than central banks--a point these pages has made before.

In prepping for inflation, was surprised there were no questions or comments on gold. I'll take that as a bullish contrarian indicator...

His remarks on shorting also surprised me. While the last 10-12 years have been 'miserable' on the short side, Druck said that recently his shorts have been doing better than his longs. Moreover, given the historic macro situation, he suspects that upcoming years may be very friendly to shorting assets that are wildly overpriced. 

This inspired me to start thinking about setting aside modest short side space in my taxable account for some put projects. Also set up a short candidate watch list. 

position in gold 

On Gold's Time

"I will fire when I'm goddam good and ready! You got that?"
--Maverick (Top Gun)

Concerns about inflation finally seem to be making their way to the front page. But where's gold? While it's moved higher, gold hasn't exactly been zooming. 

Silver's been a bit perkier, and seems to be resolving a bullish-looking pennant pattern.

But still. If markets truly are discounting mechanisms, then shouldn't gold have sniffed out pending inflation by now? 

Of course, in the land of intervention ad infinitum, there is some doubt about the functionality these days.

Funny thing about gold, though. When it takes off, it has a way of leaving even ardent bulls behind. 

Gold isn't on our time. We're on gold's time.

positions in gold, silver

What They Count On

"I want this country to know that we stand on the edge of oblivion! I want every man, woman, and child to understand how close we are to chaos! I want everyone to remember why they need us!"
--Sutler (V for Vendetta)

Tyrannical rule, defined as impairing the liberties of those governed, could never persist if the masses rose up against it. Despots are almost by definition a small minority. They could not remain in charge if the majority 'threw them off.'

So how do they do it? How do tyrants manage to keep their thrones when they are so vastly outnumbered? There are few plausible answers.

One is that they trade with the masses. Tyrants agree to provide something that the people want, such as security, in exchange for their acquiescence. When they do this, of course, the masses are dealing with the devil. 

Another is entertainment and distraction. The Roman solution of 'bread and circuses' is meant to divert attention of common men from the real issue at hand: confiscation of freedom. Drumming up war, btw, serves a similar purpose.

Finally, tyrants presume that most people are just plain ignorant. The masses, they believe, don't engage their brains and think for themselves. Instead, they are willing to outsource their brains to so-called experts. Consequently, tyrants employ all kinds of experts to tell the public what it should think.

This is what tyrants count on.

Back on the Desk

Back in black
I hit the sack
I've been too long
I'm glad to be back
--AC/DC

Good to see DJT back on the desk. No political decorum. No nonsense. Refreshing. Easy to see why he relates to so many.

Although this is Trump's platform, I have no doubt that the deranged left will once again endeavor to shut him down (up).

Capex and Institutional Uncertainty

"Just one chance in a hundred to make one improvement in a hundred."
--Don Walling (Executive Suite)

Classic example of organizational response to institutional uncertainty. US Steel (X) decided to shelve a job creating plant expansion in the face of a hostile regulatory environment. Perhaps the company will play wait-and-see. Maybe it will pursue a similar project in a region of the world friendlier to capital investment. 

Of course, the project may be gone for good.

Any way you slice it, an opportunity for domestic productivity improvement has been squandered by a hostile regulatory regime.

Theory and Practice

Is this the real life?
Is this just fantasy?

Caught in a landslide

No escape from reality
--Queen

Classic Dow Theory posits that healthy bull markets are led by the transportation sector. It's basic supply chain management, really. For stocks (which are generally proxies of economic activity) to be strong, "stuff" must be moving.

We seem to be witnessing this theory in action. The trannies have been relentlessly marching higher--so much so that the oscillators are pinned to the ceiling.

Major indexes have been obliged to play along.

Biggest flaw in this theory that I can think of? Inflation. Massive monetization of debt and the proceeds pouring into equities create illusions of economic strength.

Reality blurs when money starts moving faster than the planes and the trains.

Control Gene

Ellsworth Toohey: There's the building that should have been yours. There are buildings going up all over the city which are great chances refused and given to incompetent fools. You're walking the streets while they're doing the work that you love but cannot obtain. This city is closed to you. It is I who have done it! Don't you wish to know my motive?
Howard Roark: No.
Ellsworth Toohey: I'm fighting you and shall fight you in every way I can!
Howard Roark: You're free to do as you please.
Ellsworth Toohey: Mr Roark, we're alone here. Why don't you tell me what you think of me in any words you wish.
Howard Roark: But I don't think of you.
--The Fountainhead

Some people seem to have an inborn urge to control the behavior of others. They pay more attention to what others do than to their own actions. They criticize constantly. 

The onset of social networking has been their rapture.

When social control doesn't work, they seek to control others by force.

People acting freely? That bothers people born with the control gene to no end.

Who Will Pay?

"I'm here for one reason and one reason alone. I'm here to guess what the music might do a week, a month, a year from now. That's it. Nothing more. And standing here tonight, I'm afraid that I don't...hear...a thing. Just...silence."
--John Tuld (Margin Call)

Judge Nap provides constitutional context for the federal government's spend now, pay later policies. This year the Feds have already spent $1.9 trillion in CV19 relief (although only a fraction of this spending actually went for relief. The Biden Administration is now proposing $2.3 trillion in infrastructure spending. Plus there is the annual $2 trillion in borrowing just to make ends meet.

The judge wonders who will pay for this? Corporate tax increases will be mean less workers with income to tax. This is on top of the unemployment from lockdown/shutdown policies. Moreover, the 'near certain' inflation that the judge (correctly, in my view) suggests is pending will raise borrowing costs. 

The tired old answer seems to be that future generations will be the one's paying for today's profligacy. 

However, if there are no savings/no capital for investment (how can there be when we owe?), then where will future incomes come from to pay the bills? 

Increasingly, my fear is that future generations will be paying for our mistakes by having to endure a massive depression that we designed just for them.