Dot Plots

Sam Gerard: Cosmo, this guy's dirty.
Cosmo Renfro: Yeah he is, Sam.
--The Fugitive

If you're connecting dots to picture what has truly gone on over the past year and a half, then it seems likely that an image of Dr Anthony Fauci will appear in the middle of it. A public health sector bureaucrat for more than 50 yrs, Fauci is the director of the National Institute of Allergy and Infectious Diseases (NIAID). He has been the chief mouthpiece of CV19 public health measures since the pandemic began.

It did not take long for Fauci to blow his credibility with anyone with reasoning capacity. His stance on several matters (e.g., travel policy, masking) flip flopped. He promoted policies grounded in dogma rather than in science. He failed to advocate for projects to obtain better understanding of the situation (e.g., seroprevalence studies, randomized trials evaluating effectiveness of various PPE). He ignored data that contradicted his viewpoints.  

Because Fauci has been an active member of the Democratic Party who strongly supported Hillary Clinton in 2016, it is easy to construe his actions as politically motivated. Indeed, failing to remove Fauci from his position of influence may have been Donald Trump's most glaring error.

Evidence is emerging that Fauci received information about the potential origin of the virus in a Wuhan lab. He also knew that the research was funded in part by US tax dollars. In both cases his subsequent actions suggest coverups. Yesterday he failed to appear before a House panel hearing to answer questions about these matters.

Undoubtedly, Fauci is seeking political cover while it is still available for him. But it will be hard to hide from what the dots plot.

Evidence Pretense

Don't get me wrong
If I come and go like fashion
I might be great tomorrow
But hopeless yesterday
--The Pretenders

It is chic to say that policies are 'evidence-based.' What this means in practice is finding (or funding) studies with results that align with your prospective policy while ignoring all evidence to the contrary.

Of course, by selecting only data points that suit you, you are not being evidence-based at all. 

Just ceremony and pretense.

Random or Calculated?

I think it's time we stop
Children, what's that sound
Everybody look what's going down
--Buffalo Springfield

Reasoning minds have felt uncomfortable accepting what has transpired over the past year at face value. Policy actions have had a scripted feel to them. Politically slanted, and well supported by a biased media. Certainly convenient to certain factions in a presidential election year.

Last year I hypothesized that, rather than the pure product of premeditation, that the sequence of events probably had random roots--a crisis of convenience that gradually attracted like-minded, opportunistic factions along the way. 

Now I'm not so sure.

Connecting dots increasingly supports a theory of intent. A centrally planned event (with the World Economic Forum near the epicenter) that enabled a 'Great Reset.' 

Nice thought-provoking video on the matter: part 1, part 2. The 'Build Back Better' medley at the end of part 2 should raise an eyebrow or two.

Pawning CRT

"Look at my life. The life you tried to take. There was Annapolis, Vietnam, so on. I missed the Sixties. And I believe if I had been there--to contribute--everything would've been fine."
--William Strannix (Under Siege)

Two articles from a weekend spread on the always interesting American Greatness website about growing public pushback against 'critical race theory' (CRT). The first one touches on the Marxist roots of CRT. When the Marxian 'class war' hypothesis was falsified, proponents pivoted toward cultural rationales to spark unrest. As these pages have recounted, that pivot spawned CRT.

The second article argues that CRT is primarily a product of leftist baby boomer regret/guilt about the civil rights movement of the 1960s. Many of them sat out the movement. Now, they are projecting their shame on others by creating a new civil rights movement that rallies against concocted bogeymen.

In reality, these two threads are related. Cultural Marxism is constantly in search of narratives with capacity to recruit useful idiots to take up the cause of social disorder. These narratives lean heavily on mechanisms of superstition and emotional capture. Similar to climate change and corona fables, CRT narratives conveniently serve to mobilize the weak-minded as pawns for cultural Marxists.

Hey Now, Hey Now

There is freedom within
There is freedom without
Try to catch the deluge in a paper cup
--Crowded House

Last month we wondered what would happen if various state audits confirmed widespread voter fraud that stole the presidential election from Donald Trump. Some are now mulling the feasibility of Trump's reinstatement. The Constitution would certainly not preclude it. Elections tainted by fraud are not protected.

Meanwhile DJT is certainly not backing away from the challenge. He knows it's not over. His enemies know it too.

Banking Options

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

Major indexes put in their worst week since last October. Among the weakest sectors has been the financials. The bank index (BKX) has broken its uptrend from last fall.

Inspired by a couple of recent Stan Druckenmiller interviews, I have been thinking about what a modest short portfolio might look like to hedge against my investment longs. I concluded that a modest group of options (some in indexes and some in individual names) might be prudent for my taxable account in this environment. 

The financial sector seemed like a good sector for an initial project. Huge run up. Vulnerable in 'risk off' environments. Interesting characteristics of price movement in sector indexes (low short term volatility, but potentially high long term volatility). So I initiated a small put option position in the financial sector SPDR (XLF). Although I have a fair amount of option experience, it's been a while. Wanted to see how it felt.

Trading options is much easier these days. Narrower bid/ask. Much lower commissions. Can see why options have become so popular. Can also see why many folks quickly get into lots of trouble. Derivatives constitute another form of leverage. Gains are magnified, but so are losses.

Used in moderation, however, options can be a tool for managing some of the risk associated with a long-term stock portfolio. So far, feels like a good tool for me to use in this environment.

position in XLF

Green Light District

Red light
Yellow light 
Green light
Go
--Def Leppard

Hedge fund legend Paul Tudor Jones follows his compadre Stan Druckenmiller in discussing the recklessness of current Fed policy and its ramifications on his investment approach. He points out that the Fed is being way more aggressive now than in 2013 (QE time) when monetary policy backdrop was much more benign (i.e., friendlier toward being aggressive). 

With the economy heating up and employment much more in balance now--not to mention the trillion$ already dumped into the system over the past year in CV19 'relief,' there are glaring inconsistencies in current Fed actions.

He also notes that the Fed's mandate, at least as policymakers discuss it, has shifted completely away from inflation-related 'price stability' to focus exclusively on 'full employment.' Talk about mission creep.

Or mission migration...

Jones suggests that if the Fed does not signal that they are treating recent data indicating hotter inflation with seriousness, then he'll take it as 'a green light to bet heavily on every inflation trade.'  

The latest FOMC statement will be released this afternoon. What will the rhetoric suggest?

Quiet Time

Xian Chow: While you train here, listen.
Kurt Sloane: Listen to what?
Xian Chow: Just listen. With your mind. Your heart. Your whole being.
--Kickboxer

Am increasingly grateful for quiet time. Time for the mind to be still, to reflect. 

My body doesn't have to be still. In fact, some of my best quiet time is during morning workouts.

But no devices, TV, radio.

So I can think...and listen.

Oversimplifying

"It's never just one thing."
--Jimmy Morris (The Rookie)

Although the human mind recognizes complexity, it tends to reason simply. That can be good. In fact, it can be argued that simplification, i.e., cutting through fluff to get to the essential--to truth--is the real power of reason. 

However, sometimes in its quest to cut to the chase, the mind oversimplifies. For instance, the mind likes to think in univariate fashion. X causes Y. Rather than A, B, C, and X in some weighted combination lead to Y.

After observing X and Y go up together, the mind tends to assume a relationship. But it could just be a coincidence. Y may be going up in conjunction with A. Or with A going down. The assumed relationship between X and Y may be spurious. As it is said, correlation does not necessarily mean causation.

Reason tends to follow straight line fashion. X causes Y. Rather than X squared leads to Y. Moreover, relationships are commonly assumed to be unidirectional. X causes Y. Rather than X leads to Y which feeds back to X, and so on.

Sometimes the conclusion that X causes Y is sufficient. Simple. Straightforward. Elegant.

Other times this conclusion is an oversimplification that needs more nuancing to arrive at truth.

Falken's Maze

Malvin: Boy, are you guys dumb. You guys are so dumb! I got this thing all figured out.

David Lightman: Oh yeah, Malvin, how would you do it?

Malvin: The first game on the list. Go right through Falken's Maze.

--WarGames

Judge Nap wonders why Americans so readily surrendered their freedom and went along with government imposed controls during the CV19 pandemic. He cites the security-for-freedom trade, which these pages have equated to trading with Satan.

That may explain accommodative behavior among the masses, but it doesn't explain the aggressive behavior of rulers. What explains their bold, synchronized action across the globe?

Yes, those in government seem to instinctively understand that crises spell political opportunity, and that people are prone to surrender liberty in crisis situations as they let their emotions get the best of them.

But the homogeneity among various factions is curious. Seemingly organized, coordinated. 

To understand what has gone on in the past year+, this may be the place to start. Perhaps this is Falken's Maze.

Forms of Fiat

All the old paintings on the tomb
They do the sand dance, don't you know
If they move too quick
They're falling down like a domino
--Bangles

Modern money creation is a function of fiat. Government simply declares it into existence. Currently, there are three primary forms of monetary fiat:

1) Credit money. Central banks declare an interest rate, and then endeavor to make it so--primarily by setting the price of money at their 'discount window.' Banks borrow from the window at the fiat discount rate, and then use the borrowed funds as the basis for speculating or for making loans to others. Credit money therefore creates a pyramid effect thru the financial system as one dollar borrowed from the Fed's window might be leveraged 10x or even 100x in subsequent loans.

2) Security monetization. Also known as QE, monetization entails central banks lifting bonds out of primary dealer inventory in exchange for money created out of thin air. The Fed sees $500 million in Treasury and agency inventory on JP Morgan's (JPM) sheets, and it buys them from JPM by placing a digital credit of $500 million in JPM's account. Where did those funds come from? From a few clicks of a mouse, baby.

3) Money in the mail. Former Fed chair Ben Bernanke famously declared that central banks could always just drop money from helicopters if financial systems were in need of liquidity. Today, of course, dropping money from the sky isn't necessary because it's just as easy to send checks thru the mail. Where did the Federal government get the trillion$ of dollars to fund 3+ rounds of so called 'stimulus checks' associated with the CV19 situation? From a process that prints dollar values on checks and then mails them. That's all.

Questions to ponder: Which of the above is credit money and which is cash money? Which ones are most likely to result in higher prices of goods and services?

Heating Up

You can make or break
You can win or lose
That's a chance you take
When the heat's on you
And the heat is on
--Glenn Frey

The May consumer price number printed at a 5% year over year rate of increase. That's the fastest annual growth in prices since 2008.

Glass half full folks contend that this is just a transitory situation, reflecting an economy on a post CV19 rebound. One problem with this claim is that policymakers have signaled that they don't intend to reverse the trillion$ of stimulus meant to motivate the recovery. 

With millions of people out of work and sitting on their couches subsidized by money printed out of thin air by Uncle Sam, spreading enough new incremental output to sop up all those new dollars that policymakers plan to keep in the system seems a tall order.

Here's what I mean. Suppose in Period 1 there are 5 million dollars in circulation and 1 million units of production for consumer to buy. The average price = $5 million/1 million units = $5 per unit.

Now, suppose in Period 2, money in circulation increases to $10 million and production expands to 1.5 million units. The average price = $10 million/1.5 million units = $6.67 per unit.

The 'consumer price index' in this case increases by (6.67 - 5) * 100 = 33% from Period 1 to Period 2.

When the production of goods does not keep up with increases in money supply, prices heat up.

And the heat is on.

1933 Double Eagle

Crapgame: Then make a deal.
Big Joe: What kind of a deal?
Crapgame: A DEAL deal!
--Kelly's Heroes

Yesterday the only 1933 double eagle decreed to be 'legal tender' by the US government sold at a small numbers Sotheby's auction for a record $18.9 million (listing here). It had previously been owned by shoe designer Stuart Weitzman, who bought it in 2002 for a then record $7.6 million.

Although the coin has not been 'slabbed' by PCGS, company experts examined it in-hand and formally assigned a grade of MS65 with a corresponding cert. Similarly, CAC has conferred a virtual 'green bean' on the coin.

In 1933, FDR issued Executive Order 6102 which essentially outlawed private ownership of gold. The mint had already struck nearly 500,000 $20 gold pieces (also known as 'double eagles' or 'Saints' after the coin's designer Augustus Saint-Gaudens) for that year, but none had left storage yet. In concordance with the president's order, issuance of 1933 double eagles was banned and the entire inventory was subsequently melted.

Well, almost the entire inventory. 

A few 1933 Saints snuck out the door. Despite tireless efforts of the 'gold police' to recover the rogue twenties, a few remained at large. One wound up in hands of King Farouk of Egypt, who repeatedly rebuked attempts by federal agents to confiscate the coin. As the mainstream media likes to tell it, after decades of due diligence (and who knows how many million$ in US taxpayer resources), the federal government finally seized the coin in what is sometimes referred to as a 'secret service sting operation.' 

In reality, the feds struck a deal with a British coin dealer with whom the coin surfaced. Rather than melting it down, the feds subsequently accepted a face value payment of $20 from private parties in exchange for a 'certificate of monetization' (above) declaring that the coin was legal tender for public trade and ownership. That ceremonial transaction directly preceded the 2002 auction. 

Did I fail to mention that the federal government and dealer shared the auction proceeds?

A few other 1933 Saints are known to exist. A couple reside at the Smithsonian Institution. About 15 years ago, ten examples were found in a Philadelphia attic and dutifully submitted to the feds by the finder. I'm sure that federal bureaucrats were more than happy to trade ten crisp $20 Federal Reserve Notes for the coins. 

Legal battles involving the the Philly hoard of ten (which, not surprisingly, has not been melted) are certain to intensify now that the market has priced the stakes in the hundreds of million$.

As for any 1933 Saints that have retained their freedom, perhaps yesterday's sale will motivate a few rogues to trade on a market where their freedom is not questioned--the black market.

Lagging Value

Then you say
'Go slow'
I fall behind
The second hand unwinds
--Cyndi Lauper

In trending markets like this one, finding value is difficult. However, there's usually a name or two on an investor's watchlist that has been lagging. Sometimes for good reason. But often for trivial reasons.

On my watchlist, Merck (MRK) fits this profile. The company just spun off some over the counter assets which subtracts from its market cap a bit. Plus, investors seem constantly worried about the staying power of its blockbuster oncology drug Keytruda.

The spinoff means that the remain Merck is more focused on high impact medicines. Very much inline with the company's historical mission.

Short term chart show the stock as oversold and on support.

Longer term chart suggests a rounding top pattern (bearish), but with a couple layers of support below.

As a long term investor, I've always liked this stock as an anchor position. The stock currently yields 3.6% to boot. Have been adding here and there.

position in MRK

Homesteading

"Do you mean to tell me, Katie Scarlett O'Hara, that Tara, that land, doesn't mean anything to you? Why, land is the only thing in the world worth working for. Worth fighting for. Worth dying for. Because it's the only thing that lasts."
--Gerald O'Hara (Gone With the Wind)

Today, if you want to own some land, then you generally have to buy it from someone who already owns it. But how did it work back in the day when land was not yet owned? Could you be like Christopher Columbus and just claim it? Finders, keepers?

That's often how it starts--claiming ownership of large tracts of land in your own name or in the name of someone else if you're that someone else's agent.

But claiming ownership by fiat is difficult to sustain for long periods of time. You have to defend the land against intruders. You have to maintain it. Most importantly, you'll likely want to elevate your standard of living by production on that land. 

You'll need guards, workers. You'll need tools and other resources. How to fund it? You'll probably have to peel off property to fund your interests. Those who receive land in payment have similar goals and needs. They undertake a similar process.

It may take a bit of time, buy hopefully you see where this leads. Gradually, apportionment of land approximates the ability to use it productively. Owners with too much unproductive land have to surrender some until they reach a scale that they can manage efficiently. The allures of specialization and trade drives even finer apportionment.

This early process is called homesteading. Land is apportioned according to productive capacity of the owners.

After the primary markets of homesteading wane, land begins to trade in secondary markets (like today).

However, in unhampered markets, the relationship between productivity and land ownership remains. The amount of real estate owned tends to be proportional to the owner's productivity.

Spinning Intolerance

"We must pray that when your head's finished turning, your face is to the front again."
--Sir Thomas More (A Man for All Seasons)

A core principle of cultural Marxism is 'liberating tolerance.' The term was coined by Frankfurt School theorist Herbert Marcuse. As with most Marxist ideas, the concept turns reality upside down.

Classically defined, tolerance means being able to live with things you don't like. Marcuse posited that a classically 'tolerant' society would therefore validate or institutionalize things that are harmful and inhibit progress. 

To counter this 'repressive tolerance,' Marcuse espoused liberating tolerance. Liberating tolerance means tolerating ideas coming from sources deemed as 'correct,' while not tolerating ideas coming from sources deemed 'incorrect.' 

Guess who gets to deem correctness?

To cultural Marxists, then, censorship is quite welcome when applied to groups with 'incorrect' ideas. And can there be any doubt that we are witnessing precisely this? Hello Facebook, Twitter, et al...

Quite clearly, liberating tolerance is the definition of intolerance. Stated differently, liberating tolerance to counter repressive tolerance is... repressive intolerance.

Let's join Sir Thomas in a prayer for the spinning minds of the left.

Lincoln Cents

So when you hear it thunder
Don't run under a tree
They'll be pennies from heaven
For you and me
--Bing Crosby

What's the longest running coin design in US history? That would be the Lincoln cent. The obverse design has changed little since Lincoln pennies were first struck in 1909. Designed by sculptor Victor David Brenner, it features a side profile of Abe cribbed from an early Matthew Brady photo. The design was controversial because it was the first US coin to feature an actual person rather than symbolic figures such as Lady Liberty. 

We seem to have gotten over it, as today's coinage has completely shunned Ms Liberty in favor of 'rock stars' of US history.

1910 1c PCGS PR66RB CAC ex Young-Dakota

The reverse of the Lincoln cent has endured two primary designs. The art deco 'wheat cent' reverse was struck from 1909 through 1958. To celebrate the 50th anniversary of the Lincoln cent in 1959, the reverse was redesigned in favor of a Lincoln Memorial motif. The 'modern' reverse was altered once again at the Lincoln cent's century mark in 2009, first with an image of the Lincoln log cabin birthplace and then a replica of the union shield.

Alloy content has evolved from almost completely copper to almost completely zinc. In keeping with the sadly familiar pattern of monetary debasement, rising copper prices have made it too expensive to include the metal in one cent coin denominations.

Many collectors got their starts by plugging Lincoln cents into Whitman albums. Harder to find the old 'wheaties' to fill those early slots, but they're still in the mix if you look hard enough.

If you notice one, then you might want to put it away. At the rate that the value of money is being destroyed, pennies may not be in circulation much longer.

Channel Surfing

You see they never roll the streets up
'Cause there's always something goin'
--Jan and Dean

If you're an investor in Pan American Silver (PAAS), then it seems like you've been getting whipsawed by 10-20% moves ad infinitum. But pulling back the time horizon a bit reveals a different picture.

The stock has basically been channel surfing for the better part of a year--that after a blast higher off the CV19 lows. Slight concave shape to the sideways action looks cup-and-handlish as well.

Interesting how this is setting up.

position in PAAS

Judge Them Not

Imad: A very good horse.

Balian of Ibelin: Take the horse...and be about your business.

Imad: This is your prize of battle. I am your prisoner, your slave, should you wish it.

Balian of Ibelin: I have been a slave...or very near to one. I will never keep one, nor suffer any to be kept. Go.

Imad: The man you killed was a very great cavalier among the Muslims. His name was Mammad al Fais.

Balian of Ibelin: I will pray for him.

Imad: Your quality will be known among your enemies--before you ever meet them, my friend.

--Kingdom of Heaven

The author of this article suspects that none of the policymakers or their minions will pay for their CV19 crimes against humanity. Perhaps not on this earth. But each of them will one day stand before God for the ultimate judgment.

As will each of us. 

Meanwhile, we are told not to judge. Instead, we are told to forgive those who trespass against us--as we would have God forgive our trespasses against Him.

If we can find it in ourselves not to render judgment on others and, instead, pray for those who do us harm, then we are on the right path.