Less Negative is Positive

"A negative times a negative equals a positive."
--Jaime Escalante (Stand and Deliver)

Negative interest rate policies (NIRP) enacted by central banks across the globe in the middle of last decade spawned a mountain of negative interest-bearing debt. It was hard to imagine who was buying it although, in reality, central banks themselves were hoovering much of it up as part of their quantitative easing (QE) programs.

The worm has turned dramatically as inflation has picked up and CBs are now raising rates. After hitting a peak of about $17 trillion in 2020, negative yielding debt has plummeted to less than $2 trillion. Most of that decline has come since the beginning of 2022.

As NIRP debt declines, it seems likely that broken conventional discounting processes get repaired.

Central banks become extra big losers as NIRP reverses. They bought $trillions of negative yielding bonds that have now been pounded as rates rise and bond prices fall. Many CBs are approaching the broke point on paper.

While these institutions can simply print more money out of thin air to rectify their upside down balance sheets, this would create quite the paradox of creating more money in an inflationary environment.

TINA Turning?

All I want is a little reaction
Just enough to tip the scales
--Tina Turner

During the era of interest rate suppression, people turned to stocks, particularly dividend payers, because it seemed there was no alterative (TINA). With yields presently moving higher, the TINA attitude should dissipate as investors switch out of stock in favor of the relative safety of high yielding bonds.

Today the 2 yr Treasury yields touched 4%. This more than 2x the S&P 500 dividend yield.

The higher this spread goes, the more pressure we should see on stocks as investors flock to 'risk-free' cash yields.

CAPE Fear

I'm a walkin' in the rain
Tears are fallin' and I feel the pain
Wishin' you were here by me
To end this misery
--Del Shannon

Although stocks have come in, Robert Shiller's CAPE index suggests much more downside work must be done before 'normal' valuations return.

Could be, although I wonder how massive market stimulus and, now, structural goods/services inflation factor in.

Trading the Cable

"Cockamamie. That's a word you generation hasn't embraced yet. You ought to use it once in a while to keep it alive."
--Frank Horrigan (In the Line of Fire)

They say you learn something new every day. Saw this headline this am and couldn't figure what 'cable' meant in the context.

Turns out it refers to exchanges between the British pound and the USD. 

When transatlantic cable was stretched across the ocean floor in the mid 1800s to connect telegraph services between the England and the US, transactions between the two currencies became known as 'trading the cable.'

Obviously, this is no longer popular slang as it took me several decades before I heard it.

Interesting nonetheless. And I hope to put my newly discovered lingo to work soon.

See the Signs

Life is demanding
Without understanding
--Ace of Base

Article lays out five signs of recession currently flashing red:

1) Declining monetary base. As quantitative tightening proceeds, money supply should drop even more.

2) Inverted yield curve. Inverted yield curves are leading indicators of economic problems, and have preceded every recession for decades.

3) Tighter lending standards. Economic slowdowns increase risk aversion. Banks tighten credit standards to avoid losses during recessions. We're approaching tightness associated with past recessions.

4) Falling housing market prices. Mortgage rates have more than doubled over the past year. As prices and borrowing costs go up, demand for houses has gone down. Inventory is now above 10 months of supply--a threshold that has consistently been associated with past recessions.

5) Declining manufacturing and trade sales. Sales are down over one percent YOY. Declines below zero have coincided with every recession since the 1970s.

These indicators suggest that a recession is not imminent. Rather, it is likely already here.

Political Purge

"So, here's to the men who did what was considered WRONG, in order to do what they knew was right...what they KNEW was right."
--Benjamin Franklin Gates (National Treasure)

After Donald Trump and his close circle were hit by DOJ search teams, it appears that this administration is widening its nets. Tucker Carlson reports that subpoenas are in the process of being issued on dozens of Trump allies.

This is what a political purge looks like.

Obviously, this is meant to send a message ahead of the upcoming midterm elections, and to those who are considering involvement in the presidential election two years off.

Railroads Crossing

Seven, that's the time we leave, at seven
I'll be waiting up for heaven
Counting every mile of railroad track
That takes me back
--Doris Day 

Nice map of US railroads. Time stamped 2020 so slightly out of date.

Mergers have left the industry with six major players. US operators include BNSF Railway (owned by Berkshire Hathaway), CSX (CSX), and Norfolk Southern (NSC), and Union Pacific (UNP). Two Canadian operators, Canadian National (CNI) and Canadian Pacific (CP), also have substantial presence.

Although their tracks overlap, you can see where each operator's home turf is.

As might be expected, the majors are now in the process of gobbling up smaller regional and local operators.

position in CSX

Lost and Found

When my teeth bite down I can see the blood
Of a thousand men who have come and gone
Now we grieve 'cause now it's gone
Things were good when we were young
--Von Bondies

In some ways the holes in my heart still feel as large as those twin holes in the ground.

In other ways, those holes have been filled with knowledge and love.

As terrible as that day was, I am grateful for the positive changes it has brought. 

Like today's gospel (Luke 15:1-32) that tells us of the lost son who has been found.

Climate Gravy Train

Strange voices are saying

What did they say?

Things I can't understand

It's too close for comfort

This heat has got right out of hand
--Bananarama

On the back of yesterday's post, another credentialed 'expert' fades the party line on climate change. He argues that any relationship between man and climate change is a spurious one. It is more likely, he suggests, that cyclical activity on the sun's surface is influencing weather patterns on earth.

Meanwhile, climate alarmists seek to ride a 'gravy train' to make money.

Greenpeace Man

"There is a WALL of water coming toward New York City!"
--Radio announcer (The Day After Tomorrow)

Interesting piece on Greenpeace founder who left the organization when it was 'hijacked by the political left' and morphed it into a 'political fundraising organization.'

Great comments particularly on the 'demonization' of carbon dioxide and its influence on climate. This chart should be particularly telling to any reasoning mind:

Also liked his comments on the dynamics of CO2, plant growth, and robust ecologies--something these pages have discussed.

Sanctions Fever

Life goin' nowhere
Somebody help me
Somebody help me, yeah
--Bee Gees

Vladimir Putin attributes Europe's energy crisis and related probs to 'sanctions fever.' It is hard to disagree.

Watching a related special last nite on CNBC and host Brian Sullivan asked a guess whether he thought the West's sanctions on Russia were 'working.'

Perhaps he should have asked the millions around the world who face starvation and hypothermia due to these sanctions.

Sadly, this was predictable from the get go...

Euro Energy Bailout

Here I am in silence
It's a game I have to play
You and I in silence
With nothing else to say
--Information Society

On the back of yesterday's post, headlines this morning find euro bureaucrats committing to massive bailouts of consumers and producers as they face virtual margin calls as energy prices spiral higher.

These bailouts are forms of stimulus--subsidies that work against efforts to reign in higher prices.

Still wrapping my head around how this spills over to the US. The obvious consequence is an even strong USD vs the euro.

Frozen Policy

Hear the Salvation Army band
Down by the riverside
Bound to be a better ride
Than what you've got planned
--The Bangles

Europe seems headed toward a self-imposed depression. Sanctions against Russia, combined with previous 'green' policies, have exploded in the face of euro bureaucrats, leaving the EU facing a winter with insufficient heat, electricity, and gasoline.

Some gas and electric bills are already printing 5-10x year ago levels.

Policymakers appear to be doubling down by developing plans for rationing, price capping, and money printing.

Absent a quick policy about-face, it is difficult to see how the EU survives the next few months.

Repos and QT

Then the door was opened
And the wind appeared
The candles blew
And then disappered
--Blue Oyster Cult

Interesting WSJ article suggesting that declining reserves stemming from the Fed's 'quantitative tightening' (QT) program poses a significant threat to financial markets. 

QT is the reverse of quantitative easing (QE). In QE, the Fed printed money out of thin air to buy bonds from banks. That printed money became 'reserves' that the banks have deposited with the Fed. Unsurprisingly, reserves have rocketed higher given the $9 trillion of bonds that the Fed now holds on its balance sheet via QE. 

Bank reserves serve various purposes. They can be used to settle trades with other banks. Reserves are also kept to satisfy regulatory requirements, which have generally been ratcheted higher since 2008, to provide some margin of safety in the event of another systemic credit event.

Reserves can also be used for investment purposes. One popular avenue toward this end is the repo market. Repos are contracts where one party sells securities to another party in exchange for cash. The buyer (who is engaging in what is called a 'reverse repo) promises to sell the securities back to the original holder at some future (usually near term) date and at a set (usually higher) price.

These pseudo loans help the pseudo borrowers manage short term cash obligations while providing the reverse repo pseudo lenders with quick profits.

When reserve levels are high then the 'interest rates' governing repos are low and usually in line with the Fed Funds Rate. However, when reserves decline, repo rates are prone to rise because there is less capacity for reverse repo 'lenders' to employ. 

As the Fed embarks on QT, reserves are beginning to fall. Although there are no signs yet of stress in the repo markets, there is belief that it is only a matter of time before problems surface. 

Indeed, in 2019, the Fed had to inject emergency shots of liquidity into these markets after previous QT programs resulted in skyrocketing repo rates that threatened to seize up money markets.

Given the size and centrality of money markets to contemporary market functioning, it may once again be time to fear the repo.

Tracing History

Dr Alexander Denny: You know you don't have to do this.

Doug Carlin: What if I already have?
--Deja Vu

Interesting analog comparing this year's market action to 2008-2009.

So far patterns are pretty similar.

Extremism and Liberty

"Tonight, our country, that which we stand for and all we hold dear, faces a grave and terrible threat. This violent and unparalleled assault on our security will not go undefended...or unpunished. Our enemy is an insidious one, seeking to divide us and destroy the very foundation of our great nation. Tonight, we must remain steadfast. We must remain determined. But most of all, we must remain united."
--Adam Sutler (V for Vendetta)

It's difficult to imagine that this administration doesn't lose more political support each time it opens its mouth. Last night Biden spoke like a geriatrically challenged version of Adam Sutler, declaring that supporters of Donald Trump and the Make America Great Again ideology constitute a "threat to our country."

If one infers that those who voted for Trump in 2020 comprise this group, then it numbers at least 70 million.

The president's press secretary added the e-word. The president, she said, sees this group as "an extreme threat to our democracy."

Moreover, "when you are not with where the majority of Americans are, then, you know, that is extreme. That is an extreme way of thinking."

Setting aside questions involving what precisely in MAGA ideology is inconsistent with the views of the majority of Americans, or, for that matter, whether MAGA ideology itself doesn't actually constitute the majority viewpoint, any American with a modicum of grounding in US history understands that our founding ancestors designed a government that protected the rights of those who not aligned with the whims of majority opinion. 

If the press secretary's definition of extremism is employed, then opinions inconsistent with the majority are to be protected from tyrannical treatment. Government is legally barred from acting against 'extremists'--again defined as those who think differently from the 'majority.' 

My sense is that Americans still understand this founding principle well enough they are are turned off by the caustic 'extremist' claims of leftists.

Cause for Pause

How can you just leave me standing
Along in a world that's so cold?
--Prince

Our working hypothesis is that the Fed will pivot from its hawkish track when 'something breaks' in the market. That's been the historical pattern and there's no reason to believe this time will be any different.

But where will the breakage occur this time around? One possibility is something in the credit markets. The greater the systemic leverage, the more susceptible the system is to higher interest rates. And systemic leverage has never been higher.

After the Fed's historic tightening over the past six months (on a relative basis), some folks are on the lookout for cracks in credit. We recently noted, for example, that low rated debt spreads are widening toward alarm levels.

Another possibility, one stressed here, is that a funding crisis arises in Washington. Higher rates mean more interest expense on ever-escalating federal debt levels. We're currently on a run rate to spend over $1 annually on Treasury bond interest. How much longer before politicians exert enough pressure on the Fed before it breaks?

Finally, one possibility that I frankly had not entertained concerns the strong dollar. The dollar index (DXY) currently stands at its highest level since 2002. The broader Bloomberg dollar index has spiked above the pandemic highs.

There is growing suspicion that this is sparking margin calls in emerging markets stemming from short dollar positions. 

If so, then systemic contagion could provide another possible cause for Fed pause.

Disconnect

Hungry to touch
I'm eager to please
Out of control
And I hand you the keys
--Rick Springfield

Nice graphic that complements our previous post.

When you bail out bad decisions, you get _____ of them.

a) more

b) less

Student Loan Forgiveness

"Somebody's got to pay. Not gonna be me."
--Harry Lynch (Wall Street)

Ron Paul discusses the administration's plan to forgive college student loan debt. The plan is an overt attempt to buy votes, of course. Who is being bought?

Indebted college students, naturally. Plus all those who benefit from government subsidies to higher ed.

The plan can be viewed as a wealth transfer to the elite class. The working man is being forced to subsidize the 'educated.'

Moreover, the plan is inflationary. Loans that are forgiven don't just disappear. The liability must still be paid for. The money that can't be raised through taxes or borrowing will be...printed.

One more thing. Those who have actually paid for college now feel like suckers. In the future, more will borrow under the assumption that they won't have to pay.

Moral hazard writ large.

CCC Spreads

Papa don't preach
I'm in trouble deep
Papa don't preach
I've been losing sleep
--Madonna

As we remain on the lookout for cracks in the system, particularly credit, this chart is noteworthy.

Low quality CCC debt spreads have once again breached 1000 bips.

Trouble usually starts at the risky end of the credit stack...

Irreparably Compromised

"The wheels turn slow around here. Real slow. But they do turn."
--Detective Marie Mitchell (Hard Target)

What would it take to show that there was massive fraud and interference in an election--long after a 'winner' was originally declared. What if this fraud and interference cast serious doubt who really won? Or even worse, that a candidate originally deemed to have lost actually won?

How would the damaged candidate(s) seek and obtain relief?

My sense is that those who perpetrate election fraud are prone to do so boldly, under the assumption that if they can get to the point where the results are declared 'official,' then it will be next to impossible for a damaged candidate to obtain relief in a manner that society views as legitimate.

Not long after the 2020 election, these pages mused about this situation. That we're still musing more than two years later suggests a) that compelling evidence of fraud continues to surface, and b) the spectre of widespread recognition of irreparably compromised election has not been extinguished by the perpetrators.

Leveraged Loans

"The mother of all evils is speculation--leveraged debt."
--Gordon Gekko (Wall Street 2: Money Never Sleeps)

Leveraged loans are loans extended to entities that already have high levels of debt and/or poor credit history. Loans are usually arranged by at least one investment or commercial bank, and are often syndicated to other banks or institutions.

This article estimates the current value of leveraged loans outstanding at $1.4 trillion--nearly double the 2015 market size. I have read elsewhere that leveraged loans have become popular among college endowments and other institutional investors as high yielding alternative investments.

With that high yield, of course, comes higher risk. Leveraged loan borrowers are more prone to default. Indeed, the article also suggests that leveraged loans may be a useful 'canary in the coal mine' this time around as credit market stress builds.

We know that tight monetary policy moves are often lagged in their effects. The leveraged loan market may be a good place to look for manifestations of the Fed's previous actions.

Utilities Yielding to Miners

"You know, the worst ain't so bad when it finally happens. Not half as bad as you figure it'll be before it's happened."
--Curtin (The Treasure of the Sierra Madre)

Those seeking dividend income often flock to utilities given the sector's consistently high payouts. However, the income-producing status of utes is currently being challenged by...mining stocks. The dividend yield differential has narrowed to decades+ lows.

Two things are going on. One is that utility stocks have been bid up recently, causing their yields to fall. The other is that mining stocks, despite their strong balance sheets and cash flows, have been crushed recently, causing their yields to rise.

While they have surely been disappointed that the sector has not yet responded to the present environment as expected, gold bulls are at least being paid well to wait.

position in gold

Jackson's Hole

"You're the disease, and I'm the cure."
--Marion Cobretti (Cobra)

The much-awaited Jackson Hole speech from Fed chair Powell is now in the books. Personally, I always chuckle when Fed heads wax about economic problems that always seem to be exogenous, and the Fed's heroic role in taming them.

The topic this time around is, of course, inflation. Powell suggests that the Fed must draw upon 3 lessons learned. One is that the Fed must take on responsibility for delivering low and stable inflation. The obvious question is why should the Fed be responsible for delivering any rate of inflation at all? Moreover, if the Fed is responsible for delivering low inflation, then how did we get to this state of high inflation in the first place?

The second lesson learned related to 'inflation expectations.' Powell asserts that "if the public expects that inflation will remain low and stable over time, then, absent major shocks, it likely will. I found that statement particularly rich. It suggests that a major goal of 'fighting inflation' is persuasion--persuading the public that inflation is low. 

Never mind the decades of easy money compliments of the Fed.

The third lesson is that the Fed must keep at it until the job is done. That is, keep monetary policy restrictive until "inflation is down to the low and stable levels that were the norm until the spring of last year. But monetary policy was extraordinarily 'unrestrictive' for more than a decade before the spring of last year. 

If that prolonged period of easy money didn't unduly elevate the public's inflation expectations, then how will the Fed 'keeping at it' with restrictive monetary policy do the opposite?

Powell once again markets the Fed as the cure rather than the disease it is.

Be Poor and Like It

"Tis too much proved, that with devotion's visage and pious action, we do sugar o'er the devil himself."
-V (quoting Shakespeare) (V for Vendetta)

Another version of the 'suck it up' message. Euro leaders tell their people that 'abundance' is a thing of the past. Be poorer and like it.

One has to wonder how long a people is willing to endure hardship in support of a bureaucratic ideology.

Queen of Heaven

A great sign appeared in the sky, a woman clothed with the sun, with the moon under her feet, and on her head a crown of twelve stars.
--Revelations 12:1

Throughout history queens have used their influence and office to provide for everyday people. As Queen of Heaven, Mary provides for us by being our chief advocate. 

Today, we celebrate her crowning and give thanks for our good fortune.

Healthy Mistrust

"Sorry, boss, but there's only two men I trust. One of them's me. The other not you."
--Cameron Poe (Con Air)

Recent cries of foul over the FBI's raid of Donald Trump's Florida home have fed apologists coming out of the woodwork. The FBI needs to be given the benefit of the doubt, they say.

In other words, trust the feds.

Truly?

Here's a partial laundry list of FBI corruption.

Mischief by government agents should not be surprising. As Madison observed, men are not angels. And because men are governed by other men rather than by angels, controls are necessary on those who govern.

Among those controls is healthy mistrust of those holding public office.

Lagged Effects

Take a chance like all dreamers

Can't find another way

You don't have to dream it all

Just live a day
--Duran Duran

Another insightful interview with Stephanie Pomboy. I find the Maven's focus on credit market fallout from the Fed's tightening program intuitive. In leveraged systems, rate hikes and tight money policies increase stress and lead to failure.

But, as Pomboy observes, the effects are often lagged. She points to recent trends from credit upgrades to downgrades, as well as a lender bankruptcy or two, as evidence since they come several months after the Fed began its tightening campaign.  

Recall the 2008 credit collapse. The Fed was raising rates in 2006 but it wasn't until early 2007 that the first substantial cracks started appearing. New Century Financial, anyone?

And then it took another year until the crescendo really started to build.

If Pomboy is correct, and I think she is, then additional data points that reflect credit market stress should be pending.

Quiet Quitting

"Big successful businesses are not built by men like you--9 to 5 and then home to the family. You live on them, but you never build one. Big successful businesses are built by men like me. They give everything they've got to it. Live it body and soul. Lift it up regardless of anybody or anything else. Without men like me there wouldn't be big successful businesses. My mistake was in being one of those men."
--Ralph Hopkins (The Man in the Gray Flannel Suit)

Lower productivity may be driven in part by trends toward 'quiet quitting.' Quiet quitting is doing the bare minimum at work. Put in your time and go home.

While there has always been a fraction of quiet quitters in the workplace (sometimes called 'slackers' in the past), perhaps that fraction is growing.

Of course, this could just be another fleeting meme on the net.

Death and Taxes

Now my advice for those who die
Declare the pennies on your eyes
--The Beatles

The Inflation Reduction Act allocates billion$ for the adding more than 80,000 IRS agents. It appears that this will be a new breed of tax collector.

Recruiting materials say that agents must be able to 'carry a firearm and use deadly force, if necessary.'

It is said that there are only two things that are certain: death and taxes.

The IRS, it appears, is gearing up to provide for both.

Awe Struck

Who is this that comes forth like the dawn
As beautiful as the moon
As resplendent as the sun?
--Songs 6:10

Struck with awe once more...

...as we celebrate the Assumption of our Blessed Mother into heaven.

Legitimacy by Association

"Looks like you're running with the cool kids now."
--Meg Harper (Joe Somebody)

Tom DiLorenzo discusses the long train of 'witch doctor' economists that have infiltrated government for generations. What gives these charlatans staying power?

It's primarily about perceived legitimacy that these so-called 'experts' bring to an administration. Fancy degrees and awards bring an air of distinction that wows the masses. By employing the witch doctors, politicians associate themselves with thought leaders. 

Legitimacy by association. And a nice gig for the intellectual class.

Moreover, because those who refuse to think for themselves are prone outsource the brains to others, political partisans can program minds by employing witch doctors ideologically aligned with the partisans' agendas. Blindly following expert advice puts the followers under the thumbs of the politicians.

The antidote to this cronyism? People who think as they seek truth.

Down Year for Institutions

You got me running
Going out of my mind
You got me thinking
That I'm wasting my time
--Electric Light Orchestra

The fiscal year for many institutional funds, e.g., pension funds and higher ed endowments, ends June 30. 2022 was not kind.

Public pension funds were down about 8%.

College endowments did even worse, losing more than 10%.

The worst performance for both since the credit collapse. To be fair, however, this down year follows one of the best years for both groups.

Down years hit pensions particularly hard due to their chronically underfunded nature. Drawdowns reduce fund capacity for meeting short and long term obligations. Making up for lost ground will likely require some combination of raising pension fund contributions, cutting benefits, and/or taking on more risk in hopes of boosting future returns. 

As for the latter option, not sure how much more room fund managers have after years of pushing the risk envelope.

Remote Work and Lower Productivity

I was standing
You were there
Two worlds collided
And they could never tear us apart
--INXS

For more than a year, I've been wondering when the negative productivity effects of remote workplaces encouraged by pandemic regulations would show up. Coase's seminal work told us that organizations exist to reduce the transaction costs inherent to individual contractors trading on the market. 

Stated differently, productivity tends to increase when people work together.

CV19 pulled workers apart. Consequently, transaction costs should go up and productivity should go down.

It appears that the data are finally starting to reflect this reality. For Q1 and Q2 of 2022, non-farm business labor productivity has printed in negative territory (FRED graph here). Parenthetically, the FRED graph seems to paint a more positive picture than the actual BLS data series, which currently indicates 4 negative prints in the last 8 quarters, including huge -7.4 and -4.6% YOY declines thus far this year. Not sure why the difference.

Some commentators are attributing lower productivity to increased 'sloth' associated with employees being able to get away with goofing off when working remotely. There is certainly some truth to this, as one way to cope with agency problems is increased monitoring. Monitoring is a type of transaction cost, one that certainly increases when distance between employee and supervisor increases.

But the larger point is that costs of trade among workers endeavoring toward the same end go up when they are not working in close proximity.

We're witnessing a large-scale example of this currently.

Raid on Reason

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

As these pages have frequently noted, leftists love to manipulate language in their favor. They employ positive substitute symbols and euphemisms to advance their agendas.

Case in point. The recent invasion of Donald Trump's Florida residence is no longer a 'raid.' Instead, it is now being deemed as an execution of a search warrant.

The raid, plainly, is on reason.

Crimson Tide

"He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like, oh sure, he went to Harvard!"
--Louis Winthorpe III (Trading Places)

Harvard Crimson survey indicates 80% of Harvard faculty identify as liberal or very liberal. Check out the conservative sliver at less than 2 percent (with no 'very conservative' respondents).

Would they support hiring more conservatives to increase ideological diversity? 31% of the faculty said no. 56% supported stronger screening for former Trump officials seeking to join the faculty, while 30% were for banning anyone from that group outright.

More evidence that academic diversity has been firmly supplanted by academic perversity.

Weaponized Agencies

Trim life shadows flicker and fall
But you still can't turn away
Get up and run before you stall
Before the edges fray
--Ric Ocasek

Given that the executive branch now includes dozens of agencies with strong armed capability, it should come as no surprised that influential politicians will seek to 'weaponize' those agencies against political opponents. The FBI, CIA, and IRS are particularly attractive in this regard.

McCarthy, JFK, Tea Party, et al.

In the recent years, there has been no better example of the weaponization of federal agencies than the concerted operations to take down Donald Trump. First as a candidate, then as sitting president, and now as a former president with future candidate potential. The FBI, CIA, DOJ, and even the military has been involved.

Yesterday's actions will be difficult for even many partisans to brush off as federal agents raided Trump's home in Florida.

Actions over the past few years have escalated to the stuff of authoritarian police states. The current administration is brazenly employing federal agencies to punish political opposition.

What authoritarians never seem capable of understanding is the extent to which their aggression strengthens the resolve of the liberty-minded.

Hiroshima Myth

"The principle of law in every civilized society has this in common: Any person who sways another to commit murder, any person who furnishes the lethal weapon for the purpose of the crime, any person who is an accessory to the crime...is guilty."
--Judge Dan Heywood (Judgment at Nuremburg)

On August 6, 1945, a United States B-29 dropped the world's first atomic bomb in Hiroshima, Japan. Three days later another A-bomb was dropped on the city of Nagasaki. Japan surrendered later that month to end WWII.

An estimated 120,000 perished in the two blasts with hundreds of thousands subsequently maimed or killed from radiation exposure. The lion's share of casualties were civilians--mostly women and children.

The popular myth trotted out to justify this carnage is that, by bombing the Japanese mainland and inflicting death and destruction to a degree that forced a surrender, the US subsequently avoided more than a million additional military casualties that would have resulted from the ongoing conventional war campaign--including an inevitable invasion operation of Japan.

As discussed in this article, this amounts to little more than the rationalization of atrocity.

The fact is that Japanese officials signaled their willingness to conditionally surrender earlier in 1945. Their condition was that Japanese emperor Hirohito would remain in power and not be subjected to criminal investigations after the war. The idea was to preserve as much Japanese culture as possible, and to provide continuity to facilitate economic and social functioning in post-war Japan.

Sadly, President Truman and his lackeys were unwilling to accept anything other than unconditional surrender--quite ironic since after the war Hirohito was indeed permitted to remain as emperor until his death in 1989. 

Why, then, were the bombs dropped?

The answer is that Truman and his staff, particularly his confidante and future secretary of state James Byrnes, had their eyes on Russia. Using atomic weapons would demonstrate US military strength to Russia and keep Stalin & Co at bay as the superpowers entered a 'cold war.' A secondary reason was that Congress could be assured that its secret appropriation for the Manhattan Project was bearing fruit that created near and longer term benefits.

Following the bombings, however, many officials, including Commander of the Third Fleet Admiral Bill Halsey, Fleet Commander Chester Nimitz, Chairman of the Joint Chiefs of Staff William Leahy, and atomic theorist Albert Einstein, condemned the action. 

This is when the propaganda machinery got into gear. Editorials and articles began to hit the pages of newspapers and magazines about the military necessity of the bombings. The myth has been continually reinforced, usually around this time of year, by political leaders and a complicit media. 

Perhaps in a brief moment of conscience, Henry Stimson, who was secretary of war at the time and chief propagator of the subsequent Hiroshima myth, wrote in his memoirs, 

"Unfortunately, I have lived long enough to know that history is not what actually happened but what is recorded as such." 

Indeed, Mr Stimson. My sense is that you and many of your contemporaries will face, quite literally, the trial of your lives on Judgment Day.

Premie Retirees

"I'm gone. Don't try to find me. You won't. I'm on strike."
--Ellis Wyatt (Atlas Shrugged: Part 1)

This article suggests that the pandemic taught many people, especially young ones, that work doesn't pay. It is better to stay home and goof off rather than to toil one's life away.

Makes sense when the government was sending stimulus checks that paid people to stay home--given axiomatic aversion to labor that steers human behavior. However, it doesn't explain how those young non-workers will continue to not work once the stimmy checks dry up.

That said, it is entirely possible that an older, yet still capable cohort has indeed left the workforce for good as part of the Great Resignation. Many people approaching retirement age became disgusted with restrictive pandemic work policies, such as masking and mandatory vaccinations and hit the silk rather than deal with unpleasantries that conflicted with their principles.

Unlike younger workers, this cohort has a substantial nest egg that can be used to fund unexpected early retirement. Because they are still productive, premature retirees could always step back into the workforce if they change their minds, or if their budgetary situation changes.

Given the still-oppressive regulatory overhang governing many workplaces, however, many of these premies may be gone for good a la John Galt.

When the Going Gets Tough

I got something to tell you
I got something to say
--Billy Ocean

The two key charts, updated again. Fed funds rate, recessions/crises, and SPX.

QE, SPX, and related events.

When the going gets tough, what does the Fed do?

Blatant Lying

"Richard, it profits a man to give is soul for the whole world...but for Wales?"
--Sir Thomas More (A Man for All Seasons)

An administration bureaucrat looks straight into the camera and claims that it is "factually not true" that gasoline prices were rising prior to the Ukraine conflict.

These people will use any means when attempting to manage narratives. Blatant lying included.

Not Adding Up

There's something happening here
What it is ain't exactly clear
--Buffalo Springfield

Something doesn't add up about Nancy Pelosi's provocative trip to Taiwan. Leftists have long expressed open admiration of the Chinese communist system. They have been silent on blatant human rights violations of the CCP for years, including the use of concentration camps for dissenters.

More recently, leftists sat idly by during the pro-freedom and independence protests in Hong Kong in the summer of 2019--protests that were ultimately put down by the Chinese government.

Now we are to believe that leftists like Pelosi are suddenly on the side of people seeking self-determination? Not only does this fly in the face of their affection for the Chinese model, but any reasoning mind realizes full well that leftists believe in authoritarian rule and collectivism, not self-determination. 

As the Chinese military incircles the island to conduct live fire 'military exercises,' one has to wonder what is really going on here.

Inflation Reduction Act

I bought a novel, some perfume
A fortune all for you
But it's not my conscience
That hates to be untrue
I asked of my reflection,
"Tell me what is there to do?"
--Squeeze

As we've discussed, leftists are rarely honest with their rhetoric. They label things largely contrary of their actual effects.

Cast in point: the proposed Inflation Reduction Act. 

As Ron Paul discusses, the bill does the opposite. It increases government spending by hundreds of billions of dollars. It takes resources out of the hands of private citizens and puts them into the hands of bureaucrats.

Not only does this increase the risk of capital misallocation, but it must be funded. To the extent that citizens are taxed, it reduces economic resources available to people during an era of high price inflation and slowing economic activity.

It is a universal truth that slow economic activity motivates easier central bank monetary policy (read: inflation).

To the extent that taxes won't cover the spending, then those funds must either be a) borrowed, which taxes future incomes, or b) printed (the reason why inflation is called the 'invisible tax').

There is little doubt that the Inflation Reduction Act will ultimately result in more inflation, not less.

In the Dogma House

Carmen Sternwood: What's your name?
Philip Marlowe: Doghouse Reilley
Carmen Sternwood: That's a funny kind of name.
Philip Marlowe: You think so?
--The Big Sleep

Dogma is belief accepted by a group without question or debate. It stands to reason that the higher the preference for collectivism among members of a group, the more likely that dogma will reside within the group.

How to counter such groupthink? One way is to avoid affiliations. As Jefferson understood, belonging to groups tends to cloud judgment.

Outside viewpoints are also useful as they bring fresh perspective. Of course, outsiders are typically unwelcome in collectivist circles as they threat group cohesion.

Finally, there is reason. Applying logic and scientific thinking toward dogmatic principles commonly lays groupthink to waste.

Should it be surprising, then, that leftists increasingly claim reason and critical thinking to be racist and inflammatory?

They need to quell the threat to group cohesion somehow.

Keep Him Out

But you won't get too far
'Cause you got to blame someone
For your own confusion
We're on guard this time
Against your final solution
--Red Rider

Interesting thesis about why leftists, including many on the conservative side, cannot let Trump back in the Oval Office. The primary answer is that it is not Trump, but the tens of millions of 'country class' that he represents. 

The elite cannot afford to have give those rubes, Clinton's 'deplorables,' a voice in the political process. And to keep that from happening, the ruling class will stop at nothing to keep that from happening.

The author suggests that leftists have a string of plans in the queue to keep Trump out of office.

Plan A. Use the Jan 6 show trials to keep Trump from running/winning. By most accounts, however, that isn't working.

Plan B. Indict Trump for 'seditious conspiracy' using the DOJ and other machinery of the deep state. Of course, it will be difficult to convince a large fraction of Americans that any such charges hold a modicum of legitimacy.

Plan C. Declare Trump ineligible to run under the insurrection clause of the 14th Amendment. The legitimacy issue still holds.

Plan D. Simply beat Trump at the ballot box. The trouble is Democrats have no obvious candidate that could compete with Trump head-to-head this time around.

Plan E. Cheat (again) in the election. There is no question that Democrats will do what they can get away with (again) this time around. The issue is, given the heightened public awareness about election process shenanigans, how much they will truly be able to get away with in 2024.

Plan F. Take to the streets and riot. Do this until the 'proper' regime is secured in the White House.

It is easy to see why leftists are husting to grab guns ahead of this cycle.

Recession Now

When the good times never stay
And the cheap thrills always seem to fade away
When will we fall
When will we fall down?
--Toad the Wet Sprocket

The traditional definition of a recession is two consecutive quarters of negative real GDP growth. This has now occurred based on Q1 and Q2 GDP prints.

As these pages have discussed, political partisans are trying to manage the narrative away from the traditional definition--claiming that recessions only officially occur once they are declared by the 'experts' at the National Bureau of Economic Research (NBER).

Conveniently, such a declaration would occur sometime after the midterm elections in November.

What the partisan narrative managers fail to note is that two consecutive quarters of negative real GDP growth have always coincides with NBER's formal declaration of recession.

Social Networks and Political Correctness

"I'll be subtle. I'm good at subtle."
--John Spartan (Demolition Man)

Political correctness can be defined as behavior intended not to upset a particular group in order to advance an agenda. It often manifests in manipulating language. Political correctness is pretense; it is not genuine.

Political correctness is a product of social learning. Observing others. Watching what gets sanctioned. Fitting in.

As such, it should be no surprise that political correctness has increased alongside capacity for social networking.

Imagine a research experiment studying two groups of people. One group is highly plugged into their phones, tablets, and other social networking devices. 

The other group is rarely, if ever, online. 

Which group is likely to exhibit more politically correct behavior?

Redline Fed Lines

You'll never say hello to you
Until you get it on the redline overload
You'll never know what you can do
Until you get it up as high as you can go
--Kenny Loggins

Yesterday the FOMC raised the Fed funds rate 75 bips as telegraphed. The overnight rate target now stands at 2.25-2.50%.

As is common anymore, the FOMC statement was 'redlined' for wording changes from the previous statement.

The only substantial change was the first sentence, which went from discussing economic strength to signs of economic weakness.

Couple that with the subsequent statement that the Fed is prepared to adjust its policy stance if risks emerge that threaten the attainment of the committee's goals, and you get early signs of a dovish pivot.

Reaching? Perhaps, but markets are partying on the prospects thus far.

Narrative Management

Nancy Oliver: What's the matter with the mistress? She don't look ill to me. Is she?

Elizabeth Tompkins: I don't know. Not as I can see. But the master keeps telling her she is.
--Gaslight

Leftists believe that words matter more than actions. This is why they respond like juveniles on the playground when someone says something they don't like. "He called me a name!"

Indeed, it seems that many leftists view hurtful words as equivalent to acts of physical aggression--acts that justify physical violence, perhaps by government agents, to quell the 'hate speech.'

This is also why leftists obsess with controlling narratives. Narratives are story lines. In reality, these story lines may be true or false. But regardless of whether narratives represent fact or fiction, leftists believe that they can manipulate behavior in their favor by manipulating language.

Controlling the narrative often begins by changing the definition of a word or phrase that is central to the storyline.

Leftists are currently focusing on the meaning of 'recession.' Rather than using the traditional definition of two consecutive quarters of negative GDP growth (which likely has occurred in Q1 and Q2 of this year), leftists are now arguing that the definition is more nebulous and requires (very conveniently) a panel of experts to determine--perhaps far after the fact of the recession's actual commencement.

The narrative can then manipulated. We're still in an economic expansion, they say, because the experts haven't called a recession yet.

Should recent history be any guide, leftists will also try to recruit their media cabal to label alternative narratives as 'disinformation.'

If they can get the public to buy in, then perhaps leftists can postpone widespread perception of recession until after the November midterm elections. Leftists well know that people experiencing economic hardship are prone to vote out people and parties in positions of political power.

This time around, that would be Democrats.

Use your capacity for reason. Ignore the gaslights of narrative management.

Undercover Hero?

My beacon's been moved
Under moon and star
Where am I to go
Now that I've gone too far?
--Golden Earring

I enjoy reading Tom Luongo's work. Thought provoking--even when his general premise is wrongheaded. 

In this recent piece, for example, Luongo gives the Fed entirely too much credit, arguing that the central bank is essentially the 'good guy'--battling inflation wrought by irresponsible fiscal policies that sent money to people in boxes during CV19. 

He fails to mention the Fed's long history of bailing out markets (and policymakers) when markets break, or of the central bank's $9 trillion of balance sheet assets purchased with money created at the click of a mouse. Because, as Friedman observed, inflation is always a creature of monetary policy, arguing that the Fed is somehow not the Dr Frankenstein that created our present monster seems a bit naive.

However, Luongo does make an interesting point toward the end of his article. He notes (correctly) that the Davos/World Economic Forum crowd would like to put an end to commercial banking, and put all monetary power in the hands of central banks--perhaps even in a one world central bank with digital currency-producing capacity.

He then suggests that, in the United States (and perhaps elsewhere), the Fed represents the interests of those commercial banks. As such, the Fed is motivated to break the EU-centric Davos/WEF threat to US commercial banks by raising rates, pounding the euro, and perhaps even driving the EU toward dissolution.

There's lots of holes in that argument--including the Fed's 'institutional obligations' both domestic and abroad--but interesting to ponder the 'undercover hero' thesis nonetheless.

Cruel Summer

Strange voice are saying
What did they say?
Thinks I can't understand
It's too close for comfort
This heat has got right out of hand
--Bananarama

Regional Fed data increasingly suggest that economic activity is quickly contracting. While this may be alleviating near term price pressure per policymaker goals, it also portends nasty political consequences.

As one respondent from the Texas survey commented, "November can't get here fast enough."

Don't Bet On It

They show you photographs of how your life should be
But they're just someone else's fantasy
--Styx

Policymakers seem to be betting that people would rather see inflation than recession. Current policies seek to curtail demand, lower wages, and raise unemployment--with the hope that these things will result in falling prices. 

And people are supposed to be happy with that outcome?

Don't bet on it.

I also wouldn't bet on the either/or proposition. What if it turns out that we get inflation and recession?

Obeying Absurdity

"Private, I know they brainwashed you in boot camp. But sometimes you gotta QUESTION authority!"
--Chief Petty Officer Casey Ryback (Under Seige)

When a reasoning mind reflects on what's gone on, like this nurse has done, it is difficult not to conclude that a large fraction of the population will unquestionably obey authoritarian 'guidance.' 

No matter how absurd.

Tree Truth

See the stone set in your eyes
See the thorn twist in your side
--U2

This little decision tree captures lots of logic.

Adding a branch or two for side effect risk would make it even better.

Zero Coherence

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

Earlier today the European Central Bank (ECB) raised its deposit rate 50 basis point to...zero. The ECB's deposit rate had been in negative territory since 2014, meaning that depositors essentially paid to keep their money in the central bank's vault.

This is also the first interest rate increase by the ECB since 2011.

Needless to say, monetary policy in Europe has been off the rails for quite some time.

To demonstrate that it hasn't suddenly been transformed into an institution with coherence, the ECB unleashed a blizzard of acronym-heavy programs, such as Transmissions Protection Mechanisms (TPI), designed to selectively buy bonds of struggling EU countries (e.g., Italy) to keep sovereign debt from imploding.

Thus, we have a central bank raising interest rates while continuing easy money policy using a quantitative easing (QE) transmission mechanism.

The ECB truly makes the Fed look smart.

Greenwood's Good Samaritan

"People rely on the police to keep them safe. That's the problem. The police only arrive after the crime has taken place. That's like trapping the fox as he's coming out of the hen house. If a man really wants to protect what's his, he has to do it for himself."
--Ben (Death Wish)

Last weekend, a 20 yr old shooter opened fire in a Greenwood, Indiana shopping mall food court, killing three and injuring others. 

Tragic for sure. But it could have been much worse.

Within 15 seconds of the shooter's first shot, an armed civilian drew his carry pistol and put down the shooter. Mall security cam footage verifies the timeline.

Not surprisingly, the mainstream media is under-emphasizing this part of the story.

Regardless, as the local police chief recounts, "Many more people would have died if not for a responsible armed citizen that took action very quickly." 

The major added, "This young man, Greenwood's Good Samaritan, acted within seconds, stopping the shooter and saving countless lives. Our city, our community, and out state is grateful for his heroism in this situation."

It should be noted that Indiana became a constitutional carry state July 1.

Slanted News, Slanted Ratings

You got me running
Going out of my mind
You got me thinking
That I'm wasting my time
--Electric Light Orchestra

How has unbalanced media coverage translated into perceptions of confidence in news reports? According to a recent Gallup poll, not well.

Confidence in newspaper and television news has dwindled to fractions of what they were a few decades back.

Not surprisingly, Democrats exude more confidence in their media outlets than Republicans do.

Those leaning right average confidence levels in the single digits.

Slanted news creates downward slanted ratings.