What is the max that the Fed can push its Fed funds rate before it stops? Judging from the downtrend line defined by previous cycle highs in the graph below, the ceiling appears to be about 1.5%.
Much lower, as we've said, than market participants seem to be forecasting.
Leonard Read's Students of Liberty is a thoughtful compilation of remarks made to students at Pitt in 1950. I found several points particularly interesting.
Read proposes that the history of the world is largely a history of violence. These pages have proposed similarly. Some violence is direct, such as war, while other violence is indirect, such as the violence that manifests under the guise of democracy. For example, when people vote to raise taxes to pay for a particular program, those voters are principals of violence. They contract with the strong arm of government to shake down others for resources to fund their pet projects.
The alternative to violence, Read suggests, is love. Love refers to the kindly virtues in human relations such as charity, integrity, and not doing unto others what you would not have them do unto you. This is, of course, Christ's central message.
If we are to trends of violence toward love, then Read asserts that liberty is required. Love "generates and grows among free men; only with great difficulty among men ruled by the principles of violence. As violence begets violence so does one personal act of kindness beget another." (28)
How does liberty grow? Read dismisses approaches such as marketing campaigns, subsidized instruction, and fear mongering programs. Instead, he advocates for self-motivated learning and improvement. Only through personal search for truth and leading by example will liberty grow.
Read admits that his 'one-individual-at-a-time' notion lacks the speed of other, more aggressive proposals, but he argues that the Students of Liberty approach is the only one that will produce durable and lasting change.
Here we are 70+ years later, and most of the approaches that Read downplayed have been tried with marginal success. Perhaps it is time to put Read's proposal to work.
I personally plan to.
Negative Q1 GDP print at -1.4%.
Stagflation chatter is certain to get louder.
Common wisdom is that bond yields are up because of the Fed's anticipated actions. But what if yields are up despite the Fed's anticipated actions.
If the latter is true, then perhaps the Fed is losing control of the bond market.
Despite doing next to nothing thus far, the Fed is currently perceived as hawkish in manners not seen since Paul Volcker. The popular narrative posits that the Fed will be raising rates 8-10 times this year to 'fight inflation,' with some rate increases possibly in the 50-75 bip range, as well as unwinding $1T or more of its balance sheet assets accumulated during more than a decade of quantitative easing.
This is...doubtful.
Evidence indicates that the Fed's so-called hawkishness never lasts longer than the marginal monetary policy action that triggers a crisis. As the graph above suggests, the tightening threshold that triggers a crisis has been declining in each successive policy cycle.
Why the declining threshold? Cheap credit created during monetary easing causes the system to lever up more so than the previous cycle. When asset prices fall during the subsequent tightening phase, balance sheets flip upside down quicker. Consequently, the financial system approaches insolvency at lower interest rate levels than before which, in turn, causes the Fed to ease off. Monetary policy never returns to where it was in previous cycles.
While the Fed might engage in hawk talk from time to time, its actions are chronically dovish.
The chart above suggests that the Fed will resume easing operations sooner rather than later--and at fed funds rate levels far lower than currently forecast.
Judge Nap rails against the unconstitutional seizing of Russian property, the freezing of Russian bank accounts, and the barring of contractual trade with Russian partners--all done under the guise of sanctions imposed after the Ukraine invasion. These sanctions violate both the Fourth Amendment, which requires warrants specific to place and person before property can be detained, and the Fifth Amendment, which requires due process before property can be expropriated.
A common response to charges such as these is that the Constitution only protects US citizens and not foreigners. This is wrong. The wrongheadedness of this line of thought is revealed by considering the Constitution's conceptual basis.
The formation of the United States is grounded in natural law. Natural law posits that all men are created equal at birth, meaning that we all have equal rights to life, to the freedom to pursue our interests as long as we do not forcibly intrude on the pursuits of others, and to the property that our pursuits might generate.
These natural rights are granted to each of us by our creator and as a condition of our humanity. They are unalienable, meaning that we are free to exercise our natural rights unencumbered by government interference. This is the founding principle of liberty.
Government's sole just purpose is to protect our natural rights. It can only interfere in an individual's pursuits when it is suspected that a person has forcibly compromised the natural rights of someone else. However, government must carefully follow just legal processes including those specified by the Fourth and Fifth Amendments.
If the natural law basis of the Constitution is to be upheld, then it makes no sense to limit its application citizens of the United States. Americans were not the only people born to the 'self-evident' truth that all men were created equal. All have been endowed with the same set of natural rights. When government tramples on the natural rights of any individual, it has done wrong.
As the Judge notes at the end of his column: "War is the health of the state and the graveyard of liberty." Actions of the US government taken under the auspices of the Ukraine conflict demonstrate once again America's lack of leadership in championing the very principles upon which our nation was founded.
War finds the United States burying liberty once again.
Couple of interesting charts. First (Chart 3) presents a ratio of resource vs biotech ETFs alongside the yield on the German 5 yr bund since 2010. The relationship is readily apparent. Lower yields favor biotech ETFs (a proxy for speculative risk taking in 'tech') relative to price of resource ETFs (a proxy for inflation and conservative positioning in 'stuff' stocks).
Now, as rates climb higher, the ratio is moving in favor of resource ETFs. Note that the ratio has lots of room to move higher, as suggested by the previous peak in 2010-2011.
The second chart plots central bank liquidity (presumably the aggregate assets on central bank balance sheets mostly due to asset buying programs associated with quantitative easing) alongside the market cap of the FAANG+ group which, due to their immense size can be seen as proxies for the overall market--particularly the tech side. This can be seen a slightly different take on this important chart.
The relationship could not be more obvious. The trillion$ of money printed out of thin air to fund central banks asset purchases has goosed stock prices higher.
With central banks now signaling a reversal of QE programs as they address surging prices of goods and services, the ramifications of doing so are ominous for stocks--particularly those of the speculative FAANG variety.
After criticizing the state's GOP, The Walt Disney Company (DIS) is in the process of having its longstanding favorable legislative treatment in the state of Florida revoked. Established more that five decades ago, the Reedy Creek legislation granted Disney the privilege of operating its amusement park properties outside of Orlando in a 'special district' with no local government oversight.
The special status allows Disney to issue its own tax exempt muni bonds as well as build new developments without obstacles such as local zoning laws. Disney's competitors in the state have not been granted similar favor. For example, Universal Studies Florida, which operates its own entertainment facilities adjacent to Disney, does not have Reedy Creek-like special status.
Increasingly, corporations have been weighing in on the left wing side of political issues such as the Chinese takeover of Hong Kong, the Black Lives Matter movement, election fraud, et al. Until now, their political commentary has not been met with much push back.
Unfortunately for Disney, Florida operates differently, boasting a strong GOP party presence highlighted by a fearless governor grounded in constitutional principles. This creates an environment where state officials are alert for opportunities to surface and remove grift.
Disney's political commentary put the process in motion on Reedy Creek. Both Florida houses have voted to end the company's special district status. Governor DeSantis is expected to sign the legislation.
It appears that Disney execs looked the grift horse in the mouth once too often.
no position
Strongest beginning to a year for commodities since 1915.
Note that the bar for this year is broken, since the 100%+ change would literally be off the chart otherwise.
Administrative staffing (a.k.a. 'overhead') generally increases with organizational size. Small organizations are characterized by decision-makers who wear 'many hats.' A manager might make a production decision one minute, then an HR or accounting decision in the next.
As organizations grow, it usually makes sense to divide up decisions among specialists. Specialists focus on a narrow functional domain, such as R&D or marketing, which increases their decision-making productivity as they benefit from learning effects and lower switching costs.
Moreover, sheer size and complexity makes large organizations difficult for any one person to understand. The number of decisions that must be made on a daily basis could number in the tens of thousands and easily exceed any single decision maker's capacity for rendering them.
There are technical reasons, then, why we should expect more staff and administrative overhead as organizations get larger. More staff can improve productivity.
However, staff could also grow for social reasons. Because they seek to maintain or improve legitimacy in their institutional environments, organizations seek to score points with external social entities. Stated differently, organizations might add staff to 'look good' rather than to 'do better.'
Coercive social pressures might drive organizations to hire regulatory or compliance personnel. Think environmental, safety, and legal departments.
Social pressures might also be normative in nature, motivating organizations to staff in manners that signal awareness and caring about particular social issues and causes. For instance, many organizations have recently staffed departments of diversity and sustainability in response to those popular movements.
Meyer and Rowan (1977) seminally observed that administrative additions of this type may not be accretive to the organization's technical core at all. Adoption of staff for legitimacy reasons is instead largely ceremonial in nature. It is meant to satisfy the social needs of outsiders rather than the economic needs of buyers.
This is the price to be paid for increased social standing. More resources that could be invested toward productive ends, such as process and product development, are allocated bureaucratically for the sake of appearance.
Some have argued that organizations must strengthen their legitimacy in the eyes of others in order to acquire the resources necessary to achieve greater economic performance. However, it is straightforward to theorize that excessive attention paid to looking good robs resources from the technical core, thus decreasing the likelihood that socially conscious organizations will do better and survive over time.
Perhaps this pathology increases with the strength of the institutional environment.
Reference
Meyer, J.W. & Roward, B. (1977). Institutional organizations: Formal structure as myth and ceremony. American Journal of Sociology, 83: 340-363.
Article includes a couple of nice graphics that summarize the futility of masks. States with and without mask policies vs reported CV19 infections:
Germany and Sweden vs CV19 deaths:
Will be looking into Miller's book as a shelf reference.
Leftists are in a quandary as they to preserve their speech controlled, safe space, status quo on Twitter (TWTR). By dissing Elon Musks buyout offer and, instead, developing a 'poison pill' to stave off hostile takeover, the company's board and management demonstrate that they are not running the company for shareholders. Instead, TWTR constitutes their play pen for social engineering and speech control.
Some progressives will be tempted to label Twitter a 'public utility' that is in need of government control and perhaps outright ownership. But they can't do that without running afoul of the Second Amendment. Heck, these pages have argued that Twitter's dependence on government resources already makes it a government-sponsored entity subject to 2A restrictions on censoring.
What progressives really need is someone from their camp who has deep pockets and is willing to outbid Musk to take TWTR private.
The Holy Women at the Tomb (William Bouguereau, 1890)
Why would people seek to silence speech they don't like? Several explanations are plausible.
One is that would-be censors simply can't handle the psychic pain of disagreement. Rather than reason with dissenters or simply walking away, they instead attempt to muzzle the unpleasantries.
Censors might also fear that those listening to dissenting voices are unable to think for themselves. When listening to independent viewpoints, those uncritical thinkers might believe what they hear even though, in the minds of the censors, that speech is obviously 'disinformation.' Because the censors believe that they have been enlightened to understand what the truth actually is, it is their duty to silence the disinformation and flood the pipes with 'facts.'
Of course, it is also possible that the censors fully understand that others are capable of thinking for themselves. They fear that, instead of blindly accepting the party line, listeners to opposing viewpoints will conclude that truth lies elsewhere--and that the truth will set them free. To keep people in the dark, censors seek to keep the light of truth switched off.
Finally, censoring is an essential tool of the propagandist. The central objective of propaganda is to undermine sense of truth. As successful propaganda campaigns have demonstrated, censoring seeks to keep truth out while lies are delivered in well insulated echo chambers.
Censoring helps to keep the signal of the propagandists' message high compared to the noise of the truth.
Elon Musk has upped his ante on the Twitter saga (TWTR) by offering to buy the entire company for $54.20/share, or about $41.4 billion. That constitutes a 20% premium over Thursday's close.
Not surprisingly, leftists extended their previous freak out over the prospect of losing control of the platform to someone who differs from them ideologically. Matt Taibbi discusses some of their absurd arguments.
Many leftists trotted out the wealth card, railing against the idea of a rich person buying/controlling a media outlet. Ironically, several of these screeds were floated by people affiliated with the Washington Post, a newspaper by Amazon (AMZN) founder Jeff Bezos. Bezos has a net worth north of $150 billion.
What leftists are saying, of course, it that it's ok to own a media company if you're a rich leftist. Otherwise...
More irony streamed from leftists screaming that Musk's bid should spark more government regulation of media companies. Follow the logic: We need regulation...to prevent rich people from controlling our channels of communication.
It gets weirder.
Another tranche of leftists complained that they are terrified that Musk will censor people less. One leftist tweeted, "He seems to believe that on social media anything goes. For democracy to survive, we need more content moderation, not less."
Although this is wholly consistent with previously shared survey data on censoring, I find myself pausing to let this train of thought sink in.
The most laughable reaction may have come from former Clinton labor secretary Robert Reich--known for his forays into socialist drivel (e.g., here, here). Reich suggests that a Musk-led Twitter "wouldn't be accountable to anyone for facts, truth, science, or the common good."
Censoring, you see, is for the common good. And, as we have witnessed over the past few years, it is the censors who determine what facts, truths, and science are fit for you to see. Media outlets must be held accountable--accountable to the censors.
Because he threatens their charade, the left must oppose and, if necessary, seek to destroy Musk.
Allegorically fitting on this Good Friday.
no positions
Article discusses the inconvenience of Sweden's minimalist policies related to CV19. Inconvenient for statists, that is.
Media coverage has largely moved on from its previous 24-7 shock-and-awe corona campaign. As it has done so, the mainstream media has failed to admit that they were wrong on Sweden.
Whereas pundits predicted that Sweden's laissez-faire approach constituted a death sentence for its citizens, the reality shows that Sweden's CV19 results were not noticeably different from other countries. More than 50 countries reported more deaths per capita.
It is increasingly clear from Sweden's results that political measures were of limited, or perhaps even negative, value in combating the virus.
Given the media's past record on self-accountability, we can be confident that it will not own up to its mistake in condemning Sweden's lack of CV19 intervention.
Glenn Greenwald discusses the near universal censorship of 'skeptical' info w.r.t. the Ukraine situation. Anything that does not jibe with the party line--the parties being the United States, EU, NATO, or Ukraine--is being silenced.
The question is why. Why must any view that counters the mainstream about a remote skirmish in Eastern Europe be buried? After all, there were plenty of skirmishes in this region prior to Russia's recent campaign--many of them inside Ukraine.
Greenwald suggests that it's primarily because it is to the military industrial complex's benefit.
That's part of it, sure. But there's likely more--probably much more.
Broad censoring programs were in force, and seemingly growing, prior to the Ukraine conflict. They included the silencing of dissent and 'disinformation' related to:
Clinton campaign corruption
Trump/Russia
Black Lives Matter protests
CV19 policy
2020 election corruption
Who is on the silencing side of all of these campaigns? Who is getting silenced?
The patterns point to why.
Headline CPI print +8.5% YOY.
Hottest since 1981.
Evidence continues to suggest that the West condones war in Ukraine. This weekend an EU diplomat stated that, "This war will be one on the battlefield."
To which Russian foreign minister Sergey Lavrov responded that this hardly sounded like a diplomatic position.
He's right.
Add to that further news about NATO beefing arms up and down its eastern front and continued efforts to ship military resources to Ukraine--along with no leadership (especially US) to convene diplomatic talks and it is difficult not to conclude that the West supports war over peace in Ukraine.
Public health officials are changing reporting standards for CV19 hospitalizations. Rather than including all with a positive CV19 tests, reports now count only patients who are being actively treated for CV19 in the hospital.
The rationale being offered is along the lines of 'we're merely evolving with the virus."
Several questions seem to have escaped those reporting this story for Associated Press, including:
Why does a change in the virus justify a change in reporting standards? Isn't a valid standard robust to various situations?
Doesn't this amount to a change in reporting hospitalizations 'from' rather than 'with' CV19--something many 'skeptics' argued in favor of early in the pandemic?
Will you be going back and adjusting historical data to reflect the new standard? If not, then when we review the series longitudinally, we're not comparing apples to apples, are we? Why isn't this another case of manipulating (or corrupting) CV19 data?
Isn't the new standard more in line with what historically counted as a 'case' in viral accounting? Stated differently, why wasn't the 'new' standard the previous standard as well?
What is really evolving here is the degree of corruption with the reporting system.
This article highlights problems for the federal government should the Fed engage in quantitative tightening (QT) in earnest. QT involves reducing the ~$9 trillion in assets on the Fed's balance sheet. These assets, primarily Treasury and agency securities, were accumulated during various quantitative easing (QE) campaigns waged since 2009.
The Fed can shrink its balance sheet in two ways. It can simply sell the bonds on the market. Or it can let maturing bonds roll off the books without replacing them.
Either approach is problematic for the federal government. Every bond that the Fed sheds will need a buyer. Because the Fed was by far the biggest buyer of newly issued federal government paper over the past few years, thus artificially elevating the price, it seems unlikely that there will be buyers willing to purchase these bonds unless the price is much lower.
Consequently, Treasury prices are likely to fall, which is bad news for a federal government seeking to finance $trillions in spending this year.
Falling bond prices raise interest rates, which creates another problem for the federal government: higher debt servicing costs. Higher interest expense means more federal dollars must be spent to service the debt. It wouldn't take much to break the already burgeoning federal budget.
By monetizing debt via QE, the Fed financed the federal government's profligacy. Should the Fed engage in QT, the federal government would be forced into austerity.
Given the chickenhawks at the Fed, this seems a pipe dream.
Various Fed heads have recently hit the tape with hawkish comments. They insist that rates must go much higher and balance sheet sales (a.k.a. 'quantitative tightening') must proceed much quicker in order to stem the inflation tide.
As Peter Schiff observes, the people at the Fed have not suddenly got religion. They are not hawks; they are chickenhawks.
By their hawkish rhetoric, Fed heads present the facade of inflation fighters--an inflation that they admit no blame for instigating.
They surely also hope that markets will do work for them. Markets that anticipate huge interest rate hikes might tank, thereby relieving some inflationary pressures and impetus for Fed action.
Schiff argues that if the Fed heads were sincere about fighting big inflation, then they would have already acted aggressively. Big rate increases. Big balance sheet asset sales. But they haven't done so. All of the big moves that they are talking about will take place at some future, yet to be named date.
We also know that when markets do tank, then all semblance of hawkishness will disappear as the Fed resumes their customarily accommodative policy.
When facing a game of chicken with oncoming economic and market collapse, chickenhawks at the Fed will invariably flinch.
Elon Musk recently accumulated a ~10% stake in Twitter (TWTR) and, as the largest single shareholder, has been named to the board of directors. An outspoken critic of Twitter's censorship policies, Musk has vowed to change things at the company.
Anti-free speech leftists are in freak out mode. They fear that the days of silencing dissent on their cherished social networking platform is coming to an end.
The differences between political parties on this issue are stark and growing. Not only do Democrats see little or no problem with censoring speech on Twitter...
...but they increasingly believe that government and tech companies should restrict freedom of speech online.
Although the left's proclivity to censor is becoming well-known, I'm still taken aback by data like this. Hard to believe this is America.
Here's hoping that Musk is up for the task at hand.
no positions
Must admit that I'm increasingly persuaded by this argument. As we recently suggested, proponents of the Great Reset believe that they need crisis to push their agenda ahead.
So why wouldn't they be the ones to manufacture chaos? Elections, Covid, Ukraine, etc.
Can be seen as a variation of the Leninist philosophy that, to make an omelet, you need to break a few eggs.
One of the better investigative journalism pieces in some time, published in Vanity Fair, details the great lengths to which Anthony Fauci and other officials colluded to suppress dissent on the question of natural vs lab origins of CV19. This group kept scientific papers from being posted on pre-print servers, held Zoom sessions meant to intimidate authors of studies with controversial conclusions, and energetically attempted to build a 'united front' that opposed the lab-leak theory.
While reviewing the article's findings, Jeff Tucker asks a central question: What motivated actions to suppress the emergence of lab leak evidence? He suggests some possibilities. Perhaps the Fauci cabal wanted to avoid culpability concerning a linkage between US funding of Chinese lab actions that created the virus. Or maybe they needed to forge a single narrative that would support widespread lockdowns.
But why would lockdowns be desirable? After all, prior scientific work leaned away from lockdowns as effective countermeasures. The Fauci group ignored customary practices for coping with infectious disease spread such as developing ways to keep vulnerable populations (e.g., nursing home residents) safe, and discovering therapeutics that minimize severity in the general population.
Tucker lightly hints at one plausible explanation. A presidential election was on the horizon, and lockdowns along with other atypical countermeasures would support partisan political objectives. To obtain public support for those countermeasures, the Fauci group felt that it could not afford to lend legitimacy to the lab leak theory.
If so, then the motivation for suppressing dissent about CV19's origin goes far beyond the maintenance of 'reputations and professional standing' that Tucker offers at the end of his piece.
Suppression of the lab leak theory was a necessary precedent for committing crimes against humanity to achieve political gains.
This past week the yield on two-year Treasuries exceeded the yield on ten-year Treasuries. This is unusual. Normally investors demand higher interest rates on longer dated debt. When the yield relationship flips over, or 'inverts,' it often seen as a harbinger of forthcoming economic recession.
Indeed, a review of past occurrences of inversions between 'twos and tens' suggests a good predictive track record. Even if the relationship subsequently 'un-inverts' (which it often does), recession appears imminent.
However, it should be noted that many maturities comprise the complete Treasury yield curve--beginning with 1-3 month T-bills all the way out to 30 yr Treasury bonds. Currently, only the twos and tens relationship is upside down.
For example, the spread between 12 month and 10 year Treasuries has yet to invert. Yet, note that the 12 month/10 yr relationship has also been a good predictor of recession.
What this suggests is that the relationship between twos and tens, and subsequent recession may be a spurious one when viewed in isolation. The recessionary signal sent by the inversion phenomenon is likely stronger when more of the yield curve joins in.
Consequently, look for shorter duration yields to continue rising relative to long duration yields before confidently concluding that the inverted yield curve/recession warning is in play.
Article questions whether Russia is truly the target of recent sanctions. The thought has crossed my mind as well.
If the West truly wanted to hurt Russia, then it would increase production of oil and flood the world with supply. Not only would this crush prices and cripple the Russian economy, but it would provide relief for consumers struggling with inflationary concerns.
But Western countries have not done so. In fact, they have acted in manners that squeeze oil prices higher.
Sanctions that restrict Russian food exports also make little sense. Because Russia is a net food exporter, restrictions on trade mean Russia has more food and its trading partners have less.
Consequently, the sweeping sanctions ostensibly meant to cripple the Russian economy are driving up prices in the West and increasing risk of shortages in economies already facing inflationary pressures not seen in generations.
On the other hand, higher prices and economic disruptions play into the hands of proponents of the Great Reset. The thinking is that higher oil prices will motivate more investment in green energy. And that economic turbulence will increase dependence on 'enlightened' one world government--while trimming some population deemed to be 'excess' in the process.
Because the Great Resetters believe that they assimilate power in times of crisis, they are endeavoring to create them. Elections, Covid, Ukraine.
Manufactured chaos.
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