Wednesday, August 31, 2022


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.

Tuesday, August 30, 2022

CCC Spreads

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


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...

Monday, August 29, 2022

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.

Sunday, August 28, 2022

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.

Saturday, August 27, 2022

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

Friday, August 26, 2022

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.

Thursday, August 25, 2022

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.

Monday, August 22, 2022

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.

Sunday, August 21, 2022

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.


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.

Saturday, August 20, 2022

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.

Friday, August 19, 2022

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.

Wednesday, August 17, 2022

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.

Monday, August 15, 2022

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

Sunday, August 14, 2022

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.

Saturday, August 13, 2022

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.

Friday, August 12, 2022

Remote Work and Lower Productivity

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


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.

Thursday, August 11, 2022

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


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.

Wednesday, August 10, 2022

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.

Tuesday, August 9, 2022

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.

Sunday, August 7, 2022

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 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.

Saturday, August 6, 2022

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.

Friday, August 5, 2022

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?

Thursday, August 4, 2022

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.

Wednesday, August 3, 2022

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.

Tuesday, August 2, 2022

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?"


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.

Monday, August 1, 2022

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.