Instigating Fear

"Machines will stop spitting cash. It will be the end of the world."
--Julie Steinhardt (Wall Street: Money Never Sleeps)

Under conditions of threat, people restrict information flow and centralize decision-making. This plays into the hands of statists. Instigate fear and government becomes more powerful as people turn to the state for protection. Both Teddy and Franklin Roosevelt clearly learned this lesson well.

Some current myths designed to instigate fear and increase state power:

Enemies of the United States will kill us if we don't take pre-emptive military action.

The economy is finished if people cease to borrow and spend.

Man is causing a global warming with dire consequences.

Producers, not consumers, are the controlling force of capitalism.

Without state-run schooling, many children would not be educated.

Failure to bail out big banks in times of crisis would mean the end of the world.

Permitting gay marriage destroys the fabric of society.

A strong military is necessary for peace.

The poor get poorer when markets are free.

Economic growth will not occur unless money is printed out of thin air.

Illegal immigrants are stealing American jobs.

People will not choose to voluntarily help those at the bottom of the economic pyramid.

Terrorism must be stopped 'over there.'

Backing a currency with gold restricts standard of living for the masses.

Without a federal government of present size and scope, there would be no order.

C Word

"Crash and burn, huh Mav?"
--Slider (Top Gun)

Among the mavens that I track, a number of them are starting to use the c-word. John Hussman discusses the crash notion in his weekly letter.

A crash is by nature a low probability event. But I find it interesting that the idea is surfacing among sages on my radar screen.

position in SPX

We Control Our Response

"Knights, the gift of freedom is your by right. But the home we seek resides not in som foreign land. It's in us, and in our actions on this day! If this be our destiny, then so be it. But let history remember that, as free men, we chose to make it so!"
--Arthur Castus (King Arthur)

Many situations are out of our control. How we respond to those situations is in our control. Another person's words, social pressure, even dangerous situations influence our behavior only to the extent that we let them.

Stress, guilt, anxiety, anger, outrage, et al are self-imposed responses to external stimuli. We can choose differently.

Don't take it personally, and live free.

Price Increases Lag Money Printing

Sometimes I never leave
But sometimes I would
Sometimes I stay too long
Sometimes I would
--The Motels

Increase in price of goods and services, what is today's semantically challenged world is commonly called 'inflation,' is a lagging indicator. Money is printed and makes its way toward various categories of prices--some before others.

Once price increases materialize, the toothpaste is out of the tube. The process cannot easily or quickly be reversed.

Policymakers and their minions, it seems, falsely believe otherwise.

Formal Education Not The Key

Didn't make sense not to live for fun
Your brain gets smart but your head gets dumb
--Smash Mouth

This cartoon is a reminder that formal education is not the most vital component of standard of living improvement. 

Standard of living improves as productivity improves. The binding constraint in productivity improvement is unlikely to be formal education. Because knowhow can be transferred, it is not the scarcest of resources. Currently, we have more people carrying more diplomas and degrees than at any time in history. Yet prosperity is not growing commensurately.

Instead, the critical resource is likely to be capital. Capital comes from savings. When no savings exist to fund productivity improvement, then standard of living stagnates.

In fact, savings could be squandered thru borrowing binges that fund advanced levels of formal education. This may be occurring now.

Trapping Longs

Drawn into the stream
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

After yesterday's lift seemed to ease bull psyches about recent price weakness, the hammer came down today. The SPX was off 1.6%, erasing all of yesterday's gains and then some, and easily slicing thru the 50 day moving average.

In addition to the usual suspect list of catalysts, there was some chatter that there was heavy futures selling out of Europe today, perhaps driven by the ECB. In any event, am getting the feeling that there are increasing numbers of 'trapped longs' looking to sell.

Pulling back the time horizon demonstrates just how high this market has gone and how far it has to fall before significant damage is done. The uptrend defined by the Thanksgiving 2012 lows is still in place, and can not seriously be viewed as broken unless/until the SPX falls another 60 or so handles thru 1900ish. This level corresponds to the 200 day moving average.

It does seem like the tone of the tape may be changing. However, until big technical support is breeched, Hoofy's Heros must be given benefit of the doubt.

position in SPX

Quid Pro Quo

Well now something tells me
You're gonna use me again
You think you can lay down
The how, the where, and the when
--Heart

Quid pro quo translates as "something given for something else" or "this for that." Contract law has extended this meaning to include the notion that contracts should be legally binding only if they involve exchanges of comparable value.

However, as Gary Galles observes, exchange value in unhampered markets may not be seen as equivalent by outside onlookers.

Voluntary exchange occurs when two or more parties, all interested in improving their circumstances, judge ex ante that they will be better off if they engage in trade. One party might benefit more. But trade occurs when all parties sense that they will benefit from exchange.

Moreover, judging equality of an exchange is difficult because value is subjective and in the eyes of the beholder. Those engaged in trade may value things differently than the onlooker.

Quid pro quo restrictions therefore impair standard of living, as people who would otherwise engage in voluntary exchange deemed to improve their circumstances are prohibited from fully doing so.

Agency and moral hazard problems also arise, as mediators designated to establish and regulate fair value trade are subject to mischief.

Immigration Socialism

Let me be your ruler
You can call me queen bee
And baby I'll rule, I'll rule, I'll rule, I'll rule
Let me live that fantasy
--Lorde

Jacob Hornberger observes the hypocrisy among conservatives. This group frequently claims that it supports free markets, private property, and limited government. Yet, conservatives usually act in favor of market intervention.

The immigration issue demonstrates this. Conservatives favor immigration controls. Immigration controls oppose free market principles.

As JH notes, immigration controls exemplify socialist central planning. Under immigration socialism, bureaucrats plan the number of permissible immigrants into a country, their qualifications, and other criteria.

Hayek labeled the bureaucratic belief that planners possess the knowledge and expertise to forcibly control the lives of others for the better as "the fatal conceit."

Their support of immigration socialism demonstrates that conservatives possess this fatal conceit.

Unclear and Distant Danger

"These drug cartels represent a clear and present danger to the national security of the United States."
--President Bennett (Clear and Present Danger)

As US bombs and missles fly in Syria, I am reminded what Syrian officials said prior to the attack--that any military action taken by the United States in Syrian would be viewed as acts of aggression.

They are correct. We are not defending ourselves against aggression. Syria has not attacked us nor has it brandished a clear and present threat that justifies lethal self-defensive force. Instead, we are the attacker, engaging in offensive action against Syria. Syria is now the self-defender.

Playing out how this could escalate is not a pleasant endeavor.

I am also reminded how similar this president's actions are to his predecessor's, despite claims to the contrary. Distinctions with no difference...

Property During Crisis

"No matter how bad it gets, we don't steal."
--Jim Braddock (Cinderella Man)

Recently watched a movie called World War Z. I wouldn't recommend it. However, the chaotic tone did raise a few interesting questions for the survivalist in me.

One came early in the film when the East Coast is being overrun by the zombie plague. The family of Gerry Lane (played by Brad Pitt) was caught in the middle of it and trying to escape. However, Lane's daughter had asthma and was in need of medicine. The family pulled into the parking lot of a Kroger's like grocery store.

The store was being looted. People scurried out of the store with filled shopping baskets. Not batting an eye, Lane told his wife to grab a cart and fill up while he headed to the pharmacy in search of medicine for his daughter. There, he joined several others who were looting the drug drawers.

Watching the scene, I wondered whether I would similar. Would I be willing to take someone else's stuff during times of crisis? When does respect for other's property dissolve into grabbing what you can from whomever?

Seems to me that property rights are particularly important during times of crisis, lest we digress toward the animals wreaking havoc in the movie.