http://market-ticker.org/akcs-www?post=167922
Yepp!
Posted 2010-09-30 11:22
by Karl Denninger
in Editorial
WSJ Opinion Page: A True Path Forward?
From this morning....
Solution No. 1 was to throw nearly $1 trillion of stimulus at the economy. But Keynes failed. Then they sprayed the economy with gallons of Chairman Ben's Quantitative Elixir, or QE. Nothing happened. They could have extended the Bush tax cuts, but instead the Pelosi Democrats punted the subject past the November election, the equivalent of kicking the ball straight up in the air.
It looks to me as if there's only one policy they haven't tried: economic growth.
More recognition of the problem - and a potential solution?
Ok, let's look at an actual path forward. Do this, we win. Don't do this, you need to come up with a path that does as much as this one will.
Shut down the Chinese abuse engine. Right now. Either they revalue up 20% today, and to 40% within two years, or we hit them with tariffs representing the full wage and environmental differential in their products. I know they say they can't, and that it will cause "problems." But the problems are of their own making - slave labor wasn't our policy, it was theirs. They could have enacted labor and environmental reforms over the last 10 years, and kept making promises they broke. We, for our part, didn't enforce the mandates. Ok, we start. Right now. Oh, and incidentally, this is not just China. The same thing applies to Mexico, Vietnam, India and everywhere else.
This will get rid of the $3 T-shirt and $30 DVD player. I recognize this. That's ok, because.....
We're going to build nuclear power plants. On each and every military facility. We will pre-empt state and local challenges and lawsuits, and just do it. Those who don't like it, too damn bad. The Navy will run them at a supervisory level and civilians will build them. We will build a mix of Pebble Bed, Fast Breeder and Thorium Salt reactors. The first two will be built in a fuel-cycle neutral mix. The latter will get its fuel from coal ash. This is a sustainable, green, and permanent energy solution. If the Government is going to spend money, this is what we will spend it on.
Those who are on welfare may either take one of the jobs at the above plants or lose their benefits. Exceptions are available only for documented full disability. Fraud in that claim will lead to 20 years in the slammer. No exceptions. If you're able, you work or you starve. End of discussion; no more freeloading.
We repeal the 16h Amendment and all other income and payroll taxes. The Fair Tax is implemented immediately. January 1st 2011 - cold start. This will result in an instantaneous flood of capital and businesses coming to the US. The electrical plants above will produce the power they will need. It will also instantaneously restart Capital Formation which is NECESSARY for us to get entrepreneurship and innovation going again - right here, in this country.
We either repeal Obama's Health Law and implement my plan OR we set a percentage of GDP we will spend on health care at the Federal Level and implement the Canadian system. Choose one. Have the debate in public, pick one, make it happen by 12/31/2011. The ability of companies to bill out $5,000 for an MRI to "uninsured" people while the insurance company pays $150 is an obscene rip-off and must end. Further, the idea that you can show up with no money and no insurance and force someone else to pay, instead of having that responsibility attach to you as a valid debt to the government is also obscene. This is rank profiteering on people's DEATH and must end - right now.
No more illegal immigrants. Period. This is non-negotiable. Come here legally or you will be held to account for a criminal offense, serve your time, and then be deported. End birthright citizenship when your mother comes here unlawfully. For those who are here now, they can stay - as adopted kids. If that's unacceptable they can leave with their parents. We have too many people for the number of jobs at present, and those who are not here legally must lose first. I am all for LEGAL immigration - and once we settle out our growth plans, if we need more workers then let's start letting people in, starting with those who lawfully stood in line.
ALL of the frauds in the financial system are prosecuted. Every one. We will make space for these crooks in the prisons by legalizing marijuana and treating it like alcohol, except that we will sell it at Pharmacies where the people doing the vending have a lot to lose (their six-figure annual income!) if they sell to minors. It is time to end our failed prohibition experiment and besides, we need the prison space for all the banksters. They're a HELL of a lot more dangerous to our society than some dude smoking a joint.
Clarify and extend The Federal Reserve Act to require that actual price inflation, measured by a basket of items representative to the spending in the actual economy (goods and services) deflates at 1/2% per year. Yes, deflates. Technology improves. The natural progress of a society is toward better efficiency and lower costs. Therefore, this should result in small deflation over time. I recognize that this will make lending for speculation or consumption inherently dangerous as in such a regime recessions are necessary to contain balance in the currency and banking system. This is how it should be! This also means that you can save your retirement over your working life without engaging in ridiculous and dangerous speculation in which virtually EVERY person ultimately loses.
Recognize that this growth will be a one-time deal. We'll get something approaching 10% GDP growth for 3-5 years. But then it will be over. Government spending must decrease as entitlements are removed and debt must be paid off - no more games. We cannot build or guarantee indefinite compound forward returns - that's mathematically impossible. This rock is vast but it is finite. We use the above plan to stabilize and grow our economy, restoring what we had in the 1950s and 60s - and to prepare for a more-or-less steady-state future where the gains of the future come from technological advance, not leverage and financial fraud.
You want a growth plan?
There it is.
Now do it Washington.
Thursday, September 30, 2010
Tuesday, September 28, 2010
Saturday, September 18, 2010
http://online.wsj.com/article/SB10001424052748703440604575495670714069694.html?mod=WSJ_hp_mostpop_read
Thanks to Globalization and "free trade" for China, India, and Mexico.
We have allowed this to happen to ourselves.
Time for a Third Party that takes care of Americans, not Globalized Corporations.
Thanks to Globalization and "free trade" for China, India, and Mexico.
We have allowed this to happen to ourselves.
Time for a Third Party that takes care of Americans, not Globalized Corporations.
Monday, July 5, 2010
Another Tea Party
http://kunstler.com/blog/2010/07/my-tea-party.html
My Tea Party
By James Howard Kunstler
on July 5, 2010 9:19 AM
Now that congress has passed a fake financial reform bill that will accomplish absolutely nothing to correct a recently engrained culture of swindling, I want to start my own tea party. I don't want to associate it with the other tea parties that have already formed because I am allergic to much of the idiot ideology they express - especially the bent for merging Christian fundamentalism with governance.
One of the few things I agree on with the existing tea parties is that the Republicans and Democrats have made themselves hopeless hostages of political money and bargained away their legitimacy. In line with my general belief that American life must downscale or die, I'm not wholly persuaded that federalism can survive in any case - but assuming it will lumber on for a while anyway, the two major parties cannot retain their monopoly on power. Indeed, it is in the natural order of things that this country must periodically endure a realignment of political ideas and political power. This tends to occur during moments of cultural convulsion, and that is exactly the moment we are in as the sun sets on the fossil fuel based industrial extravaganza and we enter a crisis of intense resource austerity.
The other tea parties have been silent on the war because of the ties between Christian fundamentalism and military chauvinism. This is due, I suspect, to the tea parties first emanating out of Dixieland, where an old Scots-Irish "cracker" belligerence persists in a romantic view of violence - and where, coincidentally, there happen to be so many US military bases, and families dependent on careers connected with them. The confusions of hellfire Christian theology with governance form an overlayment on this, so you end up with a political culture favoring military adventures abroad and pushing citizens around at home on matters of social behavior (while mouthing a lot of disingenuous nonsense about "liberty").
I don't like that political culture and I'm not in favor of continuing our adventures on the fringes of the Middle East. The half-assed occupation of Afghanistan cannot be resolved in a way consistent with our fantasies and wishes. To put it as simply as possible, we can't control the terrain there and we can't control the behavior of the population. Our campaign to turn that remote and impoverished land into a governable democratic state is an exercise in futility that we can't afford. No doubt there are strategic wishes pinned to it - mainly a wish to influence and moderate neighboring Pakistan - but that appears to be back-firing with the minting of evermore Islamic maniacs seeking to blow up anything that presents a target, including their own women and children.
Iraq is a somewhat different story, but I suspect the bottom line is that we can't afford to run a police station there forever. In the worst-case of our leaving, Iran might attempt to step in and control the place (and its oil), but that would only produce a bloody collision of Arab and Persian culture - and the side effect of that might actually be to our benefit. Anyway, my tea party would shut down that operation ahead of schedule.
My tea party would reduce legal immigration to a tiny trickle and get serious about enforcing sanctions against people who are here without permission. A New York Times editorial last week expressed the Democratic-progressive view in typically tortured style, saying of the recent Arizona law:
..it makes a crime out of being a foreigner in the state without papers -- in most cases a civil violation of federal law. This is an invitation to racial profiling, an impediment to effective policing and a usurpation of federal authority....
The fine distinction they want to apply in this matter between civil and criminal law is the same as NPR's house style of referring to illegal immigrants as "undocumented" - leaving the impression that the only problem for these people is a some bureaucratic glitch rather than a transgression of law. The truth is that neither party really wants to do anything about the extraordinary influx of Mexican nationals because they want to pander to a growing segment of Hispanic voters (or secondarily want to maintain the pool of cheap labor for US businesses). My party does not believe in unbounded multi-culturalism. My party also views the lawlessness of the current situation to be corrosive of the rule-of-law generally. My party views the global population overshoot problem as a condition that requires a more rigorous defense of US territory, sovereign resources, and even whatever remains of American common culture.
My tea party would systematically dismantle Too-Big-To-Fail banks into smaller units subject to real reforms that would prevent any further "socialization" of losses by financial buccaneers. In effect, my party would re-enact the Glass-Steagall laws - and get rid of the 3000-page bundle of prevaricating crap in the current "Fin-Reg" law, which has been constructed with all the guile and mendacity of a collateralized debt obligation. My party would seek the return of banking to its function as a utility, while letting investment freebooters gamble with their own funds without any government back-up. (You'll see the investment houses get small fast that way.)
My tea party would get the government out of the housing business. The main effect of 70 years of federal intervention for the sake of "affordable" housing has been to drive the price of housing up far beyond the ability of normal people to afford a place to live. And the current policies devised during the bubble crackup crisis have only served to prevent the price of houses from returning to a level where people might be willing to buy them. Of course, the whole process has also encouraged local governments to jack up property taxes to a level that can only be described as intolerable (in the 1776 sense of the word).
My party would undertake a rebuilding of the US passenger railroad system - not a flashy new "high speed" system, which we cannot afford, but the system that is lying out there rusting in the rain waiting to be fixed. This is imperative because we are on the verge of very disruptive problems with our oil supply which are going to put our beloved Happy Motoring matrix out-of-business. We also face the end of mass commercial aviation (even if flying remains an option for the wealthy). A restored passenger rail system will not solve all the problems connected with the demise of mass motoring, but it will help a lot, and would be an aid to the necessary re-activation of our small towns and cities as suburbia inevitably loses its value and utility.
The leaders of my tea party from the president on down would make a concerted effort to inform the public in straight talk about the real problems that we face involving peak oil and debt. My tea party would promote reality-based politics rather than techno-grandiose fantasies and wishful thinking. My tea party would encourage the necessary downscaling of all the critical activities of American daily life, including the re-localization of food production, the rebuilding of local commercial networks, the revitalization of the small towns and cities, and the difficult transition out of extreme car dependency. My tea party will do everything possible to construct a coherent consensus about what is happening to us and what we can do about it. My tea party is based on the true spirit of 1776 - the binding together of common interests and common culture - not the destruction of them as in the spirit of 1861.
_________________
A sequel to my 2008 novel of post-oil America, World Made By Hand, will be published in September 2010 by The Atlantic Monthly Press.
My Tea Party
By James Howard Kunstler
on July 5, 2010 9:19 AM
Now that congress has passed a fake financial reform bill that will accomplish absolutely nothing to correct a recently engrained culture of swindling, I want to start my own tea party. I don't want to associate it with the other tea parties that have already formed because I am allergic to much of the idiot ideology they express - especially the bent for merging Christian fundamentalism with governance.
One of the few things I agree on with the existing tea parties is that the Republicans and Democrats have made themselves hopeless hostages of political money and bargained away their legitimacy. In line with my general belief that American life must downscale or die, I'm not wholly persuaded that federalism can survive in any case - but assuming it will lumber on for a while anyway, the two major parties cannot retain their monopoly on power. Indeed, it is in the natural order of things that this country must periodically endure a realignment of political ideas and political power. This tends to occur during moments of cultural convulsion, and that is exactly the moment we are in as the sun sets on the fossil fuel based industrial extravaganza and we enter a crisis of intense resource austerity.
The other tea parties have been silent on the war because of the ties between Christian fundamentalism and military chauvinism. This is due, I suspect, to the tea parties first emanating out of Dixieland, where an old Scots-Irish "cracker" belligerence persists in a romantic view of violence - and where, coincidentally, there happen to be so many US military bases, and families dependent on careers connected with them. The confusions of hellfire Christian theology with governance form an overlayment on this, so you end up with a political culture favoring military adventures abroad and pushing citizens around at home on matters of social behavior (while mouthing a lot of disingenuous nonsense about "liberty").
I don't like that political culture and I'm not in favor of continuing our adventures on the fringes of the Middle East. The half-assed occupation of Afghanistan cannot be resolved in a way consistent with our fantasies and wishes. To put it as simply as possible, we can't control the terrain there and we can't control the behavior of the population. Our campaign to turn that remote and impoverished land into a governable democratic state is an exercise in futility that we can't afford. No doubt there are strategic wishes pinned to it - mainly a wish to influence and moderate neighboring Pakistan - but that appears to be back-firing with the minting of evermore Islamic maniacs seeking to blow up anything that presents a target, including their own women and children.
Iraq is a somewhat different story, but I suspect the bottom line is that we can't afford to run a police station there forever. In the worst-case of our leaving, Iran might attempt to step in and control the place (and its oil), but that would only produce a bloody collision of Arab and Persian culture - and the side effect of that might actually be to our benefit. Anyway, my tea party would shut down that operation ahead of schedule.
My tea party would reduce legal immigration to a tiny trickle and get serious about enforcing sanctions against people who are here without permission. A New York Times editorial last week expressed the Democratic-progressive view in typically tortured style, saying of the recent Arizona law:
..it makes a crime out of being a foreigner in the state without papers -- in most cases a civil violation of federal law. This is an invitation to racial profiling, an impediment to effective policing and a usurpation of federal authority....
The fine distinction they want to apply in this matter between civil and criminal law is the same as NPR's house style of referring to illegal immigrants as "undocumented" - leaving the impression that the only problem for these people is a some bureaucratic glitch rather than a transgression of law. The truth is that neither party really wants to do anything about the extraordinary influx of Mexican nationals because they want to pander to a growing segment of Hispanic voters (or secondarily want to maintain the pool of cheap labor for US businesses). My party does not believe in unbounded multi-culturalism. My party also views the lawlessness of the current situation to be corrosive of the rule-of-law generally. My party views the global population overshoot problem as a condition that requires a more rigorous defense of US territory, sovereign resources, and even whatever remains of American common culture.
My tea party would systematically dismantle Too-Big-To-Fail banks into smaller units subject to real reforms that would prevent any further "socialization" of losses by financial buccaneers. In effect, my party would re-enact the Glass-Steagall laws - and get rid of the 3000-page bundle of prevaricating crap in the current "Fin-Reg" law, which has been constructed with all the guile and mendacity of a collateralized debt obligation. My party would seek the return of banking to its function as a utility, while letting investment freebooters gamble with their own funds without any government back-up. (You'll see the investment houses get small fast that way.)
My tea party would get the government out of the housing business. The main effect of 70 years of federal intervention for the sake of "affordable" housing has been to drive the price of housing up far beyond the ability of normal people to afford a place to live. And the current policies devised during the bubble crackup crisis have only served to prevent the price of houses from returning to a level where people might be willing to buy them. Of course, the whole process has also encouraged local governments to jack up property taxes to a level that can only be described as intolerable (in the 1776 sense of the word).
My party would undertake a rebuilding of the US passenger railroad system - not a flashy new "high speed" system, which we cannot afford, but the system that is lying out there rusting in the rain waiting to be fixed. This is imperative because we are on the verge of very disruptive problems with our oil supply which are going to put our beloved Happy Motoring matrix out-of-business. We also face the end of mass commercial aviation (even if flying remains an option for the wealthy). A restored passenger rail system will not solve all the problems connected with the demise of mass motoring, but it will help a lot, and would be an aid to the necessary re-activation of our small towns and cities as suburbia inevitably loses its value and utility.
The leaders of my tea party from the president on down would make a concerted effort to inform the public in straight talk about the real problems that we face involving peak oil and debt. My tea party would promote reality-based politics rather than techno-grandiose fantasies and wishful thinking. My tea party would encourage the necessary downscaling of all the critical activities of American daily life, including the re-localization of food production, the rebuilding of local commercial networks, the revitalization of the small towns and cities, and the difficult transition out of extreme car dependency. My tea party will do everything possible to construct a coherent consensus about what is happening to us and what we can do about it. My tea party is based on the true spirit of 1776 - the binding together of common interests and common culture - not the destruction of them as in the spirit of 1861.
_________________
A sequel to my 2008 novel of post-oil America, World Made By Hand, will be published in September 2010 by The Atlantic Monthly Press.
Market Ticker July Fourth
http://market-ticker.denninger.net/archives/2472-July-4th-Market-Musings-Half-Year-Checkup.html
With all the screaming going on this weekend by various market prognosticators - and the truly pitiful performance Friday late, I thought I'd try to put forward some balance on this Independence Day.
First, Gold.
Momentum is unfavorable and the close under the 50MA not positive at all. Short-term regaining and holding the 50MA, and preventing it from turning downward, is critical. Should that fail first-level support is around the 1160 level and second-level around 1075 - the latter, however, is under the 200MA and isn't very likely to hold if we get there.
This isn't the sort of pattern you want to see if you're bullish on Gold. I've talked about it for months now - the original triple-ascending slope is a relatively-common and dangerous parabolic blow-off sort of move. Gold then fell through the second trendline and wallowed along the lowest-slope one for over a month, leading many to proclaim it as a "buying opportunity." I warned on the 28th that if it did not regain that trendline with at least a chart pin in the next few days a huge selloff was likely, and that's exactly what we got.
Yes, that is a 50/200MA "Death Cross" - by a fraction of a point, but it is indeed. The S&P 500 looks like total crap on a daily chart, with only one little glimmer of hope - stochastics, which imply a short-term bottom may be at hand. The key here is "short-term." It seems that everyone is looking for a crash ala 1987 - they rarely happen when everyone is looking for it, of course. Indeed, those placing bets on it tend to provide exactly the fuel for short-covering rallies that stop it from happening with the smallest pretext.
Calling crashes is a fool's game. What one can say, however, is that this current decline - 10 days of red with one tiny spinning top in the middle - is the worst consecutive string of declines in this Bear Market, including the October 2008 nastiness (in which we managed to string eight together, including a massive reversal on the last day on 10/10.) In point count it's not the worst, but in terms of the relentless nature of the "grind downward" it sure is.
If you recall my earlier writings I said that while you might not feel like the market was crashing it wouldn't really matter in terms of the impact on your account if you stayed too long in the game. Such it now appears to be. The weekly chart makes the problem more-clear:
That's the 13/34 weekly exponential moving average, one of the long-term timing signals that I follow. Back in September of last year when it crossed positive I opined that I was not going to put my long-term funds back into the market on the signal, even though a purely-mechanical trading system would call for exactly that. This is what I fully expected to happen, and is why - it is virtually impossible to avoid a sell signal now on that indicator unless we were to rally beyond 1100 this week.
80 points straight up? I kinda doubt it. But the buy was at 1010, which means right now you're a paltry 1.2% to the good if you followed that signal. Blech.
The 20/50WMA (another long-term timing signal I've covered in the past) crossed at 1005, incidentally, and remains reasonably-apart now, with the 20W at 1129.72 and the 50W at 1091.86. The danger here should be obvious - you could easily be well underwater before you get a SELL on that indicator. Again, back when it crossed I said I was not going to follow it this time, and this is why - the insane divergence in slope of the indicator and price at the time it crossed positive meant you could easily be 10 or even 20% underwater before you got a SELL if it turned out badly - the risk was simply too high for long-term (defined as "intended to be in the market for five years or more") money.
To those who argued with my logic at the time - how's it looking now? Remember, these are mechanical signals - if you're going to trade them you have to trade them as they come. In the fullness of time, I like my decision from last fall, despite all the people telling me I was "nuts" and that we were "in a new bull market" last year.
Scoring the 2010 Look Forward Ticker, I get the following thus far:
This is not a new bull market: Any questions?
The long end of the Bond Curve will move higher. Miss thus far. Quite possibly a massive miss, but we shall see. My personal nightmare scenario is a back-half selloff in equities, bonds and the dollar. That leaves Benny and Friends with damn little room to act. So far, however, this is a clean bust.
House prices will fall another 20%. Not yet, but the year is not over. This much we do know - there has been no material increase in prices.
Banks will "give up" on holding real estate. They're doing it. And everyone is trying like hell to shove back their bad paper. I believe this trend will continue to accelerate.
Credit will not ease for "ordinary people." It hasn't. Bullseye.
A massive second wave of small-business bankruptcies. I couldn't have predicted the oil leak, but damn, you should have seen the Destin Commons last night for the fireworks. Easily down by half on traffic from last year. The government continues to say that small businesses are firing rather than hiring, so this looks good so far.
Unemployment will appear to stabilize, but that will prove illusory. We got the first half, now let's see if the second pans out.
The "revolting" call for last year was early - but not wrong. Greece anyone? That's not over - by a long shot.
The states will go to the government well, but it won't matter. Bingo. Ill-noise has become the poster child on this one. Gee, where's Obama from again? Interestingly enough the states haven't gotten bailed out - at least not yet.
A "double dip" will be recognized. Lotsa talk so far. ECRI's LEI complex says it's in the bag. I agree as this was exactly what I was looking to happen. We'll see.
China will lose control of their bubbles. Looks like they may be. The PMI report recently is likely just the first of big trouble over there. Beware.
Canada's real estate market will crack. Creaking, but not breaking - yet. So far in line with expectations.
The Fed's games will "leak" and their credibility will be shaken. Heh heh heh.... yep. I could spend five Tickers on this one; the "junk bond" fiasco is just part of it.
The Democrats lose big in the House. November approacheth.
Congress tries to spend its way out - and fails. No bond market dislocation yet, but I don't like those TBAC reports nor do I like the updated GDP and debt graph.
One or more of the PIIGS is forced into austerity. Bullseye!
Contrary to virtually EVERY "investment pundit" return OF capital will re-assert itself. Uh huh. 1220 to 1022 in less than two months, all gains from early September 2009 gone.
Six months left to falsify any of these, or prove 'em up. So far, however, I like how this is playing out.
Short-term there are just too many people calling for an immediate collapse down another 130-150 handles, or roughly 15%. While this could happen - indeed, crashes come from severely oversold conditions, the odds do not favor this. Instead, the more-likely path is to scare the living bejeebus out of people and then rally like a SOB, trapping all the bears that got too aggressive and cocky in their short positions and destroying their accounts - then the market falls apart.
Speaking of which, this is a good time to talk about general strategies - specifically, being short in a deflationary environment.
Sure, you can make money. But let's look at this objectively.
Being short a $100 stock has a maximum possible profit of 100%. That is, the stock can go to zero, and you get to keep the entire $100.
But consider the $100 stock that goes to $10 and doesn't bankrupt, but then recovers. If you buy at $10 you have 10x your original investment, or a profit of 900%.
The fallacy of "holding through downturns" also applies. If you start with a $100 stock and it loses half, you now need a double to get back to even. If it loses 90% you need a ten bagger to get back to even. The Jim Cramers of the world will try to tell you that there's a decent strategy for this sort of thing if you get caught holding stocks into a big dump.
I disagree.
For most, if not nearly all, people who are in the market they have absolutely no business trading actively. This is particularly true in markets like this, where 2, 3 even 4% swings on a daily basis have become commonplace. While the last year has seen these be nearly all upward, the last few weeks and months has seen it be nearly all down.
For the long term investor the point is to wind up with more money than you started with - in purchasing power - over a 10, 20 or 30 year horizon. You cannot afford big mistakes as they will force you to take big risks in order to recover, and if you're wrong on the latter you will wind up with a destroyed account.
Speculation is an entirely different thing. There has been good money to be made in the last few years and with the volatility being what it is there will be plenty to be made for years to come. But the wise long-term money isn't short in this market - it's out and has been since the end of 2007, when I (and a very few others) called "everyone out of the pool!"
Always remember that it's risk-adjusted return that matters. If you wish to gamble with 1/20th of your net worth, have at it. As you make gains take them and move them to your long-term accounts and sit on them. Gamble with the house money and so long as you do so effectively, keep at it. No harm there at all.
Near the lows in 2009 I was selling $5 PUTs on GE like a mofo, trying to get intentionally assigned. Why? I didn't believe GE would go bankrupt, and I was willing to buy tens of thousands of shares at $5 each. GE never traded $5 and I got to keep the premium from those PUTs I wrote. C'est la vie.
The key to making a true fortune in anything folks is to buy smart - not sell smart. This is something I've learned through my entrepreneurial affairs. MCSNet was successful in large part because I was a bare-knuckled negotiator for what I needed to acquire for the company. In short, I was a hard-nosed SOB and made no apologies for it, as that's how you make money legitimately in any business venture. If you buy smart making money is easy. If you have to sell smart you're always one mistake away from massive losses and potential bankruptcy.
Nobody is good enough to bat 1,000. 600, 700, sure. 1,000? Nope. Not unless you're God - or are cheating.
During The Depression people who had capital and sat on it were able to buy stocks at extremely cheap prices. But they didn't buy in 1930. They bought during the second downward move, in 1932 and 33. They bought at an 80% or 90% discount, not a 60% one. They were able to buy houses, machine tools, land, all for a literal nickel on the dollar. They didn't get rich fast, but they became rich with certainty over time, because they bought smart.
Such it will be this time, just as it was last time.
There are a lot of people who have been chasing real estate at "half off." They're fools. I'm a buyer at 90% off with both fists. Ditto for stock in companies I believe will survive. Sure, I'll be wrong about some of them, but the others will be 10 baggers. Until then I'm a patient man with my capital, happy to speculate short-term with small amounts of my "nut" but ever-mindful that it's when you buy, not when you sell that matters.
There is no reason in a deflationary environment, which we are now in, to add beta to your long-term funds. The cowboys who want to do that with their entire net worth are welcome to it - you'll still have a place to live when they blow up and are under a freeway overpass. Most of them will - indeed, while there is always someone who claims to have "nailed it" ex-post-facto for each big market move, you'll note if you bother to view things through an objective lens that 100 people had opinions prior to the move and only one of them still has an account with a positive balance in it. Worse, that person's prognostications for what's to come next are almost-certain to be dead wrong.
There were many who predicted in the summer of 2009 that we were "up up and away" and would "exceed the 1576 SPX high" some time in the next two years. If you listened to them in September of 2009 you've lost all your gains. If you listened to them after that point you now have a loss. It matters not what someone does over the short term - what matters is whether they can manage their portfolio over ten or twenty years and, including what they spend to live on, whether they still have it.
Jesse Livermore thought he could beat those odds - and the math. He went from being extremely wealthy to broke several times during his trading career, having made $100 million in the 1929 market crash - at a time when $100 million was roughly equivalent to a few billion today.
In 1940, having lost all of it, he blew his brains out in a cloakroom.
Don't be Jesse.
With all the screaming going on this weekend by various market prognosticators - and the truly pitiful performance Friday late, I thought I'd try to put forward some balance on this Independence Day.
First, Gold.
Momentum is unfavorable and the close under the 50MA not positive at all. Short-term regaining and holding the 50MA, and preventing it from turning downward, is critical. Should that fail first-level support is around the 1160 level and second-level around 1075 - the latter, however, is under the 200MA and isn't very likely to hold if we get there.
This isn't the sort of pattern you want to see if you're bullish on Gold. I've talked about it for months now - the original triple-ascending slope is a relatively-common and dangerous parabolic blow-off sort of move. Gold then fell through the second trendline and wallowed along the lowest-slope one for over a month, leading many to proclaim it as a "buying opportunity." I warned on the 28th that if it did not regain that trendline with at least a chart pin in the next few days a huge selloff was likely, and that's exactly what we got.
Yes, that is a 50/200MA "Death Cross" - by a fraction of a point, but it is indeed. The S&P 500 looks like total crap on a daily chart, with only one little glimmer of hope - stochastics, which imply a short-term bottom may be at hand. The key here is "short-term." It seems that everyone is looking for a crash ala 1987 - they rarely happen when everyone is looking for it, of course. Indeed, those placing bets on it tend to provide exactly the fuel for short-covering rallies that stop it from happening with the smallest pretext.
Calling crashes is a fool's game. What one can say, however, is that this current decline - 10 days of red with one tiny spinning top in the middle - is the worst consecutive string of declines in this Bear Market, including the October 2008 nastiness (in which we managed to string eight together, including a massive reversal on the last day on 10/10.) In point count it's not the worst, but in terms of the relentless nature of the "grind downward" it sure is.
If you recall my earlier writings I said that while you might not feel like the market was crashing it wouldn't really matter in terms of the impact on your account if you stayed too long in the game. Such it now appears to be. The weekly chart makes the problem more-clear:
That's the 13/34 weekly exponential moving average, one of the long-term timing signals that I follow. Back in September of last year when it crossed positive I opined that I was not going to put my long-term funds back into the market on the signal, even though a purely-mechanical trading system would call for exactly that. This is what I fully expected to happen, and is why - it is virtually impossible to avoid a sell signal now on that indicator unless we were to rally beyond 1100 this week.
80 points straight up? I kinda doubt it. But the buy was at 1010, which means right now you're a paltry 1.2% to the good if you followed that signal. Blech.
The 20/50WMA (another long-term timing signal I've covered in the past) crossed at 1005, incidentally, and remains reasonably-apart now, with the 20W at 1129.72 and the 50W at 1091.86. The danger here should be obvious - you could easily be well underwater before you get a SELL on that indicator. Again, back when it crossed I said I was not going to follow it this time, and this is why - the insane divergence in slope of the indicator and price at the time it crossed positive meant you could easily be 10 or even 20% underwater before you got a SELL if it turned out badly - the risk was simply too high for long-term (defined as "intended to be in the market for five years or more") money.
To those who argued with my logic at the time - how's it looking now? Remember, these are mechanical signals - if you're going to trade them you have to trade them as they come. In the fullness of time, I like my decision from last fall, despite all the people telling me I was "nuts" and that we were "in a new bull market" last year.
Scoring the 2010 Look Forward Ticker, I get the following thus far:
This is not a new bull market: Any questions?
The long end of the Bond Curve will move higher. Miss thus far. Quite possibly a massive miss, but we shall see. My personal nightmare scenario is a back-half selloff in equities, bonds and the dollar. That leaves Benny and Friends with damn little room to act. So far, however, this is a clean bust.
House prices will fall another 20%. Not yet, but the year is not over. This much we do know - there has been no material increase in prices.
Banks will "give up" on holding real estate. They're doing it. And everyone is trying like hell to shove back their bad paper. I believe this trend will continue to accelerate.
Credit will not ease for "ordinary people." It hasn't. Bullseye.
A massive second wave of small-business bankruptcies. I couldn't have predicted the oil leak, but damn, you should have seen the Destin Commons last night for the fireworks. Easily down by half on traffic from last year. The government continues to say that small businesses are firing rather than hiring, so this looks good so far.
Unemployment will appear to stabilize, but that will prove illusory. We got the first half, now let's see if the second pans out.
The "revolting" call for last year was early - but not wrong. Greece anyone? That's not over - by a long shot.
The states will go to the government well, but it won't matter. Bingo. Ill-noise has become the poster child on this one. Gee, where's Obama from again? Interestingly enough the states haven't gotten bailed out - at least not yet.
A "double dip" will be recognized. Lotsa talk so far. ECRI's LEI complex says it's in the bag. I agree as this was exactly what I was looking to happen. We'll see.
China will lose control of their bubbles. Looks like they may be. The PMI report recently is likely just the first of big trouble over there. Beware.
Canada's real estate market will crack. Creaking, but not breaking - yet. So far in line with expectations.
The Fed's games will "leak" and their credibility will be shaken. Heh heh heh.... yep. I could spend five Tickers on this one; the "junk bond" fiasco is just part of it.
The Democrats lose big in the House. November approacheth.
Congress tries to spend its way out - and fails. No bond market dislocation yet, but I don't like those TBAC reports nor do I like the updated GDP and debt graph.
One or more of the PIIGS is forced into austerity. Bullseye!
Contrary to virtually EVERY "investment pundit" return OF capital will re-assert itself. Uh huh. 1220 to 1022 in less than two months, all gains from early September 2009 gone.
Six months left to falsify any of these, or prove 'em up. So far, however, I like how this is playing out.
Short-term there are just too many people calling for an immediate collapse down another 130-150 handles, or roughly 15%. While this could happen - indeed, crashes come from severely oversold conditions, the odds do not favor this. Instead, the more-likely path is to scare the living bejeebus out of people and then rally like a SOB, trapping all the bears that got too aggressive and cocky in their short positions and destroying their accounts - then the market falls apart.
Speaking of which, this is a good time to talk about general strategies - specifically, being short in a deflationary environment.
Sure, you can make money. But let's look at this objectively.
Being short a $100 stock has a maximum possible profit of 100%. That is, the stock can go to zero, and you get to keep the entire $100.
But consider the $100 stock that goes to $10 and doesn't bankrupt, but then recovers. If you buy at $10 you have 10x your original investment, or a profit of 900%.
The fallacy of "holding through downturns" also applies. If you start with a $100 stock and it loses half, you now need a double to get back to even. If it loses 90% you need a ten bagger to get back to even. The Jim Cramers of the world will try to tell you that there's a decent strategy for this sort of thing if you get caught holding stocks into a big dump.
I disagree.
For most, if not nearly all, people who are in the market they have absolutely no business trading actively. This is particularly true in markets like this, where 2, 3 even 4% swings on a daily basis have become commonplace. While the last year has seen these be nearly all upward, the last few weeks and months has seen it be nearly all down.
For the long term investor the point is to wind up with more money than you started with - in purchasing power - over a 10, 20 or 30 year horizon. You cannot afford big mistakes as they will force you to take big risks in order to recover, and if you're wrong on the latter you will wind up with a destroyed account.
Speculation is an entirely different thing. There has been good money to be made in the last few years and with the volatility being what it is there will be plenty to be made for years to come. But the wise long-term money isn't short in this market - it's out and has been since the end of 2007, when I (and a very few others) called "everyone out of the pool!"
Always remember that it's risk-adjusted return that matters. If you wish to gamble with 1/20th of your net worth, have at it. As you make gains take them and move them to your long-term accounts and sit on them. Gamble with the house money and so long as you do so effectively, keep at it. No harm there at all.
Near the lows in 2009 I was selling $5 PUTs on GE like a mofo, trying to get intentionally assigned. Why? I didn't believe GE would go bankrupt, and I was willing to buy tens of thousands of shares at $5 each. GE never traded $5 and I got to keep the premium from those PUTs I wrote. C'est la vie.
The key to making a true fortune in anything folks is to buy smart - not sell smart. This is something I've learned through my entrepreneurial affairs. MCSNet was successful in large part because I was a bare-knuckled negotiator for what I needed to acquire for the company. In short, I was a hard-nosed SOB and made no apologies for it, as that's how you make money legitimately in any business venture. If you buy smart making money is easy. If you have to sell smart you're always one mistake away from massive losses and potential bankruptcy.
Nobody is good enough to bat 1,000. 600, 700, sure. 1,000? Nope. Not unless you're God - or are cheating.
During The Depression people who had capital and sat on it were able to buy stocks at extremely cheap prices. But they didn't buy in 1930. They bought during the second downward move, in 1932 and 33. They bought at an 80% or 90% discount, not a 60% one. They were able to buy houses, machine tools, land, all for a literal nickel on the dollar. They didn't get rich fast, but they became rich with certainty over time, because they bought smart.
Such it will be this time, just as it was last time.
There are a lot of people who have been chasing real estate at "half off." They're fools. I'm a buyer at 90% off with both fists. Ditto for stock in companies I believe will survive. Sure, I'll be wrong about some of them, but the others will be 10 baggers. Until then I'm a patient man with my capital, happy to speculate short-term with small amounts of my "nut" but ever-mindful that it's when you buy, not when you sell that matters.
There is no reason in a deflationary environment, which we are now in, to add beta to your long-term funds. The cowboys who want to do that with their entire net worth are welcome to it - you'll still have a place to live when they blow up and are under a freeway overpass. Most of them will - indeed, while there is always someone who claims to have "nailed it" ex-post-facto for each big market move, you'll note if you bother to view things through an objective lens that 100 people had opinions prior to the move and only one of them still has an account with a positive balance in it. Worse, that person's prognostications for what's to come next are almost-certain to be dead wrong.
There were many who predicted in the summer of 2009 that we were "up up and away" and would "exceed the 1576 SPX high" some time in the next two years. If you listened to them in September of 2009 you've lost all your gains. If you listened to them after that point you now have a loss. It matters not what someone does over the short term - what matters is whether they can manage their portfolio over ten or twenty years and, including what they spend to live on, whether they still have it.
Jesse Livermore thought he could beat those odds - and the math. He went from being extremely wealthy to broke several times during his trading career, having made $100 million in the 1929 market crash - at a time when $100 million was roughly equivalent to a few billion today.
In 1940, having lost all of it, he blew his brains out in a cloakroom.
Don't be Jesse.
http://oilprice.com/Geo-Politics/International/The-New-Civil-Wars-Within-the-West.html
Internecine civil wars are underway almost everywhere within the West, and most virulently in the United States of America. They are not yet kinetic wars, but wars of grinding prepositioning, the kind which lead to foregone conclusions without a shot being fired. They are wars of survival, nonetheless, because the basic architecture for national strength is being altered incrementally or dramatically. And, in many cases, consciously.
Almost all of the strategic restructuring of states is occurring in large part as a result of an accumulation of wealth; an accumulation and value of which is seen as permanent. This has resulted in the hubris — expressed by those who did not earn it — of triumph in the Cold War. This is a Western phenomenon because the widespread growth of wealth, the creation of freedoms classically associated with democracy, resulted — as it must inevitably result — in complacencies which in turn led to a “vote too far”: the extension of the democratic franchise to those who do not help in the creation of wealth.
Once the voting franchise of the West reached the point where those who sought benefits outweighed those who created benefits, the tipping point was reached. The situation of de facto “class warfare” thus emerges automatically under such circumstances, and the envy of those who take against those who provide erupts into “rights” and “entitlement”. By deifying “democracy” above justice, the enfranchised non-producers could always outvote the producers. We are at this point. The result can only be collapse, or restructuring around a Cæsar or a Bonaparte until, eventually, a productive hierarchy reappears, usually after considerable pain.
The United States of America
Virtually every conscious step of the Administration of Pres. Barack Obama and the overwhelming Democratic Party majority in Congress has been to increase the size and role of government in the economy and society, and to decrease, limit, and control the position of private enterprise and capital formation. Given that this progressively contracts and ultimately eliminates production, and reduces the inherent asset base of the country — its raw materials and productive intellect — to a null value, the tradable value of the US currency will inevitably decline. We cannot be swayed by the enormous wealth of the North American continent. Almost all areas have an inherent wealth of some kind, but assets left idle in the ground or infertile in the brain define countries which fail, or are not victorious in their quest for unbridled sovereignty.
Thus, a decline in currency value is exacerbated, or accelerated, by the increasing supply of money, inextricably depreciating its value, particularly at a time of decreasing productivity in vital perishable and non-perishable output.
The US Obama Administration has focused entirely on an agenda of expanding government — the seizure of the envied (and often ephemeral) “wealth” of the producers — without addressing the process of facilitating the production of essential commodities and goods. Even the USSR and the People’s Republic of China, during their communist periods, focused — albeit badly — on the production of goods and services, when they realized that the “wealth” to be “redistributed” existed only as the result of production and innovation. The US, meanwhile, heavily as a result of policies of the former Clinton Administration, has “outsourced” production, and the State — that is, the Government — cannot easily, in the US, become the producer.
FREE Breaking Investment & Geopolitical Intelligence - Previously only available to Governments, Intelligence Agencies & selected Hedge Funds. Click here for more information on our Free Weekly Intelligence Report
Pres. Obama has addressed the US’ economic crisis by expanding government, and government-related, employment in non-productive sectors, while at the same time blaming and punishing the private sector for all of the US’ ills. Empowered by the extended franchise, this was the politics of envy now becoming enabled.
Moreover, the populist, short-term response to the major oil-spill in the Gulf of Mexico was clearly geared toward (a) transforming a crisis into an opportunity to pursue a green energy agenda by highlighting the evils of the fossil fuels on which the US remains dependent; (b) ensuring that the President was not blamed for the poor crisis response; and (c) ensuring that the Democratic Party did not suffer from the crisis in the November 2010 mid-term Congressional elections.
The result of all the Obama initiatives has been to expand government and reduce or absolutely control and tax the private sector, even though, without the private sector, the US has no viable export or self-sustaining capability. The net effect has been to mirror — and overtake — the situation in which, for example, Germany found itself a decade ago: without the ability to retain capital investment or attract new capital investment.
And in order to restrain capital flight from the US, the Obama Administration seeks to further control worldwide earnings of US corporations and citizens. For other reasons, the US, believing that it still dominates the technology arena, has imposed greater and greater restrictions on international exports of technology through its ITAR (International Traffic in Arms Regulations) and the Foreign Corrupt Practices Act.
All of this conspires to limit investment in US manufacturing and restrict foreign interest in US exports because the regulations are being enforced merely for political punitive reasons. The US is making itself increasingly unappealing to foreign investors and has, as this writer has noted, made the appeal of the US dollar as the global reserve currency evaporate, saved, for the moment, only by the lack of a ready alternative. That situation will change within a very few years.
Thus, the US has, in the space of a couple of years: (i) so dramatically inflated money supply that the value of the dollar is only shored up by the lack of international alternative currencies to act as reserve trading currencies; (ii) so dramatically inflated public debt, without stimulating economic growth, that US economic performance will continue to decline on a national and a per capita basis while competitive economies, such as the PRC and Russia, will grow, reducing strategic differentials; (iii) severely punished the private sector, thereby reducing the opportunities and incentives for strategic capital formation, and in particular punishing the industrial production and energy sectors, almost ensuring major dislocation to the delivery of US basic needs in the near-term; and (iv) so blatantly reduced its strategic capabilities through all of these actions and in its diplomatic and military posture as to guarantee a reduction in US strategic credibility. Concurrent with all of this is an increasingly punitive taxation framework.
The near-term impact will include rising domestic energy prices, possibly even before the November 2010 mid-term Congressional elections, which could result in the Democratic Party losing its substantial majority in both Houses. Even on this matter, Democratic Party ideologues have attempted to suggest that this is exactly what the country needs: expensive energy in order to facilitate change to “green” solutions. This defies the historical reality that pre-eminent powers must always have vast energy surpluses and use.
So much damage has been done to the US strategic posture in just two years (although building on a base of inefficiencies which have been growing since the end of the Cold War), in many respects equal to the 1917 Russian Revolution (but without the bloodshed), that it is difficult to forecast whether — because of a changing global environment — the US can, within a decade or two, recover its strategic authority and leadership.
Domestically, the massively statist and interventionist approaches of the Obama Administration have polarized the country, and the response will be reactive rather than innovative, inducing a period of isolation and nationalism, but with grave difficulty in rebuilding confidence from the international investment community.
Europe
Artificial, wealth-induced complacency following the end of the Cold War led to fury when economic collapse inevitably occurred in 2010, leading to draconian restraint in public spending in many societies, but particularly Greece and Spain. It is said that tourists are warned not to feed bears in Yellowstone National Park (in the US) because the bears do not understand when the tourists have run out of food. State-fed populations in Europe, the US, and Australia (see below) equally do not understand when the free ride is over, and work must recommence.
Germany, France, and the United Kingdom have begun the arduous path back to recovery, but the euro may, as a currency, have been irrevocably damaged, and the European Union itself may have spent the term of its virility. Clearly, the wealth-induced complacency, which had the compounding effect of allowing a decline in a sense of national survival and national identity among the European Union (EU) component states, has led now to a revived — but as yet unrealized — sense of nationalism.
This is beginning to lead to the recognition of the cohesive national efficiency required for survival and competitiveness. It can be said that the EU destroyed nationalism, without replacing it with any mechanism to create a new sense of social cohesion, thus removing Europe’s capability for economic competitiveness, self-defense, or ability to define a new culture (and identity) to replace the national identities.
Had the British Labour Party Government of outgoing Prime Minister Gordon Brown persisted in office with his slavishly doctrinaire governance — and demonstrably unworkable socialism, led by a privileged élite of Labour mandarins wallowing at the trough — it is possible that an economic recovery in the UK would have been problematic. It may still be problematic. And in this, Brown was a prototype Obama, with his rank sense of entitlement.
Even now, the British political psyche is fractured along geographic lines, and, wealth-induced, considers itself effectively “post-industrial”, and therefore beyond the need for a manufacturing (or even agricultural base). Thus, even though the UK is now far more dependent on a maritime trade base than at any time in its history, it is incapable of defending or projecting that maritime base; neither does it have the wherewithal to trade.
Australia
The Australian Government has — like the Obama Administration in the US and the Brown Administration in the UK — demonstrated its absolute lack of experience in management, economics, or real-life work skills. A decision by Prime Minister Kevin Rudd to impose a new “super tax” of some 40 percent on resource companies — miners, who produce most of Australia’s export wealth — suddenly highlighted the reality that the mining companies did not need to put their investment into Australian projects.
This “tax and spend” approach so damaged Prime Minister Rudd’s popularity in the run-up to a November 2010 election, that his deputy Prime Minister, Julia Gillard, an extreme left-wing feminist, mounted a rapid campaign within the ruling Labor Party to overthrow him. But apart from some temporary back-peddling on the Resources Super Profits Tax until the next election is out of the way, don’t expect incoming Prime Minister Gillard — the first Australian female head-of-government and the most left-wing ever — to back off her punitive stance against the private sector.
The Australian Government’s punitive tax approach, initiated by Rudd but likely to continue for as long as Labor governs, also highlighted the fact that foreign investors did not need to invest in Australia, and that capital could move — as it always does — away from draconian tax regimes. As Chilean Mines Minister Laurence Goldborne said in June 2010, “Just because you have resources doesn’t guarantee investment.” This is something which the governments of most African states know.
In Australia, the realization of the over-reaching greed — and envy-inspired approach of the proposed new tax laws — in turn led much of the ruling Australian Labor Party (ALP) and the profoundly leftist Australian media to begin their drift away from Rudd, leaving him with the prospect that he could either be abandoned as party leader before the late-2010 general elections, or be faced with the prospect of becoming Australia’s first one-term Prime Minister.
Gillard’s unbridled ambition also saw to that. The question remains as to whether she will be able to win the November 2010 general election. A more important question remains, however, as to whether the markets will still be there when the ruin of trust in Australian export and investment reliability is addressed by a future government. The People’s Republic of China (PRC), Australia’s major export client state, and Russia are now developing vast iron ore reserves on their mutual border, possibly — in the near future — obviating the need for much of what Australia exports.
In the meantime, both Kevin Rudd and the opposition Liberal Party have essentially embraced the move by Australia to see itself as a pseudo-post-industrial society, gradually eroding the independent and innovative manufacturing sector which had been a hallmark of Australian economic growth. A pseudo-post-industrial society is one which believes that it can live solely on the intrinsic value of its currency, without the necessity to sustain a balanced agricultural and industrial base to preserve sovereign independence. A true post-industrial society — something thus far a utopian dream — can produce all of its food and goods with a minute fraction of its population, which would largely be left to address intellectual pursuits.
Australia, thus, faces a major challenge to its comfort, wealth, and security when value perceptions, investment, and clients evaporate. We see, then, in the very deliberate acts of envy and entitlement politics, the seeds of national collapse in Australia, the US, and Western Europe.
Conclusions
Some of the Western powers have slumped before, and recovered. The United States has yet to demonstrate this resilience. Other Western societies have slumped, and have yet been protected by a strong regional system so that their societies could prosper under foreign protection. The Netherlands, Spain, and Portugal, for example, retained stable and individual prosperous societies and yet never recovered their strategic leadership, relying, instead, on the power of their region for economic and security protection. States which remain dependent on others for their protection never fully regain their wealth and freedom.
States such as New Zealand depend on their greater neighbors for protection. But wither New Zealand if Australia fails? Wither the Netherlands today if the European Union fails? And wither the United States if its fortunes erode? Re-birth is, as Britain has found through history, as did Rome, more arduous than that first, pure flush of strategic victory.
The West is at its watershed, not because of a threat from a less-productive society. The collapse of the West is not because Islam is at the gates. Islam is at the gates because of the collapse of the West.
Analysis. By Gregory R. Copley, Editor, GIS/Defense & Foreign Affairs.
(c) 2010 International Strategic Studies Association, www.StrategicStudies.org
Next >
http://oilprice.com/Geo-Politics/International/The-New-Civil-Wars-Within-the-West.html
Almost all of the strategic restructuring of states is occurring in large part as a result of an accumulation of wealth; an accumulation and value of which is seen as permanent. This has resulted in the hubris — expressed by those who did not earn it — of triumph in the Cold War. This is a Western phenomenon because the widespread growth of wealth, the creation of freedoms classically associated with democracy, resulted — as it must inevitably result — in complacencies which in turn led to a “vote too far”: the extension of the democratic franchise to those who do not help in the creation of wealth.
Once the voting franchise of the West reached the point where those who sought benefits outweighed those who created benefits, the tipping point was reached. The situation of de facto “class warfare” thus emerges automatically under such circumstances, and the envy of those who take against those who provide erupts into “rights” and “entitlement”. By deifying “democracy” above justice, the enfranchised non-producers could always outvote the producers. We are at this point. The result can only be collapse, or restructuring around a Cæsar or a Bonaparte until, eventually, a productive hierarchy reappears, usually after considerable pain.
The United States of America
Virtually every conscious step of the Administration of Pres. Barack Obama and the overwhelming Democratic Party majority in Congress has been to increase the size and role of government in the economy and society, and to decrease, limit, and control the position of private enterprise and capital formation. Given that this progressively contracts and ultimately eliminates production, and reduces the inherent asset base of the country — its raw materials and productive intellect — to a null value, the tradable value of the US currency will inevitably decline. We cannot be swayed by the enormous wealth of the North American continent. Almost all areas have an inherent wealth of some kind, but assets left idle in the ground or infertile in the brain define countries which fail, or are not victorious in their quest for unbridled sovereignty.
Thus, a decline in currency value is exacerbated, or accelerated, by the increasing supply of money, inextricably depreciating its value, particularly at a time of decreasing productivity in vital perishable and non-perishable output.
The US Obama Administration has focused entirely on an agenda of expanding government — the seizure of the envied (and often ephemeral) “wealth” of the producers — without addressing the process of facilitating the production of essential commodities and goods. Even the USSR and the People’s Republic of China, during their communist periods, focused — albeit badly — on the production of goods and services, when they realized that the “wealth” to be “redistributed” existed only as the result of production and innovation. The US, meanwhile, heavily as a result of policies of the former Clinton Administration, has “outsourced” production, and the State — that is, the Government — cannot easily, in the US, become the producer.
FREE Breaking Investment & Geopolitical Intelligence - Previously only available to Governments, Intelligence Agencies & selected Hedge Funds. Click here for more information on our Free Weekly Intelligence Report
Pres. Obama has addressed the US’ economic crisis by expanding government, and government-related, employment in non-productive sectors, while at the same time blaming and punishing the private sector for all of the US’ ills. Empowered by the extended franchise, this was the politics of envy now becoming enabled.
Moreover, the populist, short-term response to the major oil-spill in the Gulf of Mexico was clearly geared toward (a) transforming a crisis into an opportunity to pursue a green energy agenda by highlighting the evils of the fossil fuels on which the US remains dependent; (b) ensuring that the President was not blamed for the poor crisis response; and (c) ensuring that the Democratic Party did not suffer from the crisis in the November 2010 mid-term Congressional elections.
The result of all the Obama initiatives has been to expand government and reduce or absolutely control and tax the private sector, even though, without the private sector, the US has no viable export or self-sustaining capability. The net effect has been to mirror — and overtake — the situation in which, for example, Germany found itself a decade ago: without the ability to retain capital investment or attract new capital investment.
And in order to restrain capital flight from the US, the Obama Administration seeks to further control worldwide earnings of US corporations and citizens. For other reasons, the US, believing that it still dominates the technology arena, has imposed greater and greater restrictions on international exports of technology through its ITAR (International Traffic in Arms Regulations) and the Foreign Corrupt Practices Act.
All of this conspires to limit investment in US manufacturing and restrict foreign interest in US exports because the regulations are being enforced merely for political punitive reasons. The US is making itself increasingly unappealing to foreign investors and has, as this writer has noted, made the appeal of the US dollar as the global reserve currency evaporate, saved, for the moment, only by the lack of a ready alternative. That situation will change within a very few years.
Thus, the US has, in the space of a couple of years: (i) so dramatically inflated money supply that the value of the dollar is only shored up by the lack of international alternative currencies to act as reserve trading currencies; (ii) so dramatically inflated public debt, without stimulating economic growth, that US economic performance will continue to decline on a national and a per capita basis while competitive economies, such as the PRC and Russia, will grow, reducing strategic differentials; (iii) severely punished the private sector, thereby reducing the opportunities and incentives for strategic capital formation, and in particular punishing the industrial production and energy sectors, almost ensuring major dislocation to the delivery of US basic needs in the near-term; and (iv) so blatantly reduced its strategic capabilities through all of these actions and in its diplomatic and military posture as to guarantee a reduction in US strategic credibility. Concurrent with all of this is an increasingly punitive taxation framework.
The near-term impact will include rising domestic energy prices, possibly even before the November 2010 mid-term Congressional elections, which could result in the Democratic Party losing its substantial majority in both Houses. Even on this matter, Democratic Party ideologues have attempted to suggest that this is exactly what the country needs: expensive energy in order to facilitate change to “green” solutions. This defies the historical reality that pre-eminent powers must always have vast energy surpluses and use.
So much damage has been done to the US strategic posture in just two years (although building on a base of inefficiencies which have been growing since the end of the Cold War), in many respects equal to the 1917 Russian Revolution (but without the bloodshed), that it is difficult to forecast whether — because of a changing global environment — the US can, within a decade or two, recover its strategic authority and leadership.
Domestically, the massively statist and interventionist approaches of the Obama Administration have polarized the country, and the response will be reactive rather than innovative, inducing a period of isolation and nationalism, but with grave difficulty in rebuilding confidence from the international investment community.
Europe
Artificial, wealth-induced complacency following the end of the Cold War led to fury when economic collapse inevitably occurred in 2010, leading to draconian restraint in public spending in many societies, but particularly Greece and Spain. It is said that tourists are warned not to feed bears in Yellowstone National Park (in the US) because the bears do not understand when the tourists have run out of food. State-fed populations in Europe, the US, and Australia (see below) equally do not understand when the free ride is over, and work must recommence.
Germany, France, and the United Kingdom have begun the arduous path back to recovery, but the euro may, as a currency, have been irrevocably damaged, and the European Union itself may have spent the term of its virility. Clearly, the wealth-induced complacency, which had the compounding effect of allowing a decline in a sense of national survival and national identity among the European Union (EU) component states, has led now to a revived — but as yet unrealized — sense of nationalism.
This is beginning to lead to the recognition of the cohesive national efficiency required for survival and competitiveness. It can be said that the EU destroyed nationalism, without replacing it with any mechanism to create a new sense of social cohesion, thus removing Europe’s capability for economic competitiveness, self-defense, or ability to define a new culture (and identity) to replace the national identities.
Had the British Labour Party Government of outgoing Prime Minister Gordon Brown persisted in office with his slavishly doctrinaire governance — and demonstrably unworkable socialism, led by a privileged élite of Labour mandarins wallowing at the trough — it is possible that an economic recovery in the UK would have been problematic. It may still be problematic. And in this, Brown was a prototype Obama, with his rank sense of entitlement.
Even now, the British political psyche is fractured along geographic lines, and, wealth-induced, considers itself effectively “post-industrial”, and therefore beyond the need for a manufacturing (or even agricultural base). Thus, even though the UK is now far more dependent on a maritime trade base than at any time in its history, it is incapable of defending or projecting that maritime base; neither does it have the wherewithal to trade.
Australia
The Australian Government has — like the Obama Administration in the US and the Brown Administration in the UK — demonstrated its absolute lack of experience in management, economics, or real-life work skills. A decision by Prime Minister Kevin Rudd to impose a new “super tax” of some 40 percent on resource companies — miners, who produce most of Australia’s export wealth — suddenly highlighted the reality that the mining companies did not need to put their investment into Australian projects.
This “tax and spend” approach so damaged Prime Minister Rudd’s popularity in the run-up to a November 2010 election, that his deputy Prime Minister, Julia Gillard, an extreme left-wing feminist, mounted a rapid campaign within the ruling Labor Party to overthrow him. But apart from some temporary back-peddling on the Resources Super Profits Tax until the next election is out of the way, don’t expect incoming Prime Minister Gillard — the first Australian female head-of-government and the most left-wing ever — to back off her punitive stance against the private sector.
The Australian Government’s punitive tax approach, initiated by Rudd but likely to continue for as long as Labor governs, also highlighted the fact that foreign investors did not need to invest in Australia, and that capital could move — as it always does — away from draconian tax regimes. As Chilean Mines Minister Laurence Goldborne said in June 2010, “Just because you have resources doesn’t guarantee investment.” This is something which the governments of most African states know.
In Australia, the realization of the over-reaching greed — and envy-inspired approach of the proposed new tax laws — in turn led much of the ruling Australian Labor Party (ALP) and the profoundly leftist Australian media to begin their drift away from Rudd, leaving him with the prospect that he could either be abandoned as party leader before the late-2010 general elections, or be faced with the prospect of becoming Australia’s first one-term Prime Minister.
Gillard’s unbridled ambition also saw to that. The question remains as to whether she will be able to win the November 2010 general election. A more important question remains, however, as to whether the markets will still be there when the ruin of trust in Australian export and investment reliability is addressed by a future government. The People’s Republic of China (PRC), Australia’s major export client state, and Russia are now developing vast iron ore reserves on their mutual border, possibly — in the near future — obviating the need for much of what Australia exports.
In the meantime, both Kevin Rudd and the opposition Liberal Party have essentially embraced the move by Australia to see itself as a pseudo-post-industrial society, gradually eroding the independent and innovative manufacturing sector which had been a hallmark of Australian economic growth. A pseudo-post-industrial society is one which believes that it can live solely on the intrinsic value of its currency, without the necessity to sustain a balanced agricultural and industrial base to preserve sovereign independence. A true post-industrial society — something thus far a utopian dream — can produce all of its food and goods with a minute fraction of its population, which would largely be left to address intellectual pursuits.
Australia, thus, faces a major challenge to its comfort, wealth, and security when value perceptions, investment, and clients evaporate. We see, then, in the very deliberate acts of envy and entitlement politics, the seeds of national collapse in Australia, the US, and Western Europe.
Conclusions
Some of the Western powers have slumped before, and recovered. The United States has yet to demonstrate this resilience. Other Western societies have slumped, and have yet been protected by a strong regional system so that their societies could prosper under foreign protection. The Netherlands, Spain, and Portugal, for example, retained stable and individual prosperous societies and yet never recovered their strategic leadership, relying, instead, on the power of their region for economic and security protection. States which remain dependent on others for their protection never fully regain their wealth and freedom.
States such as New Zealand depend on their greater neighbors for protection. But wither New Zealand if Australia fails? Wither the Netherlands today if the European Union fails? And wither the United States if its fortunes erode? Re-birth is, as Britain has found through history, as did Rome, more arduous than that first, pure flush of strategic victory.
The West is at its watershed, not because of a threat from a less-productive society. The collapse of the West is not because Islam is at the gates. Islam is at the gates because of the collapse of the West.
Analysis. By Gregory R. Copley, Editor, GIS/Defense & Foreign Affairs.
(c) 2010 International Strategic Studies Association, www.StrategicStudies.org
Next >
http://oilprice.com/Geo-Politics/International/The-New-Civil-Wars-Within-the-West.html
Saturday, July 3, 2010
Once we were a Republic, now we are a Corporatocracy
http://www.financialsense.com/contributors/d-sherman-okst/why-we-are-totally-finished
"We Have a Corporatocracy: Not capitalism.
Corporatocracy: A government that serves the interest of, and may de facto be run by corporations.
Some states have government workers who have powerful unions that influence the government's decisions. California has a massive pension mess, created in large part by government unions and elected officials who have catered to these unions.
"Too Big To Fail" is living proof that capitalism is dead. These TBTF institutions that blew up the economy in 2008 with their stupidity crisis, at the very least deserved to fail. They blew it. That is the definition of capitalism. You do well you are rewarded, you screw up you close shop. You commit fraud and you do time.
But with a Corporatocracy you have Hank Paulson - a former Goldman Sachs CEO worth about 700 million dollars who winds up becoming our past Secretary of the Treasury. There is a serious distinction between a civil servant and someone who serves a corporation, especially the last corporation he worked for. His salary was only six figures, but his benefit was that he got to cash out of his stocks and pay no taxes. He gave the morons who blew up the economy 700 billion dollars. He had another former Goldman Sachs employee disperse the funds while the current CEO of Goldman Sachs professed to be "Doing God's work.""
"We Have a Corporatocracy: Not capitalism.
Corporatocracy: A government that serves the interest of, and may de facto be run by corporations.
Some states have government workers who have powerful unions that influence the government's decisions. California has a massive pension mess, created in large part by government unions and elected officials who have catered to these unions.
"Too Big To Fail" is living proof that capitalism is dead. These TBTF institutions that blew up the economy in 2008 with their stupidity crisis, at the very least deserved to fail. They blew it. That is the definition of capitalism. You do well you are rewarded, you screw up you close shop. You commit fraud and you do time.
But with a Corporatocracy you have Hank Paulson - a former Goldman Sachs CEO worth about 700 million dollars who winds up becoming our past Secretary of the Treasury. There is a serious distinction between a civil servant and someone who serves a corporation, especially the last corporation he worked for. His salary was only six figures, but his benefit was that he got to cash out of his stocks and pay no taxes. He gave the morons who blew up the economy 700 billion dollars. He had another former Goldman Sachs employee disperse the funds while the current CEO of Goldman Sachs professed to be "Doing God's work.""
Tuesday, June 8, 2010
Sunday, June 6, 2010
Thursday, May 27, 2010
Money Supply
http://pragcap.com/u-s-money-supply-plunges-double-dip-near
So we have deflation until we print money like Weimar.
Good Article at the link above.
So we have deflation until we print money like Weimar.
Good Article at the link above.
Interesting Analysis - Watch out later this year.
http://www.zerohedge.com/article/tactical-update-bob-janjuah-2008-will-seem-good-old-days
"from RBS' Bob Janjuah
Plse refer to my most recent comments, from 24th May, and 26th April. Things are playing out nicely. This is just a 'tactical' update. In my cmmt of the 24th May I set out 2 possible paths for the new bear market we are in, and I want to clarify a little:
1 - 1st, the bigger strategic theme is clear and unchanged - global growth HAS peaked and the deflation trend is clear for the next 3/6mths. This is strategically bullish the USD and USTs (think 1 vs the EURO, and low 2% 10yr yields). And this is strategically BEARISH risk assets (think mid-800s S&P in 3/6mths, and the iTraxx XO index up above 750bps). The strategic asset allocation outlook STRONGLY favours QUALITY as defined by balance sheet strength, balance sheet transparency (which therefore excludes most financials), market position, AND the ability to be a price setter (not taker).
The game changers are: A) a massive turnaround in China towards new stimulus & a new credit creation binge etc - for now very unlikely IMHO; B) a massive turnaround in corporate behaviour resulting in a leverage, capex, investment, hiring & spending binge - extremely unlike for now and for the rest of this yr; C) a new US fiscal package (pretty impossible now), so the most likely and only really viable remaining option is a MASSIVE DEBASEMENT/MONETISATION move led by the Fed (but no doubt globally co-coordinated) thru the announcement of a NEW (say) USD5trn QE package, aided/abetted by maybe another USD5trn of funny money printing by the BoE, the ECB, ther BoJ, the PBOC, the SNB etc etc.........HOWEVER, I don't expect this last bullet to be used until things get REAL UGLY (see above para for levels). If u know u have only 1 bullet left in the rifle - and unless you are amazingly stupid - u don't try to shoot the charging grizzly bear when its 50 yards away. No, you wait till its 5/10yards away...WHEN we get this final bullet out of the rifle it had BETTER not miss, as if it 'misses' we would then have the mother of stagflationnary busts in history where bonds get crushed due to debasement, taking risk assets out with them too. If this is the outcome - and this is really I think a late 2010/2011 story - then trust me, 2008 really will seem like the Good Old Days.....lets hope Uncle Ben not only has the rifle ready, but also that his scope is well lined up and that he has been practising hard...
2 - In terms of the shrter term tactical outlook, of the 2 scenarios laid out in my last piece, I now marginally favour the 'bullish June, disastrous July/Aug/Sept/Oct' outcome. This is a marginal call - the KEY trend for H2 2010 is BEARISH and HIGHER VOL - but I do think we can see the S&P (as a global risk proxy) up at 1150/1180 in June. This seems to me to be the next and an excellent place to get short risk/get long deflation. A move above 1180 IS possible but unlikely, with 1220 even more remote. However, I would be inclined to rethink a little the precise tactical timing/routemap IF we can get to and close above 1180 for 3 or so consecutive days. A break below 1020 on S&P would indicate that 800s S&P is coming sooner rather than later, but as mentioned, I think this is now business for JULY onwards, not for June.
It is important not to forget that we now have a pretty cool series of lower lows & lower highs on stks whereby we have taken out the early Feb lows. And if u like this sort of thing, a very powerful and ultimately deeply bearish Head & Shoulders is clear too.
So there u have it. Expect policymakers, the sell side consensus and the media to be Rah Rah over the next few days & weeks (its already begun). But don't get too sucked in - use any bull trap to OFFLOAD risk/to get liquid. JUNE can be a decent bullish month, but I really do think it is the eye of the storm ahead of a super nasty Q3/early Q4.
Cheers, Bob"
"from RBS' Bob Janjuah
Plse refer to my most recent comments, from 24th May, and 26th April. Things are playing out nicely. This is just a 'tactical' update. In my cmmt of the 24th May I set out 2 possible paths for the new bear market we are in, and I want to clarify a little:
1 - 1st, the bigger strategic theme is clear and unchanged - global growth HAS peaked and the deflation trend is clear for the next 3/6mths. This is strategically bullish the USD and USTs (think 1 vs the EURO, and low 2% 10yr yields). And this is strategically BEARISH risk assets (think mid-800s S&P in 3/6mths, and the iTraxx XO index up above 750bps). The strategic asset allocation outlook STRONGLY favours QUALITY as defined by balance sheet strength, balance sheet transparency (which therefore excludes most financials), market position, AND the ability to be a price setter (not taker).
The game changers are: A) a massive turnaround in China towards new stimulus & a new credit creation binge etc - for now very unlikely IMHO; B) a massive turnaround in corporate behaviour resulting in a leverage, capex, investment, hiring & spending binge - extremely unlike for now and for the rest of this yr; C) a new US fiscal package (pretty impossible now), so the most likely and only really viable remaining option is a MASSIVE DEBASEMENT/MONETISATION move led by the Fed (but no doubt globally co-coordinated) thru the announcement of a NEW (say) USD5trn QE package, aided/abetted by maybe another USD5trn of funny money printing by the BoE, the ECB, ther BoJ, the PBOC, the SNB etc etc.........HOWEVER, I don't expect this last bullet to be used until things get REAL UGLY (see above para for levels). If u know u have only 1 bullet left in the rifle - and unless you are amazingly stupid - u don't try to shoot the charging grizzly bear when its 50 yards away. No, you wait till its 5/10yards away...WHEN we get this final bullet out of the rifle it had BETTER not miss, as if it 'misses' we would then have the mother of stagflationnary busts in history where bonds get crushed due to debasement, taking risk assets out with them too. If this is the outcome - and this is really I think a late 2010/2011 story - then trust me, 2008 really will seem like the Good Old Days.....lets hope Uncle Ben not only has the rifle ready, but also that his scope is well lined up and that he has been practising hard...
2 - In terms of the shrter term tactical outlook, of the 2 scenarios laid out in my last piece, I now marginally favour the 'bullish June, disastrous July/Aug/Sept/Oct' outcome. This is a marginal call - the KEY trend for H2 2010 is BEARISH and HIGHER VOL - but I do think we can see the S&P (as a global risk proxy) up at 1150/1180 in June. This seems to me to be the next and an excellent place to get short risk/get long deflation. A move above 1180 IS possible but unlikely, with 1220 even more remote. However, I would be inclined to rethink a little the precise tactical timing/routemap IF we can get to and close above 1180 for 3 or so consecutive days. A break below 1020 on S&P would indicate that 800s S&P is coming sooner rather than later, but as mentioned, I think this is now business for JULY onwards, not for June.
It is important not to forget that we now have a pretty cool series of lower lows & lower highs on stks whereby we have taken out the early Feb lows. And if u like this sort of thing, a very powerful and ultimately deeply bearish Head & Shoulders is clear too.
So there u have it. Expect policymakers, the sell side consensus and the media to be Rah Rah over the next few days & weeks (its already begun). But don't get too sucked in - use any bull trap to OFFLOAD risk/to get liquid. JUNE can be a decent bullish month, but I really do think it is the eye of the storm ahead of a super nasty Q3/early Q4.
Cheers, Bob"
Monday, May 24, 2010
Great Investing Article - Decision Making and Dopamine
http://dailycapitalist.com/2010/05/24/stock-markets-cycles-and-dopamine/
Definitely worth reading!
Stock Markets, Cycles, and Dopamine
By Jeff Harding, on May 24th, 2010
This is an article on behavioral economics, markets, business cycles and Austrian theory. It was written by Doug French, president of the Mises Institute. I am reproducing it in its entirety. Anyone who invests in stocks, bonds, real estate, gold, or whatever, should read this article.
After reading the article I was reminded again of the brilliance of Ludwig von Mises and how perceptive he was about his favorite topic, the study of the behavior of human beings, or what he called “human action” (praxeology). The Austrian School was originally called the Psychological School of economics because of its focus on individual behavior rather than aggregate behavior.
The hot new branch of praxeology is behavioral economics, although many behavioral economists are probably not aware of this fact. In this piece, French summarizes current behavioral research and examines it in light of Austrian theory as it pertains to market behavior. The behavioral examples align well with Nassim Taleb’s Black Swan and his conclusions. Although Taleb doesn’t get into Austrian theory as a framework for economic behavior in his book, he, based on my understanding of reading other articles by Taleb, is Austrian in his outlook and conclusions.
Don’t Go With The Flow
By Doug French
Anyone who follows financial markets has to wonder at times, “What are people thinking? How did they come to make those decisions?”
It’s hard to imagine that John Muth and Robert Lucas came up with what’s known as the “rational-expectations theory,” wherein, as explained in Wikipedia,
it is assumed that outcomes that are being forecast do not differ systematically from the market equilibrium results. That is, it assumes that people do not make systematic errors when predicting the future, and deviations from perfect foresight are only random.
Muth and Lucas should watch daily programs on the financial channels like Jim Cramer’s Mad Money, which is supposedly to help individual investors, or CNBC’s Fast Money, a show clearly geared toward speculators. No viewer can watch these shows and walk away believing, “people do not make systematic errors when predicting the future.”
So while financial markets have been a series of speculative bubbles as the Federal Reserve creates money ad infinitum, rational-expectations economists Robert Flood and Robert Hodrick daringly conclude, “The current empirical tests for bubbles do not successfully establish the case that bubbles exist in asset prices.” [!]
The efficient-markets hypothesis (EMH) is the rational-expectations school of the investing world. The efficient-market hypothesis asserts that financial markets are “informationally efficient,” claiming one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis.
Bob Murphy wrote recently on Mises.org about Chicago School economist Eugene Fama, who is the father of the efficient-markets hypothesis.
Fama is not a Nobel laureate, but he did coauthor The Theory of Finance textbook with Nobel winner Merton H. Miller and he himself won the 2005 Deutsche Bank Prize in Financial Economics as well as the 2008 Morgan Stanley–American Finance Association Award.
Fama was interviewed by the New Yorker’s John Cassidy, which was the basis for Murphy’s article.
Cassidy asked Fama how he thought the efficient-market hypothesis had held up during the recent multiple financial crisis. Fama said,
I think it did quite well in this episode. Prices started to decline in advance of when people recognized that it was a recession and then continued to decline. There was nothing unusual about that. That was exactly what you would expect if markets were efficient.
When Cassidy mentioned the credit bubble that lead to the housing bubble and ultimate bust, the famed professor said,
I don’t even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means. I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.
“I think most bubbles are twenty-twenty hindsight,” Fama told Cassidy. When asked to clarify whether he thought bubbles can exist, Fama answered “They [bubbles] have to be predictable phenomena.”
I don’t know what Professor Fama’s been smoking or whether he’s just in denial or not paying attention, but, especially since Richard Nixon cut the dollar loose from gold, it’s been one bubble and bust after another.
“It’s hard to be a contrarian. With the bubble in full bloom, the last thing you want to tell the boys at the club is that you have your money in cash or gold.”
And clearly in a boom people go crazy. Another term for bubble is mania, and according the Webster’s, “mania” is defined in an individual as an “excitement of psychotic proportions manifested by mental and physical hyperactivity, disorganization of behavior, and elevation of mood.”
Robert Prechter, in his book View From The Top of the Grand Supercycle, points out that mania refers specifically to “the manic phase of manic-depressive psychosis.”
Economists Kevin McCabe and Colin Camerer combined with neuroscientist Read Montague to do a study of financial markets where the subjects of the experiment were given $100 to invest, making their decisions against 20 different markets. Montague and the two economists used historical market prices, measuring the brain and behavioral responses to these.
The researchers were especially interested in how their subjects would respond to markets featuring bubbles and crashes. The subjects’ brains were scanned while they created and reacted to market bubbles with their investments. Fifty-two subjects played the investment game in the scanners but had no idea they were playing in actual historical markets.
Two of the markets used in the simulation were particularly brutal to the fifty-two participants; the 1987 stock-market crash and the 1929 crash. None of the subjects earned money in the 1929-crash simulation and many lost more than half their portfolio.
“This market,” Montague explains, “out of all twenty used, lulled subjects’ decision mechanisms into a kind of stupor and then — bang. Goodbye, money.”
The variable that most drove behavior in the investment game in all markets was — regret. Regret was a big factor when subjects changed their investments and also “showed up as an extremely strong neural signal in a reward-decision-making region of the brain, the ventral putamen, the same site where reward-prediction error signals appear.”
Montague believes this is significant because, as gambling games evolved to “exploit the frailties of our biological valuation and decision-making machinery,” the 1929 market “hit a kind of fragile ’sweet spot’ of valuation and decision machinery in the subject’s brain.”
Regret, in this case, is the difference between the value of what is and the value of what could have been. This is important because of dopamine, which is a chemical in the brain that helps humans decide how to take actions that will result in rewards at the right time.
People don’t get a dopamine kick when they get what they expect, only when they make an unexpected windfall. So, as Jason Zweig writes in Your Money and Your Brain, drug addicts crave ever-larger fixes to achieve the same satisfaction and “why investors have such a hankering for fast-rising stocks with ‘positive momentum’ or ‘accelerating earnings growth’.” Also, dopamine dries up if the reward you expected fails to materialize.
The brain has 100 billion neurons and only one-thousandth of one percent produce dopamine, but “this minuscule neural minority wields enormous power over your investing decisions,” cautions Zweig.
“Level-headed investors can (and have) been caught up in investment booms and manias.”
Dopamine takes as little as a twentieth of second to reach your decision centers, estimating the value of an expected reward and more importantly propelling you to action to capture that reward. “We’ve evolved to be that way,” explains psychologist Kent Berridge, “because passively knowing about the future is not good enough.”
The effect of all this is what Zweig refers to as “the prediction addiction.” Humans hate randomness. We want to predict the unpredictable, which originates in the dopamine centers of the reflective brain, according to Zweig, leading humans to see patterns where none really exist.
The whole technical-analysis field that Wall Street embraces, is based upon the human desire to predict, and when seeing two occurrences in repetition, people believe (or want to believe) that a trend is in process that, most importantly, they can profit from.
When Parkinson’s patients are given drugs to allow their brains to be more receptive to dopamine, they have the insatiable urge to gamble. When these drugs are stopped, the gambling stops immediately. But unfortunately, when we get what we expect, no dopamine rush ensues.
These neurologists don’t talk about the Austrian business-cycle theory. For that we turn to Ludwig von Mises, who explains that when the central bank lowers interest rates below the natural rate of interest, engineered by an expansion in liquidity,
the drop in interest rates falsifies the businessman’s calculation. … The result of such calculations is therefore misleading. They make some projects appear profitable and realizable which a correct calculation, based on an interest rate not manipulated by credit expansion, would have shown as unrealizable. Entrepreneurs embark upon the execution of such projects. Business activities are stimulated. A boom begins.
Computational neuroscientists would add that not only do the projects appear profitable on paper but also that dopamine is released into the brains of entrepreneurs as they anticipate future profits.
After all, it’s ingrained into the business and investing public’s collective brain that the lowering of short-term real interest rates, and eventually long-term rates, will have a broad and deep impact throughout the economy.
For example, mainstream economist Dr. Yoshi Fukasawa from Midwestern State University writes,
Lower real interest rates stimulate business investment by making more investment projects profitable.
Reduced interest costs mean that more machines and equipment will be bought, new factories and warehouses built, and additional stores and apartment buildings opened.
Businesses may also increase production because of a lower cost of financing inventories. A fall in interest rates thus peps up investment and production.
Lower interest rates also induce investors to move out of interest bearing investments like CDs and bonds and into stocks, causing a stock market rally. For this reason, investors in the stock market generally embrace the news of a lower interest rate. Higher stock values, in turn, make it easier for businesses to issue more stocks to finance additional investment.
As Ludwig von Mises wrote in The Causes of the Economic Crisis,
The moderated interest rate is intended to stimulate production and not to cause a stock market boom. However, stock prices increase first of all. At the outset, commodity prices are not caught up in the boom. There are stock exchange booms and stock exchange profits. Yet, the “producer” is dissatisfied. He envies the “speculator” his “easy profit.” Those in power are not willing to accept this situation. They believe that production is being deprived of money which is flowing into the stock market. Besides, it is precisely in the stock market boom that the serious threat of a crisis lies hidden.
So the excess liquidity created by the central bank is invested in stocks. As the prices of these stocks rise, investors’ dopamine levels increase from the expectation of gain, riskier stocks are then bid up in price by investors because more risk must be undertaken to achieve the same dopamine rush and a market becomes a bubble.
The modern world of financial markets is one long series of unending booms and busts. But the investing public falls for it every time. Rates are going down; the economy will get better; stocks are going up; real estate is going up — I better pile in! I don’t want to miss the boat. I don’t want to regret not getting in on the action.
“The simple fact is most people just do not have brains suitable for investing.”
What can explain this groupthink?
Solomon Asch’s work on conformity demonstrate that groupthink is extremely powerful. His experiments show that people influenced by a crowd will knowingly make wrong decisions 70 percent of the time.
Emory University neuroscientist Gregory Burns found that when people broke ranks with the conforming group, areas of the brain lit up that are associated with negative emotions. “In other words, nonconformity is an emotionally traumatic experience,” writes Michael Shermer in The Mind of the Market, “which is why most of us don’t like to break ranks with our social group norms.”
The fact is, it’s hard to be a contrarian. With the bubble in full bloom, the last thing you want to tell the boys at the club is that you have your money in cash or gold. They’ll make fun of you: “What are you, a wimp? Come on, this is easy. We’re cleaning up. You’re going to regret it if you don’t.” Then your spouse starts in on you. “How are our stocks doing honey? When are we going to pick up some rental properties like the Joneses next door?”
Groupthink studies show that good people can do evil things. That “evil is facilitated through the contagious excitement of the group’s actions, through the unchecked momentum of the smaller bad steps that came before, and ultimately permission for evil is granted by the system at large,” writes Michael Shermer.
By the same token, level-headed investors can (and have) been caught up in investment booms and manias. Even the best of investors can lose their heads. So if the stock market is going up, people pile in. There’s even a name for it: “momentum investing.”
Of course, ultimately the fundamentals of the investments do not support the prices. Market prices cool and dopamine levels dry up, as expected gains don’t materialize. A crash ensues with investor regret.
The booms end in tears. The ultimate bust “makes people despondent and dispirited,” wrote Mises.
The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration. The individual is always ready to ascribe his good luck to his own efficiency and to take it as a well-deserved reward for his talent, application and probity. But reverses of fortune he always charges to other people, and most of all to the absurdity of social and political institutions. He does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse.
The rationalization that Mises refers to is discussed by social psychologist Daniel Gilbert in his book Stumbling on Happiness. Gilbert explains that our frontal lobes make us look at ourselves through rose-colored glasses: “To learn from our experience we must remember it, and for a variety of reasons, memory is a faithless friend.”
“In a world of fiat currencies, created with the ease of keystroke, the value of our savings is threatened every hour of every day.”
Psychologists also call this “hindsight bias.”
“People distort and misremember what they formerly believed,” explains psychologist Daniel Kahneman. “Our sense of how uncertain the world really is never fully develops, because after something happens, we greatly increase our judgments of how likely it was to happen.”
This bias keeps us from feeling like idiots as we look back, but unfortunately it “can make you act like an idiot as you go forward,” writes Jason Zweig.
The phenomena of cognitive dissonance is another way to look at this. Cognitive dissonance is the mental tension created when a person holds two conflicting thoughts simultaneously. For instance, an investor may have believed the stocks he invested in during the boom would make him rich. But when the bust occurs or the stock prices head south for another reason, the evidence is overwhelming that the investor was wrong. Will he or she admit it? No. “The individual will frequently emerge, not only unshaken, but even show a new fervor about convincing and converting people to his view,” psychologist Leon Festinger writes.
When we hang on to losing stocks, unprofitable investments, failing businesses, and unsuccessful relationships, we’re experiencing cognitive dissonance — rationalizing our past choices, while unfortunately “those rationalizations influence our present ones,” Shermer writes.
“There is need to stress this point,” wrote Mises,
because the public, always in search of a scapegoat, is as a rule ready to blame the monetary authorities and the banks for the outbreak of the crisis. They are guilty, it is asserted, because in stopping the further expansion of credit, they have produced a deflationary pressure on trade.
The simple fact is most people just do not have brains suitable for investing. Humans have too many biases — biases that protect us and our fragile egos, so that we can get up and face life each and every day.
But in a world of fiat currencies, created with the ease of keystroke, the value of our savings is threatened every hour of every day. And when monetary bureaucrats act, they send shock waves not only through the financial markets but also through investors’ and entrepreneurs’ brains, sending the mass investoriat on another chase toward riches that are but a chimera.
“The spiritual dimension of these inflation-induced habits seem obvious,” Guido Hülsmann writes in his book The Ethics of Money Production. “Money and financial questions come to play an exaggerated role in the life of man.”
But for ordinary citizens to simply put money in a savings account at the local bank is suicidal, as Hülsmann makes clear. “They must invest in assets the value of which grows during inflation; the most practical way to do this is to buy stocks and bonds,” he writes.
But this entails many hours spent on comparing and selecting appropriate issues. And it compels them to be ever watchful and concerned about their money for the rest of their lives. They need to follow the financial news and monitor the price quotations on the financial markets.
The rational-expectations and efficient-markets-hypothesis folks think that’s just fine; everyone is perfectly rational and have all the information they need to invest without worry. They say market bubbles and the ensuing crashes just aren’t possible. Investors know when markets will boom and bust.
Those of us in the Austrian School know better. Booms and busts do happen with all too much regularity in a fiat-money world, inflicting not only financial pain, but emotional and social turmoil as well. Professor Hülsmann points out that
Carpenters, masons, tailors, and farmers are usually not very astute observers of the international capital markets. Putting some gold coins under their mattress or into a safe deposit box saved them many sleepless nights, and it made them independent of financial intermediaries.
That’s good advice for all of us.
Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. He received his masters degree in economics from the University of Nevada, Las Vegas, under Murray Rothbard with Professor Hans-Hermann Hoppe serving on his thesis committee. French teaches in the Mises Academy.
May 24th, 2010 | Tags: Austrian economics, behavioral economics, Black Swan, economic forecasting, Efficient Market Hypothesis, Fama, Human Action, Mises, praxeology | Category: Austrian economics, business cycles | One comment
Definitely worth reading!
Stock Markets, Cycles, and Dopamine
By Jeff Harding, on May 24th, 2010
This is an article on behavioral economics, markets, business cycles and Austrian theory. It was written by Doug French, president of the Mises Institute. I am reproducing it in its entirety. Anyone who invests in stocks, bonds, real estate, gold, or whatever, should read this article.
After reading the article I was reminded again of the brilliance of Ludwig von Mises and how perceptive he was about his favorite topic, the study of the behavior of human beings, or what he called “human action” (praxeology). The Austrian School was originally called the Psychological School of economics because of its focus on individual behavior rather than aggregate behavior.
The hot new branch of praxeology is behavioral economics, although many behavioral economists are probably not aware of this fact. In this piece, French summarizes current behavioral research and examines it in light of Austrian theory as it pertains to market behavior. The behavioral examples align well with Nassim Taleb’s Black Swan and his conclusions. Although Taleb doesn’t get into Austrian theory as a framework for economic behavior in his book, he, based on my understanding of reading other articles by Taleb, is Austrian in his outlook and conclusions.
Don’t Go With The Flow
By Doug French
Anyone who follows financial markets has to wonder at times, “What are people thinking? How did they come to make those decisions?”
It’s hard to imagine that John Muth and Robert Lucas came up with what’s known as the “rational-expectations theory,” wherein, as explained in Wikipedia,
it is assumed that outcomes that are being forecast do not differ systematically from the market equilibrium results. That is, it assumes that people do not make systematic errors when predicting the future, and deviations from perfect foresight are only random.
Muth and Lucas should watch daily programs on the financial channels like Jim Cramer’s Mad Money, which is supposedly to help individual investors, or CNBC’s Fast Money, a show clearly geared toward speculators. No viewer can watch these shows and walk away believing, “people do not make systematic errors when predicting the future.”
So while financial markets have been a series of speculative bubbles as the Federal Reserve creates money ad infinitum, rational-expectations economists Robert Flood and Robert Hodrick daringly conclude, “The current empirical tests for bubbles do not successfully establish the case that bubbles exist in asset prices.” [!]
The efficient-markets hypothesis (EMH) is the rational-expectations school of the investing world. The efficient-market hypothesis asserts that financial markets are “informationally efficient,” claiming one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis.
Bob Murphy wrote recently on Mises.org about Chicago School economist Eugene Fama, who is the father of the efficient-markets hypothesis.
Fama is not a Nobel laureate, but he did coauthor The Theory of Finance textbook with Nobel winner Merton H. Miller and he himself won the 2005 Deutsche Bank Prize in Financial Economics as well as the 2008 Morgan Stanley–American Finance Association Award.
Fama was interviewed by the New Yorker’s John Cassidy, which was the basis for Murphy’s article.
Cassidy asked Fama how he thought the efficient-market hypothesis had held up during the recent multiple financial crisis. Fama said,
I think it did quite well in this episode. Prices started to decline in advance of when people recognized that it was a recession and then continued to decline. There was nothing unusual about that. That was exactly what you would expect if markets were efficient.
When Cassidy mentioned the credit bubble that lead to the housing bubble and ultimate bust, the famed professor said,
I don’t even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means. I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.
“I think most bubbles are twenty-twenty hindsight,” Fama told Cassidy. When asked to clarify whether he thought bubbles can exist, Fama answered “They [bubbles] have to be predictable phenomena.”
I don’t know what Professor Fama’s been smoking or whether he’s just in denial or not paying attention, but, especially since Richard Nixon cut the dollar loose from gold, it’s been one bubble and bust after another.
“It’s hard to be a contrarian. With the bubble in full bloom, the last thing you want to tell the boys at the club is that you have your money in cash or gold.”
And clearly in a boom people go crazy. Another term for bubble is mania, and according the Webster’s, “mania” is defined in an individual as an “excitement of psychotic proportions manifested by mental and physical hyperactivity, disorganization of behavior, and elevation of mood.”
Robert Prechter, in his book View From The Top of the Grand Supercycle, points out that mania refers specifically to “the manic phase of manic-depressive psychosis.”
Economists Kevin McCabe and Colin Camerer combined with neuroscientist Read Montague to do a study of financial markets where the subjects of the experiment were given $100 to invest, making their decisions against 20 different markets. Montague and the two economists used historical market prices, measuring the brain and behavioral responses to these.
The researchers were especially interested in how their subjects would respond to markets featuring bubbles and crashes. The subjects’ brains were scanned while they created and reacted to market bubbles with their investments. Fifty-two subjects played the investment game in the scanners but had no idea they were playing in actual historical markets.
Two of the markets used in the simulation were particularly brutal to the fifty-two participants; the 1987 stock-market crash and the 1929 crash. None of the subjects earned money in the 1929-crash simulation and many lost more than half their portfolio.
“This market,” Montague explains, “out of all twenty used, lulled subjects’ decision mechanisms into a kind of stupor and then — bang. Goodbye, money.”
The variable that most drove behavior in the investment game in all markets was — regret. Regret was a big factor when subjects changed their investments and also “showed up as an extremely strong neural signal in a reward-decision-making region of the brain, the ventral putamen, the same site where reward-prediction error signals appear.”
Montague believes this is significant because, as gambling games evolved to “exploit the frailties of our biological valuation and decision-making machinery,” the 1929 market “hit a kind of fragile ’sweet spot’ of valuation and decision machinery in the subject’s brain.”
Regret, in this case, is the difference between the value of what is and the value of what could have been. This is important because of dopamine, which is a chemical in the brain that helps humans decide how to take actions that will result in rewards at the right time.
People don’t get a dopamine kick when they get what they expect, only when they make an unexpected windfall. So, as Jason Zweig writes in Your Money and Your Brain, drug addicts crave ever-larger fixes to achieve the same satisfaction and “why investors have such a hankering for fast-rising stocks with ‘positive momentum’ or ‘accelerating earnings growth’.” Also, dopamine dries up if the reward you expected fails to materialize.
The brain has 100 billion neurons and only one-thousandth of one percent produce dopamine, but “this minuscule neural minority wields enormous power over your investing decisions,” cautions Zweig.
“Level-headed investors can (and have) been caught up in investment booms and manias.”
Dopamine takes as little as a twentieth of second to reach your decision centers, estimating the value of an expected reward and more importantly propelling you to action to capture that reward. “We’ve evolved to be that way,” explains psychologist Kent Berridge, “because passively knowing about the future is not good enough.”
The effect of all this is what Zweig refers to as “the prediction addiction.” Humans hate randomness. We want to predict the unpredictable, which originates in the dopamine centers of the reflective brain, according to Zweig, leading humans to see patterns where none really exist.
The whole technical-analysis field that Wall Street embraces, is based upon the human desire to predict, and when seeing two occurrences in repetition, people believe (or want to believe) that a trend is in process that, most importantly, they can profit from.
When Parkinson’s patients are given drugs to allow their brains to be more receptive to dopamine, they have the insatiable urge to gamble. When these drugs are stopped, the gambling stops immediately. But unfortunately, when we get what we expect, no dopamine rush ensues.
These neurologists don’t talk about the Austrian business-cycle theory. For that we turn to Ludwig von Mises, who explains that when the central bank lowers interest rates below the natural rate of interest, engineered by an expansion in liquidity,
the drop in interest rates falsifies the businessman’s calculation. … The result of such calculations is therefore misleading. They make some projects appear profitable and realizable which a correct calculation, based on an interest rate not manipulated by credit expansion, would have shown as unrealizable. Entrepreneurs embark upon the execution of such projects. Business activities are stimulated. A boom begins.
Computational neuroscientists would add that not only do the projects appear profitable on paper but also that dopamine is released into the brains of entrepreneurs as they anticipate future profits.
After all, it’s ingrained into the business and investing public’s collective brain that the lowering of short-term real interest rates, and eventually long-term rates, will have a broad and deep impact throughout the economy.
For example, mainstream economist Dr. Yoshi Fukasawa from Midwestern State University writes,
Lower real interest rates stimulate business investment by making more investment projects profitable.
Reduced interest costs mean that more machines and equipment will be bought, new factories and warehouses built, and additional stores and apartment buildings opened.
Businesses may also increase production because of a lower cost of financing inventories. A fall in interest rates thus peps up investment and production.
Lower interest rates also induce investors to move out of interest bearing investments like CDs and bonds and into stocks, causing a stock market rally. For this reason, investors in the stock market generally embrace the news of a lower interest rate. Higher stock values, in turn, make it easier for businesses to issue more stocks to finance additional investment.
As Ludwig von Mises wrote in The Causes of the Economic Crisis,
The moderated interest rate is intended to stimulate production and not to cause a stock market boom. However, stock prices increase first of all. At the outset, commodity prices are not caught up in the boom. There are stock exchange booms and stock exchange profits. Yet, the “producer” is dissatisfied. He envies the “speculator” his “easy profit.” Those in power are not willing to accept this situation. They believe that production is being deprived of money which is flowing into the stock market. Besides, it is precisely in the stock market boom that the serious threat of a crisis lies hidden.
So the excess liquidity created by the central bank is invested in stocks. As the prices of these stocks rise, investors’ dopamine levels increase from the expectation of gain, riskier stocks are then bid up in price by investors because more risk must be undertaken to achieve the same dopamine rush and a market becomes a bubble.
The modern world of financial markets is one long series of unending booms and busts. But the investing public falls for it every time. Rates are going down; the economy will get better; stocks are going up; real estate is going up — I better pile in! I don’t want to miss the boat. I don’t want to regret not getting in on the action.
“The simple fact is most people just do not have brains suitable for investing.”
What can explain this groupthink?
Solomon Asch’s work on conformity demonstrate that groupthink is extremely powerful. His experiments show that people influenced by a crowd will knowingly make wrong decisions 70 percent of the time.
Emory University neuroscientist Gregory Burns found that when people broke ranks with the conforming group, areas of the brain lit up that are associated with negative emotions. “In other words, nonconformity is an emotionally traumatic experience,” writes Michael Shermer in The Mind of the Market, “which is why most of us don’t like to break ranks with our social group norms.”
The fact is, it’s hard to be a contrarian. With the bubble in full bloom, the last thing you want to tell the boys at the club is that you have your money in cash or gold. They’ll make fun of you: “What are you, a wimp? Come on, this is easy. We’re cleaning up. You’re going to regret it if you don’t.” Then your spouse starts in on you. “How are our stocks doing honey? When are we going to pick up some rental properties like the Joneses next door?”
Groupthink studies show that good people can do evil things. That “evil is facilitated through the contagious excitement of the group’s actions, through the unchecked momentum of the smaller bad steps that came before, and ultimately permission for evil is granted by the system at large,” writes Michael Shermer.
By the same token, level-headed investors can (and have) been caught up in investment booms and manias. Even the best of investors can lose their heads. So if the stock market is going up, people pile in. There’s even a name for it: “momentum investing.”
Of course, ultimately the fundamentals of the investments do not support the prices. Market prices cool and dopamine levels dry up, as expected gains don’t materialize. A crash ensues with investor regret.
The booms end in tears. The ultimate bust “makes people despondent and dispirited,” wrote Mises.
The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration. The individual is always ready to ascribe his good luck to his own efficiency and to take it as a well-deserved reward for his talent, application and probity. But reverses of fortune he always charges to other people, and most of all to the absurdity of social and political institutions. He does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse.
The rationalization that Mises refers to is discussed by social psychologist Daniel Gilbert in his book Stumbling on Happiness. Gilbert explains that our frontal lobes make us look at ourselves through rose-colored glasses: “To learn from our experience we must remember it, and for a variety of reasons, memory is a faithless friend.”
“In a world of fiat currencies, created with the ease of keystroke, the value of our savings is threatened every hour of every day.”
Psychologists also call this “hindsight bias.”
“People distort and misremember what they formerly believed,” explains psychologist Daniel Kahneman. “Our sense of how uncertain the world really is never fully develops, because after something happens, we greatly increase our judgments of how likely it was to happen.”
This bias keeps us from feeling like idiots as we look back, but unfortunately it “can make you act like an idiot as you go forward,” writes Jason Zweig.
The phenomena of cognitive dissonance is another way to look at this. Cognitive dissonance is the mental tension created when a person holds two conflicting thoughts simultaneously. For instance, an investor may have believed the stocks he invested in during the boom would make him rich. But when the bust occurs or the stock prices head south for another reason, the evidence is overwhelming that the investor was wrong. Will he or she admit it? No. “The individual will frequently emerge, not only unshaken, but even show a new fervor about convincing and converting people to his view,” psychologist Leon Festinger writes.
When we hang on to losing stocks, unprofitable investments, failing businesses, and unsuccessful relationships, we’re experiencing cognitive dissonance — rationalizing our past choices, while unfortunately “those rationalizations influence our present ones,” Shermer writes.
“There is need to stress this point,” wrote Mises,
because the public, always in search of a scapegoat, is as a rule ready to blame the monetary authorities and the banks for the outbreak of the crisis. They are guilty, it is asserted, because in stopping the further expansion of credit, they have produced a deflationary pressure on trade.
The simple fact is most people just do not have brains suitable for investing. Humans have too many biases — biases that protect us and our fragile egos, so that we can get up and face life each and every day.
But in a world of fiat currencies, created with the ease of keystroke, the value of our savings is threatened every hour of every day. And when monetary bureaucrats act, they send shock waves not only through the financial markets but also through investors’ and entrepreneurs’ brains, sending the mass investoriat on another chase toward riches that are but a chimera.
“The spiritual dimension of these inflation-induced habits seem obvious,” Guido Hülsmann writes in his book The Ethics of Money Production. “Money and financial questions come to play an exaggerated role in the life of man.”
But for ordinary citizens to simply put money in a savings account at the local bank is suicidal, as Hülsmann makes clear. “They must invest in assets the value of which grows during inflation; the most practical way to do this is to buy stocks and bonds,” he writes.
But this entails many hours spent on comparing and selecting appropriate issues. And it compels them to be ever watchful and concerned about their money for the rest of their lives. They need to follow the financial news and monitor the price quotations on the financial markets.
The rational-expectations and efficient-markets-hypothesis folks think that’s just fine; everyone is perfectly rational and have all the information they need to invest without worry. They say market bubbles and the ensuing crashes just aren’t possible. Investors know when markets will boom and bust.
Those of us in the Austrian School know better. Booms and busts do happen with all too much regularity in a fiat-money world, inflicting not only financial pain, but emotional and social turmoil as well. Professor Hülsmann points out that
Carpenters, masons, tailors, and farmers are usually not very astute observers of the international capital markets. Putting some gold coins under their mattress or into a safe deposit box saved them many sleepless nights, and it made them independent of financial intermediaries.
That’s good advice for all of us.
Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. He received his masters degree in economics from the University of Nevada, Las Vegas, under Murray Rothbard with Professor Hans-Hermann Hoppe serving on his thesis committee. French teaches in the Mises Academy.
May 24th, 2010 | Tags: Austrian economics, behavioral economics, Black Swan, economic forecasting, Efficient Market Hypothesis, Fama, Human Action, Mises, praxeology | Category: Austrian economics, business cycles | One comment
Thursday, May 13, 2010
Europe
More Great Zerohedge Commentary
http://www.zerohedge.com/article/selling-out-germany
The Selling Out Of Germany
Submitted by Tyler Durden on 05/13/2010 11:27 -0500
2s10s. Bear Stearns Crude Fail Germany Great Depression Hyperinflation International Monetary Fund Japan Mars Momo Reserve Currency TARP
By Michael Krieger Of KAM LP
In some ways it’s a battle of the politicians against the markets. That’s how I do see it. But I’m determined to win this battle.
- Angela Merkel
Gold Is Money, and Nothing Else.
- JP Morgan, testifying under oath to Congress before the Pujo Commission, 1913
The Selling Out of Germany
I feel very bad for the German people. Not only do I feel bad for them but I can empathize. I too am being forced to sit back and watch this comedy of errors as a corrupt, inept and increasingly dangerous class of elitist political and financial oligarchs destroys my nation. On Sunday night an ex-client that I have remained in contact with since my days at Bernstein sent me an email with a simple question: “What do you think of the bailout.” I didn’t have time to answer it during trading Monday but when I finally sat down I wrote the following.
Basically, it’s a total joke as is everything else the politicians have done. No one and nothing is allowed to fail and this relates to the fact that the global monetary and financial system is a complete house of cards. It’s insanely bullish for gold. If Germans rioted they would be in the streets today. They totally got sold out beyond belief. But it doesn’t seem to be in their nature to riot so rather I think they will dump their Euros and buy gold. That’s how Germans riot. With every passing day and every new bailout of the global banks (which is all this is, all TARP was, and all everything has been) more and more people awaken to the fact it’s all a total scam. This will just accelerate the process of dumping the paper currencies we use today in favor of hard assets as this system is obviously coming down. A lot of people keep asking, is this the same as post Bear Stearns? I mean here is the biggest difference in my mind. Back then people believed in the system, the market and what we have going generally. Not now. Not anymore. Thousands more people every day figure out it’s rigged and it’s a ponzi scheme.
Now remember I wrote this on Monday night after having just witnessed a 400 point surge in the Dow that was also accompanied by a $5 drop in the price of gold. Such action must have made the control freak bureaucrats the world over self assured of their brilliance and more importantly their “boldness,” the latter a term that Obama likes to use as he is pushing forward some financial nuclear bomb pipedream welfare state policy that is extremely unpopular with the citizenry. Nevertheless, that one day of weakness in gold was followed by a surge to new highs in U.S. dollar terms as the selling out of Germany led to a major rush to buy physical gold. The Germans remember history and they did not disappoint. Just think about this fact. Muenze Oesterreich AG, the Austrian mint that makes the best-selling gold coin in Europe and Japan reported that buyers had purchased 243,500 ounces of gold since April 26, compared with 205,300 ounces in the entire first quarter! Wow. Make no mistake about it what has happened in Germany in the last week (the elections in North Rhine-Westphalia and the rush to convert colored pieces of paper to gold) is the financial equivalent of the shots at Lexington and Concord in 1775. I give the German people a lot of credit for what they have done as this is not just a battle inside America. This battle is global and the German people just launched an impressive counter-attack on the control freak bureaucrats.
At this point I would like to examine the quote at the top by German Chancellor Angela Merkel. “In some ways it’s a battle of the politicians against the markets. That’s how I do see it. But I’m determined to win this battle.” What an incredibly sad woman she is. Now of course she believes every word of this as do her fellow political-class colleagues; however, to anyone that has worked and succeeded in the real world the statement sounds as if it is from an indignant infant. So here we have it folks. In a seemingly simple statement, Angela Merkel said what every control freak bureaucrat that wants to run your life the world over thinks. They ARE the market. They decide who fails and when. They decide who is to succeed. This is prevalent across the entire developed world right now. They decided to bring down Germany and its currency because they want to save face and because the banks basically are forcing them to save them again (as if this will ever end).
The larger point which I have mentioned repeatedly in these emails is that the market always wins. The scary thing is that when the market does win within the context of a political class with excess power the political class turns on its people and attacks them, shuts down the market and then there is the potential for serious tyranny. Every country in the OECD faces this now and we must be prepared financially and emotionally so that we do not allow the political class with their corporate oligarch allies to turn what’s left of the middle class (and a lot of what now can be considered the upper class) into a bunch of serfs in this nightmarish neo-feudalism we seem to be progressing toward. The more gold, silver and platinum in the hands of the people when the house of cards comes down the better. This way not everyone will be destitute and we can start over on our own without having more insane ideas shoved down our throats by our “kings and queens”.
What’s Next for the Euro?
I believe that the physical gold rush we have seen in Europe is proof that the bailout was an epic failure. Of course propaganda will be used all over the place from the emotionally captured mainstream media to the stock market, which as I have said for over a year now is largely used as a political weapon because the uneducated masses actually believe the stock market going up means things are getting better. All we have to do is look at the stellar performance of the Zimbabwean stock market during the hyperinflation to know this is complete nonsense. Ah, but the Disneyland patrons chug along the river in their teacups as “it’s a small world” plays soothingly in the background as they are about to go over a waterfall. Everything is fine, we have acted “boldly” to prevent Great Depression Part II they say. Yeah, something like that…
Ok, so one thing this monstrosity that the Europeans and IMF have unleashed upon us has done is increase the odds that Germany leaves the EU. Now of course this assumes that this thing gets passed and goes into effect as planned. If it does, I do think the chances of Germany itself leaving the union in the next 2-3 years has gone from somewhere less than 10% to greater than 50%. This is partly why I think there has been no bounce in the euro. If it is not the PIIGS that get kicked out (which would probably be very bullish for the euro) but rather that Germany itself that opts out down the road when the political leadership changes then what is a euro then? Nothing. It could trade to $0.50 or lower, who knows. This is a real risk over the next several years to anyone holding euros.
Americans Will Unfortunately be the Last to Figure it Out
I do not mean to be insulting when I say this but the fact of the matter is that during my time at Bernstein a bothersome number of investors did not understand gold. Why it is important, how it has functioned historically, and how it inevitably would function in the future. I think the understanding is far greater today but still not good enough. Now the reasons for the lack of understanding can be easily explained, the most important of which is that fact that we have had the reserve currency since World War II and this has permitted us to print money and buy resources. As such, while Americans did experience major inflation in the 1970s we have not as a nation gone through a traumatic currency crisis to the extent that many other nations in the world have done. Thus, there has been no imperative for most of us to study the history of money and gold’s role throughout history in this regard. I keep hearing “analysts” on television that clearly have no idea what they are talking about expound upon why gold is about to crash. Of course there are scenarios where gold could crash but under those scenarios the stock market would probably go down 95% while gold goes down 50% (we will end up with the Dow and gold 1:1 or close to it one way or the other). This would only happen if government’s globally stopped printing money to bail everything out. Do you want to make that bet?
One fun mental exercise that I and others have often engaged in over the past year or so was speculation as to which bankrupt OECD nation would first see panic in their markets. Would it be Japan? The United States? Europe? Well now we have out answer and in some ways some Europeans may benefit from this in the long-run. The events in the last couple of weeks culminating in the bailout has made it clear to many that this really is game over. As such they are buying gold while it is still inexpensive relative to where it is likely to go. Sadly, this has left many Americans with a false sense of security and as such the public is likely to rush into gold only when it is well above $2,000/oz when the realities of bankruptcy hit the United States.
Oil is NOT $74/b!!!
Just a quick comment on the oil price. If you use WTI (CL1 Commodity on Bloomberg) at this time you have no idea what the oil price is. As a result of what appears to be record (or close to it) inventories at Cushing, Ok, WTI crude as a benchmark appears to be useless once again. Mars oil, which is a lower quality Gulf crude is trading at $77.36/b this morning and this should not happen. It’s all a storage issue and so WTI tells you nothing. Use Brent (C01 Commodity) to get a sense of the real oil price. Brent is currently trading at $80.50/b. Meanwhile, Asian Tapis closed at $83.74/b last night. This $9/b spread is close to record highs.
Final Thoughts
Last week I did an interview with Max Kesier and it can be seen at the following link. http://www.youtube.com/watch?v=pL3n_dqRfQg&feature=player_embedded I appear 13 minutes in but the entire thing is worth watching. Max Kesier’s website is also a good one to check out during the day for some of the financial news that the mainstream media would just as soon not cover. http://maxkeiser.com/
I might not write next week as I am working on something different that I want to get out before the end of May since I will be taking all of June off to drive across America. I leave you with the following cartoon which I think pretty much sums it up!
h/t Uber Momo Trader
http://www.zerohedge.com/article/selling-out-germany
The Selling Out Of Germany
Submitted by Tyler Durden on 05/13/2010 11:27 -0500
2s10s. Bear Stearns Crude Fail Germany Great Depression Hyperinflation International Monetary Fund Japan Mars Momo Reserve Currency TARP
By Michael Krieger Of KAM LP
In some ways it’s a battle of the politicians against the markets. That’s how I do see it. But I’m determined to win this battle.
- Angela Merkel
Gold Is Money, and Nothing Else.
- JP Morgan, testifying under oath to Congress before the Pujo Commission, 1913
The Selling Out of Germany
I feel very bad for the German people. Not only do I feel bad for them but I can empathize. I too am being forced to sit back and watch this comedy of errors as a corrupt, inept and increasingly dangerous class of elitist political and financial oligarchs destroys my nation. On Sunday night an ex-client that I have remained in contact with since my days at Bernstein sent me an email with a simple question: “What do you think of the bailout.” I didn’t have time to answer it during trading Monday but when I finally sat down I wrote the following.
Basically, it’s a total joke as is everything else the politicians have done. No one and nothing is allowed to fail and this relates to the fact that the global monetary and financial system is a complete house of cards. It’s insanely bullish for gold. If Germans rioted they would be in the streets today. They totally got sold out beyond belief. But it doesn’t seem to be in their nature to riot so rather I think they will dump their Euros and buy gold. That’s how Germans riot. With every passing day and every new bailout of the global banks (which is all this is, all TARP was, and all everything has been) more and more people awaken to the fact it’s all a total scam. This will just accelerate the process of dumping the paper currencies we use today in favor of hard assets as this system is obviously coming down. A lot of people keep asking, is this the same as post Bear Stearns? I mean here is the biggest difference in my mind. Back then people believed in the system, the market and what we have going generally. Not now. Not anymore. Thousands more people every day figure out it’s rigged and it’s a ponzi scheme.
Now remember I wrote this on Monday night after having just witnessed a 400 point surge in the Dow that was also accompanied by a $5 drop in the price of gold. Such action must have made the control freak bureaucrats the world over self assured of their brilliance and more importantly their “boldness,” the latter a term that Obama likes to use as he is pushing forward some financial nuclear bomb pipedream welfare state policy that is extremely unpopular with the citizenry. Nevertheless, that one day of weakness in gold was followed by a surge to new highs in U.S. dollar terms as the selling out of Germany led to a major rush to buy physical gold. The Germans remember history and they did not disappoint. Just think about this fact. Muenze Oesterreich AG, the Austrian mint that makes the best-selling gold coin in Europe and Japan reported that buyers had purchased 243,500 ounces of gold since April 26, compared with 205,300 ounces in the entire first quarter! Wow. Make no mistake about it what has happened in Germany in the last week (the elections in North Rhine-Westphalia and the rush to convert colored pieces of paper to gold) is the financial equivalent of the shots at Lexington and Concord in 1775. I give the German people a lot of credit for what they have done as this is not just a battle inside America. This battle is global and the German people just launched an impressive counter-attack on the control freak bureaucrats.
At this point I would like to examine the quote at the top by German Chancellor Angela Merkel. “In some ways it’s a battle of the politicians against the markets. That’s how I do see it. But I’m determined to win this battle.” What an incredibly sad woman she is. Now of course she believes every word of this as do her fellow political-class colleagues; however, to anyone that has worked and succeeded in the real world the statement sounds as if it is from an indignant infant. So here we have it folks. In a seemingly simple statement, Angela Merkel said what every control freak bureaucrat that wants to run your life the world over thinks. They ARE the market. They decide who fails and when. They decide who is to succeed. This is prevalent across the entire developed world right now. They decided to bring down Germany and its currency because they want to save face and because the banks basically are forcing them to save them again (as if this will ever end).
The larger point which I have mentioned repeatedly in these emails is that the market always wins. The scary thing is that when the market does win within the context of a political class with excess power the political class turns on its people and attacks them, shuts down the market and then there is the potential for serious tyranny. Every country in the OECD faces this now and we must be prepared financially and emotionally so that we do not allow the political class with their corporate oligarch allies to turn what’s left of the middle class (and a lot of what now can be considered the upper class) into a bunch of serfs in this nightmarish neo-feudalism we seem to be progressing toward. The more gold, silver and platinum in the hands of the people when the house of cards comes down the better. This way not everyone will be destitute and we can start over on our own without having more insane ideas shoved down our throats by our “kings and queens”.
What’s Next for the Euro?
I believe that the physical gold rush we have seen in Europe is proof that the bailout was an epic failure. Of course propaganda will be used all over the place from the emotionally captured mainstream media to the stock market, which as I have said for over a year now is largely used as a political weapon because the uneducated masses actually believe the stock market going up means things are getting better. All we have to do is look at the stellar performance of the Zimbabwean stock market during the hyperinflation to know this is complete nonsense. Ah, but the Disneyland patrons chug along the river in their teacups as “it’s a small world” plays soothingly in the background as they are about to go over a waterfall. Everything is fine, we have acted “boldly” to prevent Great Depression Part II they say. Yeah, something like that…
Ok, so one thing this monstrosity that the Europeans and IMF have unleashed upon us has done is increase the odds that Germany leaves the EU. Now of course this assumes that this thing gets passed and goes into effect as planned. If it does, I do think the chances of Germany itself leaving the union in the next 2-3 years has gone from somewhere less than 10% to greater than 50%. This is partly why I think there has been no bounce in the euro. If it is not the PIIGS that get kicked out (which would probably be very bullish for the euro) but rather that Germany itself that opts out down the road when the political leadership changes then what is a euro then? Nothing. It could trade to $0.50 or lower, who knows. This is a real risk over the next several years to anyone holding euros.
Americans Will Unfortunately be the Last to Figure it Out
I do not mean to be insulting when I say this but the fact of the matter is that during my time at Bernstein a bothersome number of investors did not understand gold. Why it is important, how it has functioned historically, and how it inevitably would function in the future. I think the understanding is far greater today but still not good enough. Now the reasons for the lack of understanding can be easily explained, the most important of which is that fact that we have had the reserve currency since World War II and this has permitted us to print money and buy resources. As such, while Americans did experience major inflation in the 1970s we have not as a nation gone through a traumatic currency crisis to the extent that many other nations in the world have done. Thus, there has been no imperative for most of us to study the history of money and gold’s role throughout history in this regard. I keep hearing “analysts” on television that clearly have no idea what they are talking about expound upon why gold is about to crash. Of course there are scenarios where gold could crash but under those scenarios the stock market would probably go down 95% while gold goes down 50% (we will end up with the Dow and gold 1:1 or close to it one way or the other). This would only happen if government’s globally stopped printing money to bail everything out. Do you want to make that bet?
One fun mental exercise that I and others have often engaged in over the past year or so was speculation as to which bankrupt OECD nation would first see panic in their markets. Would it be Japan? The United States? Europe? Well now we have out answer and in some ways some Europeans may benefit from this in the long-run. The events in the last couple of weeks culminating in the bailout has made it clear to many that this really is game over. As such they are buying gold while it is still inexpensive relative to where it is likely to go. Sadly, this has left many Americans with a false sense of security and as such the public is likely to rush into gold only when it is well above $2,000/oz when the realities of bankruptcy hit the United States.
Oil is NOT $74/b!!!
Just a quick comment on the oil price. If you use WTI (CL1 Commodity on Bloomberg) at this time you have no idea what the oil price is. As a result of what appears to be record (or close to it) inventories at Cushing, Ok, WTI crude as a benchmark appears to be useless once again. Mars oil, which is a lower quality Gulf crude is trading at $77.36/b this morning and this should not happen. It’s all a storage issue and so WTI tells you nothing. Use Brent (C01 Commodity) to get a sense of the real oil price. Brent is currently trading at $80.50/b. Meanwhile, Asian Tapis closed at $83.74/b last night. This $9/b spread is close to record highs.
Final Thoughts
Last week I did an interview with Max Kesier and it can be seen at the following link. http://www.youtube.com/watch?v=pL3n_dqRfQg&feature=player_embedded I appear 13 minutes in but the entire thing is worth watching. Max Kesier’s website is also a good one to check out during the day for some of the financial news that the mainstream media would just as soon not cover. http://maxkeiser.com/
I might not write next week as I am working on something different that I want to get out before the end of May since I will be taking all of June off to drive across America. I leave you with the following cartoon which I think pretty much sums it up!
h/t Uber Momo Trader
Monday, May 10, 2010
Sunday, May 2, 2010
Mad Max in Arizona
It would be great if every border state with Mexico took these steps. It is well past due. Time to take back control of our country and it's borders.
http://www.americanthinker.com/2010/04/the_arizona_uproar.html
by Leo W. Banks
"Listening to the national uproar, you'd be forgiven for thinking that Arizona has marched into the civil rights apocalypse with its new state law cracking down on illegal immigrants.
Last Friday, Arizona Governor Jan Brewer signed SB1070, making it a crime to be in the state illegally and requiring cops, where "reasonable suspicion" exists, to determine a person's legal status.
Rev. Al Sharpton is promising to come to Arizona to march, the New York Times says that the state has gone "off the deep end," and the Nazi references are flying. Los Angeles Cardinal Roger Mahony likened SB1070 to "German Nazi and Russian Communist techniques."
Riding the noise for political advantage, President Obama is summoning his Justice Department to look into the matter, saying that the law would "undermine basic notions of fairness that we cherish as Americans."
But 70 percent of Arizona residents support the law, according to Rasmussen.
What's going on here? Do we know something the rest of the country doesn't?
Actually, we do. Context is everything, and it'd be nice if the national media provided some, rather than simply slamming Arizona as a redneck haven filled with nativists and bubbas with a hankering for racial profiling.
An estimated 500,000 illegal aliens live in Arizona, and many are decent folks, to be sure. But the border is still wide open, and many more are coming. Last year in Border Patrol's 262-mile-wide Tucson Sector, agents arrested 241,000 illegal aliens, a drop of more than 130,000 from 2007.
It sounds great until you understand that gotaways outnumber arrests by three to one.
Does the country realize this, or have the people bought Janet Napolitano's political fairy tale that border security has been "transformed" from where we were in 2007?
As Obama lectures Arizona, citizens here await his decision on an urgent request to send three thousand National Guard troops to the border. Senators John McCain and Jon Kyl recently asked for soldiers, as did Democratic Congresswoman Gabrielle Giffords, to bring some security to American citizens being hammered by cross-border smugglers and thugs.
Here's an important bit of context: This isn't your father's illegal immigration, when polite farm workers offered to do chores in return for some water and a sandwich as they walked north. Today, the drug cartels have taken over the people-smuggling business. They own the trails into the country and dominate the land, the same way urban gangs control neighborhoods
Any group wanting in has to deal with them, and the going rate is $2,500 per person. If you don't have the cash, the cartel coyote will offer to bring you in for free if you carry his dope. As Cochise County Sheriff Larry Dever testified to the Senate Homeland Security Committee last week, most of the groups coming up now have a gun behind them.
Along the Chiricahua Corridor smuggling route north and east of Douglas, Arizona, residents have been screaming for some time about break-ins, threats, intimidation, vandalism, and home invasions. But the feds did nothing to keep citizens safe. Instead, they talked amnesty. Then the inevitable happened.
On March 27, Cochise County rancher Rob Krentz was murdered on his land, presumably by a drug smuggler. The death occurred on a well-known drug trail, and trackers followed the killer's prints back into Mexico. He is still at large.
Now, I can't argue with those who say that SB1070 has some provisions that smack of desperation -- such as making it a crime to stop your car to pick up a day laborer or to enter a stopped car to get temporary work. That sounds impossible to enforce.
But critics also say that it will have no impact on besieged residents of southern Arizona, and I disagree. It could help.
We have a huge problem with crooks coming up from Mexico to our cities and towns, committing crimes, and bolting back south of the border. Not long ago, I wrote a story that backtracked the records of two of these border coyotes and found that between them, they'd been arrested and released by either law enforcement or the courts a total of 35 times.
One was let go after a traffic stop, and the other had worked construction in Phoenix for years. If this law had been in effect, the police might've been able to get them off the street before they were able to lead more groups into southern Arizona, break into homes, and frighten citizens.
Civil rights? What about the civil right of American citizens to drive up to their homes at night and have some reasonable assurance that no one is inside?
On March 31, four hundred people gathered outside the one-room Apache School to tell their elected reps what it's like to live in smuggler-occupied territory. The meeting was held there, in the cold, open air, in part because the nearest place to host a group that size inside was seventy round-trip miles away, and these folks didn't feel comfortable leaving their homes for that length of time.
They live by a rule of thumb: If you leave your house empty, it will be occupied by illegals or drug smugglers. We're not talking just about homes five miles from the international line. We're talking about homes up to sixty miles north of the border.
Racial profiling doesn't matter much when you're in a fight to preserve your way of life and keep your family and property safe. Let me give you a different perspective on racial profiling. Now, when Border Patrol chases down and arrests illegals south of I-10, everybody says, "Atta boy. Good police work."
But if these crossers put a toe north of I-10, they're home free. Except for Maricopa County Sheriff Joe Arpaio, nobody is looking for them, and if you do, it's racial profiling.
The farther you get from the line, the more people want to make this problem about race. It's the ground the left wants to fight on because it's so effective. Political correctness shuts people up and keeps the border open.
Arizona has had enough and seen enough. This bill, admittedly flawed, motivated in part by anger and frustration, is an effort to step in and do something about a serious national problem on our southern border that grows more dangerous all the time.
But the national media largely ignore it because it offers up the wrong victims and the wrong politics. They don't send reporters out to Arizona get the story, to walk the smuggling trails, to sit with beleaguered Americans at their kitchen tables and understand the torment their lives have become.
Instead, they adopt the preening pose of the self-righteous, screaming from a safe distance about the bubbas. All 70 percent of them.
It's more fun than context.
http://www.americanthinker.com/2010/04/the_arizona_uproar.html
by Leo W. Banks
"Listening to the national uproar, you'd be forgiven for thinking that Arizona has marched into the civil rights apocalypse with its new state law cracking down on illegal immigrants.
Last Friday, Arizona Governor Jan Brewer signed SB1070, making it a crime to be in the state illegally and requiring cops, where "reasonable suspicion" exists, to determine a person's legal status.
Rev. Al Sharpton is promising to come to Arizona to march, the New York Times says that the state has gone "off the deep end," and the Nazi references are flying. Los Angeles Cardinal Roger Mahony likened SB1070 to "German Nazi and Russian Communist techniques."
Riding the noise for political advantage, President Obama is summoning his Justice Department to look into the matter, saying that the law would "undermine basic notions of fairness that we cherish as Americans."
But 70 percent of Arizona residents support the law, according to Rasmussen.
What's going on here? Do we know something the rest of the country doesn't?
Actually, we do. Context is everything, and it'd be nice if the national media provided some, rather than simply slamming Arizona as a redneck haven filled with nativists and bubbas with a hankering for racial profiling.
An estimated 500,000 illegal aliens live in Arizona, and many are decent folks, to be sure. But the border is still wide open, and many more are coming. Last year in Border Patrol's 262-mile-wide Tucson Sector, agents arrested 241,000 illegal aliens, a drop of more than 130,000 from 2007.
It sounds great until you understand that gotaways outnumber arrests by three to one.
Does the country realize this, or have the people bought Janet Napolitano's political fairy tale that border security has been "transformed" from where we were in 2007?
As Obama lectures Arizona, citizens here await his decision on an urgent request to send three thousand National Guard troops to the border. Senators John McCain and Jon Kyl recently asked for soldiers, as did Democratic Congresswoman Gabrielle Giffords, to bring some security to American citizens being hammered by cross-border smugglers and thugs.
Here's an important bit of context: This isn't your father's illegal immigration, when polite farm workers offered to do chores in return for some water and a sandwich as they walked north. Today, the drug cartels have taken over the people-smuggling business. They own the trails into the country and dominate the land, the same way urban gangs control neighborhoods
Any group wanting in has to deal with them, and the going rate is $2,500 per person. If you don't have the cash, the cartel coyote will offer to bring you in for free if you carry his dope. As Cochise County Sheriff Larry Dever testified to the Senate Homeland Security Committee last week, most of the groups coming up now have a gun behind them.
Along the Chiricahua Corridor smuggling route north and east of Douglas, Arizona, residents have been screaming for some time about break-ins, threats, intimidation, vandalism, and home invasions. But the feds did nothing to keep citizens safe. Instead, they talked amnesty. Then the inevitable happened.
On March 27, Cochise County rancher Rob Krentz was murdered on his land, presumably by a drug smuggler. The death occurred on a well-known drug trail, and trackers followed the killer's prints back into Mexico. He is still at large.
Now, I can't argue with those who say that SB1070 has some provisions that smack of desperation -- such as making it a crime to stop your car to pick up a day laborer or to enter a stopped car to get temporary work. That sounds impossible to enforce.
But critics also say that it will have no impact on besieged residents of southern Arizona, and I disagree. It could help.
We have a huge problem with crooks coming up from Mexico to our cities and towns, committing crimes, and bolting back south of the border. Not long ago, I wrote a story that backtracked the records of two of these border coyotes and found that between them, they'd been arrested and released by either law enforcement or the courts a total of 35 times.
One was let go after a traffic stop, and the other had worked construction in Phoenix for years. If this law had been in effect, the police might've been able to get them off the street before they were able to lead more groups into southern Arizona, break into homes, and frighten citizens.
Civil rights? What about the civil right of American citizens to drive up to their homes at night and have some reasonable assurance that no one is inside?
On March 31, four hundred people gathered outside the one-room Apache School to tell their elected reps what it's like to live in smuggler-occupied territory. The meeting was held there, in the cold, open air, in part because the nearest place to host a group that size inside was seventy round-trip miles away, and these folks didn't feel comfortable leaving their homes for that length of time.
They live by a rule of thumb: If you leave your house empty, it will be occupied by illegals or drug smugglers. We're not talking just about homes five miles from the international line. We're talking about homes up to sixty miles north of the border.
Racial profiling doesn't matter much when you're in a fight to preserve your way of life and keep your family and property safe. Let me give you a different perspective on racial profiling. Now, when Border Patrol chases down and arrests illegals south of I-10, everybody says, "Atta boy. Good police work."
But if these crossers put a toe north of I-10, they're home free. Except for Maricopa County Sheriff Joe Arpaio, nobody is looking for them, and if you do, it's racial profiling.
The farther you get from the line, the more people want to make this problem about race. It's the ground the left wants to fight on because it's so effective. Political correctness shuts people up and keeps the border open.
Arizona has had enough and seen enough. This bill, admittedly flawed, motivated in part by anger and frustration, is an effort to step in and do something about a serious national problem on our southern border that grows more dangerous all the time.
But the national media largely ignore it because it offers up the wrong victims and the wrong politics. They don't send reporters out to Arizona get the story, to walk the smuggling trails, to sit with beleaguered Americans at their kitchen tables and understand the torment their lives have become.
Instead, they adopt the preening pose of the self-righteous, screaming from a safe distance about the bubbas. All 70 percent of them.
It's more fun than context.
Thursday, April 29, 2010
Very Interesting China/US Situation
http://www.zerohedge.com/article/michael-krieger-last-dance
Read for an interesting analysis of the USD situation vis a' vis China.
China took our production, now they will take away the value of our Dollar. We will be left with no manufacturing, a collapsed currency, debt over our eyeballs, and no way to recover.
Scary. Buy American.
Read for an interesting analysis of the USD situation vis a' vis China.
China took our production, now they will take away the value of our Dollar. We will be left with no manufacturing, a collapsed currency, debt over our eyeballs, and no way to recover.
Scary. Buy American.
How long til the Markets roll over?
http://market-ticker.denninger.net/archives/2245-The-Wheels-On-The-Bus-Go-Flying-Down-The-Street.html
KD makes an often made point here, but i continues to be true.
Until we start to focus on creating jobs that produce GDP increasing exports, we are in trouble.
KD makes an often made point here, but i continues to be true.
Until we start to focus on creating jobs that produce GDP increasing exports, we are in trouble.
Sunday, April 25, 2010
Arizona.....Jobs, Jobs, Jobs.
I think the events in Arizona tell a story about where we are headed as a nation. The seeds of future conflict are germinating there. As the economy continues to weaken, and the USD continues to be undermined by galactically enormous debt, we will see State Governments challenge the weakening hegemony of the Federal Government. The power of those that wish to see endless illegal immigration will wane with the collapse of their spending power. At some point individual US States will recognize the realities and take action to attempt to mitigate the disaster of our financial and economic collapse. Arizona is ahead of the pack. They might just understand that in order to fix our economy we must find a way to raise the incomes of our citizens. Just look at the formula for GDP. It tells the story of where we are, and what our real options are in the future. Either we protect American Jobs in every manner possible, or we will see continued national decline. Now it is just a matter of how long it takes for a majority of Americans to grasp the reality we face. Once that occurs, then things get interesting!
We cannot afford illegal aliens any more! We cannot afford China any more. It is time we start to support American Jobs for legal Americans.
We cannot afford illegal aliens any more! We cannot afford China any more. It is time we start to support American Jobs for legal Americans.
Friday, April 23, 2010
Goodbye Disneyland, by Mike Krieger
http://www.zerohedge.com/article/insights-americas-disneyland-mike-krieger-and-our-neo-feudalistic-gulag-casino-economy
A very interesting read. If read down to some of the comments, they are also pretty interesting reading.
How do you invest for the long haul if this is the situation?
A very interesting read. If read down to some of the comments, they are also pretty interesting reading.
How do you invest for the long haul if this is the situation?
Saturday, April 10, 2010
Another Great Zerohedge Post - BIS and exponential growth of US Debt
http://www.zerohedge.com/article/bank-international-settlements-sees-us-debtgdp-over-400-2040
"Well, one little comment - essentially at this point the entire world is bankrupt. Yet the bankers will keep on trending the market higher and higher on ever declining volumes, to perpetuate the illusion that things are getting better. If that means that GETCO will quote a market of 1,000,000 x 1,000,000,000 for 2 shares of SPY at some point in the future, we would not be surprised. It is merely an artifice for the financial kleptocrats to cash out from as high a point as possible as they try to sucker ever greater numbers of people into the parabolic phase of the ponzi. Yet the numbers don't lie. No matter what Obama does, no matter how he spins the CBO data, or how much healthcare reform is presented as revenue generating, the final outcome is now certain, and it involves the chain bankruptcies of every developed nation. And since the developed world is merely a cheap source of commodities and processed products for the developed world, the BRICs of the world will be next.
Previously, few dared to discuss the ponzi openly. With the BIS now getting into the fray, the issue of sovereign insolvency is now front and center. Of course, few will dare to forecast when the great unravelling will begin. And neither will we, suffice to say that as more and more people read disclosure such as the above, coming from the most legitimate of financial institutions, the more people will awake to the true cataclysm that has now enveloped Western society, which if the Roman empire was any indication, is in last days." Zerohedge
"Well, one little comment - essentially at this point the entire world is bankrupt. Yet the bankers will keep on trending the market higher and higher on ever declining volumes, to perpetuate the illusion that things are getting better. If that means that GETCO will quote a market of 1,000,000 x 1,000,000,000 for 2 shares of SPY at some point in the future, we would not be surprised. It is merely an artifice for the financial kleptocrats to cash out from as high a point as possible as they try to sucker ever greater numbers of people into the parabolic phase of the ponzi. Yet the numbers don't lie. No matter what Obama does, no matter how he spins the CBO data, or how much healthcare reform is presented as revenue generating, the final outcome is now certain, and it involves the chain bankruptcies of every developed nation. And since the developed world is merely a cheap source of commodities and processed products for the developed world, the BRICs of the world will be next.
Previously, few dared to discuss the ponzi openly. With the BIS now getting into the fray, the issue of sovereign insolvency is now front and center. Of course, few will dare to forecast when the great unravelling will begin. And neither will we, suffice to say that as more and more people read disclosure such as the above, coming from the most legitimate of financial institutions, the more people will awake to the true cataclysm that has now enveloped Western society, which if the Roman empire was any indication, is in last days." Zerohedge
Monday, April 5, 2010
Peak Oil? A return to bumpy roads....
http://europe.theoildrum.com/node/6349
"Peak oil is said to be an inversion of tendency of the economy; but also of many things of everyday life that seem to have started to go back to earlier times. The last inversion of tendency comes from a series of articles in the press that describe the return of gravel roads. For the time being, that seems to be happening mainly in rural areas of the US, as described, for instance in USA-today. In Europe, there are fewer reports on this point, although it seems that the same situation is developing in northern countries. In places such as Finland, the cold climate places a higher stress on paved roads and forces the return to gravel roads. But the lack of press reports doesn't mean that the problem is not there: if you travel to Italy this year, you'll see that a lot of paved roads are in a pitiful state: full of potholes."
"Peak oil is said to be an inversion of tendency of the economy; but also of many things of everyday life that seem to have started to go back to earlier times. The last inversion of tendency comes from a series of articles in the press that describe the return of gravel roads. For the time being, that seems to be happening mainly in rural areas of the US, as described, for instance in USA-today. In Europe, there are fewer reports on this point, although it seems that the same situation is developing in northern countries. In places such as Finland, the cold climate places a higher stress on paved roads and forces the return to gravel roads. But the lack of press reports doesn't mean that the problem is not there: if you travel to Italy this year, you'll see that a lot of paved roads are in a pitiful state: full of potholes."
Oil rising....
I think as we see Oil rising again, it rises in response to the economy attempting to revive. Now may be a good time to think about another fuel efficient auto, before we go back to Oil being back over $100 again.
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