I May Make You Feel

“People are defining their politics not by positive thoughtful principles, which requires thinking and can be difficult, but rather by how much they hate the other side, which is simple and requires only outrage.” – Dennis Prager

This statement is true for the Trumpsters and the anti-Trump folks. However there is a major difference – the eight years of Obama brought the greatest wealth transfer in history, a transfer of net wealth from the bottom 93% to the top 7%. Billionaires on average doubled their net wealth during the eight years of Obama and billionaires are funding the agitation against Trump. For every Leftist example of the (libertarian) Koch brothers there are ten examples of billionaires funding the Left. Billionaires fund the Left because they grow wealthier from the policies of the Left while the majority lose.

It is the same story the world over. If you really want to look at something funny, look at how Bernie Sanders has had to rotate his examples of ‘successful socialism’ around the world: the Soviet Union, Cuba, Nicaragua, Venezuela, and his latest example of Denmark. Sanders changes his examples because each example of ‘successful socialism’ eventually becomes a hell hole of misery where the very wealthy have all of the wealth. I would be very worried if I was Danish.

Quick observation: I find it beyond fascinating that Sanders latest favorite example is a monarchy – has the United States come full circle from 1776?

“If socialist understood economics they would not be socialist.” – Hayek

The last thing these billionaires want their minions to do is think. The billionaires are quite adept at feeding the Lefts individual belief in themselves as the superior species – and to the insecure and socially needy this is worth more than gold. Having a bogeyman to attribute all of the difficulties in life to is quite convenient – and those billionaires who can pull strings in the media and that are willing to spend considerable sums of money to keep the massage of ego’s and reaffirmation of self-worth based on Leftist groupthink going is of considerable value to these folks. Feeling good matters more than actually doing right.

That is not to say that Trump is all that and a bag of chips – his policies range from the courageous to the absurd. Most telling, Trump has been adamantly unwilling to deal with the lethal threats to the future of the United States – entitlements and monetary policy. In other words what can really kill us he is unwilling to address. Not that Obama or W or Clinton were willing do that either – they were not.

There is a lyric from an old Jethro Tull song, “I may make you feel but I can’t make you think.” I try very hard to encourage people to think and it is always a much shallower slope to get people to feel.

In the end we get the government we deserve…

Our Fantasy

History is replete with examples of nations that decided to believe a fantasy. We may portray the 20th century as the century in which nations indulged in fantasies – none of which ended well. The important point to that is that the fantasy does always end. These fantasies can be entertained for a long time such as the Soviet Union was or a relatively short time such as Nazi Germany.

To quote James Kunstler, “Sometimes societies just collectively go insane.”

Charles Hugh Smith recently penned a post that he began with “Humanity appears to default to magical thinking when faced with untenable situations that demand systemic change.” That is probably as good an explanation as any for why societies collectively go insane. Hard problems are hard to solve. Systemic change is more often forced upon us rather than voluntarily adopted. When that systemic change is forced upon a people, and when systemic change is required it is inevitably under duress, people often make terrible decisions, i.e. Hitler and Lenin.

The gist of Smith’s blog post was that total debt as a percentage of median household income rose from 79% in 1980 to 584% today. ‘Magical thinking’ in that we are doing nothing to address the problem – in fact we are doing worse than nothing in that the velocity of debt accumulation continues to increase.

This is our fantasy. When someone receives a check, be it from a private entity or a state entity, they more than likely regard the number on that check as wealth. In reality it is statistically more probable that the number on that check represents debt. The difference in wealth and debt is a beyond basic concept that we have completely forgotten about in our culture.

The debt – government, private, corporate – must one day be paid or defaulted. That we are papering over debt with ever more debt cannot and will not continue forever. As a society we are behaving as though it can and will be papered over forever.

Hence, sometimes societies just collectively go insane.

Morning Reading

A few articles you may have missed this week that are worth your time –

Grant Williams penned “Passive Regression” on the rise of passive investing and the dangers inherent.

Evelyn Chang compared the bitcoin bubble to tulip mania.

David Stockman wrote “The Imperial City’s Fiscal Waterloo” – “The stand by Senators Lee and Moran was much bigger than putting the latest iteration of McConnell-Care out of its misery. The move rang the bell loud and clear that the Imperial City has become fiscally ungovernable. That means there is a chamber of horrors coming. With it, an endless political and fiscal crisis that will dominate Washington for years to come. Its cause is deep and structural.”

George Friedman contributed “Russia’s Strategy: Built on Illusion.”

“San Francisco’s Dirty Little Secret” addressed how regulation is being used to keep San Francisco segregated.

Last but not least MN Gordon posted “Adventures in Quantitative Tightening” – “If you recall, autumn of 1929 is when the U.S. stock market commenced a multi-year swan dive and the economy commenced a decade long Great Depression. This is the path Yusko believes we’re on. To be clear, this is a path that can be extraordinarily hazardous to your investment wealth.

For example, from September 3, 1929 to November 13, 1929, the DOW lost 48.9 percent. Then, as rarely noted, it rallied 48.1 percent through April 17, 1930. This had the adverse effect of luring the buy the dip crowd back into the stock market just in time for the next massacre.

In the end, it turned out to be the ultimate sucker’s rally. The stock market subsequently crashed 89.2 percent from its initial peak, along with the hopes, dreams, and aspirations of an entire generation. Such a colossal collapse could never, ever happen again, right?”

Enjoy – and learn something new!



Stop Helping Us

“Four things have almost invariably followed the imposition of controls to keep prices below the level they would reach under supply and demand in a free market: (1) increased use of the product or service whose price is controlled, (2) Reduced supply of the same product or service, (3) quality deterioration, (4) black markets.” – Thomas Sowell

We see all of these things in play today where the government has chosen to interfere with free markets in order to make it ‘fair’. Have you ever noticed the multi-generational pattern we have in which the people who the government ‘helps’ the most stay poor the longest? Divide the residents of the United States into brackets at each 20% level, so five brackets. The majority of the top 80% will move through each of the four brackets at some point in their life. There will be economic mobility. The majority of the people in the bottom 20% bracket will remain in the bottom 20% bracket for their entire life.

It is no coincidence that majority of the bottom 20% will remain at the bottom when the bottom 20% are the people which the government exerts the most control over. For many of these people the government will decide where they live, what telephone they have, how much they will get to spend on food, what their medical care will be, on and on.

They are ‘helping’. What is more, Washington is arguing for and implementing price controls on even more people than just the bottom 20%.

The government has thoroughly imposed price controls on the lives of the bottom 20%. The reality is that they have less of everything – specifically because the government is controlling their lives through price controls. While the price being controlled stimulates increased demand for the product or service the government is ‘providing’ it also reduces the supply therefor giving the government more of an argument to control more prices. We see this in healthcare everyday where the argument is made the government should control the price of healthcare to contain cost when reality is that government control of price in healthcare is what has made it unaffordable. We also see in healthcare that the supply available continually shrinks. As for quality deterioration – have you ever seen public housing? How about a visit to Indian Health Services?

In the words of Walter Williams – “Stop helping us!”

It Won’t Be MadMax

When a market is distorted then inevitably that market distortion will eventually unwind. In order to prevent that unwinding of a market distortion it will require more market distortions, wash rinse repeat. That is the point we are at in the American and world economy. Market distortions by definition created misallocated capital. Misallocated capital will always eventually clear out. When, with these unprecedented market distortions, that misallocated capital clears out it will likely be politically, socially and economically traumatizing for many people.

It does not need to be traumatizing to you.

Whenever that event may occur understand what it is that is happening. Understand that you cannot control what these markets may do but you can control what you do. The first thing you need to control are your emotions. When these markets unwind, be that ten hours or ten years from now, there will be a lot of fear and panic. There will be no need for you to give in to fear and panic.

Understanding that this is not the end of the world but it is misallocated capital clearing out. Once you understand what is happening and that what is happening will present tremendous opportunities, you will have no reason to panic.

Whenever this misallocated capital clears out then things will be volatile for some period of time. The more that the government tries to ‘fix’ this the longer that period of volatility is probably going to last. Knowledge of what is happening is your friend. Understand that the talking heads on TV will be crying that the end of the world is nigh; understand this is what they do for a living and ignore them.

Keep your cool, prepare yourself for the possibility that you may have to live through a period of economic volatility and make wise decisions. It will not be Mad Max no matter how much the media may try to convince you otherwise.

Debt And Politics

Debt is ubiquitous in the United States. Virtually everyone in the United States has taken on debt at some time. That may be through credit cards, a car loan, a mortgage, or even to buy a telephone.

Credit and debt is the grease that keep economies running smoothly.

From an economic perspective credit and debt is good, healthy and normal. Our problem has become debt from a political perspective.

When an individual borrows money, to buy a car for instance, what they are doing is pulling that economic activity forward in time. They are making a choice between saving money for the next four years and paying cash for that car or borrowing money at interest to pay back for the next four years and driving that car home today. They are pulling forward in time that economic activity of purchasing a car.

There is nothing inherently wrong with doing that.

Debt from a political perspective is an entirely different story. Politicians have found that the same principle holds true for debt on a governmental level; that it pulls economic activity forward. In a government model where politicians are elected this is a very dangerous thing. What is the first job of every elected politician? To get re-elected. What is the surest way to get re-elected? Increase the standard of living and wages and perceived wealth of your constituents. What is the easiest way to do that? Borrow money as a government and get that borrowed money into the hands of your constituents.

For an elected politician, borrowing public money to pull economic activity forward into the politician’s current term in office is a temptation that is irresistible. That debt will come due when the politician is no longer in office. Magical.

The problem is that we have been doing this for decades in the United States. We have now adopted a zero interest rate policy in order to hide the pain of having to pay back the money we have already borrowed. Eventually we will not be able to hide the pain.

At some point politicians will not be able to keep kicking the can down the road to their elected successor. For example Greece has hit this point. A series of Greek governments borrowed an incredible amount of money over many years. This money was used by the politicians to proclaim how great and wonderful they were in improving the standard of living in Greece. Now the debt has come due and Greece is being bled dry trying to service that debt. The wages and income for Greeks has slid all the way back to what it was in 1980.

Politicians can borrow public money in order to make things look much better than they actually are and ride that to re-election. Politicians can do this for a long time. Eventually, and long after the politicians who voted to borrow the money have left office, the citizens are left with the consequences of that foolishness.


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