I don't think history carries a tune, has any lyrics or rhymes, and it most certainly has no moral/political lessons–i.e. the proletariat will triumph. History is always and everywhere just a story about what people did, and one either enjoys stories or one doesn't. The problem with the schoolie versions of history is that they are always fictions with a purpose; the writer reliably distorts, ignores, lies about the known facts of what happened to fit everything to their version of a dialectic. It may not be Marx's but it always has the same presumption of inevitability. They may be "conservatives" like Carlyle or modern day liberals like David McCullough, but either way you end up with a sermon that the writer already knew he wanted to preach. (What makes Gibbon, the historian most often used for lessons in the 19th century, fascinating is that he keeps ignoring the lesson he has in mind in favor of finding the next twist in the truthful narrative. The story wins out over the moral/political lesson.)
This nattering is my apology for offering a historical comparison that today's anniversary brings to mind. On this date, in 1924, the U.S. Marines finally left the Dominican Republic (they had been there since 1916).
The United States has had thirty years of filibustering (not Senators talking but the other kind–adventuring with guns) in the Middle East. Nearly twice that long if you take away most of the guns and leave only the CIA and the American oil companies. By the time the Marines left Dominica, the filibustering in the Caribbean/Central America had been going on for almost a century, if you start with the Texas War of Independence. To this day the importance of all that chasing after sugar, tropical fruit and petroleum gets largely ignored, except by the Zinnistas who use it as yet another proof of the fundamental evil of the United States of America.
I have no doubt that the saga of Texans and others chasing Saudi/Iranian oil will be equally ignored when it comes to understanding what happened to America after Bush I became President. One can only hope that some day the Marines will go home once and for all.
This is the first significant expansion of the canal's carrying capacity in its 145 year history.
Paolo Pezzutti writes:
The Panama Canal is also expanding. The size of ships has increased. They need important changes also to port infrastructure.
"The Panama Canal expansion project (also called the Third Set of Locks Project) is intended to double the capacity of the Panama Canal by 2016 by creating a new lane of traffic and allowing more and larger ships to transit."
This latest development is positive for Israeli stocks. The project was underwritten by Egyptian citizens and they are making a bet on the absence of events that will threaten the revenue from the widened canal like and Egyptian attack on Israel or a nuclear bomb exploding in the region. And the fact the Sisi's government decided to undertake it and declared it "military led" is a concrete (no pun intended) sign that their rhetoric of being business-oriented (as opposed to say oriented to destroy Israel).
Egypt is a military dictatorship, as such there is of course no "free will" exercised by "the people" of Egypt, but it's certainly a polity. Usually when a dictatorship wants to create an investment by someone other than the core clique it has two choices: coercion or guarantees of repayment of questionable quality. After all, they can change their mind at any time and all the guarantees will be gone with the wind. So observing a non-coercive investment process in a dictatorship is useful to estimate the confidence in the dictatorship by either foreign or local investors. Often large foreign investors have substantially more leverage since they can threaten a military or political retaliation via their own government. In this case, Egyptian citizens, of their own free will, trusted the military to repay them by buying the investment certificates that sold faster than expected. While this is certainly no example of Western property rights, this means that some relatively savvy citizens in a very impoverished country (thus no money to waste) trust their leaders. This is a useful datapoint in evaluating investment and other stability-related prospects in that part of the world.
Gordon Haave writes:
What everyone is missing because (per our discussion last week) the watch and read US propaganda media is that last week the Deputy Crown Prince of Saudi Arabia, The Saudi defense minister, the Saudi foreign minister, and more importantly the Saudi Oil Minister met in Russia and inked 6 new deals including defense, nuclear, and energy deals with a goal towards a "petroleum alliance".
But hey, an Al Jazeera columnist was once quoted as saying something he shouldn't have 15 years ago, so by all means keep reading US media.
Gary Rogan writes:
Gordon, as the likely target of the last comment, let me respond. While this bit of news from All Jazz TV is valuable in it's own right (and most certainly no propaganda) and is likely to have major worldwide implication from the war in Syria, to Russia supplying Iran, to Israel, to the Saudi relationship with the US, the price of oil, Egypt, and more specifically Suez Canal, it is unlikely to have had an impact on why the Suez canal project was started many months ago. If it did, the world is even more convoluted than I could ever imagine.
From my limited experience, assessing equity from balance sheet information can be a non-trivial exercise. An issue is the company's assets. Specifically, what are those assets? How were they acquired? What was the accounting treatment?
I've been involved in situations where companies debated the merits of expensing capital costs and capitalizing expenses. Accountants tend to see this question as a black and white issue. Financial officers tend see it as a strategic issue.
The issue frequently arises in project finance. In particular, long-term capital improvement projects tend to finish with complex cost structures. In my experience, capitalized costs can represent half expenses and half assets (bricks and sticks). Some of those expenses include officer salaries, professional fees, corporate allocations and other distributables. In the end, retirement accounts prorate those costs according to the strategic need of the parent company. Once the accountants retire the plant (that is, allocate final costs across company retirement accounts), the asset capex strategy is locked in.
The issue also appears in operations and maintenance. Sometimes replacing expensive equipment is expensed. Sometimes it is capitalized. Often, there is a combination. Again, accountants tend to see this as a black and white issue. Financing, legal and regulatory people understand it as a strategic issue.
The issue pops up in special cases. It is common for utilities to create regulatory assets out of expenses. They do this with the knowledge and approval of their respective state regulators.
I've found the accounting of assets is not consistent within the utility industry. Policies change over time and by geography. They change as economic conditions change. They also change as corporate administrations change.
Finally, there are the subsequent issues of asset depreciation and mark-to-market values. While depreciation appears simple, it is not. How depreciation schedules are developed and used is complex and difficult [impossible] for third parties to analyze. In addition, the depreciated value of the asset is often uncorrelated to the asset's mark-to-market value.
For me, assets can be fuzzy numbers. Any analysis using asset values as a critical component can also be fuzzy.
Ed Stewart writes:
All good points Carder.
Another issue is when a company clearly has very valuable intangible assets that are almost completely unrepresented on the balance sheet. Consider Nathan's Famous, best known for its flagship hotdog restaurant and sponsorship of the eating contest. They build on top of that brand value to create a licensing business. Last year (ending march 31) they did 18M of this business, which is almost pure pre-tax profit as they just get a % of sales, renting the brand to a manufacturer/distributor. Capitalize that at a reasonable rate (licensing revenue streams usually valued at a premium) u see it is worth quite a bit of money. Yet, on the balance sheet intangible assets is only something like 1.4M, which is absurd from an economic perspective.
Stefan Jovanovich writes:
Accounting was developed to catch internal fraud; the whole point of double-entry was that it required two different people to keep track of every transaction. As long as enterprises were family businesses, single-entry worked just fine (as, for example, in the Rothschilds' books well into the 19th century). In that sense, all "book" numbers will be maddeningly disappointing in terms of their economic logic.
Rocky Humbert writes:
S-man makes an excellent point. To wit, some of my worst investments have been in insurance company stocks that were trading at significant discounts to their stated tangible book value. What seems to happen (with annoying regularity) is that the company "discovers" that they under-reserved for claims and they write-off massive amounts of tangible equity — leaving the stock at a premium to book value. Hence I view a substantial discount to book value as a warning sign of impending bad news rather than a blue plate special. Mr. Market may go through bipolar episodes, but he's quite astute most of the time.
Ed Stewart writes:
Ive seen another situation beyond unforeseen markdowns that can cause trouble for an investor looking at book value to find undervaluation. The issue occurs when an investor marks book value assets "to market" and finds a supposedly huge undervaluation. The first problem I have seen is that it is very easy for a bad or even mediocre business with a good asset to somehow encumber or use that asset in a way that is not helpful to shareholders - feeding a lousy "growth initiative" or simply mortgaging an asset to fund continued operations. It's amazing how many "value bloggers" write about truly crappy, sketchy businesses because they think they spot this type of situation.
In the case where the business is decent, that by no means the business is going to realize the value of the asset over any reasonable time frame, which means that the value must be discounted far off into the future. So far and so uncertain it might be impossible to assign much value to it at all. In this second case, it might add some positive option value to a decent business that is otherwise worth considering, nothing more. My conclusion is that without an activist situation or change of heart by the CEO or some similar circumstance, undervalued assets are not always what they are cracked up to be.
Gary Rogan comments:
A bet on undervalued assets IS a bet on an activist situation and/or if not "change of heart by he CEO" change of the CEO. Undervalued assets will not of course suddenly start performing by themselves. That's why "undervalued" cash on the books or undervalued assets combined with a substantial cash flow are so much better than an "undervalued" steel plant or similar: cash is easy to understand and reuse and attracts activists, acquirers, and CEO replacement.
Andrew Goodwin writes:
Not sure why the talk on ratios attracted so much interest. In a group that favors scientific modeling, why no thoughts on finding the significance of each industry valuation ratio through regression studies?
Charles Pennington writes:
Stefan, what's your definition of "soft jobs"? Do you have an opinion about which companies out there are wasting their money on "soft jobs" and which are acting more wisely?
Stefan Jovanovich replies:
This is a feeble answer to your question, Charles, but it is all I have. Cantillon wrote that nations got into trouble when their tastes for what he called "luxury" outran their capacities to make enough money to pay for them in foreign trade. He was not a mercantilist, but he thought that nations had to accept the verdict of the foreign exchange market when it went against them. They could not use "Chinese paper" (Singleton's phrase for puffed-up securities) when their counter-parties expected coin. As Cantillon put it, nations cannot use use finance as a substitute for commerce and they cannot indefinitely leverage their credit so that rich men's wives could continue buying more lace. For at least some of the time, even the wealthy have to endure being less rich until trade once again comes into something approaching balance.
It seems to me that many, many companies are now like Cantillon's luxurious nation. David's drug companies are one set. Their profits are projected to continue to grow enormously even as the savings and earnings of the hospitals and governments and individual paying customers have stagnated and even begun to fall again. The drug companies' happy futures are based on the assumption that the centrally-banked remedies to the world's savings "glut" can somehow be transmuted into continuing demand without anyone having to endure even temporary insolvency. There is no arguing that the plan has worked up to now (cue John Hussman's explanations of why he has missed the last 5+ years). But, as the Orioles and other clubs regularly demonstrate, the last innings can be very rough even when the guys coming in from the bullpen have had such sterling records.
P.S. Ignore all monetary puns; this is not a recommendation to buy gold.
Those of us in the bleachers remain bewildered. We had assumed that the ECB, like the Fed, had control over the actual printing of money. Wrong.
"The ECB does not have a cash office and is not involved in any cash operations."
Where the U.S. Treasury's banknote printers have only one customer - the Fed, the production of Euros harks back to the days of wildcat banking in the United States. Each central bank in the Eurosystem that uses a different language has both the responsibility and the legal authority for printing its own Euros.
Since 2002, euro banknotes have been produced jointly by the national central banks (NCBs) of the euro area. Each NCB is responsible for, and bears the costs of, a proportion of the total annual production in one or more denominations. The annual production of euro banknotes needs to be sufficient to meet expected increases in demand, such as seasonal peaks, and to replace unfit banknotes. It also has to be able to cope with unexpected surges in demand. Production volumes for the years ahead are calculated on the basis of forecasts provided by the NCBs and a central forecast made by the ECB, thus combining national expertise with a euro area-wide perspective. The figures calculated need to be approved by the Governing Council of the ECB.
The comparisons with the Cyprus bank crisis are likely to be wrong for one very simple reason: the Greek National Bank can print as many Euros as it likes. It does not need to go to exchange controls; people can withdraw as much as they want as long as they take it in Euro notes.
In April 2001 the ECB's Governing Council decided that the production of euro banknotes should be decentralised and pooled after the initial cash changeover. Therefore, since 2002 each national central bank of the euro area has been allocated a share of the total annual production of euro banknotes in respect of certain denominations. The respective bank bears the production costs for the share allocated. In September 2002 the Governing Council decided to establish a Eurosystem Strategic Stock (ESS). This stock is intended for use in exceptional circumstances, i.e. when logistical stocks in the Eurosystem are insufficient to cover an unexpected increase in the demand for banknotes or in the event of a sudden interruption in supply. The logistical and strategic stocks ensure that any changes in demand for banknotes can be handled at any time by the national central banks, irrespective of whether the demand comes from inside or outside the euro area. The logistical stocks meet the demand for banknotes in normal circumstances in order to replace unfit (poor-quality) banknotes returning from circulation; accommodate an expected increase in circulation; meet seasonal fluctuations in demand; and optimise banknote transportation between central bank branches.
How exactly does the Eurosystem evict a member national bank simply because it has lousy collateral? I have been chewing on that one for a few days now without finding anything in the bottom of the Cracker Jack box.
How would President Trump and the Dow react if he runs, and if elected?
Shane James writes:
Reagan, Eastwood, Schwarzenegger…Trump? Why not!
Stefan Jovanovich writes:
Ronald Reagan was President of a Union in the 1940s; he was, as the journalists put it, "active" in politics for more than two decades before he ran for governor in California. (To this day I find it wonderfully funny that the Brown clan thought that Reagan - the supposed "amateur" - was an easier opponent than William Knowland.)
The comparison with Clint Eastwood is pretty dodgy. Eastwood is a movie star who can green light any project that interests him, and he has had that power for 4 decades. Reagan was a talented actor who never starred in anything with more than a "B" budget and never made any money in Hollywood at all. Unlike Reagan Eastwood has always been a Republican.
As for Trump, he is the Colonel Sanders of contemporary politics–a recognizable name for a brand that is all signs and no voters.
A turn to the Origin is always good to put the moves of the markets most beautiful and wonderful and often circling back to the beginning according to the fixed laws of gravity, constructalism, and flexionism after a week where SPU begins and ends at the exact same level.
It is interesting to contemplate a tangled bank, clothed with many plants of many kinds, with birds singing on the bushes, with various insects flitting about, and with worms crawling through the damp earth, and to reflect that these elaborately constructed forms, so different from each other, and dependent upon each other in so complex a manner, have all been produced by laws acting around us. These laws, taken in the largest sense, being Growth with reproduction; Inheritance which is almost implied by reproduction; Variability from the indirect and direct action of the conditions of life, and from use and disuse; a Ratio of Increase so high as to lead to a Struggle for Life, and as a consequence to Natural Selection, entailing Divergence of Character and the Extinction of less improved forms. Thus, from the war of nature, from famine and death, the most exalted object which we are capable of conceiving, namely, the production of the higher animals, directly follows. There is grandeur in this view of life, with its several powers, having been originally breathed by the Creator into a few forms or into one; and that, whilst this planet has gone circling on according to the fixed law of gravity, from so simple a beginning endless forms most beautiful and most wonderful have been, and are being evolved.
Stefan Jovanovich writes:
The tangled bank is Darwin's theology; no one, certainly not John Murray (his publisher), forced Darwin to insert and keep the phrase "by the Creator" into the 2nd and subsequent editions. Blaming "popular pressure" is a libel on the pubic which embraced Darwin; the demand from the public is what caused Murray to print another 3000 copies (what would be 300,000 now). The criticism of Darwin's views about God and Nature came entirely from the schoolies.
There is no question Darwin ceased to believe (if he ever did) in the literal truth of Jesus' resurrection. In that regard he was following a hundred years of apostacy going back to George Washington and Voltaire and Hume. What he believed in was the miracle of life itself, what Washington called Almighty Providence. As to the origins of that miracle– as opposed to the laws that governed life's evolution, he declined to offer any opinion and was happy to have his remains left in a church with the memorial markers conventional for that time and place.
About a year ago I clicked on 'Al Jazeera America' with the preconception that I'd be treated a glaring example of biased journalism, but instead found their news coverage was presented from a middle-of-the road perspective and clearly not US centric.
Marion Dreyfus writes:
Al Jazeera acknowledges they no longer hove to the neutrality/journalistic vantage they promised years ago they would. There is a major lawsuit afoot where the failings are bruited–discrimination to non Arabs, women and hirelings, as well as an abdication of following news that is not pro-Arab and involved almost wholly in Arabic and Arabist affairs. It pretends to a journalism it simply does not follow. People of integrity have abandoned them as they noted this falloff.
Stefan Jovanovich writes:
Much of what passes for today's journalism is, depending on the publisher/broadcaster, disturbingly and unapologetically, skewed one way or the other. I find myself visiting Al Jazeera regularly - so, too, with Russia Today, NPR, and HuffPo. None are particularly congenial to my world views but each provides in its own way, the dialectic missing from those with whom I find favor. Once upon a time it was recommended that for a view from the right one had to check out the Chicago Tribune, for a view from the left, the NYT, and for a straight account with little or no clever manipulation of adjectives or adverbs, the Christian Science Monitor.
Most other news sources still provided enough of an editorial mix to escape being pigeon-holed. Perhaps the worst thing to happen to print journalism (and with a knock-on effect to the other branches) was Woodward-Bernstein. Hailed then (and still now) as journalistic heroes, their work brought about substantial changes in "straight" reporting. College J-grads increasingly aimed for opportunities to break the next big expose - straight reporting became a dull backwater.
It didn't take long for TV to pick-up on the trend (a liberal trend) which went largely unremarked if not un-noticed . Then Limbaugh and others created some pushback with "talk radio" - which didn't go unremarked, but received a considerable amount of flack - from print and TV…with which I had no complaint…at least initially.
However, what was once a battle between rich publishers with conflicting world views, moved from the Op-Ed pages into the rest of the publication and, eventually, it became increasingly difficult to find a "news story" that didn't, in one way or another, skew the narrative into one that reflected the views of either the author and/or publisher - whether that manipulation occurred during the writing of the article or during the editing process has remained a matter of contention. That question is no longer germane as media outlets increasingly hire only those whose views conform to readily identifiable "values" (to be fair, it is an unusual applicant who applies for a position at an organization hostile to his views.)
Unfortunately, this absence of dialectic has spread to the one place where it should be most strongly championed: the university. No better example can be found than the recent pronouncements of Bettina Aptheker (now Professor Aptheker), an admitted "red diaper baby" and one of the notable participants in Mario Salvio's noted "free speech" crusade at Berkeley - an event whose 50th anniversary will be "celebrated" later this year. Unfortunately, though not unexpectedly, Aptheker has had an epiphany. I quote:
"Freedom of speech is a constitutional guarantee, but who gets to exercise it without the chilling restraints of censure depends very much on one's location in the political and social cartography…We [Free Speech movement] veterans … were too young and inexperienced in 1964 to know this, but we do now, and we speak with a new awareness, a new consciousness, and a new urgency that the wisdom of a true freedom is inexorably tied to who exercises power and for what ends."
A growing number of California's public universities have instituted restrictions on free speech. Sic transit gloria mundi.
A final comment. For somewhat different reasons I have a problem with a List issue that came up some time last week. Rocky has regularly challenged the veracity of Zero Hedge's reporting; others throughout the Net have made similar observations. However, as a source regularly referenced by many other commentators/posters, I find it unwise to not keep abreast of their "contributions." However unmeasurable, they do have an impact - one I believe that should be monitored rather than ignored.
In January of this year Forbes published a piece by Michael Lingenheld of Cup & Handle Macro reciting the known knowns about the new car business:
1. Average duration new car loans - 5.5 years
2. Sub-prime borrowers are the debtors on roughly 1/4 of total outstanding car loans
3. Delinquencies for car loans made in 1st Qtr. 2014 as of November of that year - 2.6%
4. First year delinquencies for car loans made in 1st Qtr 2008 - 3%
IBD has a more recent story with the same "news".
ALLY, the largest auto lender in the U.S., just had its most recent flooring loan Master Trust rated Aaa by Moody's.
Russ Sears writes:
While this is true is it anything new? Aren't auto dealerships and manufacturers like farmers–prepared for a few bad years and if the cycle is deep and broad enough the Feds have a history of stepping in?
Stefan Jovanovich writes:
The "everybody knows" history Russ refers to is remarkably short: 2009 is the one and only time auto manufacturers and auto lenders were rescued, even though the depth of the cycles in both 1919 and 1929 were far, far worse. And the difference was?
Here, for those of you who remain curious, is a brief history of GMAC (what ALLY was before its rescue):
Founded in 1919. Initial capital: $2.5M. First branches opened in New York City, Detroit, Chicago, San Francisco, and Toronto. The following year a branch was opened in Britain. By 1928 GMAC had made 4 million retail car loans. 30 years later they had made 40 million; to celebrate, they entered the home mortgage business. 1999: Record earnings, buys Bank of New York's commercial lending unit and forms Commercial Finance Group. 2001: Further record earnings: $1.8 Billion Celebrates 150 millionth car and truck loan, totaling more than $1 trillion in total financings over its history. 2002: Another record: $1.9 Billion. Now lending in 41 countries. 2003: Earns $2.8 Billion 2004: $2.9 Billion, 10th straight year of earnings growth, begins lending in China, opens GMAC Automotive Bank 2006: General Motors sell 51% to Cerberus Capital Management
Rocky and the other pros can carry it on from there.
China has granted another 1 trillion yuan ($161bn) quota to provinces to swap high-interest debt into low-cost bonds, doubling the previous amount, according to people familiar with the matter.
The increase comes as the first stage of the bond swap is under way. Commercial banks have been buying such bonds after the central bank flooded the interbank market with cheap funds…
The expansion will help the government cut risks from a record surge in borrowing that local authorities took on to fund a glut of investment projects. The process — which includes inducements for banks to buy new, longer-maturity, lower yielding bonds — is alleviating a funding crunch among provinces that had threatened to deepen the economy's slowdown.
Local-government obligations may have reached 25 trillion yuan, bigger than the size of the German economy, according to estimates from Mizuho Securities… That compares with the figure of 17.9 trillion yuan as of June 30, 2013 given by the National Audit Office."
So I wish to present the argument that various interests and groups, notably including "Keynesian" economists, have sold to the public a "quasi-doctrine" which teaches, in effect, that "less is more" or that (in other words) "bad money is better than good money". Here we can remember the classic ancient economics saying called "Gresham's law" which was "the bad money drives out the good". The saying of Gresham's is mostly of interest here because it illustrates the "old" or "classical" concept of "bad money" and this can be contrasted with more recent attitudes which have been very much influenced by the Keynesians and by the results of their influence on government policies since the 30s.
"Capitalism is not intelligent, it is not nice, it's not fair, it is not virtuous and not keep promises. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed."
-John Maynard Keynes
Stefan Jovanovich writes:
Gresham's law only applies when a country has legal tender coinage of different metals. When he was brought in as agent for the Crown in Amsterdam, Gresham had to explain to Warwick (the head of Edward VI's Regency Council) how he and others had made a hash of things by taking more and more silver out of the shilling coins they were minting. As a result, the Crown's credit was lousy; and no one would accept the "new" shillings except at a severe discount. Because Warwick had authorized several successive debasements, no one in their right mind paid their debts using the still unadulterated gold coins of the realm; those people kept in their strong boxes or sent to Amsterdam where they could profit from the arbitrage opportunity. (In England, of course, "the law" required them to accept all coinage at is face legal tender measure.)
None of this applies to the present situation for the simple reason that coin are no longer legal tender anywhere in the world. The only measure of "bad" money that now applies is whether or not someone will swap your legal tender IOUs for some other legal tender IOUs; now it is the bad money that disappears, not from hiding but from the disappearance of the traders willing to hold it even for a millisecond.
The goldistas, like the Jacobites, still keep thinking that the rightful king will return to the thrown, that, because gold once was money, it will be so again. It may; but, if it does, there will be little arbitrage opportunity - just as there was little opportunity when Grant strong-armed Congress into adopting resumption. Gold will become legal tender again only when a government accepts the wisdom of the authors of the American Constitution - i.e. "the law" cannot put a price on money. As I wrote recently, Cantillon's reform for Greece would be similar to what Gresham did in Amsterdam for Edward VI - a combination of absolute default and establishment of a new currency based on a fixed weight and measure. (I should note that Gresham did not solve the secondary problem of bimetallism; when the coins are "honest" and have the amount of precious metal that the law requires, the ratio of the legal tender values will still create the problem of arbitrage. The actual demand for silver and gold bullion will be at variance with the official ratio. Grant also solved that inescapable problem by limiting silver coinage to secondary coins and limiting the amount minted so that there was no opportunity for arbitrage.)
There is, in Gresham's and Grant's sense, no money in the world right now; there are only IOUs that countries have defined as their legal tender.
This does not make a difference to the people who are "in the market". But, to the great majority of people, who have only their small savings of money, it makes an enormous difference. The great thing about "deflation" - the ability of people to make things better, faster and, therefore, cheaper - was that it rewarded thrift and gave folks a return on investment simply from holding their coins and deferring spending. When people "did not trust banks", it was not simply out of ignorance; they knew that their hoards of gold coin would be worth more and more in the future. So, too, would bank deposits; but only if the bank actually paid out in coin. Default was the risk that debasement now is.
An excellent book is The Wool Trade in English Medieval History by Eileen Power, the "most interesting woman" of the 1930s. Shows that they counted every aspect of the sheep better than technicians do their counting today. Also shows that the entire English Constitution devolved from the free markets of the pastoral shepherds and the exporters versus the merchants of wool in medieval times.
The wool entrepreneurs developed into the middle class of England from whom the industrial revolution, the constitution,and prosperity evolved. A typical passage:
In these baillifs accounts, the long rond of the shepherd's year unrolls itself like on of those horizontal Chinese scrolls that have taken one from spring to winter by the time the eye has traveled along their length". In the manorial roles sheep were carefully divided into ewes, wethers and yearlings, lambs, and there was set down the number with which the reeve started the year, the numbers added by purchase or natural increase, lost by disease, sold or given in tithes, (the number that disgraced themselves by not giving progeny) and the number left at Christmas when the account was drawn up. Of course every purchase was accounted for, and balanced with the ending sales to wholesales.
A great admirer of Eileen Power to whom I owe the introduction to this great scholar is Tracy Quan whose books and persona are equally scholarly and interesting.
Stefan Jovanovich adds:
Amazon has a free Kindle edition of Power's best seller from the 1920s: "Medieval People"
(Caution: Historical Hobby Horse in Use) Power was a colleague of Norman Angell, Ramsay MacDonald and C. P. Trevelyan in the Union of Democratic Control - the last "pacifist" organization that was not simply a front for the Comintern.
What Angell wrote about the Grand Illusion of Imperialism is still true and is worth considering in light of recent efforts to find a new cause of war in the South China Sea:
"wealth in the economically civilized world is founded upon credit and commercial contract (these being the outgrowth of an economic interdependence due to the increasing division of labour and greatly developed communication). If credit and commercial contract are tampered with in an attempt at confiscation, the credit-dependent wealth is undermined, and its collapse involves that of the conqueror; so that if conquest is not to be self-injurious it must respect the enemy's property, in which case it becomes economically futile. Thus the wealth of conquered territory remains in the hands of the population of such territory. When Germany annexed Alsace, no individual German secured a single mark's worth of Alsatian property as the spoils of war. Conquest in the modern world is a process of multiplying by x, and then obtaining the original figure by dividing by x. For a modern nation to add to its territory no more adds to the wealth of the people of such nation than it would add to the wealth of Londoners if the City of London were to annex the county of Hertford."
Angell was equally prescient about the Balkan Wars and their danger:
"The fundamental causes of this war are economic in the narrower, as well as in the larger sense of the term; in the first because conquest was the Turk's only trade -he desired to live out of taxes wrung from a conquered people, to exploit them as a means of livelihood, and this conception was at the bottom of most of Turkish mis-government…..
"If European statecraft had not been animated by false conceptions, largely economic in origin, based upon a belief in the necessary rivalry of states, the advantages of preponderant force and conquest, the Western nations could have composed their quarrels and ended the abominations of the Balkan peninsula long ago-even in the opinion of the Times. And it is our own false statecraft-that of Great Britain-which has a large part of the responsibility for this failure of European civilization. It has caused us to sustain the Turk in Europe, to fight a great and popular war with that aim (he is referring to Crimea), and led us into treaties which had they been kept, would have obliged us to fight to-day on the side of the Turk against the Balkan States"
A recent post by Tim Melvin noted that Baltimore may be a shit hole, but it's our shit hole. That of many of us on the list. Even if we no longer live there, we identify with it. The glory of Fort McHenry. The commanding of Johns Hopkins. The ignominy of Bankruptcy Tower. The notoriety of Payoff Row. The poverty and lack of hope for a better life in some places in the city. And of course, The Block. Once two blocks (go figure), it's now not even one. Maybe that's the effect of being right next to the police HQ. Add in a dysfunctional education system in the city, the three decades of the departure of industry and the conversion of the town to a bedroom community for DC (in part), and you have a shit hole. I'm sure that some (many?) may contest that conclusion, but try contesting the elements leading me to it.
In the 1960s and early 1970s, if one were to hear a screaming crowd at Memorial Stadium, 33rd Street, Baltimore, chances were good that it was Sunday and the Colts were playing at home. The stadium was usually sold out. It was the era (the "Diner" era—and the Hilltop Diner really did exit, across Reisterstown Road from the Crest Theater—providing relief from the infernal Baltimore summers—and Barcelona Nut Shop) when Colts season tickets were inherited and valued as much as a car or a prized bottle of Lafite or Mouton. It was the golden era for the Orioles, but they did not commandeer the attention, the love the Colts did.
But all of that changed in 1979, specifically June 22, 1979. Edward Bennett Williams had just bought the Os and was complaining about the lack of enthusiasm (and attendance) by the good people of Baltimore. Maybe the team should move to Washington. Lots of interest in DC. and it took forever to drive back to DC. By his chauffeur. The BCPD tailed him once and clocked his trip as 45 minutes, not much more than from York, Pennsylvania (Birdland North) to the Grey Lady of 33rd Street It was the night of the birth of "Orioles Magic," which eventually had an accompanying song (until "You can do magic" replaced it for when relievers entered the game in a tight pitching situation during the early 1980s).
So 1979 wasn't shaping up to be a great year for the Os. Until June 22, 1979. On that night, in the bottom of the ninth, with one on, Doug DeCinces homered to left field. Anyone in the stadium that night will surely remember it. The roar of the crowd was deafening, and the stadium didn't really begin to empty for at least 15-20 minutes after then. Carley Eckman's call (I was listening on a transistor radio, not unusual for someone in the bleachers, not far from the orange and black "Here" flag) was memorable, too. Objective calling of the game flew out the window that moment. The entirety of the Orioles team greeted DeCinces at the plate (for DeCinces, the hit became, at least in part, redemption; it's hard being the position successor to a baseball legend, the "human vacuum cleaner" aka Brooks Robinson), making for an award-winning photo. The next day, a Saturday, that HR was the talk of the town. The following Monday, discussions around the water coolers and over coffee included at least some mention—and often much more—of the HR. 1979 wore on, and the Birds flew high. No one expected much of that team. There were few dominant players, and it was the rare season when Jim Palmer was out of sorts during the season. The World Series that year found the Os against the Pirates, losing in seven games with the final one at home. It was the last time that a visiting team won the series in seven games.
The night of May 29, 2015, also a Friday night, may go down as the renaissance of Orioles Magic. The game was a hard fought pitchers' dual. Gonzalez had pitched a good 8 innings for Baltimore, giving up only one run—earned. Going into the ninth, the score tied, at 1-1, Darren O'Day, a journeyman pitcher who had become the Os middle relief/setup man, came in, proceeded to give up back-to-back hits and promptly loaded the bases with no one out. A situation pregnant for a hit and an RBI to take the lead. But that wasn't the script that was followed on that Friday eve. What followed were two strikeouts and the final out of the inning, a grounder by Elmore to Machado for an unassisted out at third. O'Day had thrown 24 pitches that inning. 24 (or was it 25?). One inning. That's a lot of pitches. For that final out, the crowd was on its feet and the Camden Yards reverberated with cheers and stomps. The bottom of the inning found Os on 1st and 3rd with 2 down. JJ Hardy, an infield specialist with a batting average south of .200 (Orioles faithful will recall Mark Belanger as having somewhat better production at the plate, which isn't saying much), strode to the plate and promptly hit a single to left field. It was all that was needed. Somewhere between 1st and 2nd, after the winning run had been scored, the Os mobbed Hardy as the sellout crowd registered its approval.
The night felt like that of June 22, 1979. One of those days when many in Birdland can recall where they were when DeCinces homered. Will the Magic reappear? The excitement? Hard to say. Let's revisit it in a month. This year's Os are hardly dominant in just about any position on the field, save maybe Zach Britton as a closer. Jimenez is having a good year, and compared with 2014, a great one. But that's about it. And the Os are in 3rd place in the AL East as a result. One game under .500 and one game behind the Yanks. Who ever would have thought that a third of the way through the season the pace would be set by a team one game over .500. At least the Birds have the best home record in the division. So the team has its work cut out for the next three months—not to violate the first rule of holes for the next month as it gets its act together and the, in a reprise of last year's performance—rise to the top.
We've had some discussions recently about the decline of baseball in the US, and yes, the sport has had its troubles. But it's always managed to find a champion and grittily renew its place in the national entertainment firmament. Babe Ruth, Cal Ripken.The sport is shaking off the self-induced haze of the steroid era. And the helicoptering of kids doesn't auger well for a rebirth of the national pastime, which has indeed become passed time. As the country struggles economically with a recession possibly looming over the horizon, with dysfunction in DC and political sex scandals seeming to be the order of the day (I don't recall them being this common, but maybe it's like FDR's wheelchair, no one ever reported them)—the latest being inappropriate touching by the pre-political life former Speaker of the House (does it much matter that it was pre-political life?)—it must have been some serious touching to merit a $3+ million payoff—the country needs to rally around something. As President Snow observed, hope is the only emotion stronger than fear, and while complacency is the rule on Wall Street for the moment, there's some fear being voiced by those with memories of times before ZIRP, of times when interest rates actually ascended, not declined. Memories of the early 1980s. With deflation the concern du jour of the NFL if not the BEA, it may be baseball's time to shine again.
So, in Baltimore, is it Orioles Magic, 2015 edition? We'll see. As for the moment, it's to be savored. Go to war, Miss Agnes! Let's go Os!
Stefan Jovanovich writes:
This notion of baseball's "decline" is entirely a construct of the Fairness Police. There is now, in fact, far greater "diversity" (sic) among the players of Major League Baseball than there ever has been; the only problem is that the darkest-skinned players are more likely to be Cubans than American blacks. Measured by money paid to the players (baseball, unlike football and basketball and hockey, does not have a hard salary cap), valuations for franchises, television revenues, ticket sales, and concession revenues, these are the best of times. And, regarding the play itself, Buck Showalter is right: "this is the Golden Age".
Paul Marino writes:
Here is a great video of the great player for the Buccos, Andrew McCutchen, making some little kids' life last night when playing in San Diego.
Would love to see Pitt make a run at playoffs again, but in a tough division with the best organization in the league St. Louis playing .660 ball, almost a clean + .50bps win % over entire MLB.
I hated the fact that the Giants had to play Pittsburgh for the wild card; they have a wonderful ball park and a really great organization and they are all around good guys. So, clearly the plan for this year is that the Giants beat the Dodgers outright and the Bucs have their wild card game on the road.
Having your loyal fans cheer for you can be a tremendous handicap when it is all or nothing. The Giants have been lucky to be the road team in their "Big Games". The last 4 times they have won the World Series - 1954, 2010,2012,2014 - the deciding game was in the other guys' park. The one time it was at home - 1962 - they lost even though they had Willie McCovey at bat and the winning run on second base and he absolutely smoked the ball - right into the Yankees' second baseman's glove.
Perhaps it was a good 25, 30 years ago, Gramps and made the track to L'ville, this particular time, arriving early, for the Friday races, the Oaks — roses for the Fillies.
We had gotten there early, the first race hadn't gone off, and there was a platoon of school kids visiting Churchill (before the garish remodeling). Their teacher was a woman, and this kids couldn't have been more than 7 or 8 years old. They young buys, couldn't reach the urinals, they simply weren't tall enough.
In the days before blue M&Ms, when you would offer to do such things without fear of being accused of something, we offered to hold the youngsters up, in front of the urinal, one by one, asking each a question, "Where do you go to school?" or "What's your name," to ease the tension and so they could do what they had to do.
There must have been a dozen or so of them we each held up, and finally Gramps lifted one, who, I couldn't help but noticing, was particularly blessed.
"What grade are you in young man?" Gramps asked the little fellow he was holding suspended above the urinal.
"I'm riding Silver Spurs in the seventh, I've been outta school as long as you old man," the little man shot back, "But thanks for the lift."
I read a terrible story about why children are abandoning baseball from Forbes based on a WSJ story of same title.
Stefan Jovanovich comments:
Baseball was never the "default" sport for young children. The ball is damn hard and a good one has always been expensive enough to be worth stealing. It was the sport for "grown-ups" that you could hope to play when you got big enough to keep up. Until then, you would play catch with your family adult (thanks, Mom) and use a tennis or rubber ball to pitch and hit with your neighbor/brother/sister, using the barn/garage for a backstop. It took years of those repetitions before you could even hope to play well enough to keep up with the men and have it actually be baseball. The game flourished in all the places where men played the sport and let children join them. That is why it still flourishes in all the places where men and their children play it together for fun– the American Southeast, the Dominican, Cuba (although that is dying), South Korea, Japan. Little League was baby-sitting and adults pretending to teach the game instead of simply showing how it is done out on the field against each other.
Paul Marino writes:
This story lends no credence to the fact that southern states play baseball year round vs more northern regional leagues and the population disparity between the two. Baseball is a regional sport on all levels, pro on down vs football and basketball which are national sports.
Also, this article makes no reference to global, specifically lat-am baseball which is a religion in places such as Cuba, DR, PR, etc. last I checked Puerto Rico is part of the U.S. Unless they default on their munis. Plus immigration will lead to a generalized balance in players against the author's "the Great Recession no-baby meme" which has had us all feel poor as humans since they state red the meme. I can tell you my family and friends in their 20-30s are having babies, just a little later in life.
The article would have been more relevant to US if distinguishing the lack of African Americans choosing basketball and football over baseball. White kids will always play baseball at one point or another out of love of the sport or parental pressure to do something where you can't get too hurt.
Stefan Jovanovich replies:
If Paul means that baseball is "regional" in the same sense that hunting/shooting is "regional", I agree. But the notion that "white kids" will play baseball at one point or another because of "love" or "parental pressure to do something where you can't get hurt" seems to me very far off the mark. No one in their right mind "loves" baseball; it is so relentlessly demanding that it has minute-by-minute failures. There is no room for the fantasy of "we are the champions" that football (American and world) and basketball allow. The best teams in baseball have won-loss records that would disqualify them from the Champions League or the basketball or football playoffs; and the home-away advantage is trivial (52-48%) while, in the other sports, it is nearly overwhelming. It is like chess; you either have the addiction or you don't see the point.
None of this says anything about the game's popularity as a spectator sport. People now love going to professional baseball games more than at any time in the past because: (1) compared to basketball and football ticket prices, it is still a very cheap date, (2) it is like visiting the old amusement parks like Elich Gardens - you can stuff yourself silly while walking around and you don't really have to watch the game, and (3) unlike almost all the other public spaces in American cities the parks themselves are not dumps. Coors Field in Denver, which is a delightful place to see a game even if the altitude makes the game itself seem like a parody, is the 3rd oldest baseball park in the country. Only Wrigley and Fenway are older.
Paul Marino adds:
I should clarify "love" as in the love a child has for a player and that gets them interested in playing, the other love is the kind I had where I played for 15 years and got into the minutiae of the game over time.
This coming Monday is Memorial Day. That means different things to different people. For me, it will be my mother's yahrzeit, as well as remembering those whose efforts provided the cover under which the USA lives. But it also means the running of the Indy 500. And switching to the summer comforters. For one of my neighbors, it's setting up the outside grill for the summer—which he does after visiting his brother's grave (he died in Vietnam) at the national cemetery up the road. I'm sure there are lots of similar activities at one another's homes. Some many no longer give much thought to those whose deeds provide that cover, to those who sacrifice assured that we may live under it. But they should.
A couple of years back, Tim Melvin penned a piece that encapsulates the meaning—for at least some of us—of the day. (It will be reposted below)
It is one of the more eloquent expositions of the holiday.
Stefan Jovanovich comments:
First of all, it was not Memorial Day. It was Decoration Day; the particular day on which the public would officially do what people regularly did on their own–go to the cemetery and put flowers on the graves of the departed. And it was a Sunday, not a Monday.
Second of all, how does anyone presume to speak for the dead in war? That is the sickest of all sick jokes. If you are lucky/skillful enough to survive one, the one thing you know is that medals for the living are pure vanity; and Grant was–as with so many things– right: parades are only tolerable if they are parties where you throw ticker tape out the windows (ticker tape, windows?) and can make noise in praise of the living. For the dead there should only be flowers, no speeches.
FWIW, the first decoration day was on May 1, 1865 in Charleston, SC. It was held in honor of the Union soldiers who had been held and died as prisoners of war and buried in a common grave. After the Federals occupied Charleston, one of the first things they did was give each of the soldiers' remains its own individual burial and marker. In gratitude for their liberation the Negroes in Charleston built a fence around the new burial ground and an arch over the carriage entrance. The "Union" cemetery was opened that May Day; according to the newspaper reports ten thousand people came to walk among the graves and put flowers on them. (This is what David Blight of the Rocky Ghostly Academy concludes from his research into the subject.)
For "Memorial Day" and this bathetic dishonesty, we have to wait for World War I and segregated mourning.
At least baseball still does it right; people simply stand in silence for a moment, as they did when they remembered Christy Mathewson, a casualty of that truly awful war.
David Lillienfeld writes:
Last year, Tim Melvin posted a classic piece about Memorial Day. It brought me to tears then, and it did so this morning when I went through it again. It is some of the most eloquent writing I have seen about Memorial Day, and it's a shame that it hasn't received more notice outside of this site than it has to date—it certainly merits it.
Tim Melvin writes:
They call to you this weekend. From Flanders Field, from Normandy, Khe San, Gettysburg, Concord and Lexington, the Chosin Reservoir, from the hull of the Arizona, and from all the hundreds of thousands of resting places marked and unmarked they call to you. The call to you from the depths of the Pacific and the jungle of Asia, from the deserts of the American Southwest, from the fields and cities of Europe, from Cuba, from around the world they call you with a request this weekend. Remember me.
Remember who I was and the hopes and dreams I willingly laid upon the altar of the great American experiment. Remember that like you I was once flesh and blood and I gave that up to secure a portion of the American Dream and secure essential liberties at home and even for people around the world. You may not have agreed with the rational for some of the conflicts we have ensnared ourselves in over the centuries and I am not even sure I fully understood it. But our nation called and I answered. Liberty carries a price tag and I paid it for you. Remember me.
War is an idiotic human endeavor and I wish we never had to go engage in such a wasteful exercise. But at times throughout history it has been necessary for good men to take up arms to secure our freedom from tyranny and defends ourselves against expressions of pure evil and hatred. When such times have arisen I have taken arms and defended the freedom and liberty in which I believed and for which all humanity years. Remember me.
Do not remember me with tears and sadness. Pray solemnly and shed tears if you must but that it is not my preference. Remember me in a violent celebration of all that is America. Take your families to the seashore and frolic as man has done since we merged from the sea. Go out on your boats and go as fast as you can over the waves with the winds of a free land and a free people blowing back your hair. Fire up your grill and invite the neighbors up for food, drink and laughter. This is why I laid down my life. Not so you would cry for me but so you could enjoy your life and your family, your loved ones and friends. Remember me in the laughter and joy of being alive.
Hear me in the sound of loud music coming from a dock bar. Hear me in the growling of a stock car engine taking a green flag or the whine of Indy car hitting 200 mph on the backstretch. Hear me in the laughter of a child skipping in the surf or running through the sprinkler in the back yard. Hear me in the chatter of friends around a BBQ pit. Hear me in the swell of an orchestral pop concert on a wide meadow as the sun settle over the land. In all the joyous raucous noises of being alive, hear me and remember me.
See me in the flag unwinding in the breeze. See me on the baseball diamond, the soccer pitch the basketball court. See me at the bar with my friends raining a glass to good times gone by and still to come. See me in the smile of your wife, your girlfriend or male equivalent thereof. See me in the hammock beneath the tree taking a slow summer nap. See me in all the moments and times of that make life special. See me and remember me.
Remember me best in living well. Think of me when you are passing around the steaks and steamed crabs. Remember me as you sip the cold gin and tonic in a sweaty solo cup under a shade tree. Think of me in the fisszt of a beer bottle opening, the fizzing of soda pop in a glass, the shaking of a martini, the pop of a cork, and the tinkle of ice. Remember me in the sounds of the party of life.
I do not want you to remember me in solemn sweaty ceremonies and pompous parades of politicians. You do not need to go to the cemetery to remember me for I am not there. I am at the beach, the ballgame and in the backyard. I am at the lake, on the boat and fishing on the riverbank. Do not remember me simply because I died. Forgetting to duck or being ordered to charge impregnable positions is a crappy legacy if you ask me. Remember me because I lived and I died protecting your right and ability to live and experience all the joys and madness that is life.
I am not merely a dead soldier who died in the service of his country. I am all the things that were made possible by freedom gained and protected. I am Mark Twain, William Faulkner and Hunter Thompson and all the words written by the geniuses spawned in the America. I am the music spawned among a free and talented people. I am Robert Johnson, Miles Davis Liberace and Ted Nugent. I'm all the great scientists and inventors that have graced this land. I am Edison, I am Feynman and I am Ford. I am all the great athletes born in the towns and cities of this nation. I am Mantle. I am Unitas. I am Jesse Owens and Jim Thorpe. I am every greatness achieved by this nation born in a sea of blood and protected by rivers of it over centuries. Do not mourn me for the time has past for that, but remember me.
Remember me for I am also the future of this great nation I died to build. Remember me as you live, as you build as you work and as your create. Remember me as youprotect my legacy from the charlatans, thieves and idiots who make up our political class. Remember me when you refuse to cede personal liberties I died for to those who have good intentions and bad ideas. Remember me when you take chances and reach for your dreams and ideal. Remember me when you refuse to participate in limiting freedom or opportunity based on skin color, sexual preference or genital make up. Remember me when you dream, when you achieve and when you celebrate. These are things for which I died and for which I would be remembered.
My voice calls to you today. Life, love, laugh dream, build achieve. Do this in remembrance of me.
Happy Memorial Day. Remember me.
Stefan Jovanovich writes:
Memorial Day used to be Decoration Day — the day when the graves of soldiers were draped in flags — and there was no official Federal date. In Gettysburg it was held on November 19, the day the cemetery was dedicated. In the South it was on various dates in the Spring. It was never, ever a day for speeches until the official South decided that the soldiers graves should be part of a general uprising to justify the Rebellion — the same political movement that gave us official segregation; at that same time - the late 1880s — the states began legislating official holidays for Decoration Day, they also made Jefferson Davis' birthday a state holiday. What we now observe dates only from WW II, and the date itself was fixed in the 1960s. It is strictly a Cold War ritual that has been revived for the war against unspecified terrors.
I hope Tim finds an equilibrium somewhere between thinking that everyone who ever died in uniform as a hero and believing war is everywhere and always to be considered the worst of all things. I hope everyone enjoys the ceremonies today. If I don't, it is not out of disrespect for what people have done. I don't like official remembrances for the same reason Grant hated parades; they tend, by their very nature, to be organized lies.
They allow the people in the reviewing stands to preen and they present a picture of order that is the very last thing that wars ever are.
The truth is that some wars are worth their awfulness and some are completely stupid. The people best qualified to judge are the ones who have done the fighting; as with so many other things in life, those who know the most are the very ones who don't say much. There are exceptions, like Professor Sledge:
"War is brutish, inglorious, and a terrible waste… The only redeeming factors were my comrades' incredible bravery and their devotion to each other. Marine Corps training taught us to kill efficiently and to try to survive. But it also taught us loyalty to each other - and love. That espirit de corps sustained us."
"Until the millennium arrives and countries cease trying to enslave others, it will be necessary to accept one's responsibilities and be willing to make sacrifices for one's country - as my comrades did."
I preface by saying I have not served in the services nor in a war.
Yet I've known many…young, naive or foolish men who have answered the call. Many didn't believe in the cause and thought their superiors to be idiots. Yet they stayed and fought. I respect and remember that loyalty, and buy dinner or drinks for them and their family when I come into contact with them. I do it out if loyalty and not guilt. They upheld their end of the bargain. The least I can do is acknowledge them.
These are not the she-men that appear to surround me, those who talk about shat should be done yet are never there to do it. They have loyalty to no one.
There are pieces meant to rouse the animal spirits and conscripted ranks. I felt Tim's piece wasn't a call to enlist as other pieces.
The generation of Vietnam castigated those who were drafted and required to fight. That double bind or catch-22 has always bothered me. There's a similar thinking in DC now, where you are encouraged to break laws and obey them simultaneously.
One if the primary social contracts is to take care of your own. Tim's piece echoed that sentiment. The Chair demonstrates it too, as do many on the list.
In the Catholic Church, there are many celebrations of saints. I have learned, not having been raised Catholic, that many saints were far from perfect. There was a similar idea in his piece. Monday isn't a celebration of personal perfection or success in war. As Tim writes, it is recalling the guy who once sat in the empty chair at our table.
Semper Fi et Ductus Exemplo.
Ralph Vince writes:
There is nothing more inadvertently dangerous than a young man.
There is nothing more potentially vicious than a woman on her own.
One must tread carefully around these.
Vanderbilt used to cross at slack tide. There appears to be no slack tide in Europe:
Stefan Jovanovich writes:
Vanderbilt sold the last of his steamships in 1864; like the Greek shipowners (Onassis et. al.) whose fortunes got going after WW II using the money paid by the British government in war damage compensation, most of the sales proceeds for Vanderbilt came from the public purse. That was the money he used to buy and build what later became known as the New York Central. The Commodore would have agreed with John about the tides in Europe; for him there was only one currency - gold coin. The arbitrage between greenbacks, Treasury bonds - redeemable and non-redeemable, and coin were the Commodore's first serious speculations in the market (as opposed to the largely private battles for control of the feeder Boston railroads to the Long Island sound that were the source of his steamboat passenger traffic). Then, as now, FX was THE GAME.
When the Bank of England "suspended" during the Napoleonic Wars, it had not run out of gold; and it did not stop paying out gold and silver coin based on their relationship to the unit of account known as "the pound". Neither did the U.S. Treasury during the Civil War, when thanks to the currency acts that created National Bank Notes, the Treasury had become America's first central bank to control the country's legal tender. There were still outstanding debts that continued to be paid off in coin. What was suspended was the redemption of the bank/Treasury's own near money;in both cases what Cantillon called "the state bank" would no longer redeem its paper notes in coin on demand.
The present American central bank has no redemption obligations for its reserve notes; neither does the U.S. Treasury have any outstanding debt obligations that require interest and principal to be paid in coin. So, there is literally nothing against which dollar paper notes can be discounted as money within the boundary of the U.S. of A. At home the dollar will always be at par; and there will be no "gold cases".
As the bond pros and even us idiot amateurs know, the Fed has gone on an acquisition spree. Its assets have grown from $900 billion at year-end 2007 to over $4.5 trillion, which serious money. To support those holdings, the Fed's has also raised its own capital - from $37 billion in 2007 to $58 billion now.
The question that this raises for us idiots in the bleachers is this: what happens politically when the Fed starts to lose money?. At some point the market value of the Fed's assets is going to fluctuate in the wrong direction enough that the losses are more than the Fed's capital.
Under the Fed's rules adopted in 2011 that will require the Fed to suspend making payments to the Treasury of its "net" profits. The pros who long ago flagged this are not worried.
We amateurs who insist that dealings in money raise questions of "political economy" think the headline: "Fed Goes Broke" may have somewhat larger market implications.
Roughly 47% of "Debt Held by the Public" ($13.1 trillion as of March 30, 2015) is now owed to people (individuals and institutions) who do not use the dollar as their own unit of account. The rest is owed to holders who do their accounting in greenbacks.
I can remember Galbraith making one of his royal appearances at the one undergraduate class he still taught and entertaining the assembled worshippers with a quip about the national debt not mattering because "we owed it to ourselves".
"We" are about to become the minority creditors. Clearly, the solution is abolish the use of cash itself so that even the vague historical memory of currency as the yardstick for measuring debt can go bye-bye.
This is probably old news to our serious counters: "Gridded Population of the World (GPW), v3"
When Harcourt, Brace & Company bought World publishing, the wags said that my father Bill Jovanovich had taken over the world. (The better joke came later when the firm changed its name again to Harcourt Brace Jovanovich and someone said that Dad had replaced the world because he knew better.)
The second joke was funnier to me because in the world of testing (which is what World Publishing did) Bill Jovanovich always did know better. He understood something that was so simple and radical that it will be another century, if at all, before the world catches up.
The only sensible use of testing is to allow people to find the full range of their failures; then they can decide what are their best chances for success.
Dad wanted "school" to be nothing but tests– of reading, hopscotch, sewing, everything possible. He wanted them to be voluntary, and he wanted them to be subject to the competition of choice. His idea of open enrollment was literally that– people could send their children to any courses they chose.
That was the only way for "society" to allow people to figure out what they "should" and "could" learn. He thought standardized education was an abomination, precisely because it allowed the helpers to always know best and gave the students and parents no escape from "the permanent record".
The charity industry is America's oldest profession (the whores came only after the British took over New Amsterdam and brought in the young men in uniforms).
"Helping" in the name of God/Progress/Equality was established as the primary career for the properly educated even as the Indians were coming close to driving the colonists back into the Atlantic.
Without "helping" there is no justification for compulsory primary and secondary education, college attendance and all the soft subjects that are now the bulk of graduate school education in the United States.
It is– and always will be– the real "jobs" program because it is the only way the commercially-inept can maintain their social status and pass on their sinecures. As the First Lady reminded us the other day, she is "an Ivy-League educated lawyer". So there.
Russ Herrold writes:
The thought that I had when I saw the initial post was this meditation:
"I am for doing good to the poor, but … I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. I observed … that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer."
― Benjamin Franklin
The only reasons why Europe is recovering (euphemism) are the collapse of the euro (ie almost a return to the old currencies (peseta, lira, franc and drachma, etc ..) and the collapse of oil.
Steve Ellison writes:
Stef, this is an excellent point, and there is a meal for a lifetime if one can understand and anticipate how markets move to correct imbalances. As one who trades only S&P 500 futures, I have noticed that every time that market sold off in the past 5 years ostensibly over Greek worries, the euro went down at the same time, which directly alleviated the root cause of Greek non-competitiveness. Soon enough, there was no longer any reason for the S&P 500 to decline further.
I threw challenge a few weeks back: could anyone test "5 year expected earnings" vs ES.
I'll re-post these links as a trailhead at least for how one might go about such a study:
"Expectations and the Valuation of Shares", Burton Malkiel, John G. Cragg
From Strategy Page:
There has not been a war between the Great Powers in Europe since the surrender of Nazi Germany on May 8, 1945, a peace that has lasted 70 years so far. This is the longest period of major-power peace in Europe since before the fall of Rome 1500 years ago. The second-longest such period of peace among the European Great Powers was the 43 years between the end of the Franco-Prussian War (January 31, 1871) and the Austro-Hungarian declaration of war on Serbia (July 28, 1914), which signaled the outbreak of the First World War two days later. In effect, since November 5, 1988, every day that the European Great Powers have not been at war with each other has set a new European regional –and pretty much a world– record for the duration of a peace.
At times like this one is reminded of Horatio Nelson's admonition to Aubrey: " Forget the maneuvers and go right at them".
Stefan Jovanovich comments:
But if your men cannot go right at them, your only choices are to avoid engagement either by using the ocean's wide spaces or by staying in port. Pierre-Charles Villeneuve was shrewd enough to know that the only role for the French and Spanish fleets was to be a potential threat but never to actually come out and fight, except in those brief moments when they had overwhelming local superiority. That threat of a "fleet in being" would compel the Admiralty for political reasons to devote most of its energies to patrol duties in the Channel to guard against invasion and to blockading the Atlantic and Mediterranean ports of the enemy. It would maintain a stalemate which would, in fact, be a victory for Napoleon's continental system. But Villeneuve had the bad luck to work for a man who could never sustain a strategy that was working if it contradicted his latest impulse. So, Villeneuve was doomed to be ordered repeatedly to use absolutely the worst of all possible tactics. To this day, the French continue to blame him for the defeat at Trafalgar. They even join the English is questioning the Admiral's character for finally obeying Napoleon's stupid orders when faced with the choice of obedience or execution.
P.S. Nelson's contemporaries had the grace to acknowledge that Villeneuve was a better sailor than Nelson; when he attended the funeral ceremony, his presence was not considered shameful but a further endorsement of Nelson's military greatness.
One notes the almost 5 year decline in the prices of Maize, Wheat, Soybeans and notably/most importantly, in the price of Rice.
I am often told to pull my head out of my ^%$#% and look at the real world. Well, I look directly at it now and say this: Why are the international food agencies not involved in these markets now (maybe they are?) buying whatever amounts necessary to begin alleviation programs.
They seem more interested in blaming evil speculators when prices are high.
Perhaps Stefan and Jeff could both rightly put me back in my myopic little box and correct my interpretation of the current situation?
Stefan Jovanovich writes:
I can't, Shane. Your comments are literally a meal for the billion and more who still live have not to mouth. The central banks and national treasuries and the electorates have avoided the follies of the 1930s; they have not assumed that only preparations for war can justify income subsidies. But those people who have "learned the lesson" of the Great Depression have also done their best to ignore what the people who survived WW 2 did to get back on their feet again. They hoarded.
The rise of grain prices that had Britain remain on food rationing longer than West Germany came not from crop failures but from the producers' decision to build up inventories rather than release them.
The Marshall Plan was about bribing the American farmers to trust the government for once to pay them a log-dated premium over the market large enough to justify current sales from the inventory and a commitment to "overproduction". Without such a Marshall Plan output could remain flat while prices rose because farmers were still reminding themselves of the lesson of the past half-decade.
After restrictions of the the risks that come with a world in which commentators on current events no one can remember.
Scott Brooks adds:
Because there's no power to be gained by actually helping people get ahead. A downtrodden, hungry, oppressed man will reach out to grant power over his life to anyone who tells him the lies he wants to hear.
Stefan Jovanovich adds:
I thought Shane was pointing out that the non-profitistas were not buying low after complaining about the speculators selling high in the past. That seemed to me a shrewd observation not only for its comment on the nature of the helping professions but also for its implicit reference to how international food relief got started in the first place. In any case, I appreciated taking what he wrote as an invitation to discuss the political origins of the Marshall Plan and an amateur exploration of how grain producers might be shifting to hoarding. (Jeff has been silent because he is busy actually trading; I suspect he is also being kind enough to refrain from publicly reminding me that current production is controlled by entirely different government rules than those around in 1948.)
Where, in this meander, does Scott's comment fit? Are we supposed to say "Oh, dear, the poor are being stupid - again?" In my own direct experience of being poor (not just broke but also cut off from the safety nets of family and professional connections), I don't remember having any "power". If I had, I would have been happy to trade it for lies, if there had also been some cash to go with it. The poor don't mind being used as the excuse for the ministering to their needs; why should they? They may get only one piece out of eight from the money being spent but it is still better than nothing.
Neo-socialism does not exist in America because "the poor" demanded it but because the markets are as cruel to the well-educated as they are to the rest of us. The Congregationalist claque in Massachusetts and the Quaker gang in Pennsylvania learned that straight off; and they did not like it. Their solution was no different from the 19th century Progressives, Kennedy's Peace Corps or the current LDS - tithes and non-profit jobs for respectable children and their elders and, of course, price supports paid for by government paper money.
The lie that will always sell is the notion that people can be helped "to get ahead" through anything but commerce.
"An expansion in credit supply was the fundamental driver of the surge in household debt and that borrowing against the increased value of real estate accounts for a significant fraction of this build-up in debt."
And it was prefaced by a fed rate hiking cycle in 2004 where financial market conditions did not tighten, but in fact, loosened significantly. Yellen's comments this morning seem to support the idea of a "yellen collar" on equities, while the recent sell-off in bond prices seems to also fit nicely with her master plan.
Courage to write freely comes in many forms and only some are proper.
This article contains the latest list of those writers who require that any First Amendment bravery be "fastidiously exercised for the good of humanity."
Give me the place to stand, and I shall move the earth."
This is the translation from the Greek of what Archimedes is quoted as saying about the power of the lever. (Pappus of Alexandria, Synagoge, Book VIII, c. AD 340; Chiliades (12th century) by John Tzetzes, II.130.)
Since 2008 the predictions of doom by the goldistas have all been wrong. There has been no hyperinflation among any of the countries whose currencies can be cleared in large amounts through the central banks of the world. Gold has proven to be no more reliable a "store of value" than any other investment, even if you go all the way back to Nixon's cutting the last feeble fetter in 1971. (Yes, over that 4+decades gold ownership has been wonderfully rewarding for those early investors but no more so than ownership of the shares of Philip Morris, for example. As in the past tobacco has proven to be a more than adequate pseudo-money.)
The best explanation for why fiat money has not utterly failed is the simplest: currency itself no longer counts towards leverage. In a U.S. banking system with nearly 3 Trillion $ in "excess" reserves, vault cash on hand has become a footnote to any reserve accounting. Even the amount of money in circulation in the country becomes an inert variable compared to the volume of credit card transactions. (One suspects that even the traditional #1 users of dollar bills - those in the U.S. illegal drug trade - have moved on the debit cards.) So, we are in a new world where John Law's experiment has succeeded, where credit is the means for all transactions and the form of all savings. Law's system failed because gold was still the ultimate unit of account, and foreign exchange dealings remained in private hands. The livre could be traded for coin, and the governments, for all of their monarchical tyrannies, lacked the mechanisms to prevent people from taking their specie and running over the border. But, in the new world of central bank mercantilism, that is not a problem; the players at the table cannot cash in their chips. They can only exchange them for a differently colored legal tender IOU.
"Monetary policy" has been based on the assumptions that (1) banks wanted to lend to consumers for transactions and real estate asset purchases, (2) consumers wanted to borrow to buy now and would pay for the privilege, and (3) interest rates would control how much lending took place. But what if the consumers decide that they, too, want to hold "excess" reserves in the credit system? In a world of debit cards both consumers and banks may have discovered that they have less need or use for hassle of short-term leverage. The Fed has already hinted that it will be frowning on the uses of credit that are not "investments" - i.e. loans to existing members of the Fed club. "(W)e will use the rate of interest paid on excess reserves (IOER) as our primary tool to move the federal funds rate into the target range. This action should encourage banks not to lend to any private counterparty at a rate lower than the rate they can earn on balances maintained at the Fed, which should put upward pressure on a range of short-term interest rates."
If the Fed is going to keep its promise to draw down the assets on its balance sheet while tugging upward on the IOER, won't its interest rate policies necessarily be drawing private credit balances from consumption to savings? How else can they help create the necessary customers for the issuances of fresh Treasury paper; there has to be someone out there to do the buying so that the Treasury can actually send principal back to its best old customer. There are only two alternatives to that dreadful scenario of higher interest rates and lower consumer spending: (1) the Fed continues to be the Treasury's best new customer, or (2) the U.S. Treasury issues further regulations under the Trading with the Enemy Act outlawing "private counterparty" (sic) interest-bearing bank accounts.
But who can imagine the Fed breaking its word or the U.S. Treasury outlawing the private holding of money - er, credit?
Is one that puts the liar in a somewhat but much reduced negative light while hiding the real gravament of major culpability? A good example is Cole Porter saying that he was a member of the French Legion and that the reason that they took him was that they wanted an American to be in it for public relations. But he really wasn't in it at all as he had gone to France to avoid the Draft. And Gross's upside down thing that the secular in stocks and bonds, is over is an example of that perfect lie, although one would guess that he is not aware he is lying and just would not ever say anything good about stocks because that would hurt allocations to his fixed income activities. And he's been calling for the end of the rally in stocks since Dow 1000 or so.
Stefan Jovanovich writes:
"In July of 1917, he set out for Paris and war-engulfed Europe. Paris was a place Cole flourished socially and managed to be in the best of all possible worlds. He lied to the American press about his military involvement and made up stories about working with the French Foreign Legion and the French army. This allowed him to live his days and nights as a wealthy American in Paris, a socialite with climbing status, and still be considered a "war hero" back home, an 'official' story he encouraged throughout the rest of his life."
Draft registration began June 5, 1917.
To justify the enslavement of American citizens, the Supreme Court looked not to the Constitution but to "the law of nations" - i.e. what the Europeans had always done.
Cantillon got his start by doing the accounts for the exiled Irish money from Kerry that landed in Daniel Arthur's hands. He got his real boost from becoming the agent in Spain for James Brydges, who got rich as the Paymaster for the British Army during the War of Spanish Succession. In both cases finance was ecumenical; no one complained about the Catholics negotiating bills of exchange for the Anglican sovereign.
Until recently, the same generosity of spirit had governed current financial matters involving Ireland and the continent. But, as the Apple disclosure about tax liabilities noted, the EU is not happy that American companies have used Ireland's intellectual property laws to such extreme advantage. Even more important is the fact that the most recent Irish budget seems to have decided that 12.5% is to be a real and not fictional rate on trading profits, even those made elsewhere.
For some people this could be a nasty scissor between U.S. recapture which takes effect in 2017 (just in time for a possible Republican Secretary of the Treasury to take office) and the Irish desire to clip the virtual coins that have already passed through their jurisdiction.
1. Are there any idiosyncratic moves for 4 trading day weeks that are not around on other weeks?
2. Hammerstein liked to sit with his back to the audience and listen to the ruffling of programs, and the number of coughs to tell if the audience was responding well to his shows. This is similar to Galton's method of counting the number of fidgets. Are similar indirect measures indicative in market moves?
3. When will someone make a good study of the expected moves of individual stocks when they break through round numbers such as 100?
4. Is one of the major causes of the decline of the Roman Empire the hatred and contumele aimed at the rich and the lack of banking during the centuries surrounding the C. E causing a lack of growth, and the need to extract resources by military conquest and slave labor? The book The Invention of Enterprise by David Landes makes this case.
5. To what extent do Hong Kong, Japan, and the US equity markets move in a feedback relation with each other, and is it predictive for any of them?
6. What does the inordinate rise in us stock/us bond and us stocks/dax in the last several weeks foretoken?
7. One is asked frequently why one doesn't trade the 10 year bond versus the 30 year bond because the former is 15 times as liquid as the latter. One notes that the 30 year had a 6 point range last week, and the 10 year a 1 pt range. Ending up down 1/2 a pt or so. Versus 3.5 pts for the 30 year. The answer is that the rake, the vig, is too high on the 10 year.
8. Everything that should have worked last year in predicting the crude is working this year as is generally the case.
9. Are the equity moves bullish in year 5, and bearish for year 7 predictive in any sense?
10. To what extent will Centrals, and plunge protection teams or their counterparts shield major declines in the market during election years?
Stefan Jovanovich writes:
Quibbles re #4:
We moderns see the fall of the Italian half of the empire as "the decline" because Rome is where the Pope lives; for Gibbon and his readers, the important decline and fall was the loss of the wealth of the East - Egypt and Damascus and Constantinople.
There was no decline in banking around the C.E. That was the period of its tremendous growth, which continued in the East until Gibbon's villain–Christianity–had succeeded in converting the Mediterranean world as a whole into believing that the very notions of profit and interest were sins (of which the Jews were, of course, particularly guilty).
Slavery was always at the root of all economic systems in that world; acquiring slaves was, as they became in the American South, the primary means for an ordinary (sic) person to save and invest. (The first investment a successful free black or Indian made was to acquire his own slaves.) Productive land was already owned by the established families–just as it is in our American West–and you needed a lot of it. That was beyond the means of any "entrepreneur". But slaves could be acquired one at a time; they were fungible and they could be rented out to the landowners as seasonal or long-term workers. ("Rome" (the TV serial drama) gets this right. Vorenus plans to retire from the legion by saving up the rewards from his military service–i.e. the slaves.)
The fiction of an independent libertarian-believing yeomanry of Roman citizens electing a representative government is just that–a fiction. The appeals to the mob began generations before the Republic "fell"; and every successful "middle class" (sic) Roman was a slaveholder.
All hades broke loose in Europe in 1846, and the Rothschilds played the same role, begging favors, and granting pocket money to the politicians, and financing debt that their modern counterpart of faith and Flexionicism played in 2007-2008, albeit none of them officially received a post in the cabinet. However, despite the revolutions in Germany, France, and Italy, the Rothschilds' offer to take down Austrian debt at 4 3/8% was only 1/4 % higher than the going rate prior to the Hades.
It was interesting to learn how openly the Rothschilds influenced the rates with well timed purchases to help their changing political alliances along. Natah proudly told Metternich "I raised the rates very easily yesterday by buying Mettelligique". In those days a rise in the stock market was good for raising confidence and lowering rates.
The general impression from reading the history of the Rothschilds in this period was that their influence was quite similar to their modern counterparts in Treasury but their grand balls and mansions seemed to the observer from the grandstand to be of a much more ostentatious scale. Hopefully, the great historian Stefan will correct and sharpen these observations.
Stefan Jovanovich comments:
There were two differences: (1) the Rothschild brothers had to raise the money they lent and paid for their trades. They could not print it or engage in a perpetual swap of one debt instrument for another. They had to have customers believe in their resources and also have the actual specie reserves to back up that belief. Their personal displays of wealth were important as theater and necessary as investments in private accommodations in an age when important visitors became house guests, not hotel customers. (2) they never indulged in national policy. Being permanent outsiders as Jews allowed them to avoid the corruptions of patriotism. They were accused of being guilty of caring only about self-interest and at the same time trusted because no other interest would supersede. They would act in a way that benefited themselves and their clients but never at the expense of their reputation with others. It is impossible to imagine their advising any of their sovereign clients to choose devaluation at the expense of their trading partners.
David Lillienfeld adds:
The Rothschilds did not earn their money from banking. They worked for sovereigns, too, as when they ran the funds for the British government to Wellington's army in Spain. Supposedly, no one else was willing to do it and the Nathan and company earned a nice fee for their troubles. That was supposedly not an unusual undertaking.
Stefan Jovanovich comments:
Er, not quite. The Rothschilds were merchant bankers; if you can imagine a band of brothers of Larry, Watsurf, the Zachar et. al. dealing in everything from cotton bales to consols, you have a picture of who they were and what they did. They took deposits, underwrote loans and also dealt in used furniture, as the Maturin saga notes.
The story about Wellington's Army has been retailed for over a century; the Sharpe books (and the TV serial made from them) have an episode with Nathan pretending to be a Quaker (or Baptist? this part is entirely from recollection) woman missionary riding in a coach through Spain so he can smuggle a letter of credit to Wellington. It makes - I suppose - good fiction; but absolutely none of it is true.
With Wellington paper would have been more than useless; the French were paying their allies in script. If Wellington and his allies were to win what was the first modern Spanish Civil War, they had to pay in gold. This is where Nathan and his brothers came in; they dealt in bullion. The Rothschilds were sensible enough never to stray very far from their security; Wellington's gold was delivered to John Charles Herries in London. He and the Royal Navy had the responsibility of getting it to Lisbon.
"There is one good thing about Marx: he was not a Keynesian."
Stefan Jovanovich writes:
Marx also agreed with Rothbard about central banking: "Talk about centralization! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralization, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner— and this gang knows nothing about production and has nothing to do with it." (Das Kapital, Volume 3, chapter 33).
They also shared - along with nearly everyone else - the notion that money was something other than the unit of account that the people with guns and official uniforms accept in payment of taxes.
Neither they nor the best current historians on the Constitution (Rakove, David. O. Stewart) understood the full genius of the Federal answer contrived by a collection of planter debtors, merchant lenders, lawyers and army pension holders in 1787:
1. The country would have only coin as money because no other form could avoid the cheating that can be produced by the stroke of a lawyer or accountant's pen or the vote of a State Legislature
2. Congress had the power to define what the Coin would be, provided that the unit of account for both U.S. and foreign money was a specified weight and measure
3. What the States and people and the Federal government did with their freedoms to get, borrow and spend was up to them
"Steel rain" was the tactic developed by both the British and Germans in WW I (it was eventually copied by the French and Americans after they surrendered their illusions that elan could have much effect against enemies who kept their heads down). It was–literally–the idea that exploded artillery shell fragments and bullets would fall from the sky directly on top of the enemy's trenches. The British developed their techniques of indirect fire to the point that Lewis guns were aimed not like rifles but like mortars so that the bullets would arc up into the air and then come down on the Germans.
In his memoir "Storm of Steel" Ernst Junger writes about how he found comrades being killed by bullets striking the tops of their skulls. Trench mortars were even more effective; they could be fused so that they exploded just before hitting the ground, turning the enemy's own defensive wire into shrapnel.
Hollywood shows wars with rifles and gas bombs (those fireball explosions that never happen when artillery shells and rockets strike home); but, going back to Napoleon, most of the killing and maiming of the other guys in uniform got done not by individual firearms but by the explosions delivered from large tubes. (Aerial bombardment was spectacular but woefully inaccurate.)
There is a good argument to be made that the Allied Air Forces helped defeat the German Armies not by their actual bombardments which killed mostly civilians (more French civilians died from Allied bombardments in the weeks up to and immediately after D-Day than Allied soldiers on the beaches at Normandy.) Where the Allied Air Forces succeeded was in diverting so much of the German artillery from the Eastern front to anti-aircraft duty defending Berlin and other cities of the Reich.
Steel rain is not going away; but the large tubes are. It is difficult to fit GPS guidance onto shells that have to withstand the heat and pressure of being shot out of an artillery piece; but with rockets there is no problem. Two hundred years after Congreve's rockets were a miserable failure, his idea has become THE ANSWER.
April 16, 2015 | Leave a Comment
Glenn Beck is Savanarola withut political control; he is no more reactionary than Huey Long. Beck also admires Jefferson; he is the Father Coughlin of our age–full of righteousness in the name of the common people.
As for Thomas Paine, few of the people who made the United States into a country had any quarrels with his ideas. They did find him to be a pain in the ass personally because he never could accept the fact that other people also had interests and sometimes he would have to come second. He was–like so many of the people who despise Americans for wanting to keep their own religions–convinced that the state could ultimately get them to think straight. All it would take was some benevolent central authority. The French Revolution would have killed him but for Morris and Washington's intervention, yet it was the American one he repudiated.
Kyle Bass recently opened a new strategy against drug companies: short their stock and then attack their patents, using a law from three years ago that basically opens the door to such things.
Even if the challenge results in no action by the PTO, it will take a while for that to come to closure. In the meantime, there's some discounting of the presumed NPV of the portfolio as those wily masters of earnings estimates on the Street (who are never ever wrong) conclude that the company's earnings will be adversely impacted in this way or that. Stock drops, shorts cover, and PTO denies the claim. If the patent is for a cytokine, the challenge may be upheld based on recent SCOTUS rulings, but that's about it.
Some patents may seem absurd (and some are!), such as Schering's (now Merck's) patent on interferon alpha (used for Hep C) dosing—how many times a week, and so. That patent was challenged, and the challenge was denied. That doesn't stop the perceived value of the company from dropping, though.
For big pharma, this may be more of a pain than a major matter. Sure, they will go to Congress to get the law repealed or at least reformed. And the structure of matter patents key to industry are probably intact so long as they are not straight copies of a naturally occurring molecule (I think that's been the new SCOTUS standard). After all, if they were at risk, the chemical industry would be at risk, too. And the capitalization of the majors is such that a drop, while unwelcome, can be weathered.
However, for the start-ups, this may be a bigger problem. Not only is there usually tight spending already so that paying attorneys' fees has a potentially major impact on the budget (could it mean needing to raise more capital, likely with significant dilution??), never mind management's attention more productively spent on product development.
Then there's the stock price. Many start-ups look forward to being acquired as an exit strategy for investors in the company. However, they prefer to do so when the company is in Phase 3, when the valuation has considerably risen. (Including product failures and the like, peak valuation of start-ups is midway through Phase 3). However, if the stock drops because of shorts piling on the company, the market cap will drop, potentially enough to attract the attention of a major pharma looking at the company's assets as priced at a bargain. If this is early enough in development, the market cap isn't going to be that great to begin with. Consider, InterMune's valuation about a decade ago was 100 mil. Pirfenidone, the stuff it's marketing now (whether it's worth using is a different matter), was in Phase 1 / 2. Early development. Go ahead 9 years, and Roche bought the company for 8.5 bil. (Roche is a conservative company; someday, I want to get the BD fellow responsible for the deal off to a quiet corner of a bar and ply him/her with enough cognac to understand the thinking behind the purchase—but that's just my view of it).
So while the biotech frenzy continues (there may be a bubble, except there are real products generating real earnings (and lots in the pipeline from acquisitions) that's supporting much of the valuations. And while you can say that Celgene is a bit stretched, but Gilead sure isn't. Take a look at its PE, its revenues, its products and therapeutic areas and then its pipeline. Not stretched at all. So, is there a bubble? If you look at Valeant, you might be pardoned for thinking so. At some point, Valeant is going to be big enough that the M&A isn't going to support the company's valuation anymore. Kind of like what happened to PDL before the Facet spin-off. At that point, Valeant has to start functioning like a pharma (and not an PE enterprise) and generating some increases in earnings to support its market cap. Either that or watch the air come out of its balloon (guess where I stand on that assessment).
So back to the patents. I think Congress will do something at some point, just not the current Congress, which could barely pass a bill mandating that Reagan National should remain open. In the meantime, there will be some raids by the shorts until everyone else starts to discount rumors of invalid patents. At that point, it's Game Over. Until then, though, while the big pharmas aren't going to be bothered much, there may be some significant damage on the start-up front. And before you pooh-pooh that sector of health care, it's worth remembering that the amount of productive research in big pharma labs is pretty poor these day. Innovation is taking place in the start-up world (not for big pharma, which may get some bargains, but for the investors in those start-ups, who may decide not to invest as much in the area, or in any given company, citing this "play" as a major risk and lowering RoI as a result. in VC terms, that RoI has to be high enough to cover the costs of the all-too-prevalent product failures).
Stefan Jovanovich writes:
I don't think BIOTEK will go upper 162 (hope).
Not to insist, but this latest bounce on BioTek is particularly strong on the numbers/ participation. Will be a maximum of less? The swan song?
April 15, 2015 | Leave a Comment
The first steps to answering these questions were taken almost a century ago, at the height of the American Jazz Age. At the time, the new-fangled IQ test was gaining traction, after proving itself in World War One recruitment centres, and in 1926, psychologist Lewis Terman decided to use it to identify and study a group of gifted children. Combing California's schools for the creme de la creme, he selected 1,500 pupils with an IQ of 140 or more – 80 of whom had IQs above 170. Together, they became known as the "Termites", and the highs and lows of their lives are still being studied to this day.
Stefan Jovanovich writes:
Francis Galton had raised the question of intelligence measurement in the 1860s, and it was one that absorbed people's attention because it raised an important issue: could "society" - i.e. civil servant bureaucracies and charitable organizations - make the common people smarter. For the English-speaking world this was a topic for endless debate because it was really about how much more money Progressives could get spent on public schools. The French, with their universal childhood conscription (no child was allowed to avoid public schooling), did not have to debate the issue; they brought their usual scientific rigor (at least in that period) to bear and had Alfred Binet create a standardized test for all elementary school age children in 1905.
By the Jazz Age (sic) the IQ test was anything but "new-fangled"; on the contrary, it was old hat. When Terman's book, The Measurement of Intelligence, was published in the U.S. in 1916 (it was an almost complete rip and translate from Binet's work), it had been "new-fangled" and was wildly popular. One important reason for its popularity was that it was the first book in American education history that allowed parents the opportunity to test their own children. But, ten years later, when Terman began his longitudinal study, people were sour enough on the question of "I.Q." to make jokes about it. For one thing, they had already suffered through the comedy of seeing the U.S. government try to apply the test results to winning the war. (When the U.S. Army hired Terman in 1917 to use the Stanford-Binet test, it was not a "recruiting" device. The Army took everyone who was drafted now matter how stupid; the test was given to people after they were inducted to try to figure out what MOS they should be trained for.)
This article has a decent summary of what Terman did, but you will have to ignore the usual retrospective judgments that have become part of all current academic writing.
April 14, 2015 | Leave a Comment
In the US, coal is on the ropes for several reasons. First, the strong dollar is making exporting coal [and LNG] relatively uneconomic.
Second, coal has become uneconomic. Coal burners are turning to lower-cost natural gas or renewable energy. In fact, no US utility is seriously considering building a new coal-fired power plant. To make matters worse, most utilities who own coal-burning assets are seeking exit plans.
Then, there's this:
The article describes declining mining activity in WVA. They report that 2,596 WVA miners lost their jobs in the first quarter. It should not be a surprise. What they do not say is more jobs will be lost in 2015 as dozens of uneconomic power plants exit from the nation's deregulated power markets.
The article is exaggerating when it suggests the root cause of WVA's mining woes is a federal war on coal. There's no federal war on coal. There is federal [and state] war on carbon.
Just ask the natural gas burners. Ask oil burners. Ask nuclear burners. Ask state regulators. But, don't ask the media. And, for heaven sakes, don't ask a politician.
Victor Niederhoffer asks:
If all this supply is coming off the market, isn't that bullish?
Carder Dimitroff writes:
Interesting question. The answer is not simple.
Coal mining will struggle. Coal transportation will struggle. Gas boilers will struggle. Manufacturers supporting these types of assets will also struggle.
Turbine manufacturers are gaining. General Electric, Siemens and other turbine manufacturers are seeing growth in high technology turbine sales (combined cycle gas turbines). They offer turbines that are 60 percent fuel-efficient (coal burners are approximately 20 to 30 percent fuel-efficient). The combination of high fuel efficiency, low fuel costs and low labor costs offers buyers a significant competitive advantage.
Energy prices are unlikely to improve. Market-clearing prices for wholesale power are challenged as low-cost gas turbines enter the market. Ohio alone expects six new gas turbines (the equivalent of four new nuclear power plants). These turbines will likely lower average market-clearing prices by displacing less competitive sources (coal).
Energy prices are also challenged as renewables and energy efficiency programs take hold and grow. As California demonstrates, it only takes a small amount of renewable energy (or energy efficiency and demand-response) to shave off average market-clearing prices.
Nuclear power is winning on the carbon war argument. The State of Illinois recently passed a carbon bill, which helps existing nuclear power plants (Exelon) and renewable energy sources.
While existing nuclear power is a winner, new nuclear plants are losers. It appears no new nuclear plants will be built for a long, long time. Yes, there are nuclear construction projects underway. Yes, nuclear power displaces carbon and other air pollutants. However, it's not enough. After watching TVA, SCG and SO struggle with spiraling nuclear construction costs, it's unlikely other utilities [or state regulators] will repeat their mistakes. In fact, it appears most other applicants have put their nuclear ambitions on the shelf.
Capacity markets are improving. Old and inefficient plants cannot compete. Some assets are failing to clear auctions. As such, it shouldn't be a surprise that the market's losers are forced into permanent retirement. They can blame the "war on coal" if they want, but it's mostly operating economics that are driving retirement decisions. Those decisions are also capturing other types of plants; not just coal plants.
In the spirit of markets, there appears to be clear winners at the expense of losers.
Stefan Jovanovich writes:
Thanks to another part of my misspent youth, when the U.S. Navy wasted its money teaching me about marine propulsion systems, turbines continue to fascinate me. So, any pretense of knowledge here is restricted to that subject only. The inefficiency of what Carder calls "coal burners" comes from the fuel, not the gas that moves the turbine blades. Steam is actually slighty more efficient than natural gas in its isentropic efficiency because it is easier to capture the residual heat energy from steam after it passes through the first (and second) turbines. (Note: "isentropic efficiency" is the ratio of a turbine's actual power output to those of theoretical turbine with perfect physics with the same inlet conditions and discharge pressures. Or, to put it in engineering speak - actual enthalpy drop divided by the isentropic enthalpy drop).
So, "coal burners" - i.e. plants that burn coal to generate steam - are "inefficient" only because coal has a much lower energy density than other fuels. (This why the British Navy switched from coal to bunker oil; the same ships could go much farther without refueling using the same fuel storage spaces.)
As to how prices for fuels will arbitrage the energy density differentials, beats me; but List members should not take the relative electrical generating efficiency numbers to be a statement about the obsolescence of steam turbines. This is not a repeat of the fate of the railroad steam engine.
Richie Benaud, who has died aged 84, became so celebrated as the most intelligent and articulate of television cricket commentators that his youthful triumphs, as one of Australia's greatest all-rounders and most inspirational captains, tended to be overlooked. In his seventies Benaud wryly observed that he had lost count of the number of times young cricket fans asked if he had ever played the game. He was, in fact, the first Test player in history to achieve the double of more than 2,000 runs and 200 wickets.
Craig Mee writes:
Well spotted Stefan. Richie was always short sharp and to the point, loved and respected in England almost as much as in Oz, not an easy feat when it comes to sport. He was stoic and always positive. He was often quoted about cricket and life through its ups and downs, something we should all pay careful attention too, and on reflection all of us, no matter their position could say about trading and financial markets.
April 10, 2015 | 6 Comments
One of the most frustrating things in trading is when you research a (qualitative, not a systematic) trade, stay up late figuring out how you want to express the idea to maximize gain and minimize loss, and then the next day when you want to put on the trade that stock is up near 3%.
Considering it has done nothing for months you figure, "I will wait till to buy on a decline a bit lower". Then the next day you see it is up 8% and the options you had looked at were would be up 60% in a few days had you conceived of the idea just 1 day sooner.
I think at such times (similar things have happened to me 3 times so far this year) one is very prone to going on tilt, such as finding some other market to chase, or otherwise do something out of frustration that is not logical and end up losing what you would have made had you been one day sooner.
I am wondering if there is any way this sequence of events can be generalized beyond specific circumstances of one trader, to general market phenomenon, maybe even events that lead to predictable circumstances.
Jeff Watson writes:
Whenever I go surfing, I miss a lot of good waves. I either am in a wrong position, miss it completely, or just blow it off thinking a better one will be behind. I never feel bad about missing a wave because there will always be another wave sooner or later. I look at trading exactly the same way I look at surfing.
John Floyd writes:
Agreed, put another way as someone once said to me “there is a bus every 5 minutes”. Also importantly in terms of the limits of time and energy don’t spend it worrying about missed moves, focus on what is ahead.
I read a poignant quote recently in The Joyful Athlete: ”Second tier athletes tended to beat themselves up for mistakes, while the champions simply noted their errors and moved on, wasting no energy on self-recrimination.”
Stefan Jovanovich writes:
I have the same problem. Sometimes I wait on a trade too. I think it is greed, the desire to seize the least/highest perfect. So I remember: "Luke, trust your instincts!"
I strenuously disagree with the philosophy that "there is a bus every five minutes." (My late great father used to say, "there's always another street car.")
This is a rationally flawed analysis. Because it treats an opportunity cost as economically different from a realized cost. The reality is that the P&L from an opportunity cost is real, and it compounds over time. And this is true so long as one is consistent regarding timeframe, methodology and performance benchmarking. The most pernicious thing about this street car delusion is that it can be hidden, rationalized and forgotten.
By way of example, our fellow Spec Lister and Bitcoin Booster, Henrik Andersson declared on March 12: "Crashing commodity prices, currency war, crashing yields (with a big chunk of European debt trading at negative yield), surely this can't be because everything is so rosy in the world, this cant possibly be 'good' news. Couple this valuations close to ATH and I have for the first time in 25 years sold everything (I started investing when I was 12). Everything."
Since this declaration, the SPX, Dax and Nikkei have all risen between 3 and 6% — and the DAX is at an all time high. If Henrik measures his performance on a daily or weekly basis, this is a bona fide opportunity loss of substantial note. But if Henrik measures his performance on a long term, multi-year basis, it is way too early to render a verdict and this opportunity cost may well morph into an opportunity gain.
John Floyd comments:
Point well taken and a good one. I was afraid my quick comment might garner the need for elaboration. The point I was trying to make is if you “miss” a trade you should learn from the experience and move on, while trying not to repeat the same error in the future. Juxtaposed against expending energy lamenting the perceived lost opportunity, which also has a cost. Assuming this is done with some degree of improvement I think it is both rational and sound. In this way the opportunity cost is treated as real and minimized over time. If there is improvement made then returns are compounded in a positive fashion as opposed to a pernicious one. In anonymous’ example that might even mean Henrik recognizes what may or may not have been an incorrect thesis and “buys” everything the minute he read anonymous’ post.
Sushil Kedia writes:
My two cents on the table:
Opportunity costs as well as realized costs are both known and quantifiable only after the market has moved. At the instant of a decision as to whether to decide to take a trade or not, both are unknown.
Since a real P&L is a progression of a series of unknown infinitesimally sized but infinite number of moments, it is likely a flawed debate to undertake whether or not opportunity costs compound, since if those said opportunity costs actually turned out to be realized losses they too would compound.
Transliterating approximately what the Senator has said often in the past, the purpose of a trader is not to be in the market, but to come out of the market, one would like to tune one's mind to focusing on how much could one gain without losing beyond a point. For each this is a unique set of numbers despite the market being same for all. This uniqueness comes not only from different skills, but different restrictions on the types of trade one is allowed to take, the different marketing pitch each has to use for garnering risk capital (oh we keep transaction costs low), the different risk tolerances each must remain within etc. etc.
So each needs to focus on how one will travel from an infinite series of infinitesimally small pockets of time in deciding when to not decide.
Paolo Pezzutti writes:
With regards to missed opportunities, I have two observations.
Firstly, I think our mind is biased in focusing on the good trades that one could have made. We tend to forget the bad calls. It is true, however, that if your trading methodology is systematically not "efficient" then your performance will eventually be sub par.
Secondly, if you continue to miss opportunities, you may have an issue in pulling the trigger when it is the right time to do it. I have a long way to go to improve my trading and I think I have to work on both these areas. My trades are inefficient, because I can spot good entry points but my exits too often get only crumbles that the market mistress is willing to leave on the floor after a lavish dinner. Moreover, one tends to be afraid of taking the trade right when the risk/reward is more convenient, that is when fear is the prevalent sentiment in the market, the moment when you should "embrace you fears" as Larry Williams would say.
As a final comment, I have to commend the market mistress for her naughtiness and deceitfulness. The employment report on Good Friday released with markets closed saw prices of stocks plunge seriously (20 pts in 1 hour) to get 30 pts back on Monday. Many opportunities during the Easter weekend in stocks, bonds, currencies, commodities because of ephemeral end deceptive moves. Who knows if they were orchestrated or simply "random".
I went short gold on Thursday at the close (1715) at 1202.6. The first price printed on Monday was 1212.7. I eventually took a loss later that day of about 14 points. After 2 days gold was down at 1994. Focused on my potential loss, I did not exploit the huge opportunities offered. Afraid of even bigger losses, I liquidated my position instead of trying to close the big gap printed at the open. Moreover, I did not buy stocks or bonds to trade the obvious lobagola move. Double damage.
It is a matter of mindset. There are coincidences, situations; there is the ability of a trader to translate into action tests, statistics related to these conditions created by the market mistress. The more extreme the conditions, the more compressed is the coil, stronger and more powerful it will be the reaction in the opposite direction. Much to learn.
Duncan Coker writes:
I have always had a hard time reconciling opportunity costs/gains with realized costs/gains, though I know in economics they are comparable. For example, a casual friend offered me a private investment opportunity which didn't smell quite right and I declined and I left the money in cash earning -1% real rates. Shortly thereafter the enterprise went bankrupt and all would have been lost. I suppose on an opportunity basis it was a huge success for me, 100% gainer, and yet my cash account is the same earning -1%. Every day trading is a missed opportunity to be fishing on a nearby river which is easier for me to grasp and adds to the overall cost of the trading endeavor. Being able to forget and move on is a useful thing in trading. A swim or run at the end of the day does it for me.
I do believe one can go broke from taking profits. Maybe if one has very few positions at a time this could take a while to notice (the benefit to marketing a long term strategy of any sort– few observations) but everyone will fail.
Think of football, a defense might determine that if they can hold the other team to 17 points that they have won their part. What if the offense deploys their secondary after 14 points? May your successes be larger than your defeats.
We are playing an unbounded game, we have no idea the amplitude of future gains or losses, let alone their frequency. Taking profit when unwarranted may not give us a chance at tomorrow.
As for opportunity, we all balance the fear of missed opportunity with the fear of loss. The more successful traders I've known are slightly more fearful of leaving money on the table than losing money. Slightly.
But that depends on the difference between the value and utility of the opportunity. Duncan, you bring up the ultimate question about the purpose of life. Way to make this a deep conversation.
The forced parallels of the current events in Greece with the events before WW I, WW II and the Cold War in Europe fail to fit the facts. The Russians are now using half their effective combat power to support the "volunteer separatists", the Germans spend less than 1% of their GDP on defense, and neither France nor Britain nor Spain nor Italy nor the Netherlands nor Germany has any imperial interests or even pretensions.
A comparison with the events of 1880 to 1890 in Argentina would be more useful. No one with any sense has believed that the Greeks were going to be able to pay the debts they had, yet Greek sovereign debts traded at tiny spreads to German ones for most of the period of this "crisis" (sic). During the 1880s the spread between Argentina's long-term sovereign bonds and the U.K. consols remained equally calm even as "underwriting banks demanded higher fees and Argentina's government accepted leaving more money on the table by underpricing its IPOs as its fiscal position deteriorated."
By 1890 the annual interest on Argentina's debt was 40 percent of that year's fiscal revenue.
What do you think about the idea that even closer in time one might draw similarities between Argentina in 2001 before the peg to the US$ at 1.0 broke and Greece today?…
1. In an effort to import policy discipline an ill-suited, rigid fixed exchange rate is adopted. Argentina in 1991 starts peg at 1.0 and Greece in 2001 enters the Euro.
2. Domestic economic policies that are inconsistent with the currency regime are pursued.
3. End game develops as official support wanes, domestic unrest waxes, and fewer pieces on the board heighten the disparity. Further to elaborate on the US dollar comments and some posts earlier…
As mentioned based on current volatility of around 10% markets have a reasonable chance priced of seeing 1.0 in the Euro within the next 18 months.
The Euro was at about 1.40 in May, 2014 and the recent low was 1.0458 March 16, 2015. The all-time low was about .8300 in October, 2001.
In terms of direction I would ask the question of what the drivers of direction have been in the past and what the drivers of direction are likely to be in the future.
Where is the change and variant perception that may cause an acceleration in current medium term direction or a reversal?
Further, given the "blip down" US economic data relative to expectations over the past month or two and the "short term" blip up in European economic data relative to expectations who else is asking this question and perhaps acting upon it? Has the EuroUsd 1.05-1.10 range created some complacency and perhaps allowed some steam to build up?
April 7, 2015 | Leave a Comment
Today is the anniversary of the Blitzkrieg. The tactic of using an armored division as an independent assault unit was first put into practice not by the British, Germans or French but by the Italians.
It makes me wonder - again - why so wonderful a writer as Rick Atkinson chose to do the long unrewarding slog of following the American Army's follies in North Africa. Some topics are better left buried - like the Seminole War.
If you spend much time there, you come away with a sense of how thoroughly incompetent the official American Army has been whenever it could not leave the bulk of the fighting to someone else. Thank God for the citizen army.
The reward, if any, is to realize how masterful Jackson and Eisenhower were as Presidents. They both knew that Americans' vaunted capacity to fight and win wars depended on having (1) effective allies - France in the Revolution and again in WW I, the Soviet Union in WW II and (2) outnumbered opponents. Yet, each man was able to convince the rest of the world and Americans themselves that the United States had exceptional military skill. Without that triumph of marketing the country's most profitable victories - against Mexico and the Soviet Union - would not have been possible.
"The forty-eight hours after the march into the Rhineland were the most nerve-racking in my life. If the French had then marched into the Rhineland, we would have had to withdraw with our tails between our legs, for the military resources at our disposal would have been wholly inadequate for even a moderate resistance."
This "quote" of Hitler's is now being used to justify arming the Ukrainian Army. It will undoubtedly succeed because "we all know" that, had the Allies stood up to Hitler, nothing bad would ever have happened.
What will be conveniently ignored are these trivial facts:
(1) The only two European victors in WW II - Britain and the Soviet Union -both supported the German military reoccupation of the Rhineland over France's objections.
(2) The actual testimony at the Nuremberg trials of the source of the quote, Paul Schmidt, who was the German Foreign Ministry's translator.
"Considerable fear had been expressed, particularly in military circles, concerning the risks of this undertaking. Similar fears were felt by many in the Foreign Office. It was common knowledge in the Foreign Office, however, that Neurath was the only person in government circles, consulted by Hitler, who felt confident that the Rhineland could be remilitarized without armed opposition from Britain and France. Neurath's position throughout this period was one which would induce Hitler to have more faith in Neurath than in the general run of 'old school' diplomats whom Hitler tended to hold in disrespect."
In the 19th and early 20th century the arguments against the gold standard were these:
1. It was barbarous to have the unit of account be determined by the luck, brains, sweat and the money to pay for it that gold mining required
2. Only the rich and the clever would have access to gold
It is difficult to see the difference between Bitcoin and gold mining. The BitCoin miners are clearly putting as much luck, brains, sweat and money into their work as anyone who worked the Comstock. (One notes that the actual costs - electricity - are not being paid in Bitcoins themselves but in the national money that the miners exchange for their production.) If they are not yet rich, they are certainly clever.
In the 19th and 20th century and this century the arguments for a managed currency have been the same: it will have a stable value because it will be supervised by the government.
The mine manager explains away Bitcoins' price fluctuations by the fact that the currency is in "an early stage of development"; he is as confident as any central banker that, when the Chinese government gives the currency its official blessing, it will have a "stable value".
What is fascinating to those of us in the bleachers is how successfully "stability" became the standard of monetary virtue. Even the current defenders of the gold standard believe that its primary justification is the promise of "stable value".
Nothing in the experience of work and saving even hints at the possibility that prices will be stable. And, when the Marxists get their way and the capitalists disappear, the rations fluctuate in the same way the prices once did.
Peel and Grant both knew that there was one reason only that money should be a defined weight and fineness of gold. In the world of promises the clever will always lead; but, with gold as money, the clever have to meet the simple demands of the ignorant if payment in cash. With coin, even the stupid who had teeth could determine whether or not the promise to pay had been met in full. No one, rich and poor, clever and stupid, could hope to escape the fluctuations of the market - except, of course, the people who had a guaranteed government salary and, as the government, could assure that those payments were stable in value.
"The Fed may have deliberately dug itself in a hole. By buying lots of long-term bonds, the Fed will take big mark to market losses if interest rates rise, and stop remitting money to the Treasury. This is a precommitment not to raise rates. So, a good answer to "how did QE 'work'" is not just by implicitly promising to keep rates low for a long time, but by making it very hard to raise rates!"
and the sequel:
If "respectable central banks" have agreed that no exchanges between them will be refused, then the primary risk of domestic "easing" has disappeared for those countries. Their banking systems can simply accept central bank transfers instead of customer deposits as the base on which to issue credit. The problem for the unrespectable countries is that they cannot rely on foreign counter-parties to take their IOUs. They can, like all other countries that lack a weight and measure definition of money, have their central banks redeem their outstanding debts by issuing reserves; but they can't sell their new debt to anyone but themselves. When Bagehot wrote that the Bank of England could draw specie from the moon if it raised the discount high enough, he was assuming that the Old Lady's credit rating - its ability to redeem paper with coin - was unaffected by the change in rates. If, as Cochrane argues, reserves that pay market interest rates have no monetarist effects for prices, then credit creation is now being rationed even in the "respectable" countries not by reserves but by uncertainty about repayment by anyone not already a member of the primary dealer club.
What is striking is the shift in TOTAL preference for the Democrats. In 2008 it was +20. The best Bush II ever did was in 2003 when preference for the Democrats was only +3. But, in the last four years (2010 to 2013) the numbers have been -4, -3, +4, +5. That really is news; the Republicans have never had 4 years when party preference was statistically EVEN, not once in their entire 150+ year history. We will have to wait for the numbers for 2014, but the election results hardly suggest that the Democrats had a rebound in overall popularity.
Whether Grexit is on or off the table, it would appear that the Greek government is boxed in not only by the EMU but also by its own electorate. At one time, I thought that whatever happened in Greece short of Grexit would stay in Greece. Now I'm not so sure. Nationalism is a theme on the rise in the EU. To what degree will responses such as this one by the Greek electorate "spill over" to other countries in Europe?
Stefan Jovanovich writes:
David's use of the domino theory surprises me. In the Balkans there has never been a need for "spill overs"; nationalism is all that these small, poor countries have. What you have to understand about the Greeks is that they actually do remember the Nazis. If the French, British and even Putin have forgiven the Germans and shifted to the Gaullist notion that it is all the Americans' fault, the Greeks still think about what the Third Reich and its Muslim allies did to their country. They think less about how WW II was followed by a hot and cold civil war that continued, with various interruptions, for another 40-odd years - until the fall of the Berlin Wall.
The combination of those historical memories - one remembered, one deliberately forgotten - is what allows practically everyone in the country to now have the politics of a Beverly Hills communist who has just received an audit notice for his/her tax shelter.
I am finishing The Deluge by Adam Tooze, an ambitious undertaking of a book which covers the post-WW1 rebalancing of power on a global scale. WW1 was largely a war of feuding imperialist nations with entangled alliances. But after the war the world became a different place. One particular issue that has relevance today is that of debt. Europe was very familiar with debt with from 1917 to 1925, particularly Germany. All the powers, Germany, England, France and Britain had borrowed heavily from their populace and international bankers (JP Morgan and friends) to finance the war and reconstructions. The populace could be easily taxed or the currency devalued to eliminate a portion of the debt. The foreign debt holders, however, demanded payment in hard currency or gold and were ruthless in collection. Their was no debt forgiveness by friends or foes. The Entente (Britain, France, Russia) had their ongoing currency and gold wars amongst themselves and with the US over debt. Germany was crushed by debt during that period. Perhaps Germany's intransigence today is due to their history. No one showed them much mercy at that time.
All told today in Greece the total debt at par is roughly 400b euro. A reasonable haircut could easily be absorbed by the central banks and official institutions who own most of the debt. I think the battle is one of ideas. The German notion of aggressive self reliance and go-it-alone attitude, versus the dream of a family of nations which Wilson wanted ( at least for everyone outside the US). I predict in Europe the latter path will prevail. No one wants another war, metaphoric or otherwise. The cost of a write off is negligible when the ECB is prepared to spend 1.6 trillion euro on various paper. The 5 and 10 year Greek bonds appear to agree as they started to rally in October well in advance of the current debate and are up roughly 40% since that time.
Stefan Jovanovich writes:
Adam Tooze has written a very good book on the Nazi economy. Now he has written a very bad one. There was only one foreign debt holder for Britain and France after WW I - the U.S. The only justification for describing the Americans as "ruthless" is the Keynesian one: the U.S. Should not have insisted on being paid back in the same money that it had lent - gold priced at the U.S. Exchange rate. The U.S. Did not, in fact, collect any war debts beyond the amounts lent to Germany under the Dawes and Young plans which were paid to the European Allies as reparations and then sent back to the U.S. Finland is the one country that actually paid back what it borrowed. Germany was not crushed by debt; the hyperinflation literally wiped out all the creditors. The reparations demanded by the Allies were large, but they were less than a third the size of the ones demanded from France after their defeat in 1870. The French actually paid, in gold; the Germans never did pay up. The British thought they could ignore their default by adopting a gold exchange standard - i.e one that only applied to account reconciliation between central banks but not to money held privately. The French and the Japanese, to their credit, actually tried to restore fully so that their money would once again be automatically exchangeable to specie. The Japanese were defeated by the Tokyo earthquake and fire of 1925; the French by the U.S. Reversion to mercantilism under Hoover and Roosevelt's planned economies and the devaluation of the dollar. The great sin of the U.S. Was not to have tried to collect the war debts; it was to have violated the Constitution by failing to value foreign coin. Without the U.S. Treasury and Federal Reserve's connivance, the New York banks would not have been able to discount francs and pounds at pre-war par; and the war in Europe would have ended by summer 1915.
February 23, 2015 | Leave a Comment
Since Eddy and her mother abandoned me for the pleasures of visiting Charlotte and Charleston this weekend, I have had to amuse myself with reading Marx and Engel's (mostly Marx's) dispatches to the New York Tribune. Poor man; if only he had lived a century or so later, I am certain he would have been able to win the Nobel Prize AND write for the Times.
It is fascinating how much Marx despises the man who gave him and Engels their claim to fame. David Ricardo's assertion that profits and wages inexorably contend with one another is surely the basis for the Marxist's "labor theory of value". Yet neither revolutionary author has even a single kind word to say about the first great English-speaking practical speculator. Neither, for that matter, does Wikipedia. One wonders why. Ricardo was an abolitionist, he opposed the Corn Laws and favored an expansion of trade as the only means by which the poor could escape permanent destitution.
There are only two explanations that I have come up with in a weekend's reading of MarxEngelian journalism (which could, with a few changes of names, easily be reprinted as commentary on the current "Greek" crisis. One, Ricardo was truly at home with international finance and counting; his father was a stockbroker, his sister a mathematician and his family, through its religious connections, had ties with Holland and Portugal. In an age when nationalist rivalries, religious bigotries and Marxian envy were as stupidly persistent as they are now, Ricardo's 19th century liberal belief in freedom and enterprise was an insult to both Right and Left. The other explanation is that Ricardo at the end of his life (he died in 1823) was abandoning the very idea of "value" that was to dominate the ideologies of economics itself. The longer he worked on the idea of labor as the basis of value, the more he came to see it as a theological question that had no practical meaning. There were only prices expressed in currencies; and markets were the only free way of setting those prices.
We are, yet again, at that lovely point where the official Left and Right can come to agreement. How can the Greeks, who are clearly unable to pay the debts to themselves, let alone those to other nations and entities, be allowed to declare bankruptcy? Unthinkable in the minds of anyone whose opinions are likely to be heard on the subject. In the great game of central bank cold warfare, such a surrender to the speculators would be an absolute heresy. Leaving Greek enterprise and labor to find their best prices would be anarchy. Leaving the discounting of the various monies used to price that enterprise and labor and "capital" would be absolute anarchy. Everybody with a proper education knows that the fluctuations of credit can be restrained; it simply requires wise administration by people with the authority to own the means of production or regulate the measure of capital (choose One).
Whatever the current solution to the crisis of "Grexit", the end resolution remains the same: default by the borrowers and– depending on their perceived leverage– large or small trouble for the lenders.
Given the strong whiff of deflationary sentiment in the group and the extended thread about negative yields, I'd inquire if anyone else got a short term buy signal for TIP today? I am going to ignore my signal this time but not because I disrespect this crowd's sentiment.
Rocky's Ghost writes:
My models have demonstrated with statistical perfection that 100% of the TIPS that traded today were purchased by people who think they will increase in value on either an absolute or relative basis.
But regardless of the sophistication of my tongue-in-cheek model, a discussion regarding under what circumstances an investor/trader should ignore one's "signals" is a very worthy topic of discussion. I have found that ignoring an entry signal is more insidious than ignoring an exit signal. Missed opportunity cost doesn't show up in the P&L, hence it results in self-delusion.
Gary Phillips writes:
Missed opportunity can often end up costing you more than money, especially if it causes one to chase or revenge trade.
One corollary question associated with the negative yield situation is as follows: how negative must yields get before managers of short-term assets decide that it is more cost-effective and return-supporting to cease putting assets in sub-zero instruments, and instead hoard physical currency in their own private vaults. Yes, it would incur security and insurance costs, and probably tempt personnel to engage in fraud, but one wonders about the extent to which significant and persistent negative yields would lead to disinternediation.
Samuelson discusses negativity in an opinion piece today
Stefan Jovanovich writes:
"Negative interest rates" are no more unprecedented than the idea that the Federal government should be smaller than the combined bureaucracies of New York, Massachusetts, Ohio, Illinois and Pennsylvania - which was the case by the time Ulysses Grant left office in 1877. If you held money - either coin or U.S. notes or a demand deposit account at a bank that saw itself as an intermediary and not a lender, you paid negative interest rates; if you had bullion and you wanted to convert it to money, both the U.S. Mint and the brokers who still dealt in "gold" exchanges would charge you a fee. So would the depository you trusted. The closest you would come to not paying negative interest rates was to do as Charles notes and incur your own "security and insurance costs".
Under the Constitutional gold standard, you traded the costs of negative interest rates for (1) avoiding foreign exchange risk - your gold dollar would be worth exactly as much as its weight in pounds, francs and marks, and (2) the market risk that the fluctuations in securities and asset prices always holds.
In abandoning the gold standard, the United States joined other believers in central banking in the notion that foreign exchange could be "controlled" in a way that still allowed national governments to play credit roulette using their own debt as currency while, at the same time, administering "stable" prices and full employment.
Gary Rogan adds:
For the purposes of calculating the discount rate of future cash flows and for valuing the stock markets it seems like today's market-based negative (or low) interest rates are in a different category than being charged a fee for bullion conversion.
February 16, 2015 | Leave a Comment
"Currency guru Barry Eichengreen–the world's leading expert on the collapse of the Gold Standard in 1931–thinks Grexit might be impossible to control. "It would be Lehman Brothers squared," he said."
The greatest ever changes in the history of human beings and their money came in the 19th century from two disastrous wars: (1) the American Civil War and (2) the Franco-Prussian War. The first created the structure of individual credit dealings that we all live with now - where anyone with any actual money savings has a bank account, credit cards, and property and casualty insurance and people with families have life insurance and investments in securities. None of this existed before 1862 anywhere in the world. What started it off was the literal explosion of printing for currency and debt instruments set off by Secretary of the Treasury Salmon Chase's 7-30 bond issue.
The Franco-Prussian War (called the War of 1870 in France) produced the international gold standard. The German Confederation's receipt of France's reparations gave it sufficient specie reserves; the need to borrow gold to pay Prussia forced France to abandon bi-metallism. The British, in turn, were required to limit the use of silver coin to their imperial transactions, principally with India, while the U.K. and the self-governing countries under the Crown turned sterling into gold. With the U.S. Resumption the major trading nations of the world were on a unitary standard by the end of the decade. The result was the development of a the first international market of private credit independent of sovereign controls and bank regulation. Commercial paper, negotiable, warehouse receipts and bills of lading, commodity contracts for present and future deliveries and the tens of thousands of intermediaries who dealt in them sprang up almost overnight. The conventional narrative of this period pretends that the national banks were somehow in charge of all this. They weren't. The clamor for a flexible currency that led to the creation of the Federal Reserve came from the commercial banks' desire to use their one remaining advantage - their ability to have their checks treated as quasi-legal tender - to regain their former prominence. For the world at large WW I was a tragedy; for the banks it was salvation. International Finance would go back to the good old days of sovereign authority and private credit dealers would stop being such grubby pests.
February 10, 2015 | 1 Comment
A Paul Gauguin painting of two Tahitian girls has smashed the record for the world's most expensive single work of art, after Qatar bought the canvas from a Swiss collector for almost $300 million (£200m).
Experts said that the sale could be the start of a new trend of trophy sales that bypass auction houses in favour of lucrative direct deals.
Henry Huntington, who made his own "big" money from the Uber of its day, set the record for an art purchase by buying Gainsborough's The Blue Boy for $728,800 in 1921. In the legal tender of the time (1 oz pure gold = $20.67), that was 35,258.8 ounces of the evil metal, which would be worth $43,434,714.
That may not be the correct adjustment to make if one wants to compare prices then and prices now. M2 in 1921 was 32.85 billion; Huntington's check represented 1 out of every 45,074 dollars outstanding in currency in coin. M2 right now is 11,714.1 billion. Qatar's check for $288 million represents 1 out of every 40,674 dollars presently outstanding.
I never saw Rod Carew play (I never, ever watch designated hitter rule baseball) so this comment may be both ignorant and unfair. But, the best pure hitter (leaving home runs out of it) I have ever seen live is Tony Gwynn. He is the last person to come close to hitting over .400 for a season, and he hit .415 against Greg Maddux (107 appearances, ZERO strikeouts).
He had the fourth best career average (Cobb .366, Speaker .345, Ruth .342, Gwynn .338).
And yet, even he had trouble with pure speed. Against Randy Johnson he hit .111, striking out 5 times in 18 appearances.
Scott Brooks writes:
It's not so hard to hit guys with a lot of speed, if they are a one-trick-pony.
What is hard is to hit the guys who can throw really hard and then change speed (accurately, of course, in both instances). Mix in one more good pitch (curve ball, slider, cutter, etc.), and you've got an almost unhittable pitcher.
The trouble with movies is that they have to pretend that a bunch of people hitting focus marks according to a shooting script somehow represent "reality". The trouble with war movies is that their portrayal of "reality" is almost always made by people who have never gotten shot at. There are some exceptions: They Were Expendable (which was a box office semi-dud) had Robert Montgomery, and he was even able to prevent John Ford from injecting his usual bravado. James Stewart was able to convey something of what it is like to fly bombers in combat and he helped his friend Gregory Peck put that across in Twelve O'Clock High; but these are the only ones that come to mind for this former Hollywoodista. I doubt American Sniper is much different; but I am not curious enough to find out. (My taste in films is now antique; I find the underscoring in most "modern" films and TV so maddening and deafening that I limit myself to the ones where there is a reason for the music - i.e. Fred and Ginger are doing something to it.) What I can say, without having seen the movie, is that they probably made it about the wrong guy. As Chris Kyle himself was generous enough to say in his C-SPAN interview, Carlos Hathcock is the model; everyone is else is just trying to learn his lessons.
Pitt T. Maner III writes:
Michael Moore received a bit of feedback for one of his recent comments related to the film: "Marine Sniper Dakota Meyer: Michael Moore's the Real Coward". Maybe he should stick to Selma…
Craig Mee writes:
"Hitchcock once said that he survived in his work because of an ability to "get in the bubble," to put himself into a state of "utter, complete, absolute concentration," first with his equipment, then his environment, in which every breeze and every leaf meant something, and finally on his quarry."
January 12, 2015 | Leave a Comment
The notion that the United States has had a two-party system over the last hundred years is largely a fantasy. This may be another successful schoolteacher fairy tale designed to discourage "conservatives" from having any patience with the minority party; it may be simply part of the American notion that the two teams on on the field have an equal chance that is to be determined by "how much they want it". Either way, the fantasy of equal competition does not fit the facts. The Republicans have only won the trophy once in the last hundred years - in 1928. That was the only time where the Republicans continued to control both houses of Congress as a member of their party was re-elected President. The results were these: Republican House margin of majority: 12%, Republican Senate margin of majority (including Vice-President's vote in the event of a tie): 10%.
The Democrats, on the other hand, have 4 Super Bowl rings: 1936, 1940, 1944, and 1964. Their first - Roosevelt's 2nd election - was the biggest blowout: Democratic House margin of majority: 30%, Democratic Senate margin of majority (including Vice-President's vote in the event of a tie): 34%.
Even in the era of divided government and less than landslide elections, the drift has remained in favor of the Democratic party.
2008 election results - Democratic House margin of majority: 19%, Democratic Senate margin of majority (including Vice-President's vote in the event of a tie): 21%
2014 election results - Republican House margin of majority: 17%, Republican Senate margin of majority (deducting Vice-President's vote in the event of a tie): 3%
What interests me is the likelihood that the United States may finally have a genuine two-party system. If it does happen, it will be because the Republicans finally become what Grant planned for them to be 140 years ago - the party of the new Constitution that included the 14th Amendment.is may actually change. The Democrats have been the party of Federal executive authority since their founding; whenever possible, they have looked to the White House to order the entire country to do what they wanted - i.e. buy Louisiana, chase slaves, regulate the sale of sick chickens, etc. During my lifetime, the notion that that the States who make up the Union have equal sovereignty suffered the same fate as Grant's reputation as President. It ceased being taught in any law or other type of school, and the presumption of absolute Federal authority became universal. Now, to my delight and surprise, the idea equal sovereignties and rights of citizenship for the States and the Union has revived. People, even judges, have read the 10th Amendment and understand the meaning of its plain language. We shall see.
January 5, 2015 | 1 Comment
Here is an interesting paper and nice reference to a concept called the Probability of Backtest Overfitting (PBO).
We provide some new tools to evaluate trading strategies. When it is known that many strategies and combinations of strategies have been tried, we need to adjust our evaluation method for these multiple tests. Sharpe Ratios and other statistics will be overstated. Our methods are simple to implement and allow for the real-time evaluation of candidate trading strategies.
Here is an investigation of the puzzling fact that individual income inequalities have not changed in half a century in the United States (if we trust the Census and Treasury data) but family income inequalities have (again, if we trust the government data).
Uber is already in the process of making the necessary regulatory captures. What those of us stuck in the 19th century lane foresee is their being undercut by local Uber knockoffs that demand "equal access" — i.e. using their own (or even Uber's software) to provide local alternatives. I am not saying that these locals will make money any more than most short line railroads did in the last quarter of the 19th century; what I am saying is that they will undercut Uber's "network" profits with the same efficiency that short lines undercut the large roads in lawfaring before the ICC. Markets work in lobbying just as they do in so-called "free enterprise"; what is maddening to the people who keep score by money is that the efficiency of political markets is measured by people's perceptions of satisfaction, not by actual increases to their wealth.
Whenever I find myself thinking about something "everybody knows" regarding world history, my first impulse is to reach for Angus Maddison's data.
His autobiography is wonderfully detailed about his influences and experiences.
American Exceptionalism. I have always hated that phrase and the perverse doctrines that accompany it. The American Constitution is remarkably exceptional; one wishes it were still followed. But the idea that we Americans were born or (equally bad) become endowed with some special grace is one that makes me look for the Exit sign in the hall every time I hear it.
It also reminds me of the disastrous presumption that infected so much of the period that Stern writes about and led to WW I.
Ed Stewart writes:
I notice that every time I start believing that I am an exceptional trader (like I did a few weeks ago), a large loss is near at hand. Best to curtail commitments at the hint of that feeling– the opposite of what the feeling suggests to do.
Gary Phillips writes:
Success is more destabilizing emotionally than failure.
Ralph Vince writes:
Failure is absolutely necessary–in fact, nothing is more necessary, in all aspects of life.
For one, it teaches the individual not so much not to do what caused the failure, but how to regroup, reassess and recover from failure. The lesson of failure is about what you do afterwards.
Many things in life require failure. No one learns, say, to lift a lot of weight, to solve a differential equation, or do a backflip on pavement, without failing many, many times. There is no may to accomplish many things in life without enduring the requisite and many failures required.
Jeff Watson writes:
Failures teach you much more than successes which can lull you into complacency and hubris (like when you have 10 successes in a row). But you must attention pay attention to and analyze the failures inside and out. You have to ask yourself "why?". Ralph hit the nail on the head with his post.
Ralph Vince replies:
The 13-year-old boy looks around the gym, struggling to lift pipsqueak weight. Failing.
I point to all the old smellies, putting up ungodly amounts of weight.
"You see those guys - every one? Every one of them failed at every increment, every 5 pound increment between what you are failing at and lifting what they lift and they failed at every increment over and over. That had to keep trying, eventually, sneaking up on it. Failure, repeated failure, is part of the process."
From the Facebook page K9s4Cops, by Lt. Daniel Furseth:
Today, I stopped caring about my fellow man. I stopped caring about my community, my neighbors, and those I serve. I stopped caring today because a once noble profession has become despised, hated, distrusted, and mostly unwanted.
I stopped caring today because parents refuse to teach their kids right from wrong and blame us when they are caught breaking the law. I stopped caring today because parents tell their little kids to be good or "the police will take you away" embedding a fear from year one. Moms hate us in their schools because we frighten them and remind them of the evil that lurks in the world.
They would rather we stay unseen, but close by if needed, but readily available to "fix their kid." I stopped caring today because we work to keep our streets safe from mayhem in the form of reckless, drunk, high, or speeding drivers, only to be hated for it, yet hated even more because we didn't catch the drunk before he killed someone they may know.
Nevertheless, we are just another tool used by government to generate "revenue." I stopped caring today because Liberals hate the police as we carry guns, scare kids, and take away their drugs. We always kill innocent people with unjust violence. We are called bullies for using a Taser during a fight, but are condemned further for not first tasing the guy who pulls a gun on us.
And if we do have to shoot, we are asked "why didn't you just shoot the gun out of their hand?" And when one of us is killed by the countless attacks that do happen (but are rarely reported in the mainstream media) the haters say, "Its just part of the job." I stopped caring today because Conservatives hate us as we are "the Government." We try to take away their guns, freedoms, and liberty at every turn. (continued)
Stefan Jovanovich comments:
What Lt. Furseth is really complaining about is the 1st Amendment. No one in his actual life has ever asked him to shoot a weapon out of the criminal's hand. That is a question that he has only read or seen asked in the public soup we call social media and the press. For cops this the golden age in terms of pay, weaponry, body armor, mortality and public pensions so, of course, the logical consequence is that their public posture should be to complain about the lack of respect from people in general.
December 3, 2014 | Leave a Comment
My daughter and her mother have a recurring holiday joke that probably has its origins in their love for "Diamonds Are a Girl's Best Friend". (Their favorite part: Time rolls on, And youth is gone, And you can't straighten up when you bend. But stiff back Or stiff knees, You stand straight at Tiffany's.) The holiday joke is this: "Memo to True Love: Keep the Animals, Send the Rings".
The joke is mostly a tease of my interest in the Constitutional gold standard and love of its savior Ulysses Grant. It certainly is not a hint about what I should do to express my gratitude, lover and devotion. (The women will buy their own jewelry, thank you!). But it does remind me of another part of the Constitution that they do insist on importing into our domestic lives. It is Clause 7, Article I, Section 9: "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time."
The only debate in Philadelphia was over the question of how often the statement and account would be published. Many wanted it to be annually, and some even monthly; but it was agreed to leave the scheduling question to Congress.
The accounts here in Chaos Manor are produced monthly, and they are models of 19th century American book-keeping (which is to say, 13th century Italian accounting). All Money is recorded without regard to whose name - human or corporate - is on the account, all assets are marked to the market or to the estimation of market price based on the most recent similar transactions, and all debts are booked at their full liabilities without any discounting. What is never calculated is a rate of return. All really, really, really small businesses (those that in good years earn their owners the equivalent of a GS-15, Step 10 base salary - roughly $2500 a week) are incorporated wallets. They have no access to credit other than credit cards and the asset prices of the businesses themselves cannot even be estimated because there are never any real comps. So, a rate of return calculation is meaningless. So are projections. There is no way to predict how often the phone will ring or an email will arrive with a customer order; and we certainly have no control over prices. All we can estimate about the future are costs. And the goal - every year - is find ways to make those go down by figuring out how to do the same thing better, cheaper, faster so we can follow John Wanamaker's example and waste at least half the money we spend on adding more and new things to our inventory of stuff to sell.
The money printing has driven up prices, the prices of paper assets, including the prices of Treasuries, which has to be the largest paper asset class globally. But the money that winds up at the banks has largely then been put back to the Fed for the interest it pays. Banks haven't been lending like crazy, so that mechanism isn't pushing inflation. Meanwhile, cheap money has allowed corporations to manage their PE ratios by buying back stock, again pushing up assets prices. And for broad inflation, you need upward pressure on wages, but globally for the last decade plus there has been profound downward pressure on wages caused by China dumping tens of millions of smart, motivated workers into the global labor market every year, not to mention the other emerging Asian countries. And speaking of China, that country has served as an inflation sink for years now, via there currency/import/capital controls policies - there is inflation, and a lot of it, in China.
Stefan Jovanovich writes:
Big Al's analysis is perfect. But he is describing the short-term credits issued by central banks to float their national Treasuries' deficits. Money itself - cash and customer's bank balances - has not been increased dramatically. I realize this can be seen as a distinction without a difference in a world of fiat money, but it does highlight the difference between the present and the 1970s. Then central banks and rich people worried about whether or not U.S. currency would keep its exchange value, whether the dollar would continue to decline to oblivion as the franc, lira and mark had after WW 1. Now there is no reason for such outright fear because currency positions can be hedged fully and there is, in effect, a monetary Treaty of Vienna assuring a balance of financial power among the largest trading nations that allows them all to quantify credit as needed. As Big Al notes, that balance does not answer the question of how a commercial truce can be sustained under a 19th century combination of steadily declining prices for metals, fuels and grains and increasing prices for land and financial assets supported by public/private finance.
These are the numbers from the election in the U.S. They are truly historic; to find a parallel in terms of partisan shift from the Democrats to the Republicans, you have to go back to the Wilson Administration elections of 1918 and Davis' crushing defeat in 1920 and Hoover's coronation as Coolidge's successor in 1928. Even Truman's successive losses in mid-term elections was not a comparable defeat because the Democrats remained solidly in the majority in state legislatures and governorships. Measured by all elective offices throughout the country, this is the first time in American history that Republicans have been the majority party for more than a single election.
A few details:
After the Louisiana runoff on December 6, Republicans will hold 54 seats in the U.S. Senate; they began the week with 45. The last time Republicans defeated more than one incumbent Senate Democrat was in 1980 when Reagan's landslide won them 2 seats. In this election they will have defeated 5 Democrats - in Alaska, Arkansas, Colorado, Louisiana and North Carolina. If you extend the calculation to include open seats previously held by Democrats (Iowa, Montana, South Dakota, and West Virginia), the Republicans gained 9.
Republicans now hold 31 (possibly 32) of the 50 governorships and 29 (possibly 30) of the state legislatures, a total that matches the Republicans' all-time greatest success in 1928. In the count of all state legislative bodies (99 total, thanks to Nebraska's unicameral legislature) the Republicans control 69; that is 5 more than their greatest previous success of 64 in 1920.
The President's record is truly extraordinary as the leader of an American political party. Since his election in 2008 the Democrats have lost 14 Senate seats (60 to 46), 72 House seats (257 to 185), and 10 governorships (28 to 18).
"For others who did make it to the major leagues it took 5 and even 10 years longer to grow to the necessary maturity and capability. That was what the industrial and minor leagues were for; it is what college baseball now does."
George Brett, who is in the Baseball Hall of Fame and owns the highest season batting average in post WW-II baseball, has a career batting average of .305. He ranks 16th among baseball players of all time in career hits.
But, in his four years in the minor leagues, he never once hit above .300.
He needed the time to grow up to become great.
P.S. I still want the Giants to win (once a Giants fan, always) but I do love the Kansas City team; I hope it goes 7 and Tim Hudson gets his ring before he retires.
Victor Niederhoffer writes:
Are there any companies like that which become good buys after 5 years of mediocrity?
Gary Rogan writes:
It's rare, but if it does happen it's only when there is a new CEO. Analogous change doesn't seem possible with individual human beings.
The wrongness of the sage's idea that you can just buy a company, a brand, and keep it forever is shown by these examples. A study in Soccernomics shows that of the 50 biggest companies in 1970 or some such, almost half of them were no longer in existence by 2010. Of course all these studies fail to consider being acquired. But the return of these 50 biggest companies have to be tremendously lower than the average. Mr. Jovanovich has the one major secret to the Sage's high returns, and it has to do with a service strategy that I don't understand. But next to the service strategy, and the affair with the owner of the paper, he is the consummate mooch always creating the public face of saying that everyone else should give more to the government, and service payments from everyone else should be higher, thereby defusing attention from all the handouts he gets from the government for being the public face of the idea that has the world in its grip, i.e. sacrifice is what we were all born for.
Ed Stewart writes:
All of Buffetts's cash cows that have stumbled are big on buyback plans, particularly IBM. With interest rates so low the share buyback plans seems like a no-brainer. The problem is competition. A relatively free market does not want to allow competitors to have copious cash flow and return on investment. Right when these companies think it is time to "milk the cow" the reality is it might be time to reinvent the business model. I have read for example, that Kodak was very good with its alternative investments while its cash cow was killed by the market. The extreme buyback formula might work best in highly regulated industries where competition is restricted.
Rocky's Heir writes:
The title of Mr. Niederhoffer’s piece is “The Wrongness” but this noun could better be applied to Mr. Niederhoffer’s characterization that Mr. Buffett keeps his investments “forever.”
Admittedly, Mr. Buffett’s stated favorite holding period is “forever.” One can demonstrate that this is the analytically optimal strategy for both deferring capital gains taxes and harvesting the implicit call option in all companies that grow earnings at a faster rate than the index. However, there are numerous examples of Mr. Buffett and Berkshire Hathaway selling the stocks of companies whose characteristics, he believes have deteriorated. The current headline example is Tesco, which he acknowledges as a huge mistake http://www.cnbc.com/id/102092816 . Less recently, he substantially reduced his position in Moody’s (MCO) after the financial crisis, which in hindsight was a mistake, since Moody’s stock is now trading at an all-time high. Whether IBM joins the list of his winners or losers remains to be seen, but if it turns out to be the latter, then expect Mr. Buffett to eventually sell, harvest the capital loss, and not ride the stock to zero.
Notably also, during 2014, BRK sold holdings in NOV, PSX, DTV, LMCA, COP, GHC, STRZA — although these were comparatively small holdings.
If one finds the methodology of Soccernomics to be laudable, then the same analytical rigor should be used to examine the portfolio strategies of someone who will surely be remembered as among the greatest stock investors of the past 100 years. Confusing political biases with incorrect generalizations is just plain “wrong”.
Stefan Jovanovich adds:
There are 3 events in American financial history that changed everything that went before them: (1) the Constitutional Amendment that enabled both Federal and State income taxes, (2) the rise of 50%+ estate taxation on great wealth, and (3) the abandonment of the gold standard. It is no coincidence that all 3 came in the same decade - the 1910s - that also brought government absolutism (of course, we can conscript you into the Army even though the Declaration of Independence promises "life" and "liberty"). The Oregano has been the master of working all 3 of the wrinkles and the government absolutism that came with them (of course ownership of liability insurance should be compulsory).
His avoidance of paying dividends is a direct lift from Henry Singleton. It is now obvious but in the 1950s it was not; if you pay out cash under (1), it gets taxed twice at the highest possible rates when the same flow could be taxed only once. The reason the Oregano's pilot fish (mixed vegetable/aquatic metaphor) is so consistently dismissive of HS is that it pains him that they had to copy the idea from someone.
His acquisitions of private companies - Marmon being the latest American example - are all enabled by (2). Since he works the tax system and knows it in a way that is absolutely foreign to CEOs, he is the acquirer of choice for any holders like the Pritzkers who are facing enormous potential tax bills if the sale is "normally" structured.
The "moat" around his successful companies - Coke, insurance - is the one built by (3); in an age of steady inflation unmoderated by any shortages of legal tender - prices can be ratcheted above costs for generations.
There is a fourth advantage that BH has for which I think the Oregano himself deserves the credit; he figured out how, as Ed Stewart and the paper he cited both note, insurance companies can provide an investment leverage that is "safe" from any call risk. In this area other people copied him - specifically, John Templeton and the Lazard folks with their bets on Japanese insurance companies in the late 50s, early 60
Leo Robin wrote the lyrics to what will always be the best song about love and money– "Diamonds Are a Girl's Best Friend"– if only because the Monroe/Nixon rendition is near perfect.
Robin's usual collaborator was Ralph Rosenthal ne Rainger, who is still horribly under-appreciated as a composer. Rosenthal gave Schoenberg the money to leave Europe in 1933.
Schoenberg, who described himself in later life as "a "bourgeois" turned monarchist", has the best anecdote of military life I have ever read. When challenged by an officer as to whether or not he was the notorious composer Schoenberg, the composer replied: "Beg to report, sir, yes. Nobody wanted to be, someone had to be, so I let it be me."
October 20, 2014 | Leave a Comment
I thought this article about "How Rebounds Work" was quite fascinating.
And here is an even better link on the same topic with some very interesting graphics: "Where do rebounds go?"
Pitt T. Maner III writes:
Very nice graphics and analysis.
One of the fundamentals of rebounding used to be that you tried to track your opponent while the ball was in the air to see what direction he was going and then you tried to turn your body at the last possible second in order to "box" him out or put a body on him before he got into the rebounding zone. Wide bodies (Wes Unseld, Malone, Barkley-types, etc) were particularly effective in doing so. It took energy and work effort to do this.
The example with Noah shows him going through uncontested–the defensive players turned their backs too early and lost the opportunity to box him out–it looks rather lazy. To some degree it seems that modern pro basketball players have concentrated on areas of the game or specialized to such an extent that the fundamentals are not practiced and are often found lacking.
A fair number of rebounds are made below the rim so positioning by shorter players can make up for height differences (some of those Princeton-Georgetown matchups demonstrated that).
And the really aggressive guys like Rodman, if they managed their fouls well, and scraped and clawed were often rewarded. Rodman was a master at judging rebound distances and "worming" his way to a rebound through narrow spaces. How he ended up in North Korea I don't know…crazed.
Scott Brooks writes:
Rebounds pretty much go to the opposite side of the hoop from where they are shot. That is not a new discovery.
What a coach should pay attention to therefore is where do shots initiate from. That is the key.
Since most of the world is right handed and since most players move in the direction of their dominate hand (thus keeping their body between the defender and the ball), most shots are going to come from the right side (or the defenses left side).
This bit of knowledge is very important, especially at the high school level or lower (it is still important at the college or higher level as well)…….but how to apply that knowledge…..now there's the rub.
Rebounding is more than just boxing out (which is a lost art nowadays). Rebounding is a team effort. I like my guards and forwards that play the toughest defense to guard the opponents shooters if we're in a man to man defense or to play to the "strong side" if we're in a zone (strong side is the offenses right side/defenses left side). I want my defenders to play the shooters tight so that when they do shoot, they can get a hand up high (the closer you are to the shooter, the higher you hand is relative to the shot), and force the shooter to put a little more arc on the ball than they would have preferred.
A ball with a high arc, more often than not, comes off the rim "soft" i.e. it is rebounded close to the rim and is usually rebounded in the paint, whereas a hard bounce will goes outside the paint to be rebounded away from the rim. Soft bounces allow my center and weak side forward to control the rebound the vast majority of the time, assuming they've properly boxed out.
What about the other players, what are they doing?
My strong side guard and forward are the ones usually defending against the shot. If the shot is taken by the shooting guard (sometimes called the "2 guard"), then the strong side forward chip blocks his man (if he's close) and rushes to the hoop in a sideways motion with his back to the baseline keeping his eye on the man he's defending until he gets close to the rim, then he plants his right foot and pivots on it towards the basket with his left foot and body moving clockwise motion.
My strong side guard defending the opposing shooting guard (2 guard), boxes out the shooting guard at the point of the shot and, if done right, neutralizes him 99% of the time, i.e. he will not get his own rebound and is out of the play unless the his team gets the offensive rebound (which will cause me, as a coach to "verbalize instructions in a loud manner" to my team for allowing an offensive rebound).
So what I have is my center covering the middle of the of the paint, my strong side forward covering the left side of the paint (from the defenders perspective) and I've got my weak side forward (my best rebounder) covering the right side of the paint…..i.e. the spot where the ball is most likely to go……and all of them are violently boxing out the opponents.
That leaves only my weak side guard. What is his job.
He is tasked with covering/preventing quick passes across the top of the key from (the defenses perspective) left to right…..i.e. in this scenario, instead of shooting the ball, the"2 guard" does a quick pass the point guard ("1 Guard") who whips it over to the small forward ("3 forward") who then shots. So my weak side defender has to play with his back to the baseline (basically parallel to the baseline) while the keeping the opposing "3 forward" in front of him. (it's another story for another day of what to do if their "3 forward" moves down to low and has to be passed off to my weakside forward). My weakside guard is, therefore, tasked with keeping pressure on their "3 forward" to stop that quick shot if a the quick pass I just described happened. If he does his job right, the "3 forward" can't get off the quick shot and it allows my defense the 1/2 of a second it needs to switch from (their perspective) left side to right side defense.
Back to the original scenario (ball on left side of the defense in the hands of the "2 guard"…….When the shoot is taken (by the "2 guard") , my weak side guard has to chip block the "3 forward", then roll out for the outlet pass. If done correctly, when he gets the outlet pass he takes a few quick dribbles and looks for our strong side guard…..(remember him).
If my strong side guard has done his job right in boxing out the shooting guard (remember I said the "2 guard" has been neutralized from the play) he's got the inside position on the shooting guard. And if the oppossing point guard (1 guard) on the other team is forced to deal with my weakside guard (who now has the ball) we basically have 2 on 1 fast break occurring.
What does a 2 on 1 fast break have to do with rebounding you say? Well, if you do enough of them, then the opposing team has to assign a man to fall back near center court each time they shot to defend against the fast break which means that I have a 5 on 4 rebounding advantage.
The art of rebounding is a team endeavor. A great rebounder is one who is surrounded by a great supporting cast that simply do their jobs.
Yes, you want your best rebounder on the weakside (forward position). This guy may not be the tallest person out there, but he is the most vicious tenacious meanest SOB on the floor. He is quick and he is instictive and has the ability to multitask…..i.e. watching the opposing players and timing his "boxing out" (that's an entire art that we should discuss another day), while watching the trajectory and velocity and spin on the ball to determine where it is likely to come off the rim.
Heck, my weakside forward is usually the smartest player on the floor. I call him my "Floor General"…..but why I can him that and the job I assign to him is an entire discussion for another day.
I've written about this before, but there is a lot more to the strategy of rebounding than what I've just written here. Heck, I've only discussed the defensive side of the equation…..and I haven't even elaborate (although I have in the past) on the subtle violence and mind games that are associated with great rebounding and stifling defense or even discussed offensive rebounding……maybe I'll write about those another day.
My branch of the Davis clan began its American adventures through the German export trade. The Landgraviate of Hesse-Kassel was in the business of selling the luxury item of the 17th and 18th centuries - professionally trained soldiery. Current scholars calculate that during this period 7% of the entire population (perhaps as much as 1/4 of the males 16-45) were kept under arms and then rented out to whoever would pay for them. (For the United States today that would be slightly more than 22 million soldiers.) It was a steady trade: the British historian John Childs has done a tally that is quoted in the wikipedia article on the Hessians:
"Between 1706 and 1707, 10,000 Hessians served as a corps in Eugene of Savoy's army in Italy before moving to the Spanish Netherlands in 1708. In 1714, 6000 Hessians were rented to Sweden for its war with Russia whilst 12,000 Hessians were hired by George I of Great Britain in 1715 to combat the Jacobite Rebellion. … In the midst of the War of the Austrian Succession in 1744, 6,000 Hessians were fighting with the British army in Flanders whilst another 6,000 were in the Bavarian army. By 1762, 24,000 Hessians were serving with Ferdinand of Brunswick's army in Germany."
Roughly 30,000 Hessians were sent to North America to help King George put down the rebellion. The first group (16,000) arrived in 1776 to help Clinton and Howe capture New York. They had not, as they had been told in Germany, come to the colonies for fight Indians. Today is the anniversary of the Battle of Pell's Point (Pelham) in which Clinton and Howe tried to cut off Washington's Army as it retreated from the Bronx. It did not work, and the Hessians discovered that being under British command was not particularly good for their health since the tactics used at Breed's Hill remained unchanged.
Somewhere between Pell's Point and Trenton my ancestor deserted; by 1777 he acquired title to 50 acres of yet unsurveyed "Western" land. The amount is how I know that the person recorded as "Davies" was a German and most likely a private who had run away from the Landrave's army; under the first Bounty Act American privates were offered 100 acres to enlist and Hessians 50 acres to desert.
During the 1946 election season the question was asked "What would Roosevelt do if he were alive?". There were a number of reasons for people to ask the question. The Marxists were attempting to bring true labor socialism to America by staging strikes against the auto makers just as they were converting back to their peacetime businesses, the coal mines (then the only fuel for power generation) and the railroads. Truman was doing his best to help by listening to the Harvard economists who warned against the catastrophe of abandoning the wartime wage and price controls.
After the election (in which the Republicans gained 55 seats and elected Joseph Martin as Speaker - the first one since Nicholas Longworth in 1928), the wags changed the question. It became "What would Truman do if he were alive?"
The answer, which came in 1948, was "buy the farm vote" with the system of subsidies, allotments and quotas that still rules American agriculture 2/3rds of a century later. I owe my career as a formerly licensed adviser to tax cheats to those farm bills and the compromise of 1954 that adopted its form of high nominal rates and massive and obvious loopholes. Rayburn could sell it to the Marxists (who never, ever know how to count), the real estate developers and oil producers while Martin thought the independent business people would be pleased and Eisenhower got his National Defense Highway system that he had wanted for a third of a century.
The international trade in steam (thermal) coal is a major source for electricity generation. It turns out that the new kid on the block is Indonesia. According to the World Coal Association, Indonesia overtook Australia in 2012 (the last year for which they offer data) as the largest coal exporter. In 2012 the total international shipments of steam coal were 1.142 Billion tons. This is 1/6th of the total world consumption.
According to the WCA, "transportation costs account for a large share of the total delivered price of coal". Here are the import figures, by country:
Total Steam Coking
PR China 289Mt 218Mt 71Mt
Japan 184Mt 132Mt 52Mt
India 160Mt 123Mt 37Mt
S. Korea 125Mt 94Mt 31Mt
C. Tapei 64Mt 56Mt 8Mt
Germany 45Mt 36Mt 9Mt
UK 45Mt 40Mt 5Mt
The figures for India are notable because the country has been importing more and more of all forms of energy. The U.S. Energy Information Agency had a report on the question in August. Here is the section on coal:
Coal is India's primary source of energy (equaling 44% of total energy consumption), and the country ranked as the third-largest global coal producer, consumer, and importer of coal in 2012. Despite its significant coal reserves, India has experienced increasing supply shortages as a result of a lack of competition among producers, insufficient investment, and systemic problems with its mining industry. Although production has increased by about 4% per year since 2007, producers have failed to reach the government's production targets. Meanwhile, demand grew more than 7% annually over the past five years with the rise of electricity demand and lower power generation from natural gas and hydroelectricity as a result of recent supply disruptions. Because power plants rely so heavily on coal, shortages are a major contributor to shortfalls in electricity generation and consequent blackouts throughout the country. Because coal production cannot keep pace with demand, India has met more of its coal needs with imports. Net coal import dependency has risen from practically nothing in 1990 to nearly 23% in 2012. India imports thermal coal for power generation from Indonesia and South Africa. The steel and cement industries are also significant coal consumers. India has limited reserves of coking coal, used for steel production, and imports large quantities of coking coal from Australia.
So, the rupee price on steam coal from Australia is not really very relevant to the question of power generation in India. Mea culpa.
October 6, 2014 | Leave a Comment
So much–once again–for moneyball.
Ralph Vince writes:
Baseball is certainly a game where you truly need at least a 7 game series to determine who is the better team. Unlike, say, football, where in most games, the better team wins, that margin is much, much smaller in baseball, given the nature of the game (truly, a game of inches…and bounces…and breezes, and tiny margins that decide the day).
Don't take my word for it, however. We can compare major league baseball, to say, basketball, where the percentage of time the better team wins, given the nature of basketball vs baseball, is higher than baseball. Here is the data for all 7-game playoff series from 1905-2013:
1905 - 2013
Series Baseball Basketball
1-0 62.7 77.3
2-0 82.7 93.7
3-0 97 100
2-1 71.1 82
3-1 84.6 96.3
3-2 69.8 85.9
So, series 3-2 we see that in baseball, the team that is up 3 games to 2 games has taken the 7-game series 69.8% of the time vs basketball's 85.9% of the time. Clearly, basketball dominates baseball in this metric, and further evidence that the outcome of any single baseball game reflects who the better team is less frequently than most other sports.
Stefan Jovanovich comments:
In baseball the "best" team is the one that actually wins in the post season, not the one that has the "better" stats during the regular season; that is, as the coach said, "why they play the game" and why the game, which can be counted so easily, still eludes the precision that sabermetricians have promised.
What makes baseball relentlessly unfair is that the advantage that "better" teams usually enjoy - home field - counts for the least. Of all the major sports, baseball is the one has the lowest "home field" advantage - 52-48. What makes the game doubly unfair is that the "inches" even out, just as they do in the racquet sports; and the referees cannot easily, as they often do in football and basketball, decide the game.
For those of you who have not read Moneyball, the reason for my snarky reminder of the final score (Kansas City-9, Oakland-8) was that the Royals won the game by doing precisely what Master Beane has argued against - they stole bases and sacrificed - and the A's got their 8th run by doing exactly the same thing.
September 29, 2014 | Leave a Comment
I liked the conclusion of this article:
"I predict that if we continue implementing Common Core, average students will drop out of math as early as they are allowed. Even math-bright students will hate math. Tutoring companies will proliferate to serve wealthy families. The educational gap between rich and poor will widen. If we want to destroy math and science education in this country, keep Common Core."
Ed Stewart writes:
In my opinion a lot of the need for "change" is very likely driven by PC motives, which is why when it is looked at logically from a mathematics perspective it makes no sense. My guess is (using an example from article) it was hoped that allowing calculators for everything and allowing an increased use of "cheat sheets" would open up math for more equal distribution of supposed talent.
In terms of pace when I was in school we did have an accelerated math program but one had to test into it with an IQ test. The notion that a curriculum can be designed that can shuffle through all kids to be "above average" is part of the problem. It is a lack of realism.
I strongly disagree with the author that non-college kids are necessarily sent to dead-end jobs while college kids are not. Reality is working in a cube with a degree is just as much a dead in job as others, particularly in the outsourcing era where such work has been massively devalued. The notion that keeping ones hands clean is always better is just a bias. Guys who get involved in a field that actually builds something or is otherwise productive such as Natural resources will be better off vs. a twin of equal ability shuffled through the "college" program. And clearly many who see that opportunity follow this different track. Charles Murray is right we'd be better off admitting college is useless for all but the relative few - making it more accepted for people of even moderate above-average ability to go right into a job for training.
Stefan Jovanovich writes:
The need for "change" in education is driven by nothing more than the same financial incentives that operate in all markets where the customers are not the actual users of the product. Even military contractors have to deal with the fact that at some point the soldiers, sailors, airmen and marines have to use the weapons; and, if they don't work or work well, people get hurt, and then the survivors get mad and resolve to get even. Elementary and secondary public education in America has no such feedback mechanism. No school keeps data on the future trades and incomes of their students; in fact, in the name of "privacy" (that Federal Constitutional right that first trimester unborn children lack but the rest of us have), schools are prohibited from collecting and keeping such data. So, in education, "change" happens not because of any customer demand but because of the incentives it offers to the people who manage and create the changes. Every curriculum change means more money for the creators of the curriculum and, far more important, more paid time on and off time for research studies, training and conferences - all of which guarantee time away from the nasty children.
It does not matter whether or not the change works for the customers; indeed, there is a real incentive for the change to fail because that has invariably meant that more money, not less, should be spent on schooling. (Er, sorry, not "spent", "invested")
P.S. There is no evidence that public "job training" works any better than classroom education in the academic subjects; "job training" is another field where the government pays the money and the customers' feedback is completely ignored. The roughnecks who are getting semi-rich in North Dakota right now learned their trade from the informal apprenticing that comes from having an uncle in the oil bidness.— keep looking »
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