Thursday, March 31, 2011

- Master Of The Universe

I have lots to say about the rebels in Libya, the way we get infaltion reporting and the fact that Ghadafi will cost Obama the Whitehouse. But I won't be saying it because today, this master of the universe is running his hedge fund trading strategy on a pink laptop at a Starbucks on Rt. 9 in Freehold NJ.

My DSL is out at the house, and I didn't figure it out in time to get in the car and drive up to the office. Thankfully I am able to work, but just barely.

I hate Verizon. But even Starbucks beats the hell out of commuting to the city every day.


An email exchange with a friend who runs a high Frequency system. It's relevant to say that he's Chinese:

Him: Any idea why Crude is rising?

Me: Maybe it was Obama's speech yesterday.

Him: If anything, I thought he was trying to divert to alternative sources.

Me: He's trying to use tax dollars to negate supply and demand. All he's really doing is diverting resources from cheap energy to costly energy.

Him: All talk and no action. Starting to get tired of his rhetoric

Me: Racist!

Him: Great - since when am I part of the dominating race?

Me: LOL... Jews and Asians aren't minorities, they score too well on standardized testing.

Him: You can't eat test score - Ipad rules...

Monday, March 28, 2011

- Uppity N###ers!

I have on occasion mentioned my inability to recognize the the sins of others that I'm not actually guilty of myself. I never see envy coming, or the lust for power, or even 'greed' (whatever that is), until long after they are blatantly obvious to everyone else. The truth is, it's a cynical skill I have no interest in developing. And I find that I've come upon one of those moments again - when the motivations of others have been made clear to me, and I know that I'd have never seen it myself.

Much energy has gone into figuring out why liberals so despise Sarah Palin absent any rational cause, and Star Parker has finally figured it out. She's come to another very insightful conclusion (that I would have probably never noticed) that liberal's hate people like Clarence Thomas And Sarah Palin in exactly the same way that southerners saved a particularly vitriolic brand of anger for runaway slaves:

Slaves who had the temerity to run away from their plantation “home” paid dearly if they were caught and returned. Measures were taken to make them an example to others who might harbor similar thoughts about freedom. Among those measures were brutal public beatings of rebels to which other slaves were forced to bear witness and digest with great clarity the price of rebelliousness.

Such is the fate today of those uppity souls who choose to challenge the authority and legitimacy of our inexorably growing government plantation. Those with interests for the care and feeding of this plantation cannot physically punish these rebels with the whip. Their whip is the mainstream media and the means of punishment of this virtual whip is not beating of a physical body but assassination of character.

This perspective helps us understand the ongoing liberal obsession with destroying Supreme Court Justice Clarence Thomas and former Alaska governor Sarah Palin.

I've got to admit, I find that conclusion spot on. Simply Brilliant.

There are some writers on the right who I follow very closely. Thomas Sowell of course, is better (In my opinion) than almost everyone, as are most of the astoundingly bright staff over at National Review. But until today, the only thing I knew about Star Parker was that she does some Fox news appearances. I never honestly paid much attention to her. Yes I I've agreed with much of what she's written, but I never saw her as a standout.

This could be a one off - a fly ball over the right field fence from a reliable ground ball hitter. I have no idea. But this is a first rate piece of thinking if you ask me. The ultimate test will be how deranged it makes liberals, as it begins to gain traction as an explanation on the right.

Anyway - follow the link above to the whole piece.

- Actually It's NOT Different This Time...

This is a really great video of Stanley Kurtz speaking about his book "Radical In Chief" Barak Obama and the secret history of American Socialism.

I heartily recommend it if all you're doing today is continuing your now 6 day long wait for the Techies to install the tools that you simply cannot get another minute of work down without.

Not that I'm mentioning any names.

- "As I Clearly Said At The Time..."

A little walk down memory lane with candidate Obama.

Sunday, March 27, 2011

- Libya: Already An Epic Fail

So let me make sure I have this straight…

The Obama administration is now fighting in Libya on the same side as Al Qaeda, and instead of days or weeks, the operation is likely to last months. So Obama has a choice between abandoning the operation now and letting Ghadafi declare victory over him and America, or he can stay there, defending the organization that toppled the World Trade Center, in a quagmire that his people claim will stretch on well into presidential election season?!

I don't think that's worth the American blood that it might cost, but it’s almost worth $4.50 a gallon for gasoline.

We on the right expect leftists to fail. It's what they always do. That's why they always (and I mean ALWAYS) claim that it will be "different this time". But this is really breathtaking, even for Obama. He's literally going to shepherd America from it's role as the single superpower, down to a point where a 4th rate African tough guy can either defeat us, or make us look like a bunch of fools.

If he keeps up at this rate, then the Republicans will be able to nominate Glenn Beck for president, and he'll still get elected. They can nominate Jacki Mason, or Rush Limbaugh, even Pope Benedict will have half a shot. And that's really saying something because he's not even American.

This has got to be one of the greatest political flame-outs of modern history. And every bit of it done with the press firmly in his pocket - so it's not a question of spin.


Even though it won't happen until this evening, I thought I'd give you a little window into Obama's press conference on this topic tonight.

1. He'll say "as I said before" or "as I've repeatedly said before" dozens of times - but what comes after that will all be things that he's never actually said before. But the press corps won't challenge him on it for fear of being called racist. He could stand there and say "As I've said before, I'm a little teapot, short and stout." and the press corps would nod quietly as if he's finally solved cold fusion. (The follow up question will be about his coming Nobel prize in Physics.)

2. He'll say "there is no reason to believe that Al-Qaeda is involved in this conflict." There is... and it's documented. But since he's provided an official talking point, no leftists will believe it anymore. If any other political difficult topic comes up he'll simply deny them as well. "Mexico is not on our southern border, water does occasionally run up hill, and the laws of addition and subtraction are not absolute." The next weeks will show all of those claims quoted as scripture in the Washington Post opinion piece.

3. He'll talk carefully about what a big meanie Ghadafi is, even though he hasn't made any real trouble for America in years. In fact, in the rats next that Mideast Arabian politics, he's actually been fairly benign compared to the real problem areas like Iran and Syria. Even the Somali pirates have made more trouble for us. [I'll shed no tears when they string him up, but I don't personally think it's our job to do it - especially on behalf of Al-Qaeda.]

4. After the fact, there will be much talk about the talk. His base is getting increasingly sick of his trying to 'seem' centrist. his idea of triangulation is to claim to being a centrist while doing left leaning things, and then claiming that he isn't actually doing them, while taking credit for the results. The 'new open-ness is really all just a big game of 3 card Monte.

5. Quoth Obama: "It's different this time."

Saturday, March 26, 2011

- Glenn Beck Must Be Over The Target

Because he's definitely taking a ton of flak.

I think he's seeing intent where there is really only stupidity, but the NYTimes seems AWFULLY frightened.

- The Circle Of Graft

In a move sure to frighten and confuse Democrats and union officials across the country, Caterpillar corp. is reacting to the massive Illinois tax hike by moving someplace else.

Krugman and the rent seekers (what a great name for a punk band huh?) will probably say that this is a good thing for Illinois because those low paying manufacturing jobs can now be replaced by high paying jobs in the clean energy industry. Nothing increase averages wages like a big fat subsidy.

But the truth is,EVERYONE should have seen this coming.

I like to think of labor in calorie terms because it puts intellectual labor and physical labor on par with one another, as they really should be. Caterpillar is going to go where they can get the highest return for theirs. The parasite that is the Illinois state government is taking too much nutrition. Caterpillar has realized that if they simply move, then they can do much better while doing the same work.

The union may control the votes that the politicians want, but business controls the jobs that the union wants. It's all about the great circle of Graft. Business provides jobs and benefits, unions provide votes, and politicians provide political influence to unions, ans subsidies to business. Everyone is happy except the non-union tax payer who has to make the whole equation balance out while the union guys use their 4th mandatory coffee break to fill out their disability forms.

But America is on to them now - reality has caught up to the big labor movement. It's really only the political class in Illinois that's still a little behind the curve. And that's why they decided to opt for a massive tax increase to try to balance the budget, instead of ditching the unions like they're doing in more rational locales. Unions want to pay people more to do less, and the only way that works is if they siphon off money from the rest of us.

Illinois is trying to be the next Michigan. But without a GM to bribe people for them in Washington, I can't imagine this is going to work out well for them.

Thursday, March 24, 2011

- Radio Free Connecticut

OK - last one today because I have a ton of work to do.

When my annual property taxes in Putnam Valley New York went from $11,000 to just a hair under $30,000 per year thanks to the school budget (yes really!) My wife and I decided to move. Being a hedge fund guy, it would have been more convenient for my career if we moved to Connecticut someplace. But my brother, who was a NJ resident, convinced me that the political situation in NJ was sure to become more conservative, and I'd be better off over the long term if I considered moving down here.

When my wife saw that it's actually warmer down here than in CT, the die was cast, and inevitably, RadioFreeNJ was born.

Now I see that not only was my brother right about the long term prospects, but I'm even more relieved than usual to not be living in CT.

Union Tells Governor: ‘NO! NO! NO!’

- The Pro 'Blackout' NYTimes

You may find this surprising, but the NYTimes has found someone who wants the US government to do for the nuclear power industry what Obamacare is threatening to do to the health-care industry.

This is tougher than you think because he's a physicist, and when it comes to nuclear power, my experience is that the more you understand it, the less you're afraid of it. Science doesn't lend itself to hyperbole very often (global warming doesn't count because that's religion not science). But the NYTimes is determined to not learn anything ... apparently ever.

That's right - they want more 'Reform'. I'm guessing that means they'll pass something in the middle of the night using obscure and arcane parliamentary procedures, that allow them to circumvent the clearly expressed will of the American people, and then try to explain to us that it's all of our own good so we should just 'shut up and obey' them. It's so exhausting dealing with these people.

In the meantime though I saw this very interesting debate about the viability of 'clean energy'.

Debate: Clean Energy Can Drive America's Economic Recovery ( from Intelligence Squared US on Vimeo.

And from it I learned a few important things:

1. Bill Ritter (ex Colorado governor) is a total useless tool.

2. For the 'clean energy' industry, it's all about hiding the real cost by getting a subsidy.

3. Quoting Robert Bryce "If you're anti CO2, and you're anti Nuclear, you're pro blackout."

That third one seems to encapsulate the NYTimes position perfectly.

Wednesday, March 23, 2011

- The Caliber Battle 5.56 vs 7.62

A while back James Hogan mentioned one of the biggest pitched battles of ‘gun culture’, the battle over the ‘best caliber’. It’s taken me a bit to get to but I thought it was a good opportunity to illustrate a point I often make about decision making.

This battle has actually been raging for hundreds of years; even as far back as Washington’s army. In those days the weapon of the common soldier was not a rifle but a musket. It was a smooth bore weapon which fired a large projectile that fit loosely into its muzzle. This loose fit was to facilitate more rapid loading. The rifles of the day required a much tighter fit in the bore and therefore could only be reloaded at a fraction of the pace of muskets.

Washington’s army was predominantly armed with muskets but he did have a few companies of riflemen. And so the battle between slow firing but accurate rifles with their small fast projectile and fast firing muskets with their large slow projectile was born. Muskets and muzzle loaders have long since been retired as weapons of war, but the small fast – big slow caliber debate has raged on.

These days, the debate has centered around the 5.56x45 cartridge, currently being used in the M16 class of weapons, and the 7.62x51 cartridge, put to use in a wide variety of specialist weapons. It was only fairly recently that the US Army made the decision to switch to the smaller cartridge. The M14 which precede the M16 as the weapon of choice used the 7.62 cartridge. (Commonly referred to as a .308, a 7.62 Nato, or more broadly as a “30 caliber”) The weapon of choice before that was the M1 Garand which fired an even bigger 30 caliber round, the 30.06.

But after studying the behavior of each bullet and the kind of wounds it would inflict at various ranges, the Army decided that the benefits of the smaller 5.56 cartridge outweighed its weaknesses, and adopted it as the standard. A portion of gun nuts have lamented the decision ever since.

There is an element of gun culture that thinks bigger is always better, even though this is obviously not the case. They ignore the fact that for the Army, caliber selection is the product of compromises. There pros and cons to every decision, and the Army makes it’s choices based not on what would be best for gun nuts, but for the population at large. The average soldier is just that… average. So they need to select a weapon and cartridge which suits that person.

Both the 7.62 Nato, and the 5.56x45 cartridge have strengths and weaknesses, and it’s important to consider all of them. For the purposes of the discussion I’ve broken them down a bit here:


The 7.62 cartridge is much heavier than the 5.56 so soldiers can carry more of the latter. Most people will concede this argument, but there is another issue. A rifle designed for the much higher energy of the 7.62 needs to be heavier than one designed for the 5.56. The difference could be made up with modern materials, but then recoil would make ‘average’ accuracy suffer.

Operating on the assumption that the only way a soldier gets ammo into the field is if he carries it, the advantage in this are has to go to the 5.56. Of course, the 22lr is even lighter still and no one thinks we should go with that.

So the truth is that actual cartridge weight might be a tie-breaking issue, but unless the 5.56 can be shown to meet the other requirements, then it’s moot.

Average Accuracy (sub 400 yards):

Modern military firearms are astoundingly accurate, as is the average military ball ammunition. When delivered from rifles of equivalent tolerance, there should be no effective difference in the inherent accuracy of a 7.62x51 and a 5.56x45 cartridge. But just because the equipment is equal doesn’t mean everything is.

The fact is, the 7.62 delivers much higher recoil than the 5.56. That fact alone means that when a sample of ‘average’ soldiers is taken, they will deliver greater accuracy with a 5.56 than with a 7.62. I personally don’t find the recoil from a 7.62 rifle to be particularly prohibitive. But I am not ‘average’. I have years of experience and have fired tens of thousands of rounds with rifles of various calibers. Like most ‘gun nuts’, over time I’ve become more resistant to recoil than most people with less experience.

But my personal preference shouldn’t be a determining factor as much as the ‘average’ experience of a population of soldiers with limited training. And I think the lighter recoil does affect accuracy for your ‘average’ soldier.

Inherent accuracy advantage: None. Effective accuracy advantage: 5.56.

Average Accuracy (over 400 yards):

The simple fact is, even when armed with a weapon designed for great distances, your ‘average’ soldier can’t hit anything beyond 400 yards without a little luck. Accuracy at those ranges requires far more training than your average soldier will ever receive. It will remain the domain of experts and since that’s so, they will also be more capable of coping with the higher recoil of the 7.62 cartridge.

But even beyond that, the small bullet of the 5.56 makes it minimally effective at longer ranges because it won’t retain enough energy to be lethal.

At longer ranges the 7.62 has a clear advantage.

Wound Severity:

The reason the 5.56 has done so well in this area is because of a trick of ballistics. The typical bullet from a 5.56 cartridge is cylindrical. It requires a very fast ‘spin rate’ to stabilize it, and that makes it slightly unstable. So when it strikes a target it begins to yaw, meaning it spins end over end (or something like it) making for a ghastly and hellish wound.

The 7.62 on the other hand delivers more of a shock and will sometimes take a larger mass of flesh with it as it exits. But it often exits, and it takes a large amount of its energy with it. At closer ranges its more likely to make a small entry hole and a small exit hole than the 5.56.

This particular area has been and continues to be heavily studied and widely disputed. For instance as a 7.62 bullet slows down at longer ranges, it becomes more likely to act like a 5.56 bullet, making it more lethal at longer ranges than close up. Also, the 7.62 bullet is large enough and has enough energy so that it can be fired through light obstructions and still kill whoever is on the other side. The 5.56 has been particularly deficient in that area.

So the question becomes one of deciding which problem you’re trying to solve. Since combat involves many of these scenarios in varying proportions, it’s tough to make the call for a clear advantage. Gun nuts tend to lean on the 7.62 because of the ‘bigger is always better’ argument, but having read reams of data on the topic, I personally am unconvinced.

I’d have to call this one a draw.

Time to Proficiency:

How quickly a soldier can learn to be effective with a weapon is a consideration important to the army, but totally unconsidered at the sport rifle range. But with a much lighter recoil, it’s tough for me to imagine that the 5.56 doesn’t outpace the 7.62 in terms of the practice it takes to become proficient with it. A lot of this will depend on the rifle of course, they should be equivalent. But lighter shoving is absolutely easier.

Training Time: Advantage 5.56

This clearly isn’t going to end this debate. The fact is, both calibers are tools suited to specific tasks. A claw hammer, and a sledge hammer are both hammers, but they should not be used for equivalent things. So it is too with the story of the 5.56 and the 7.62. This is one of those debates where you get lots of proclamations and little evidence.

“I think the X.XX is better – end of story!” You’ll read lines like that all over the hunting and gun boards. Me, I’m not so devoted to one or the other. My AR15 is my most accurate rifle at the moment, but I would never take it deer hunting. I’d use a tool suited to solve the problem I’ve got. But if the only problem I have is punching holes in paper, I’m probably going with the 5.56.

For the military though, it's a question of balancing strengths and weaknesses. "As small as can still be effective", seems to be the way they've decided to go. To present, I think that philosophy is being continued.

- The New Civility

Here is Deroy Murdock detailing some of the 'civility' from the leftist groups in Wisconsin: Death Threats By The Dozens in Wisconsin.

The truth of the matter is, we know that these leftists don't mean it. They don't have the courage to actually do anything - least of all kill someone. They are all cowards - every last one of them. But the fact that we know they are cowardly doesn't mean that they shouldn't all be rounded up and prosecuted - of course they should.

I've gotten death threats before, but only from people on the right. The folks on the left wanted my assets confiscated and to see me put into a reeducation camp to pick cabbages. But I have to confess, a part of me would really enjoy so getting under the skin of a liberal that they were ready to send me a death threat.

My feeling on it, is that it's like the joke about the guy with the carry permit who got pulled over, and as per the law, handed over his license, registration, insurance, and permit to the cop.

"Are you carrying now?" said the cop
"Yes sir I am." he said.
"What have you got?" said the cop.
"Well I have a 9mm in the glovebox, my Walther 380 on my ankle, my 40 caliber Glock in my shoulder holster, and a AR15 and 12 gauge shotgun in the trunk."
"Really" said the cop "What are you afraid of?"
"Absolutely nothing." said the man.

Violence against my person genuinely doesn't scare me, least of all from a bunch of kids who are all too feminized to actually follow through on it.

Tuesday, March 22, 2011

- The Internet's Greatest Hero

You really gotta love this kid.

- SEIU: "Destabilize The World!"

The economic illiteracy of union reps and community organizers cannot be underestimated. And for that reason, I think this guy is barking at the moon. Even if he were able to fulfill his plans, I think the most likely scenario now does not in fact involve our economy going over the waterfall at all.... ever.

I've shared these thoughts with a few friends via email, but let me lay them down here too.

Japan had a 9.0 earthquake, a Tsunami that killed thousands, and a meltdown of a Nuclear reactor. While all that was going on, ringing up hundreds of billions in destruction and uncountable damage to the industrial supply chain, we also began our third simultaneous shooting war in the greater middle east. In the meantime protests have broken out in Egypt, Bahrain, and Saudi Arabia, which threatened the Suez Canal, and 25% of the world global oil production.

None of that set off a cataclysm in the markets.

The banks have writing down lots of AAA rated debt since 2008. Iceland is insolvent, Ireland, Greece and Portugal are nearly so, and Fannie Mae and Freddie Mac are bankrupt. If we see a sovereign debt default I don't think it will be the kind of thing to make them panic. And on an infrequent but not completely uncommon basis, high frequency program trading systems drive markets to 9 or 10 standard deviations from the mean, only to see them snap back again in seconds.

None of that has set off a cataclysm either.

I've actually come to the view that the Japanese model is probably the most likely scenario. We'll have debt at 200% of GDP, then 500%, then even further and it won't matter. We'll simply never go over the waterfall. the debt will be bought because the alternative is the abyss, and that's a powerful incentive to risk capital loss. We'll simply have soaring commodity prices and a falling living standard, but we'll never hit the bottom.

We say our fiscal situation is unsustainable, but people have been saying that about Japan for going on 2 decades now, and even with everything but Godzilla hitting them all in one weekend, they still aren't going over the edge. That makes me believe the bottom of the well is much further away than any of us realize.

This guy, (this economically illiterate guy) thinks 500,000 people failing to pay their mortgages will push America over the edge, but I can't tell you how unlikely I believe that to be. More likely I think will be that the National Guard get's co-opted to serve the eviction notices.

Personally I think he should be arrested immediately as a domestic terrorist, but seeing as one of his peers was elected President recently, I don't see that happening either. shame though. this used to be a nation of laws, but now it's a nation of people like this.

- Barak H. Obama Elementary School To Be Closed

This is not a statement about Obama's inner circle of supporters. A school in the bustling metropolis of Asbury Park NJ, (it looks like Beirut - right down to the Beaches) which was named last year for Obama, has been ordered closed because of a cratering enrollment.

It shouldn't matter to me as much as it does, but I can't help this feeling that the world is spinning on it's axis a little better today that it was last month.

Monday, March 21, 2011

- Operation Odyssey Dawn?!

The title is the name of Obama's latest foreign war - the war to pacify Libya. My classic Greek probably isn’t what it should be, but didn’t Homer’s Odyssey detail the travails of a man who got in trouble on his way home from an imperialist was of conquest? The way I remember it, Odysseus was delayed on his way home from the sacking of Troy. He got lost, and his delay led a group of usurpers back home to pronounce him dead. They proceeded to party it up in the state capital, where they gave each other no bid infrastructure contracts, lavish free health-care, and exceedingly generous retirement packages. They did no work, but they consumed vast amounts of resources, and claimed that all of it was their ‘right’.

As I recall, Odysseus’s son Telemachus took some exception to their partying it up on his father’s dime, but when he tried to eliminate their collective bargaining and establish a system to rank each man by his own merit, they fled the palace to the kingdom next door and prevented him from reaching a quorum. Or maybe Telemachus was the one who fled the palace – I’m not sure. Someone ended up going to Sparta for a while anyway, where they hid out for a few weeks in a motel six near the Ithacan border. In the meantime the suitors continued to hang around the capital banging drums and telling each other poems (most of the Hey Hey, Ho Ho variety) and generally made a nuisance of themselves by making sure nothing got done.

Odysseus meanwhile bopped around the Mediterranean coping with various tribulations. He dealt with a Cyclops, he coped with the lotus eaters (who were trapped in the 15th century) and he tried to squeeze between the Scylla and Charybdis. He got help from some people, and grief from others, but eventually he found his way back to the party at his house, disguised as an undocumented day laborer.

At this point, Penelope, his wife, convinced all the partying suitors that a shooting competition was the way to decide who gets her hand. But being mostly anti-gun advocates, they couldn’t handle the weapon well. When Odysseus, still working in disguise, finally got his turn, he managed to load his weapon, shoot through the axe heads, and with the help of his son (who by then had his own daytime talk show on Fox News), slayed the lazy useless suitors, and eliminated collective bargaining in the kingdom forever.

Kirk Douglas played Odysseus in the movie, and if I’m not mistake the chief suitor was played by Richard Trumka. I don’t remember too clearly, but he looked a lot like him to me. I think Jesse Jackson made a cameo too… but what he said wasn't really relevant to the story in any way, so it's tough to recall.

Like I said, my classic Greek may be wanting – I did go to a public school. But the similarities to today’s news does seem worth noting.

Saturday, March 19, 2011

- The Immoral Tax Trap

My buddy Vishnu took a look at the Paul plan for a balanced budget and left his comments here. He basically says that we need to raise taxes in addition to slashing spending, if we are to have any hope of keeping the boat afloat. As you can imagine, I disagree, but not completely.

Before I detail my exception let me say this. I think I know Vishnu pretty well. We’ve been friends and have worked closely together for years, and I think he’s far and away one of the smartest men I’ve ever met. But he’s fallen into a trap – the same trap that many of us fall into when we only look at the accounting side of the federal ledger. There is another side to the whole thing, and that has to do with incentives.

The problem is that with regard to our current tax code, we are at the wrong end of the Laffer curve. Any increase in tax rates under the current code will reduce the incentive for productive activity. It will then lower GDP and won’t result in any additional revenue for the government. So rates can go up all you like, but there won’t be any more money.

The problem really is this… as things stand, rather than someone like me investing a dollar where it will produce the most economic growth, some bureaucrat is ‘investing;’ it where it will produce the most political capital. It's not just me either, it's like that in every industry - the government takes money away from someone who knows where it 'should' best be spent, and give it to someone else to give to their political serfs who will do little or nothing with it. In that way, our tax code has become an indirect form of plunder. The government takes from the most efficient, and gives to the least efficient in exchange for nothing but political fealty. We’ve created a class of dependents who do nothing but ‘vote’ for a living.

And at this point, I’m convinced that we’re at the end of that line. There is no more plunder readily available. Speaking for myself, it’s become a much more efficient process for me to figure out how to hide my money than to pay taxes on it. I would rather spend the cash on lawyers and accountants than to hand it over to the government- even if the result is a wash. And if I feel that way believe me, there are lots of other people who make more than I do, who are doing the same.

Raise taxes to 100% if you want to. You’ll never see a dime of it. The only thing you’ll do is raise the real estate values in Singapore. But in this respect I agree with Vishnu, we need to raise taxes… but not on the people currently paying all the taxes… we need to raise them on the dependent class. Roughly 45% of all Americans pay no net federal taxes at all and that is a totally unsustainable circumstance. They’re the ones whose taxes need to go up.

Government should be a burden for everyone, and no one should be exempt from it. It should be a necessary evil, not a source of wealth. People like Paul Krugman will tell you that it’s immoral to expect the poor to pay what to them is a vast amount in taxes, and I agree. But in my mind that’s only another argument for keeping the necessary burden of government as small as possible. They should not be allowed to pay nothing.

What we need to do if the government is to get more actual revenue, is shift the burden of our tax code away from productive activities, and on to destructive ones. The only legal activity which is ‘destructive’ in the sense that I mean is consumption. In this way we will encourage the GDP to grow and that will increase revenue.

But I have to confess – unless we can change the political dynamic in a meaningful way, I don’t see any way that will happen. Obama’s ‘hope and change’ was never about something new, it was about something old. It was about increasing the level and direction of political plunder, and more directly rewarding the most reliable constituencies. But so long as the illusion of something for nothing is propagated by him and his ilk, we’re all trapped. And while we flounder in this trap, time is running out.

Roughly half of America is so misinformed about our financial condition and the scope of possible solutions, that I don’t think it will be possible to educate them before we face a debt default. And the education they need isn’t about accounting; it’s about right and wrong. Vishnu is certainly not among that ilk. He understands that government is a burden, and I'm confident that his call for higher taxes was a call for higher tax revenue to solve the accounting issue, not a call for higher tax rates to punish the rich. But not everyone feels that way.

Take the example of someone like Anthony Wiener. He believes that it’s a supremely moral act to tax one person who already bears a substantial tax burden, and to give the money to another person who has none. He believes this because his world view is about envy, pretend villains and pretend victims. And into this fictitious imagined narrative he casts himself as the pretend hero. But it’s all pretend – so he doesn’t realize the very real damage he’s doing to everyone involved – including him.

In reality, his is a profoundly immoral act. He’s using the threat of force to punish someone for successful activities, rewarding someone else for unsuccessful activities, and congratulating himself for his wanton thievery in the process. He believes he’s the hero, but he’s really the villain. What he believes is best for everyone is really worst, and what he thinks is helping his newly created dependents is actually hurting them by making them into slaves. But there is no convincing him, or the 30% of the American population who think just like him.

Taxes do need to go up, but not on the people he believes should have their taxes raised. They need to go up on the people who can least afford to pay them. And they need to do so because it’s the only way they will understand that more government is a problem, not a solution. Government produces nothing, and is therefore a net burden. The burden needs to be shared by everyone. That’s a moral statement. And I think the Anthony Wiener’s of this world are simply too fundamentally immoral to learn the difference between right and wrong in time to save us.

Friday, March 18, 2011

- What A Balanced Budget Looks Like

In a word, I support this plan. Give me a choice between this and the 400 million that Anthony Weiner wants to cut, and I think the choice is obvious.

It's a shame that so much of this video is just leadership politicians equivocating, but at least what Senator Paul says is interesting.

Rand Paul proposes eliminating 4 entire department of the US government. Under this plan there will be no more Commerce, Education, Housing and Urban Development, and Energy departments. Since those four have done nothing expect prohibit America's economic growth, I have t admit, it's got real potential as far as I'm concerned.

By the way - this is also what political leadership looks like. I recognize that many of you haven't seen any recently, so you might not recognize it.

- WTF Is With The Yen?!


An earthquake, a tsunami, and a nuclear reactor meltdown all strike Japan one after the other. Thousands of innocent civilians are dead; there is an industrial disaster on a globally measurable scale; and there is a nuclear fallout risk for the entire country (maybe the whole region). There are thousands left without food water or shelter while the temperature falls below freezing. It’s a humanitarian crisis of unprecedented proportions. So what happens in the markets? The currency of Japan rallies dramatically.

This isn’t irrational – it’s counter rational. In economic terms it’s like diving on the hand grenade and then pulling out the pin. So what can be the cause of this utterly unexplained phenomenon? The talking heads are all saying its ‘repatriation’, which is in effect saying that it’s the unique character of the Japanese people that has made markets act as they have. The jury is still out, but initial data seems to indicate that this isn’t so. So instead the ‘explain it away’ caucus of analysts and economists are saying that it’s the unwind of the carry trade. But with the Japanese economic outlook from this disaster likely to pressure lending rates lower for longer and to lower the value of the yen, this doesn’t make a lot of sense either.

The explanation that makes the most sense to me is that this is being driven, like most unexplained things in the markets these days, by high frequency activity - in this case, in the currency markets.

Let’s think about risk management for a minute. For a traditional trader, the risk of a trade can be describes as the typical change in price of an asset over the holding period of the position. The way he limits his risk is by placing hard boundaries around those variables. Typically he’ll set a maximum loss as a percentage of the value of the trade and when the market crosses that threshold, he’ll exit the trade – whatever else may be happening.

But high frequency trading doesn’t always work that way. With high frequency trading the percentage return is often left as a floating variable, and it’s the duration of the trade which has a defined limit placed on it. So to use the prior example, rather than placing a 3% stop loss on the position they will allow the percentage to float, and instead place a hard boundary on the trade duration... closing any position after 3 seconds for example.

Since the maximum holding period is quite short, the risk is effectively managed for each individual actor. But when you have multiple participants all acting with the same risk constraints, they can end up trading consecutively. And that can move the markets dramatically in what seems like totally irrational (or at least arbitrary) way. The reason for this is that the outlook of the market over the next three seconds may or may not be influenced in a substantial way by its longer term outlook. Over such a short time frame there may be other issues which are more likely to have an impact.

One of them is inefficient trade flow and that can be generated by stop loss trades. When a stop loss is executed, the position is closed regardless of the effect it has on liquidity or pricing. High frequency trading system can detect this, and they will rush to exploit it. So by setting off the stop loss of a longer term trader, high frequency trading systems become more likely to drive the market further in that direction, setting off the next stop loss, creating more inefficient trade flow – and so on, and so on and so on. In a very short period of time this can impact markets in surprising ways – not unlike the behavior we’re seeing in the Yen.

For the high frequency trader this is only minimally important. They only look at the expected behavior of an asset over a very short period of time. But for the long term trader, the result is a cataclysm. While consecutive stop loss limits are struck, money is transferred from traditional managers with longer time horizons, to high frequency traders at a terrifying rate. And over time, longer term managers react to this phenomenon by lowering their average position sizes. But this has a minimizing effect on their winning trades as well. So when measured across the entire industry it has the effect of depressing cumulative returns.

This matches what we've seen in the hedge fund industry, and it makes the most sense to me.

What looks like wildly irrational market activity over the long term is actually a number of high frequency players acting consecutively, and each looking forward in time over the very short term. A good analogy for this would be to imagine driving a car while being able to see only a few feet in front of the bumper. So long as there is no major obstacle encountered, you can end up going a long way off the road before you realize anything meaningful has happened. And if everyone else is doing the same, before you know it the whole traffic pattern has veered off through fields and pastures – everywhere else except the road.

But so long as you’re trading a high frequency system, then you probably don’t care. You’re only worried about the ground you’re going to cover over the next very short holding period. Pavement, grass, gravel, it’s all the same to you. Whether the traffic pattern is in it’s expected (and arguably the most rational) place is irrelevant. And if an obstacle appears you’ll simple change direction – or change back. You’re totally agnostic over the long term.

I’ve been a defender of high frequency trading because it adds liquidity within the bounds of ‘typical’ market behavior, and can make markets much more liquid and efficient. But this admittedly one of the holes in my argument. It’s really all about tail risk. It seems to me like HF trading is turning 2 standard deviation events (something unexpected – but not unprecedented) into 5 standard deviation events (something so unlikely it strains the imagination) before anyone can do anything about it, or in fact before most people even really notice.

This too seems to match most recent market behavior, where every day there seems to be some new cataclysm. It's speculation on my part, I grant you - but it's worth thinking about further.

Thursday, March 17, 2011

- Another 'Conversation' On Guns

Carolyn McCarthy, Chuck Schumer, and Barak Obama have spent their whole professional lives doing their level best to prevent law abiding citizens from owning firearms, and now they want another ‘conversation’ on the topic.

OK – here's my part of the conversation.

In my worldview, the right of a person to defend himself from imminent harm is a natural right. That means that it is not subject to moderation or mitigation based on what government decides. If government passes a law declaring it illegal for a person to defend themselves, then in my mind that law is illegal and I will not obey it. When faced with immanent harm I will continue to defend myself, no matter what the law says.

This right is absolutely non negotiable.

100 million homes in the US have firearms in them, and virtually all of those people feel exactly the same way that I do on the issue. That’s where the NRA’s power comes from. They don’t represent the ‘gun manufacturers’ or the military industrial complex, they represent me. I’m the NRA.

There are no circumstances where I will trust the government to decide who should be allowed to exercise their natural rights and who shouldn’t, because there is a clear conflict of interest involved. As is clearly spelled out in the founding documents of our country, it is in the interest of those who run the government to eliminate the ability of the private citizen to defend themselves from tyranny.

Carolyn McCarthy isn’t smart enough to realize this, but Chuck Schumer and Barak Obama absolutely are. And for them I believe it’s the whole point. I believe they are ‘would be’ tyrants, who are deeply uncomfortable with the constraints that an armed populace places on their behavior.

Simpletons like Carolyn McCarthy and the anti-gun lobby, say they’re in favor of ‘gun safety’, but all the recent data says the opposite. By imposing prohibitions on gun ownership for the law abiding citizenry, they have only made them easy targets for criminals. That method, (prohibition of gun ownership for the law abiding) which they continue to endorse, does not work. But regrettably, they are too driven by sentiment and fear to take an honest look at the scientific collected data. They would rather continue to lobby for actions which make Americans less safe, than admit their mistake and change their position.

The Anti-gun lobby is not interested in gun safety; they are only interested in gun elimination. And since that’s so, they’ve been a useful tool to would be tyrants. And that means that this new ‘conversation on guns’ is not new at all – it’s just more of the same. It’s another ‘discussion’ about how the law abiding citizens can have their natural rights restricted by people who have no interest in keeping them safe.

So I’ll say it again – My right to self defense is a natural right, and is absolutely non-negotiable. And until the gun prohibition lobby or the would be tyrants change their minds, further discussion of the issue is pointless.

- Hide The Decline Explained

I originally made the assertion (in this blog), that the data used for the global warming 'hockey stick' graph was inaccurate because it represented 5 standard deviations from the mean, and outlier data points like that just don't happen in natural 'mean reverting' dynamic systems.

The world has naturally self correcting systems. More algae means that algae eating fish do better, which means less algae. Simple. I didn't see the original data so I didn't know what the specific cause of the problem was, but the data itself was enough to convince me beyond a shadow of doubt, that I was being put on.

Now I know how, and so do you.

Wednesday, March 16, 2011

- Worldwide Nuclear Radiation Alert!!!

...just staying ahead of the game I guess:

Lagos, Nigeria.
Attention: The President/CEO
Dear Sir,

Confidential Business Proposal

Having consulted with my colleagues and based on the information gathered from the Nigerian Chambers Of Commerce And Industry, I have the privilege to request your assistance to transfer the sum of $47,500,000.00 (forty seven million, five hundred thousand United States dollars) into your accounts.

This sum will be generated from our advanced Anti Nuclear iodine medical treatments which have been tested and proven to guarantee the elimination of all ill effects from Japanese Meltdown catastrophes. We are making the sale of this product across all of Africa and the middle east, and it has resulted in a gross estimate in the amount above, which we would appreciate your assistance for the sending overseas.

It is important to inform you that as civil servants, we are forbidden to operate a foreign account; that is why we require your assistance. The total sum will be shared as follows: 70% for us, 25% for you and 5% for local and international expenses incidental to the transfer.

If you find this proposal acceptable, we shall require the following documents:
(a) your banker's name, telephone, account and fax numbers.
(b) your private telephone and fax numbers —for confidentiality and easy communication.
(c) your letter-headed paper stamped and signed.

Alternatively we will furnish you with the text of what to type into your letter-headed paper, along with a breakdown explaining, comprehensively what we require of you. The business will take us thirty (30) working days to accomplish.
Please reply urgently.

Best regards
Howgul Abul Arhu

- A Presumption of Tax Guilt

Frustrations In Taking Your Earnings Offshore.

On this post, friend of this blog, and frequent commenter Mark has said that he would:

“get really scared when I hear somebody suggesting a tax be levied on people who move out of the country.”

Well Mark – start trembling. I looked into moving my income offshore last year (just to be on the safe side) and here are some of the details of that depressing exercise.

First, if you are a US citizen, your incomes is taxed everywhere, forever. We are (to my knowledge) the only country that does this. Earn it in anywhere in the world, and not only do you owe taxes to the place where you earned the money, but you also owe them to Washington.

If you give up your US citizenship, you’re still taxed on your income for the next 10 years – unless the courts decide that you’ve given up your citizenship ‘in order to’ avoid taxes. If that’s the case, you’re charged with felony tax evasion and will spend years in prison. It isn’t that way for corporations however. Corporations can be founded in foreign domiciles, but if they want to business with US companies, then they need a US tax number, so they can pay US taxes on the money earned there.

Suppose you are one of those people who can restrict his business so that it would work to have a foreign corporation that only does business outside the US. Then there is no tax Id and no taxes right? No – no good. If you’re a US citizen and you own more than 5% of any offshore corporation, then it’s considered a ‘personal holding company’ and you are liable for income taxes on the portion of the corporation’s revenue that you own. If you own 5.1% of Siemens Corporation, a multi billion dollar German industrial conglomerate, then you are personally liable for 5.1% of their revenue to the US tax system. (Although in that specific case you might want to fight that one out in court – and the fact that it’s publicly traded might be an out – I’m not sure.)

Anyway, by now you’re surely saying “Hey Tom – don’t those paragons of civic virtue the Kennedy’s and the Kerry’s keep all their wealth offshore?” Yes – they sure do. That’s ‘wealth’ not income. It’s stored in a trust, in the British Virgin Islands – a Caribbean tax haven. Wealth is tougher to track than ‘income’ and it’s easier to protect. Once you make the money and pay your income taxes on it, you can protect the rest from ‘changes’ in the tax code. And knowing that can also give you the confidence to go on TV and demand higher taxes on ‘the rich’ knowing that your personal wealth is completely safe and won’t be affected.

If that makes you ask – “Why not put your offshore corporation in a trust?” Trust me, it won’t work. From what I’m told, the US tax court isn’t like the criminal or civil courts. The presumption of innocence doesn’t apply. It’s a question of legal and accounting opinions, and my understanding from lawyers who should know is that if you try to shield your regular income behind an offshore trust then the tax court will simply ‘disallow it’ and you become liable for the tax regardless of the structure. I was told that they will want you to account for you ‘time’ within the border of the US, and will make any income from ‘productive activity’ taxable no matter what legal structure protects it.

AHA! You say… I’ll simply leave the US. I’ll work offshore for an offshore corporation shielded by an offshore trust, and I’ll only do business with foreign corporations.

There is still a problem. The US government has compelled virtually all other countries to report banking transactions by American citizens. Those transactions will be monitored and if you do something which looks to the US tax courts like you’re earning a living, then you will be tried (in absentia if necessary) in US tax court and if you ever return to the US you’ll be sent to prison. If there is enough money involved, the state department will even extradite you. What you don’t pay in taxes, you’ll have to pay in political contributions to keep the state department from pressing the issue.

There are other things that people have tried too but they all fall under the heading of preventing the US authorities from knowing what you’re doing. This is profoundly difficult in an electronic age. People have dual passports, and do offshore business with only their non US identity, or put everything in the name of their wife who is a foreign national with all the structures previously discussed. Both are inherently dangerous though because they go over the line of ‘evasion of taxes’ as far as the courts are concerned, and have been successfully prosecuted already by the IRS.

There is also something called a Panama ‘bearer corporation’. This works like a ‘bearer bond’ where you own the company if you’re in possession of the documents and there is no paper trail associating your name with the actual ownership. This effectively obscures you, but it’s a red flag for the US tax courts and will probably result in one of those ‘presumption of guilt’ issues when you are trying to defend yourself. If you have a Panama bearer corporation tied up in your business, they’re going to make you prove that you don’t own it. Ask any accountant how tough that is. At the very least you’ll have to perjure yourself by claiming in court that you don’t own it when you really do.

Even with all these effort’s having failed in the US courts, the presumption of guilt, the foreign reporting, the ambiguous citizenship, there are STILL other things that people have tried. There are insurance products designed to provide access to a cash flow while obscuring its specific legal ownership. There are elaborate schemes involving countries which report banking but not ownership, acting as domicile for business from other countries which report ownership but not banking. But at the end of the day, they all amount to ‘Tax Evasion’, and the more complex the structure, the harder it is to pass it off as a simple mistake.

There are other mechanisms – things I can’t mention in this format because to my knowledge the government hasn’t caught on to them yet. But none of them is completely without risk, and the government will eventually catch on to all of them. I personally believe that if you’re really motivated, it’s not that tough to stay ahead of the IRS. They’re just federal bureaucrats after all – not the sharpest tools in the accounting shed. But they’ve shut down all of the easier routes to protect yourself and your income. Anything that’s likely to work will involve substantial effort, inconvenience, and risk.

With taxes almost certain to skyrocket in coming years, this will become a big business though. And that means there will be lots of less legitimate people trying to scam you on it. There is already a fairly large contingent of con men promising guarantees in places like the Bahamas and the BVI. But if you violate US tax law what do they care? They’ve gotten their fees – and they don’t live here. You’ll go to jail and they’ll still be making a living promising other people protection that they cant’ provide. If you’re going to try something like this, you really need to do your very best to make sure the person you’re dealing with is legitimate. But if their idea seems inexpensive or easy, then it’s obviously a fraud.

The long and short of it is that if you are going to try to shield income from taxes, then it’s going to be expensive. And that means that it will require a large amount of money to make it worthwhile or you might as well just pay the taxes on it. And because that’s so, as usual, the middle class simply gets screwed. Kennedy and Kerry et al have the family rum running revenue safely tucked away in a tax haven, but you and I still have to pay and pay and pay. There is no escape. Not really. And if you’re going to try it, then you had better be ready to burn your boats on the beach – because it may very well end up that you can’t come back here - ever.

BTW, know there are a number of lawyers who read this blog, so let me say right now, I'm not a lawyer, or an accountant, and that it's illegal to evade taxes. If there is a legal way to protect income, you had better get it from someone who knows - not me. All I'm doing is relating some of the information I was given by experts, in the hope of discouraging people from trying these ideas on their own.

Tuesday, March 15, 2011

- A Laughable Candidacy

I met Donald Trump at a party once. A girl I barely knew invited me to go with her and her sister to one of those magazine sponsored spectacles during fashion week. It was years ago, but he looked ridiculous even back then. He was standing around posing, with a girl who was a little too young for me on his arm and at least one 'staffer' buzzing about and whispering in his ear.

The people at the party fell into two categories - those that took him seriously in some way and those that did nothing but ridicule him. Guess which group I was in. The other group were mostly the kind of people who are impressed with celebrity for it's own sake. They looked like what you would expect to see hovering around someone like Madonna - mostly flamboyant gay men and shallow annoying women. They were all armor, and no souls. Sandra Bernhard was there I think.

When I squeezed past him on my way to the door I looked him straight in the eye, smiled and said "Nice hair." He gave me a surly 'yeah', and that was it.

So anyway, Donald Trump says he's running for President again.

That'll happen.

The truth is, I'd sooner vote for his daughter than I would for him. She seems a smart, clear headed and very attractive girl - much smarter than her father. She's absolutely better at business than he is, but I don't think she's quite old enough to be President yet.

He on the other hand, is a philandering, loud mouthed ignorant jerk who knows no more about business and finance than my 10 year old daughter, but he still thinks that's enough to allow him to be a kind of combed over leading man for reality TV. He's as vain and shallow a human as our culture of celebrity has ever produced, and apart from Mike Bloomberg, I'd say he's very likely the most arrogant man in New York City.

President? Fat chance. I'd stand a better shot. Why do people let him get away with saying this ridiculous nonsense every 4 years? For me, he fills a similar role to someone like Al Sharpton. I just can't figure out why anyone takes them seriously.

Monday, March 14, 2011

- The Rich Aren't Rich Enough

I’ve been busy with other work so I don’t feel so bad about it, but Kevin Williamson has beaten me to the punch … again. Last week I downloaded the taxable revenue distribution of US households. My intent was to explain how, even if you bought entirely into the liberal vision of taxing only ‘the rich’ and giving to people who ‘deserved it more’, there is not enough money there to make the numbers match up.

Then I got this other idea about rebuilding a commodity trading strategy that I originally ran as a research project back about 5 years ago, and one thing led to another and I forgot about the tax data. But now Kevin has gone and saved me the trouble.

Robert VerBruggen also chimes in meaningfully here.

Sunday, March 13, 2011

- Build A 40 Foot Wall, Then Fill It With Water

These people are monsters.

The American left has long fought against Judeo-Christian morality wherever they could find it. And whenever the informal 'morality based' institutions of our civil society have been replaced with more government, they let out a little cheer. They have also fought long and hard to see the state of Israel eliminated because they view it as a declaration of the west's moral self confidence over other belief systems.

But I have I have to believe that this represents one of those 'be careful what you wish for' moments for them. I can't imagine that even the worst creatures of the American left think it's OK to kill children in their sleep.

Friday, March 11, 2011

- Prediction On The Markets

Sometime in the next 72 hours, a meteor will strike the earth killing billions. Why do I think this will happen? Because frankly, it's just about the only thing left.


After hearing me offer an accounting of all the global disasters of the last 48 hours, my 11 year old daughter asked (without a hint of irony) how long it would take before Al Gore blames it all on Global Warming.

- Pain To Our Left, Oblivion To Our Right

Yesterday I was reminded of the Hitchhikers Guide to the Galaxy. Not the whole thing, just those glasses that Zaphod wore all the time that were sensitive to peril. Any time they detected immanent danger they would turn utterly opaque preventing the wearer from seeing whatever it was that might alarm them. I think a rising stock market is like that in some respects. We see our 401K balances rising and start complaining about all manner of otherwise minor things because we can no longer see how close we are to utter oblivion.

All this was brought on by an email discussion that I had yesterday with a good friend of mine who runs the fixed income trading unit of a major Japanese bank. He’s a profoundly smart guy with years of experience, and a profit making history that I can only envy. He’s one of my ‘go to’ guys for information on the fixed income market, and there are few people whose opinion I respect more – none in his area of the markets. But I think he’s still got a pair of the Zaphod Beeblebrox glasses in his drawer somewhere.

“More QE would be a bad idea” he said “inflation is beginning to creep up and the rates are low – it makes no sense.” “I agree” I replied, “but we’re going to get it anyway. It’s just a question of whether we get a little bit of it this year in order to keep things from tipping over, or we get a ton of it next year after things have already gone pear shaped and we're into a new recession.”

We went on like that for a few hours. He explaining to me over and over all the reasons that more QE would be the wrong thing to do in this environment, and me explaining to him that I didn’t think it would matter – and that we would be getting more anyway.

In fairness, we were talking past each other. He was talking about what was 'right' and I was talking about what was likely. In truth we didn't really disagree. In fact, for the record, I think he was absolutely correct in everything he said. But it doesn’t change my mind. My friend was focused on the ‘battle inflation’ half of the Fed’s charter. And although that’s desperately important, I don’t believe it’s what Ben Bernanke is thinking about.

I think Bernanke, like everyone in government, is thinking about ‘control’. What’s most important for policy makers is that whatever policy they pursue, they want to make sure it leaves them in control of as much future decision making as possible. Rule one for horseback riding is ‘stay on the horse’. And similarly, policy makers never want to pursue a policy that leaves them powerless in the future - whether it’s right, wrong, or other. This sounds horribly cynical, but in Bernanke’s case that isn’t really so. Another way to think about it is that he’s hoping to live to another day so he can continue to fight the fight.

You see, Bernanke knows precisely how to eliminate inflation. It’s no secret. It’s been done in the past, and it will absolutely be done again in the future. There will be a day when he will raise interest rates dramatically and inflation will melt away. But that day isn’t today. Today, he’s worried about deflation. And for deflation, there is no magic bullet like there is for inflation. On the contrary, he watched the Japanese flail about for nearly 2 decades now trying unsuccessfully to figure a way to tame it. Worse, in his mind it was deflation that caused the great depression. And as a long time student of the depression he probably wakes every morning saying to himself ‘today is not the day that America slips into darkness’.

The problem with that thinking right now though is that there is considerable debate about what ‘inflation’ actually is. Typically people look at the ‘Consumer Price Index’ to determine the inflation rate. But 43% of the CPI is based on housing, whose prices have cratered. So when you try to fill the hole made by deflation in housing with inflation in things like food and energy, you end up with a contradiction. People’s living standard falls due to rising prices of consumables while the traditional measure of CPI doesn’t indicate any inflation at all.

In the meantime, Bernanke is kept awake at night with visions of soup lines, and cardboard box cities. And measured against nightmares like those, I’m sure a CPI inflation number of 5% or so seems like it’s completely manageable. But that number will involve a bit of suspended disbelief. The degree to which people’s living standard will fall as a result of rising prices will be much more severe than those numbers will indicate.

But in the end I don’t think that will matter. There will be much talk and rumination. There will be screaming debates between Steve Liesman and Rick Santelli, and Ron Paul will go on TV and blame Ben Bernanke for everything from the violence in the Middle East to his lost dry cleaning. And none of it will change anything because Ben Bernanke DOES NOT have a pair of those peril sensitive glasses. He knows we’re still dangerously close to the edge, and as bad as more QE may seem to those of us blinded by rising markets, to him I think it seems like small potatoes.

So the question isn’t whether more QE is a good idea or a bad one. The question is whether it’s better to be in an economic environment where the policy makers know all the demons and all the threats and have a ready set of tools to handle them, or whether we should wander off into the dark unknown where our best tools are all useless, and the demons are fierce. It’s still a choice between Japanese deflation where the policymaker is powerless, or Argentinean inflation where he knows how to end it as soon as the economy will justify it. It’s not a choice between right and wrong, it’s a choice between known evil with known solutions and unknown evil where the solutions are a mystery.

As much as the politics of the day will allow, Ben Bernanke will choose the devil he knows. And what’s more, I think he’s absolutely right to do so.

Thursday, March 10, 2011

- Now Comes The Union Sponsored Terrorism

National Review Documenting the lucid and clearly stated intention of some as yet unnamed party to murder Republican Legislators for voting the way the unions didn't want. Read the threatening letter here.

Well the good news is, Frances Fox Piven has finally gotten her wish. The bad news is, we do not yet know how Sarah Palin can be tied to this, but I'm sure Paul Krugman and CBS news will figure out a way.

- Wisconsin Lessons

Personally the actions of the Wisconsin Republicans used to pass their Civil Service Reform bill seem considerably less dubious than the parliamentary tricks that the Democrats used to pass Obamacare. The Obamacare 'deem and pass' specifically ignored the will of the voters, while in this case, the Republicans had the election on their side. The media will never tell you this of course, but it seems pretty clear to me that once again it's the Democrats who are the ones trying to rewrite the rulebook.

But the thing I'm really taking away from the Wisconsin debate is the graphic picture of what Democrats think a person should do to improve their lot in life. for them it's all about getting together, screaming, chanting, and threatening people with whom they disagree. They stopped short of molotov cocktails this time and restricted themselves to threats, and rocking the school bus of the Republican Senators. But I think that's far enough to show what they're really about.

They aren't interested in civil debate, they're interested in getting their numbers (their minority numbers mind you) together in one place and instead of using logic and reason, using shouting, and threats to force people to change their minds.

Once again I think this is an effect of that 60's generation, who believe in the inherent nobility of the angry mob. I personally don't see it. If they really wanted to be noble they should think about going back to work and solving their own problems, or taking care of their own families. It's protected speech, and they're entitled to get together and drum and chant, but I'm also entitled to think less of them for it.

And this is how they think the world should be run. They don't really believe in the will of the people, peacefully expressed - like it was in the last election they lost. They believe in the will of the mob. Whoever can assemble the bigger crowd of loud angry protesters are the people who should be deemed the winners according to them. Unless of course, it's the opposition who has the bigger crowd. Then they probably believing in disbursing them with live ammunition.

I know it isn't saying anything new to accuse the far left of deception and hypocrisy. But I think if ever you wanted to see a graphic depiction of it, this should be good enough for you.


I wonder if they'll legislate this sort of thing away in the future. You know, a law that says that any member who abandons their seat for 2 weeks or more during a vote will be deemed as having resigned their position - or something like that.

- Better Cowboy Poetry

No comment, just a funny cartoon about that idiot Harry Reid.

- The NYTimes Thinks Christie's Running

How else can you explain this fluffy hit piece about his 'straight talk', run on the front page - above the fold?

They really ought to try to be more subtle when undermining Republicans don't you think?

Wednesday, March 9, 2011

- Showtime's Shameless

This is apropos of nothing, but I wanted to say something about the Showtime series ‘Shameless’.

For me it all started with Deadwood. Since then the 'made for cable' TV series became pretty much the only thing on TV that I actually watch apart from Mythbusters and Disney Channel stuff for my daughter. Shameless is Showtime's latest effort on that model.

I’m a fan of the show, even though I think the writing is as terrible and as chock full of liberal BS as anything I’ve ever seen. I mean… the writing is really is awful. Rather than being intelligent, clever and ironic, as a life of poverty can often be, it’s a collection of liberal pandering and misplaced attempts at trashing conservatives.

The characters aren’t exactly well thought out. They’re all sweet and emotionally generous with each other rather than hard and selfish, as they really would be if they were written more realistically. Well …except for Frank. Frank the father (played by William H. Macy) is the show’s token conservative. He spouts birther and tea party dogma while narcissistically abandoning his children, drinking and doping himself to oblivion, and scamming the Illinois welfare state in every way he can and several ways he can’t. He’s what Hollywood thinks all conservatives are ‘really’ like.

He’s obviously a character designed by Hollywood insiders to represent someone that they find offensive in every way – even if it means he’s a completely unbelievable contradiction. It doesn’t occur to them that someone so obsessed with his own entitlement would never demand that everyone else live up to their responsibilities. He simply wouldn’t be a conservative when everything about his manner screams narcissistic liberal. He’s a big part of why the writing for the show is so incredibly lame.

But I’ll tell you this, as bad as the writing is for this show, it isn’t so bad that it can’t be redeemed by the outstanding performance offered by incandescent Emmy Rossum.

I confess I’ve developed a TV crush on her character from the show. Fiona Gallagher reminds me of every screwed up, strung out, emotionally desperate girl I dated when I was a kid. She’s exactly the kind of needy complicated mess that has always appealed to me. But in another way she also reminds me of my own cousins Cathy, and Eileen (each of them the oldest child of one of my father’s siblings) who presided over their own circus side shows of abandonment not too different from the fictional Gallaghers.

The writing for her character is mostly lame too. She’s too sweet and supportive, and the writers haven’t figured out that people in her position are too busy baling water from their own boat to spend much energy on others. They may diaper the baby, and feed the kids, but they don’t do it sweetly; they do it with a sense of resentment for the mess that is their lives. What they want is to spend their time chasing boys, and hanging out with their friends like the other 21 year olds, but instead they’re trying to figure out how to keep the electricity from being turned off. No one smiles their way through it.

Instead they end up drinking and doing drugs to numb the pain that comes from knowing their parents don’t care about them at all. And what they can’t numb away chemically, they take out on those around them – the siblings that need them or the friends who don’t understand their desperation. A life like Fiona Gallagher’s is all about learning to survive with pain, and if the writers were aware of that, it would be a more entertaining show.

But while the writing and most of the direction ignores all that, it’s not wasted on Emmy. As an example, in the most recent episode he character confronted her mother who abandoned her family a few years before. Most of it was trite nonsense no closer to genuine emotion than an episode of Three Is Company. But her performance was so compelling that I found it tough to watch. Just thinking about it still takes my breath away.

Anyway – it’s fiction not real life. And it’s entertaining fiction even if it misses most of its real opportunities. It’s actually adapted from a British show where the Irish fill the same cultural role as blacks do in America. So it’s not a shock that some of the pieces of the puzzle simply can’t be forced together.

But as many mistakes as they make, watching Emmy Rossum act is reason enough to tune it in. She’s easy on the eyes too – although to be honest that’s not her main appeal for me. The girl is a real talent, and she’s got a very bright future.

I just hope to god she keeps her politics to herself.

Tuesday, March 8, 2011

- Every Jewish Liberal Should See This

NPR & The Muslim Brotherhood - perfect together.
It's tought to find such a short video with more damning quotes in it.

(Send it to a Jewish Liberal)

- It's Who You Know...

Byron York has an awesome piece on how exactly government makes it harder to get ahead. Even ideas which seem like no brainer's to people who are directly involved can be horribly time consuming when government decides to 'include itself' in the decision making process.

While Obama Seeks New Ideas, His Bureaucracy Stifles Them

The moral of this story is, if you're REALLY well politically connected, then nothing makes things easier like more government and including politics in everything. But if you are just a private citizen - a regular joe - then you want the government to be as small and feeble as possible so it cant' stop you from doing things that you know will help.

- Talking To Liberals

Most of these home made cartoons I find a little tiresome, but this one was so much like talking to an actual liberal that I figured I'd post it.

Monday, March 7, 2011

- No Tenure For Politicians

I don't have too much to add to this nonsense about the Democrats from Wisconsin fleeing the state, except this: thanks to a few laughably stacked polls, they think they're riding a wave of public support for labor unions and public employees but they aren't. And the next election these A-holes have to defend themselves in will be a disaster for them.

Their tantrum is a rejection of the entire Democratic process because they don't like the way it's going to turn out. Instead of standing and fighting and winning the battle of ideas, they've lost those ideas and have decided to no longer play. It's more parliamentary process from the group that brought you the Obamacare 'deem and pass'. Those ideas may seem determined and romantic to 60's generation radicals, but the last time I checked, all the radicals have tenure.

There is no tenure for politicians.

- Speakin Amerikin

Remember - it ain't truly incomprehensible, unless it's coming from Anthony Wiener.

- Opposing Voices

The NYTimes has a front page hit piece on Glenn Beck today, and while I'm generally a fan of Glenn and think he's right about most things, lately he's made me cringe a little. He's always been long on 'connection' and inference and short on detail and substance. But the emotional intensity of his presentation has always been the real issue for me. I don't see how that can be maintained for too much longer.

On the whole I think the things he says (which the intelligentsia are quick to call crazy) all have an element of truth in them. People like Van Jones really do want to shatter American society. Frances Fox Piven really has been praying for violent revolution for decades. Beck is only saying to take them literally at their word. And that's the real strength of Glenn's story - he lets other people's own words condemn them.

The left has it's less credible sources too. One of them is pictured above. I think both Glenn Beck and Michigan's answer to Jabba the Hutt fill a similar role in American society. They are outspoken individuals who no one really believes every word of, and the opposition listens to them more carefully than their fans. Glenn Beck is worried about the 'factual correctness' that inspires all thinking on the right, while Jabba Moore is worried about 'morally superior intent' that is the focus of the left. They are preachers - both preaching to the choir - and both ridiculed by the opposition.

With all that said, the right doesn't live in fear of Michael Moore actually exposing anything. The socialist mantra's he repeats are all decades old and everyone knows them already. Success = evil, rich = bad, blah blah blah. But the same isn't true of Beck. He's calling attention to the funding connections of the far left, that they've done their level best to disguise. They don't want people knowing how they've run a multi-front, muti-faceted war to disrupt the core of America's institutions, and Beck is worrying them greatly by exposing them to such a wide audience.

That fear is clearly manifest in the NYTimes piece. They're obviously begging for a raincloud and hoping to sow the seeds of discontent in Glenn Beck's world in to marginalize a voice that they find very threatening. If I take the tone of the Times piece at face value, then Glenn Beck is influencing people at the center far more than Michael Moore ever did. And the liberal left is obviously terrified if they'll devote a front page story to a slip in his ratings. (At this point he's only beating the combined ratings of all his competition combined by 150% instead of 250%.)

If I were Beck, I think I'd actually feel good about. Ratings go up and down, but you only take flak when you're over the target. When was the last time you heard National Review or the Weekly Standard complain about Michael Moore?

Friday, March 4, 2011

- The Subprime Crisis Revisited

A 1972 Ford Pinto is a $#itty car. It was a $#itty car when it rolled off the line and it’s an even $#ittier car today. It’s underpowered, it handles poorly, it gets comparatively lousy gas mileage, it’s horribly ugly, and if you hit it from the rear its doors will lock shut while it bursts into a massive ball of gasoline flames. But if I try to sell you one for $5, am I taking advantage of you? Of course not. You could sell it for scrap and make $45 dollars on it, even if you never sit in it. This is the main point that’s so completely missed by the leftist view of how the mortgage catastrophe came about, and that's the only view presented in the film 'Inside job'.

The Pinto sale above is an example of market making, and it's based on the idea that however poor the product, there is probably a 'fair' price for it. Market making is a voluntary process. No one is either forced to make a market, or forced to participate in it. The dealer will typically offer two prices, one at which they will buy an asset from you, and one at which they will sell it to you. The industry parlance for these is called the bid and offer, or the bid and ask. The bid, the price they will buy the asset from you if you are inclined to sell, is always the lower of the two, and the difference between them is called ‘the spread’. That ‘spread’ is where the dealer expects to make money.

If there is competition between dealers, that is – if there is more than one dealer in the same specific asset, then the bid-offer spread will shrink, making it ‘cheaper’ to do business with one dealer than the other. That has the effect of keeping the pricing very close to what everyone thinks is a 'fair' price.

But no one will ever use force to make someone do business with a market maker. If you buy when you should sell, it isn't because they forced you. and since that's so, if you get what you later think was a bad deal, then it’s really your own fault.

Anyway, the reason I bring all this up, is because of this laughably one sided movie ‘inside job’, which purports to instruct people in the how’s and why’s of the mortgage crisis. The movie is ridiculous. It’s a horrible misrepresentation of the facts where accusations of fraud are presented as evidence that the fraud occurred, and the fact that someone made money is presented as evidence of malfeasance. None of it even remotely passes the reality smell test.

More than anything it seems like a propaganda piece designed to inflame the masses against those evil capitalists, and to encourage them to press for more ‘regulation’. The makers of the film obviously believe that if we had just had more regulation, everything would have been fine. This is nonsense of course. The whole reason for the derivatives market in the first place was to sidestep regulation. And if there were any more of it, it may have changed the look of the industry, but it wouldn’t have prevented a thing.

I could get into the specifics here, but I don’t see the point. I’ve written about it at great length in the past (peruse my stuff from the autumn of 08 or do a search on the word mortgage and you’ll find it) but at this point I don’t think a lot of minds will be changed about it. You will either believe this movie or not. And as someone who’s worked in the derivatives business for twenty years and understands every aspect of the crisis without having participated financially in it, I’d recommend ‘not’.

You’ll get nothing from this movie that you can’t get from 15 minutes reading the Times opinion page. “The rich get richer by taking advantage of the poor, blah, blah, blah.” Blame the winner for winning, and forgive the loser for their greed because they lost. It’s the same old anti-capitalist diatribe that hasn’t changed meaningfully since it’s advocates were at Woodstock. As an argument, it has all the subtlety of a burned draft card, and the intellectual honesty of a Howard Zinn essay. And the film itself has all the thoughtfulness and desire for exposing the real truth as a mob of angry teenagers. In short – it’s crap.

Although for you guys reading this who are also insiders in the industry, I do have a little 20-20 hindsight to offer. Now that time has given me some perspective, I think I can see this clearer than ever. What we had was a vast expansion of balance sheets and credit. We’ve seen that before. And when that happens, it opens up new and more sophisticated markets to a much broader group of people. And what happens to the dynamics of a self selected group when you vastly and rapidly expand it?

I’ll give you a hint – what would happen to the culture at NASA if you tried to hire 250,000 people to work on the space program? Do you imagine you can find 250,000 PhD physicists, Engineers and other scientists that can cut the mustard in such a demanding environment? Probably not. So the only way you could expand that group so rapidly would be to lower the standards. There is no other option.

In the end, the savings and loan crisis was driven by the same sort of thing. It was relatively unsophisticated small bankers getting into a market they didn’t fully understand. They took imprudent risks, and eventually, they took the losses.

So what I think we had in effect during the mortgage crisis was a number of comparatively unsophisticated pension fund managers, insurance company executives, and other money managers trading in a market they didn’t fully understand. Some people understood it. Paulson & Co. did, and most, but certainly not all, of the sell side brokers did. But they were in those positions because they were the best and brightest. And their results have demonstrated that.

So that’s what I think this was. As the size of the pool of ‘mortgage bond’ and ‘mortgage derivatives’ investors grew, it’s mean intelligence fell. Even worse, the gap between the best and the worst became more and more pronounced. And eventually, as is always the case, the less smart ended up losing out to the “more smart”. It’s a pattern that you can see repeated time and again throughout history, every time a market rapidly expands. That may sound harsh – but the truth usually does.

My personal area of expertise is in understanding how markets process new information. And in that light, it might be an oversimplification to say that the investors that lost money were simply ‘less smart’ than the others. I could as easily say that they were operating at a less efficient window for optimal decision making based upon their cost of information, but the truth is, that’s probably a good proxy for general intelligence where financial markets are concerned. It’s like being at a poker table and not knowing who the sucker is, but playing on anyway cause you think it’s fun.

And with all of that said, one group of people who are definitely not smart enough to understand how all this happened is the makers of this atrocious film. It’s an elegantly shot, well lit, piece of $#it, that hides far more of the truth than it reveals. And it was specifically designed to do that very thing. More than that, it wasn’t produced for someone like me who understands what really happened already, but for someone who really won’t have the background or knowledge to get it at all.

In that way the makers of the movie are treating their customers precisely the way that they claim Goldman treated theirs. They believe Goldman executives should go to jail for their efforts. So I suppose it would be fair to say that they should be locked up for this movie as well. The Oscar it won is sort of like Obama’s Nobel peace prize. It says more about the politics than it does about the actual result.

- Laziness, Vanity And Fear

In place of my typically apocalyptic view I have a note of optimism today. For some time now I’ve been saying that the 60’s were a one off. A generation of hyper-liberalism frozen Peter Pan like in a time warp of permanent adolescence, and surrounded on both sides by generations who were considerably more conservative than they are. On a broader scale it doesn’t look so much like a continuation of a liberalizing trend as a profound deviation from it.

Today we have another data point that points to societal mean reversion at the very least. Reported in the Washington Post of all places, is a study which indicates that rather than descended into a non stop amoral orgy today’s youth are in fact being much more selective about their sexual partners. The WP article is here.

In my experience the motivation for most of our actions come from laziness, vanity or fear. And it’s the degree to which we resist these three motivators that we can consider ourselves ‘good people’. But the 60’s generation has made succumbing to these motivators high art – elevating them to an inverted brand of morality in and of themselves.

They support socialism out of laziness and consider it more ‘moral’ than capitalism. The movement to ban DDT which was sprung exclusively from vanity, and is still considered more ‘moral’ in spite of the millions of children it killed. And the urge to punish law abiding gun owners absent any supporting evidence, is considered moral even though it’s driven exclusively from fear. But this emergent data point makes it clearer than ever that a more objective view has a permanence that the self congratulatory view of the 60’s generation does not.

Most of the problems in a society are caused by teenagers. They commit the vast majority of crime and are responsible for the majority of the social ills of any society, not just ours. So to have an entire generation stuck permanently in that mindset has been tough on America, as even a cursory glance at our national balance sheet will show you.

These people lost their innocence long ago, but because of the way they’ve rationalized their laziness, vanity, and fear, they haven’t gained any of the wisdom that typically comes to a person in trade for it. And as a result they fight on - doing their level best to destroy the fundamental institutions of our society, and all the while claiming that they want to change them for the better.

Thankfully, theirs is not an influence that will be around for ever.