Wednesday, June 29, 2011

- It's All A Mystery To Obama

Obama believes that the government should be 'the only' job creator. He believes the best way to get entrepreneurs to grow the economy is to increase their taxes, and then give the money back to them (less a small percentage) if they do what the government wants them too.

The only way we will get the American economy to grow aggressively again, is to get rid of this loser and the horrible vision he represents. I only hope the country outlasts him.

Tuesday, June 28, 2011

- This Is The Summer Trade

I agree with almost every word of this. Greece defaults (more or less) The US dollar shows a rally, equities and industrial commodities fall off a cliff, precious metals rally back faster than the rest. And in the face of obvious global deflationary pressure and the panic that comes from an S&P index in the 1,100 territory... along comes QE3.

It's all to set up the REALLY big trade of long precious metals, short the dollar, when Obama lets the US default rather than make a deal with Republicans on the debt ceiling that doesn't include any taxes on the rich. He's that committed to the principle of income redistribution, and that detached from reality on who will take the hit for it.

I could be wrong of course. And if things change on the ground then I might change my mind. But knowing what I do today, I think this is the summer trade.

All courtesy of Phoenix Capital Research, and the wack-job paranoiacs over at Zerohedge. (I kid because I love.)

- Take That Progressives!

The incontrovertible link between economic freedom and quality of life.

Think of this the next time some Democrat wants re-regulate, or pass a new economic mandate, or inflict upon us all some other top down way to control our lives because he (or she) thinks we're too stupid to handle it ourselves.

Monday, June 27, 2011

- The Toddler With The Handgun

As we speak, Chinese premier Wen is bopping around Europe with a red cape on. He’s promising the increasingly desperate European socialists that China will come to the rescue with its massive balance sheet and ‘bail them out’.

There are all sorts of lovely fictions in that last sentence, and lovely fiction is what socialists are all about. Can you guess where? How about ‘bail them out’. What that really means is, instead of their worthless debt being traded to the ECB for Euros, their worthless debt will be traded to CCB for Yuan, and a deal will be struck between the Chinese and the ECB to insulate them from any inflationary effects.

But that isn't the only lovely fiction. How about the phrase ‘massive balance sheet’. The Chinese economic and banking statistics have always had a questionable relationship to the truth. And while adding the Greek default onto that shouldn’t cause too much of a stir in the grand scheme of things, it makes an already precarious situation, even more potentially deadly.

In the hedge fund world, we know what to do about a Greek default and even a US ‘technical default’. The word ‘hedge’ means to prepare for events like that, and that’s what hedge funds have done. While the value of Greek debt falls to zero, the value of other things (the US dollar for example) will rise. So while these things will certainly be bad for the common man, the hedge funds of the world will probably manage them without historic pain.

But a Chinese 'hard landing' will be an 'all bets are off' moment for everyone. It will apply global deflationary pressure on an unprecedented scale. And since their economic and banking statistics have been so fictitious for so long, there is no way to hedge against it. You can't protect yourself against something which everyone has been pretending doesn't exist because you don't know what it actually is. It might be a tiger come to eat you, or a train to run you over. What protects you from one does nothing for the other.

So if there is a Chinese hard landing, no one will no what (specifically) it is, and almost no one will see it coming in time to react to it. It will come as a thief in the night – a complete surprise to virtually everyone. And all but the very lucky may end up being crushed by it. So in the end, the red cape that Premier Wen is wearing doesn’t necessarily make him a hero – he may turn out to be a super-villain after all. And the biggest 'lovely fiction' in that sentence may very well be 'come to the rescue'.

As for our own political impasse regarding the debt ceiling, the network news media has begun their campaign to portray the Democrats as the 'grownups in the room'. Personally I find that laughable. Their policy proposal for the debt ceiling is akin to saying that 'if I don’t get to tax millionaires and billionaires more, then I’ll hold my breath till I choke'. Hardly the grown-up sentiment. A better way to describe them is that they’re the toddler with the loaded gun. They want more candy, more ice cream, and more ponies, or someone is going to get hurt. They’ll try to hurt their much hated millionaires and billionaires, but they’ll end up hurting the common man instead.

Democrats seem to believe that the only way to improve government revenue is by putting even more wealth redistribution in place. That will keep unemployment high, and economic growth low. The Republicans on the other hand (the people the press are portraying as the children in this discussion) are saying that it’s better to get the common man a job than to give him a government handout. They’re advocating increasing government revenue by increasing economic growth.

In short, the Democrats want to punish winners, and help the losers, all based on their own idea of fairness. While the Republicans are willing to let the people who help themselves gain the most. They think it’s perfectly fair to set the rules as being the same for everyone, and let people win or lose based on their own efforts. Mark me down as supporting the latter.

But the press will become shrill in the next few weeks, and it will be no surprise how they want to portray things. I think it will be interesting to see how little their high chair banging actually effects the debate. The press doesn’t have the influence it used to (thank goodness). Or every toddler would have a handgun pointed at us. And all those deadly threats wouldn't increase the candy, ice cream, or pony statistics in any way.

Saturday, June 25, 2011

I've Decided To Break The Law

All the concealed carry permits that NJ has issued in the last 25 years (to non law enforcement officers) can be counted on a single hand, and you'd still have enough fingers left to not have to worry about spilling your drink. While the rest of the country has been bringing their firearms laws in line with the latest crime data and in sync with the voting public, NJ is still right on the cutting edge of the 1970's. But it's where I live - so that, as they say, is that.

When friends have asked me in the past, I always told them that if I felt the need to carry a firearm then I'd simply carry one and the law be damned. Better to be judged by 12 than carried by 6. But as it stands, my primary pistol is a Beretta PX4 in .45 caliber. It's a full sized gun. I can carry it concealed with the right holster, (and I have the right holster). But while most people won't see it, any policeman certainly will. They know what to look for and it's simply too big to hide completely.

With that said, and with NJ's firearms laws unlikely to change soon (Christie remains fervently anti-gun) I've decided that the situation outside is getting serious enough now for me to be prepared to carry on occasion. Crime is soaring, especially violent crime. And with Greece due to default on July 15, and the US at least possibly to follow on August 2nd, we're getting a little too close to the edge for me. I have no intention of becoming a crime victim simply because NJ want's to keep Carter Era regulations in place.

So I've decided to buy myself a little pocket pistol; the kind of thing that you can put in a wallet holster and no one will ever know it's there. They are small, thin, light, and completely concealable. They typically will deliver 7 shots of 380 (9mm short) ammo, which is considered the minimum by many in terms of 'stopping power'. And they are designed for use at the kind of 'up close' distances that crime usually happens.

That isn't to say they can't shoot at a distance too. The model I have in mind is the Ruger LCP (pictured above), which is the same weapon that Texas governor Rick Perry shot and killed a Coyote with last year when it came upon him while jogging. And the gun boards are alight with exclamation of how accurate a weapon it the little Ruger is.

The law doesn't allow me to protect myself. If I carry a concealed firearm and I'm caught with it, it will mean years in jail for me. But at this point things are looking like they're getting risky enough that I don't think that should stop me. In effect, I've decided to break the law. So if you see me in transit someplace, there is at least a chance that I'll be armed when you do.

I won't carry everyday. In this neck of the woods it's simply too risky. There are random DUI roadblocks, spontaneous subway searches, and every time you turn around there is a new building with a metal detector. But if I think the need is there, then my new pistol is going to be too. If the cops are coming for one and the coroner for the other, I know which one I'd rather be.


Mrs. RFNJ objected pretty strenuously to this blog post. She has no problem with me carrying a concealed weapon; I wouldn't seriously consider it unless she was willing to sign off on the idea. But she has a big problem with me announcing my intention to do so. She survived communism you see, where you can be arrested for the suspicion of having seditious thoughts. And apart from the scars she still carries from her experience, she's also a very private person by nature.

I tried to explain to her that announcing my intention to do something is not the same as actually doing it. I can't be arrested for saying that I'm going to rob a bank... I have to actually rob it first (or at least take concrete steps in that direction). And I tried to explain that if I were to use a concealed weapon to defend myself, that I had carried it would become a foregone conclusion and the fact that I had announced my intention first would be the least of my problems. She understood all that, but she had a purely emotional reaction to the idea.

"If it's going to be a concealed weapon" she said when we were arguing about it, "then conceal it."

She has a point. But I'm weighing that against the potential benefit of talking about it. The idea of this blog is to add another straw to the camel's back of injustice. NJ's gun laws are profoundly unjust. So much so that even someone like me, a law abiding citizen by any measure, has to seriously consider breaking the law in order to keep himself safe. And a law that perfectly law abiding citizens feel they have no choice but to violate, is a law that should be changed.

But for the record though, and to ensure my domestic harmony let me say this. I'm buying the gun. The gun is designed for concealed carry, but that doesn't mean I have to use it that way. Maybe after I get the gun in my safe I'll come to the conclusion that I don't actually have to carry it after all. Maybe just having it close enough to carry will mean that I never have to. I'd always rather obey the law if I can. And things will have to get pretty hairy out there before I'm willing to risk a felony conviction.

I already have a pistol that I can conceal, and I don't ever carry it. In fact, the only time I've ever worn it in the holster was at a range - in order to practice with it a little. So I've really risked nothing by making this public. But if the risks change, then I want to retain the ability to change how I react to them... nothing more.

That's my story, and I'm sticking with it.

Friday, June 24, 2011

- The End Of QE2

Drew Matus the UBS Senior Economist shown above, is an old friend of mine. He and I were chained to the same oar once, back at one of our mutual former employers. (No... I'm not the guy who annoyed him with the FOMC name.) I don't fully agree with him in this case. With the S&P at 1,250, I agree that the odds of QE3 are zero. Let's see what the odds are with the S&P at 1050 or the unemployment rate rising meaningfully.

The fact is, the Afghan troop draw down, and the SPR release have both been blatantly political moves by the Whitehouse to shore up their flagging poll numbers. Can you imagine someone so willing to toss the furniture on the fire for political gain isn't going to pressure the hell out of Bernanke? He may be independent, but he's still subject to influence.

As a total aside, back when Drew and I worked together, there was a big debate about the Euro. He and I were on the same side then in our belief that the Euro as a currency would never last. We would each argue against the opposition that there is too big a difference between Saxony and Bavaria to get along, so there was no way the rest of Europe would work things out.

Clearly we were right about the cultural differences being a big problem, it's just that I was wrong about the specific difference that would be an issue. In the next few weeks, it looks very much like we'll find out if we were right or not on the bigger question.

Thursday, June 23, 2011

- The August 2nd US Debt Default

The next economic collapse may turn out to be completely predictable. On August 2nd, 2011, the US Treasury runs out of tricks. That’s the day that current expenditures can no longer be maintained unless the debt ceiling has been increased. That’s the day, that absent a deal between the Republicans and the Democrats in congress, the US will default. But there is a legitimate question about what that will look like.

The thing is, from fifty thousand feet a default looks like a very clear black and white line. But as you grow close to it, all of a sudden a wide expanse of gray emerges. Clearly non-payment of interest or principle would be a default. But what about late payment? Or what if certain bond holders (the Fed) were to voluntarily forego their interest and principle to allow all others to be paid? What about a negotiated deal with other investors? Would that constitute a default?

The problem is that finance is fairly clear on where the lines are and what they mean, but the law is not. And in the end all these financial agreements are all built upon the law. The law is a vague thing subject to endless re-determination, and definition. At the risk of sounding Clintonesque, it can mean whatever you want it to mean, or in this specific case, whatever you absolutely need it to mean. So if you don’t want to call it a default, then … don’t… and if your reasons sound believable, then maybe it isn’t.

What’s more, even when August 2nd arrives and there is no more cash, there may be a rabbit or two left in Timothy Geithner’s hat. There are laws about this sort of thing that I’m not knowledgeable about (maybe no one is). But if Geithner were running a bank, then he could go ‘off balance sheet’. He could issue a Swap (pay float in the future receive fixed today) in the amount he needs to keep things going. This might even be a good idea politically if on August 2, no deal has been made but it looks like one is imminent.

Who would take the other side of a swap like that? Honestly I don’t even know if it would be legal to do so. But assuming it was, he would need to find an institution large enough to supply him the needed amount of cash that also has something big to lose if the US defaults on it’s commitments. A big bank say, or maybe an insurance company that relies on the US as a guarantor. In other words, instead of the government bailing out the big Wall Street banks, the banks, (using cheap money supplied by at the Fed window and supplanted with a relaxation of the reserve reqs.) would bail out the government.

Right now they’re rioting in Greece where the cumulative debt is roughly $44,000 per person. In America at present, it’s $45,000 per person. But in economics size does matter. If Greece goes it will hurt 11 million Greeks directly and all Europeans indirectly. But if the US goes, it will hurt every man, woman and child on the planet. We are the world’s anchor. We’re the thing that makes the rest of it possible. You can amputate a leg or an arm and still live. But you can’t amputate a head.

So my bet is that if the Republicans really do force the issue and Obama won’t back down on his plan for new taxes on the most productive citizens, then they’ll fudge the law around in some way that gives the Treasury enough breathing room to prevent what the market interprets as a classic ‘default’. There will be talking heads who complain about it. And many people in the industry who are talking up their books will still describe it as a default. But so long as the markets don’t treat it like a default, then everything will be fine.

The law is where the wiggle room is. And in the end I think we’ll wiggle as much as we have to. One of the central theses of economics is: "Things that can’t happen, won’t." And I know most people in the markets view a US default as something that can’t happen. Not without consequences too dire to imagine. what's a little Clintonesque fudging of the meaning of the law, when measured against that?


For the record, I think the Republicans have the right view of this issue politically. This is Obama's economy. He's the President. He's the one demanding vast new spending programs, green energy subsidies, and union giveaways. If the US is seen as having defaulted on it's debt, whatever the short term consequences, history will remember Barak H. Obama, lord of unprecedented deficit spending, as being the one who is ultimately responsible for it. And what grief doesn't fall directly onto Obama's head, will be blamed on Harry Reid and congressional democrats, who haven't come up with a budget in nearly 2 years.

Whether they mean it or not, the Republicans are seen as being the grown ups here. Obama and his ilk are at best, seen as the amateurs from the faculty lounge, theorizing and playing silly self congratulatory games with the future while other people pay the price. At their worst, the SEIU and others are seen as the looters of a nation. They fit the bill of the villains in an Ayn Rand novel, blindly robbing all they can and assuming that the parasite is entitled to feed on it's host.

If we are seen as having defaulted on our debt, I believe it will be the end of the Democrat party for decades.

Tuesday, June 21, 2011

- The Ideological Battle

I was listening to Rush this morning and he was saying that liberals have not only gotten everything they wanted, it's the very thing that has brought us to this place. This 9%+ unemployment, limping economy world. These are their ideas. This is what they were after. Nationalized health care, redistributed wealth, the falling gap between rich and poor because thanks to inflation, EVERYONE is getting poorer. This is not a party that's ready to win an election. This is a party on the defensive, that's trying to limit it's losses.

And as far as their broader message goes, here's an idea. Why don't you try going home to your wife tonight and tell her that you want to 'fundamentally transform' her... and see how she reacts.

That's what the Democrats are telling America. They don't love America, they hate it, and want to change everything about it. And the press isn't going to be able to hide it this time like they did last time.

- At Least It's On The Editorial Page

Time was, the NY Times would publish nonsense like this in the A section and call it 'news'. Thankfully, those days have passed. They can't get away with that class of lie anymore. but based on the content of that piece you can clearly see that lying, is still the order of the day when it comes to gun issues.

I think that 'battlefield weapons' label is new. It's inaccurate - as most of the things you read about guns in the NY Times are. But it's a cute turn of phrase. It's at least better than the thoroughly discredited and refuted 'assault weapons' turn.

The central point of the Times piece is that we need even more laws that infringe upon the rights of law abiding Americans in order to prevent the ATF and the justice department from abusing it's power. As usual, the piece is all about the terror that liberals feel when faced with firearms, and has nothing to do with the facts on the ground.

The 'facts' about where the guns in Mexico come from can be found here.

But to summarize:

1. Most of the guns in Mexico weren't affected by the 1994 Assault Weapons Ban.
2. Actual 'Assault weapons' are still (largely) illegal in the US, and have been since 1933.
3. Most of the guns in Mexico come from sources other than the US civilian market.
4. The 1994 Assault Weapons ban did not affect fully automatic weapons.
4. The 1994 Assault Weapons ban did not affect 'battlefield weapons'.

As usual, the times editors have no intention of letting the evidence get in the way when demanding further restriction of US citizens rights. It's an old argument, and it's tired, but its all liberals have - so I guess they're going to stick with it.

Monday, June 20, 2011

- The Boeing NLRB Hearing

I’m sure you’re all a twitter wondering where I come down on this issue. A union tries to use the force of government to punish a corporation because they opened a factory in a place that doesn’t comply with what is in the union’s best interest. Where oh where will those free-marketeers be on something like this?

I’ve been following it for months now – but I didn’t have anything really new to add so I shut up about it. The downside of a union victory here is obvious (or I suppose it could be the ‘upside’ if you’re a Guatemalan aircraft engineer). So there isn’t much point in me rehashing it. I really think this is the last gasp of a movement that knows it’s as good as dead.

But something occurred to me today after reading this laughable WSJ opinion piece. Think about it this way:

You are a union electrician – member in good standing of the IBEW. For the sake of easy math, let’s say you make $1000 per day (which would actually make you a supervisor I think – but whatever.) Including sales taxes, property taxes, and all other taxes, you pay a cumulative 50% of your pay to others, and another 9% in union dues. You decide that you’ve had enough of the traffic, the rudeness, and the snow – so you decide to move to South Carolina.

In South Carolina let’s say you make $750 per day – a massive cut in total compensation. But instead of paying 50% in cumulative taxes, thanks to those illiterate small government rednecks, you’re only paying 25% to others, which leaves you with $562 vs the $410 you get to keep in NJ. And you don’t have to give the union anything. You can easily save $50 of the difference to more than make up for the employer portion of the pension that you won’t be getting. And since the cost of living is so much lower, you’re actually better off in a ‘right to work’ state without a union, than you are in a ‘command and control’ state with one.

The point is, for the members, in the end it really doesn’t matter that the unions have the government fully bought and paid for. They introduce so much inefficiency that each member’s personal share of it can’t possibly make up for what the government and the union do to help them. Yes they get a better wage in the mandatory unionization state, but everything works so poorly thanks to the unions that the government takes it all back from you in the end.

So this outward migration to the south that we see in NJ could be described as the union membership shedding its skin like a snake. The bloated wasteful government and the union that owns it, are both left behind while the membership that used to populate it moves on. In the meantime the folks that are left in New Jersey can go on giving away union jobs to the their brothers in law to work in the chief compliance office of the department of regulatory compliance bureau, and inspecting each other’s inspection processes. You know – adding value the 'government' union way.

This NLRB meeting will come to nothing. If thanks to corruption the union does pull out a surprise, then Boeing will rightly move to Guatemala. Unless you make your living supporting the principle of labor unions, you already know this. And if you do make your living that way, then there are a whole bunch of things you don’t understand, and this should be way down on the list of things you should learn about.

This is really only news because of the union's brazen-ness at setting it's NLRB attack dog at Boeing. But corrupt as it is, I still trust our system to not commit economic suicide by supporting the union’s position.

Sunday, June 19, 2011

- A Father's Day Message

My paternal grandfather was a physically imposing guy whose personality was even more imposing. You know those old west movies where the sheriff has the bad guy locked up in the jail, and they’re waiting for the judge to arrive the next morning for the trial? Meanwhile the crowd is in the saloon drinking and complaining about the delay, until one guy stands up on the table and yells “we don’t need no stinking judge – I got a rope right here!” The crowd cheers and they all go out to face down the sheriff, guns in hand.

The guy on the table with the rope in his hand would have been my grandfather. He might not have had a lot of sense, but he had tons of courage, and he knew how to lead men. Often, he led them to their own embarrassment or shame, or worse. But they would continue to follow him all the same. He was an 'Alpha' male. He was a man who knew how to persuade, even if ‘persuasion’ was really a euphemism for a good beating. He was a man who bore only the thinnest veneer of civilization over a character more suited to the harsh wilderness.

He had a lot of kids, and my father was in the middle of the pack. Dealing with my father or any of his siblings is like trying to cope with the Palestinians. It’s constant verbal warfare, all the time, right or wrong, serious or silly, on ever single conceivable issue ever known to human kind. There is nothing ‘reasonable’ about him, or them. It’s all a battle for dominance. Two hours at a family reunion of mine will explain fully what I mean when I say that I was raised by wolves. I’m only partly kidding.

There is no topic too small for my dad to explain to you how your opinion proves your idiocy. He is happy to berate physicists on how their understanding of the standard model is wrong. He’ll argue math with mathematicians, history with historians, and Chinese poetry with Chinese poets, even thought he doesn’t speak Chinese. Every single discussion to him is considered full out, take no prisoners combat. And as far as he’s concerned, getting the other guy to leave the field of battle, even if it’s only out of frustration or good manners, is regarded as evidence of him having been right in the first place. It’s trial by combat taken into a verbal form that’s just barely suitable to polite western society.

So these are my people; this is what I came from. The best analogy for it is to think of my upbringing as like having taken place in a war zone. I was built to survive in a setting where every playground is a mine field, every toy is a hand grenade, and no one makes it to adulthood without serious scars; emotional or otherwise. After a while you start to look for the hidden knife in every offered handshake. And when you finally figure out how to survive in a setting like that, you don’t even notice that you’ve become as much a part of the problem as the generations before you.

Coming from that, I’ve often found it tough to turn my reactions down to an appropriate level. Both my friends and enemies often find me too abrasive or confrontational or arrogant in my opinions, and it’s obviously true. I try not to be as hard on my wife and child as my father was with his, and I hope I succeed. But the truth is, I never really know. For me, fatherhood is a guessing game where all I have is a long list of things I shouldn’t do.

My dad wanted desperately to be a good father. I don’t honestly know if he thinks he succeeded or not. I think it’s fair to say that both the reviews, and any measurable results, are both quite mixed. It could very well be that we all try the best we can, and that means that in the end we all have to face down at least a little regret over what we failed to do, or what we did and now wish we hadn’t. Life doesn’t give you any do-overs.

Parenthood is at least as important to me as it was to my father; probably more so. And by the time my daughter reaches adulthood I hope I’ve given her all the tools she needs to find happiness. I hope she knows who she is, is comfortable with both her strengths and weaknesses, and that she values the people that care about her the most. So far I think it’s working out. But that doesn’t mean I don’t have moment by moment anxiety over it.

Thinking about fatherhood reminds me of that story of the man who knew what a terrible sinner he was. And the fact that he knew it was actually what made him virtuous. The people who do real harm in the world are always those who are certain that they’re right. Evil men aren’t burdened by conscience – it’s why they can manage such evil. But the humble man who constantly agonizes over the harm he may be doing others, is far less likely to cause any.

I’m hoping that fatherhood is like that too. I’m hoping that worry and a conscience are enough to keep me on the right path. But when it comes right down to it, I’m a man in the darkness, with no trail to follow and no guide to tell me the way. So I’ll make my best guesses fret over changes, and hope for the best. Which I suppose in the end, is pretty much what everyone else does too.

Happy Father's day guys. I hope this is easier for you, than it has been so far for me.

- Negotiating Israel's Surrender

Lets try a little thought experiment. Let's say you're a part of (arguably) the most persecuted people in the western hemisphere. In the last 100 years 3 separate and totally unrelated groups have done all they could to destroy you, your family, your culture, and every sign in history that you ever existed. You sit on the most disputed piece of land on the planet, surrounded on all sides by people who are publicly dedicated to your destruction and that vastly outnumber you.

Of 1 Billion Muslims worldwide, 1%, a full 10 million people, have sworn before their god that they would give up their lives to see you killed. At that rate, just those who would die to see you eliminated outnumber you 1.6 to 1. The only thing that prevents them from successfully doing so, is that you have a single powerful friend who won't let them. You are in a desperate, existential battle for your life, your family, your faith, and the future of your culture.

Into that mix, lets insert the most corrupt third party organization in the world. A group filled almost exclusively with tin-pot dictators, tyrants, thieves, military strongmen, and the kind of cowardly western bureaucrats that think appeasement of evil is a moral imperative. A group that proudly puts terrorists and torturers in charge of 'human rights' issues, and is insistent that innocent civilians not be allowed to defend themselves against their corrupt and tyrannical rulers.

What would you say to allowing a third party like that be the final arbitrator of your case? We'll let them decide how your existential conflict will be settled, and empower them to make the decisions in it. That should be fair right?!

Tom Friedman, is an imbecile.

Thankfully, Bibi Netenyahu is not.

Saturday, June 18, 2011

- I Think I'm A Lesbian Too

For the record I'm really a white, suburban, heterosexual, middle aged man. But it doesn't look like that should be anything that stands in my way.

Read the work of Mr. Mark Steyn (who I strongly suspect is also probably a lesbian.)

- Regulatory Diminishing Returns

You’ll frequently find me saying that because they contribute nothing to the cumulative wealth of America, those in government don’t “make” anything, but that’s not exactly true. What they do make, and they make them in abundance, is rules. They make simple rules, complex rules, and rules which simultaneously contradict each other. Sometimes they make rules and then craft ‘exceptions’ to them, to make sure the rules don’t harm their political allies as much as their enemies.

But eventually you hit a point of diminishing returns where rules are concerned. The bureaucracy loves self-perpetuation, but regulatory overreach has consequences which can be measured concretely. As an example, the Obama administration has so intruded into the economic freedom of Americans, that the unemployment has stagnated above 9%. No one is willing to take a risk on new hiring when Washington is likely to change the terms of the employment contract after the fact. Government will add new healthcare costs, new compliance costs, and other new mandatory payments and fees, all at their whim. So instead, businesses are learning to make do with what they have, and hiring new staff only as an absolute last resort.

Anyway – like any idea, adding new regulation will eventually be taken too far, and you’ll know that it’s reached that point when it falls apart due to the common human failings of those who try to enforce them. When the law becomes impossible to obey, then everyone will simply be a criminal. But even before that, the bureaucracy will grow so rapidly that the standards will have to be lowered in order to have the staffing to attempt enforcement. That’s a common point of diminishing returns. When you’re hiring people who don’t understand anything about banking to run and regulate banks for instance, then the bureaucracy has become too big and should be shut down, it’s staffing slashed, and its bureaucratic rules greatly simplified.

The story of operation “fast and furious’, the ATF's monumentally botched ‘gunrunning’ investigation, reveals the kind of self glorifying tactics of a bureaucracy in the choke hold of vast regulatory overreach. Their incompetent leadership, rather than addressing the small crimes that were perfectly within their charter, instead decided to enable the Mexican border gangs. And in the process they cost several Americans their lives. The media bias against firearms ownership is trying to frame this as a case where more regulation (or at least more regulation enforcement) would have been a help. But it’s really a case of the guard dogs importing criminals, so they could be viewed as heroes by saving us from them.

Read some of the commentary from ATF officials and this becomes clear:

"Both line agents and gun dealers who co-operated with the ATF repeatedly expressed concerns", about the operation, the report says. "But ATF supervisors did not heed those warnings. Instead, they told agents to follow orders because this was sanctioned from above."

In total, agents watched at least 1,730 guns flood on to the black market, knowing they would be used to commit murders and other violent crimes. Their concerns about the policy were ignored. In one email to field staff printed in the report, ATF supervisor David Voth suggested that staff who objected to his orders would be fired.
"I will be damned if this case is going to suffer due to petty arguing, rumours, or other adolescent behavior," he wrote. "We are all adults, we are all professionals, and we have an exciting opportunity to use the biggest tool in our law-enforcement tool box. If you don't think this is fun, you are in the wrong line of work, period!"

John Dodson, a special agent from Phoenix who eventually blew the whistle on the "flawed" operation, told congressmen his superiors would be "giddy" with delight when "their" guns were found at a crime scene in Mexico, because they believed it "validated" their tactic. With regard to potential loss of life, an ATF boss told him: "if you are going to make an omelette, you need to scramble some eggs."

And the subsequent attempted cover-up supports that view:

Rather than admit to any mistake, the ATF embarked on a cover-up. William Newell, the special agent in charge of the operation, ordered the arrest of 20 of the people agents had been watching buy weapons for months. Then, although not one senior cartel member was arrested, he held a press conference declaring the operation a success.

Newell was then asked if any weapons had been deliberately allowed to end up in the hands of criminals. He replied, "Hell no!" The report describes that statement as untrue and "shocking." It alleges that the Department of Justice continued to attempt a cover-up for several months.

The media view will be that we should have more gun laws and more ways in which we restrict the rights of the law abiding. But that view can only be taken if you intentionally misunderstand the problem. The law abiding firearms community isn’t guilty of anything in this case. The Mexican gangs are, and the ATF is. So we shouldn’t punish the law abiding firearms community for their misdeads.

What we really need to do is recognize that this was a department that had grown so large and so powerful that it needed to invent crimes to solve. And it should serve as a warning to the regulation-happy Democrats in Washington. If we're not careful all the other bureaucracies that are being expanded under Obama will end up with the same level of incompetence, arrogance and ineptitude as the ATF.

Sometimes it's simply better to assume that government can't do something, than to empower it arbitrarily and hope that it remains competent.

Friday, June 17, 2011

- NJ Is Nazi Germany?

I don't think there is anything funnier than listening to a union hack trying to make a serious point. It makes me wonder how they could have reached adulthood with their heads all turned around backwards on every issue. But then it occurs to me that the vast majority of them never reached adulthood at all... not mentally anyway.

In fact, that's the whole point of their world view. They want to be frozen in adolescent amber, spending their live pretending that the reason they aren't all millionaires is because someone was taking unfair advantage of them in some way. In reality, they're the ones that have been getting something for nothing - or nearly nothing. While the rest of us have to work hard and be productive, they simply show up, attach themselves daily to government teat, and retire at 44 with 100% of their salary and free medical care for life.

The only thing they have is numbers, but in a place ruled by political party machines, that's enough. They are the most stupid, economically illiterate, lazy, and deeply entitled portion of the general population. And in the end, they are the very reason the system is unsustainable, and will eventually fall apart. These are the same people running things in Greece, Spain and Ireland. They are doing their best to steer the boat toward the waterfall.

And when it goes over the edge, they'll all insist that it was someone else's that did it to them, instead of the other way around.

Thursday, June 16, 2011

- The Keynesian Endpoint Has Arrived

In math, you can't extrapolate a line from a point, but you can in politics. Greece is run by a socialist government. That should be more than enough to figure out how this will all end. And the other countries in Europe are having funding trouble too; in the precise amount that their politics is similar to the politics in Greece.

Both socialism and it's economic lap dog Keynesianism, are based on the idea of adding 1+1 and getting 2.26. The numbers always require an outside input of capital, or wealth, or labor, or something. They never net out. Over the last 40 years or so, the differences have been made up by issuing government debt, which is essentially a tax on future wealth. But the market is no longer willing to suspend disbelief, so the value of that debt is collapsing. It's the Keynesian endpoint.

Ironically, our own socialists are benefiting greatly from the turmoil among their European brethren. At present, money is floating out of European debt and into America's. That's putting enormous pressure on the price of US debt and keeping rates low in America without further action from the Fed. At present it's a 'risk off' trade, where money flows to the least risky asset even if that asset doesn't look particularly good itself.

In other words the real crisis for America hasn't actually arrived yet... but it will.

The thing to look for will be deflation of investment assets. You can tell that's occurring when commodities, equities and bonds all begin to lose value together. That will mean that instead of a risk off trade, we'll be entering the final global Keynesian endpoint. That will be the big 'waterfall' moment.

The Fed will see that occurring too, and won't lay down for it. In fact if they act prudently they may delay the inevitable for quite a while. They'll monetize the debt and place a 'floor' under prices by pushing the dollar lower. If they can break the trend and make commodity prices rise again, they may hang on for a bit longer. But the endpoint can't be avoided over the long term without slashing government spending, and America's socialists remain very reluctant to do so.

We're back at the cliff's edge folks. All of us. Nothing has changed - there has been no improvement. All the debt, and all the risk is still out there. It's been distilled from Mortgages and Agency debt into general obligations of the government - but that's made it no more likely to be paid.

At this point we're just waiting for the investor class to quit watching Europe's white knuckled desperation, and to begin to worry about our own.

Monday, June 13, 2011

- Lisa Jackson Likes You Unemployed

As some of you may know, before Lisa Jackson became the horribly destructive head of the EPA, she was the horribly destructive head of the NJ DEP. Search for her name in this blog for a few of the details on how her efforts have made life worse for everyone, and increased unemployment.

This WSJ editorial about how her department is specifically destroying jobs is so short and persuasive, that today on Squawk Box they ridiculed both the EPA and Ms. Jackson's personal views on economics and job creation.

I personally think it's a textbook example of how economically illiterate liberals cause us all vast indirect harm. Clearly she has never head of the broken window parable, or of Frederic Bastiat. But because of her illiteracy, we all get to pay a very real price.

In fairness, the title of this post might just be a cheap shot. The truth is, I don't think Lisa Jackson really wants you to be unemployed. What she wants is what most economically illiterate Democrats want. She wants everyone to be happy and prosperous with a unicorn in every garage and a rainbow in every pot.

But here in the real world she has to make choices. And weighed against her quest for personal glorification, and the pursuit of a world free from the polluting influence of modern man, she see's your continued unemployment as a small price to pay.

- Krugman And Weiner

There is a really great summary of the monumental errors of prediction that Paul Krugman has made in recent years, over at NRO. It’s a real rogues gallery of lousy market and economic policy calls, and I think it demonstrates pretty well why the people in my world treat him as a laughingstock, even while the media and Hollywood continues to revere him. And while it gives a good accounting of when and how Krugman has been wrong, it doesn’t say anything about why.

There is little doubt that Krugman has fallen from a great intellectual height. He’s gone from revered Nobel Prize winning economist, to low rent left wing attack dog for the NYTimes editorial page. So how does something like that happen? I continue to maintain that it’s for the same reason that Anthony Weiner so recently burst into professional flames – insecurity.

Personal insecurity is the pervasive motivator for all liberal thinking. “I’m a good person because I support ____________.” That self congratulatory statement is the sole personal justification for virtually all liberal policy. Any glance at the policies advocated by either Weiner or Krugman makes that sentiment evident. But their insecurity affects their thinking in other ways too.

In Weiner, a skinny New York Jew whose last name is an adolescent euphemism for the male member, it became a quest to impress women. In Krugman, a person whose earliest writing describes his craving for power and authority but who still ended up in academia because that’s where ‘those who can’t” go, it has become a desperate quest for influence in popular culture.

In effect Krugman has become a person of influence for the mainstream media, because he’s saying things that justify the mainstream media’s biases. At the same time the mainstream media’s biases have provided Krugman with the signals for what he should say if he wants to gain influence. In the end, it’s all because he would rather be powerful than right. But just like Weiner, the fact that he so obviously craves authority, should be more than enough reason to deny it to him.

Friday, June 10, 2011

- The NatGas Market Meltdown

This is an interesting story, that's being followed by the gang over at Zerohedge.

(As a convenience,here is the original story which like many at Zero-hedge, is an exercise in the creative use of market graphing tools.)

The author has come to the conclusion that this activity indicates that things are totally F*cked, and I agree. But I think they are misunderstanding the deterministic cause. And the reason for that is that they are forgetting what makes markets work in the first place. The author seems to believe that this is being caused by a single algorithm, which I believe is almost certainly incorrect. I believe it's actually being caused by a collection of algorithms, each acting on a similar set of instructions and failing in aggregate.

In short, if there is no one else trading at that moment (except other algorithms with an equally short outlook) for the systems to trade against, it would cause trading action exactly like this. The slowest of the algos acting (acting independently but on the same very limited instruction set and equally limited inputs) will generate just enough trade activity to cause the others to pull their bid-offer pairs. The slowest system get caught, which will generate more trade activity and cause the others to pull back again, and so on and so on and so on, until a complete lack of activity at the current price level and a retraction of the bid-offer pairs causes the market to find it's natural place - a sell off. At that point more traders are brought into the market, and something resembling normal price stability resumes.

The reason it works this way is that the price stability of a 'normal' market is really an illusion. It only happens because traders with differing investment horizons each are acting independently. While one is a short term seller, another is a longer term buyer, or vice versa.

But as the average holding period of market participants shortens, the difference between trader A and trader B falls... eventually to zero. At high frequencies there are few valid inputs and little room for differing opinions. It's only over the longer term where differences in analysis become apparent and will generate activity as diverse as one seller and a separate buyer.

So when the only players left participating in the market are all worried about the very short term outlook, they are all looking at the same data, and assuming they are acting rationally, they are all coming to very similar (if not identical) conclusions about it.

At that point, they effectively become different components of a single operating entity. But since it's an entity which is looking to exploit the activity of a nonexistent trader with an opinion opposite to theirs, what's left seems to be a deranged entity. It's a snake that lacking other prey is eating its own tail. This is precisely the kind of thing we were seeing in the equity market last summer, and the reason I called QE2 a nominal success. It brought in longer term participation, and that brought with it price stability. Now that’s it’s going away, we should see this more and more in the equity space again.

This can’t go on forever. Eventually it will result in a purge of HF traders. HF is really about technology now rather than intelligence or insight. There isn’t that much to analyze at HF so the math itself, and even the software is pretty straight forward. It’s like a drag race with no rules on the specifications for the car. The person who spends the most money wins every time.

But between here and there is a lot of pain for everyone. Especially the HF snake.

Thursday, June 9, 2011

- Re-Erect The Big Weiner!

The thing about arrogance (as I use the word) is that it includes a certain amount of detachment from reality. Anthony Weiner is arrogant enough to believe he can have an X-rated photo of his johnson out there and people will say "no big deal". I view this as detached.

He's toast. He's a punchline. I can think of 50 things that can be said on a billboard in his district which will make it too embarrassing for anyone to vote for him. how about this...

A Full sized billboard of the photo in question, with a block of text over the necessary parts to allow to be suitable for public consumption.
The text will read: "The Weiner... Reelect it!" (or maybe... "The Big Weiner") Or how about another that says "You can't screw the rich without a big hard... " and a photo of the congressman's face."

There are endless ideas, and since he's a public figure they're all fair game. By the time it's over, he'll be lucky if his family votes for him. Soon he'll realize that life as a lobbyist isn't so bad, and he'll move on. but like most Democrats, he isn't ready to accept reality just yet. Wait until things get just a little worse.

Wednesday, June 8, 2011

- I'm Available For Speaking Gigs

Since many of you are friends and (former) coworkers of mine, it seems to me I might as well come clean. I’ve entered a sort of hiatus from work. If that sounds vague to you, then I’ve explained it correctly. I’m a little uncertain as to what exactly it means as well. In fact, as they tell me every two weeks or so, so is my employer. Let me give you the dish.

My relationship with my employer wasn’t really an employee-employer relationship in the legal sense. I was what was called an ‘outside manager’. That means I had my own corporation, paid my own employment taxes and medical insurance, and in return my compensation was legally and algorithmically defined by a contract I had with them. I was, in effect, my own hedge fund – a sort of child fund of the firm that employed me.

The larger firm had a number of these contracts with guys like me; a dozen or so I think. It was a little unusual but not so terribly unique to raise an eyebrow. It opened up some interesting tax opportunities which paid off big at the right level, and there were other advantages as well. But cast in the light of all the new financial regulations coming from Washington, it did raise some unexpected gaps between legal liability, and decision making control.

In my particular case that didn't matter much. I didn't raise any outside money, and had only my one business, so it was all pretty straightforward. But it turned out that wasn’t the case for everyone. Another of the outside managers (not me) engaged in what I will for the time being continue to describe as ‘an unapproved activity’ and when the legal department found out about it, they freaked out about a potential exposure and decided to terminate the entire outside manager program immediately. They shut down the profitable strategies with the unprofitable; the legally simple along with the complex. So during a deeply apologetic early morning phone call with my boss, I was shut down too.

I was told in that phone call and multiple times since then that as soon as legal gives them a new procedure for it, they would like to re-establish a working relationship with me on some mutual agreeable terms. Maybe they’ll hire me as a full time PM, or something. They have continued to stake this position and I have never been told anything else by them. That makes perfect sense because I was profitable when I was shut down, and in fact doing very well. And apart from that, I know these guys and believe them to be honorable, so I’m taking them at their word.

But as they themselves have recognized, all they are giving me today is a promise. And in Obama’s America a promise like that and $15 dollars will buy you a gallon of gas. As much as they continue to want to bring me back in, inevitably it will be based on what happens in legal so that leaves a lingering doubt about the outcome. Also, I’m told that legal is a bunch of… well… let’s just say they aren’t very goal oriented. So it could be months before they get their ducks in a row.

So in the meantime, I’m beating the brush to see if there is anyone out there willing to offer me a better deal. Maybe I'll find something at a firm that doesn’t allow the legal department to decide which managers stay and which go. Maybe they will base a decision like that on … oh I don’t know…. performance and the ability to generate profit, or something equally silly like that. I don’t mean to sound bitter. I like the guys at my prior firm. But I think they’re making a huge strategic mistake in who they empower internally, and how they run their business.

So anyway, now that my first round of meetings is finally ramping down a bit, I find I have some time on my hands. Given my past performance I find it very unlikely that I’ll become a member of the chronically unemployed. So instead of freaking out and getting a job the gun counter at Dick’s Sporting Goods, I’m focusing on trying to get the pool cleaned and fixing the landscaping that was damaged by that very harsh winter.

But in the meantime, if your group would like someone to come speak about the intersection of finance and politics, a projection on the markets, or the best tactics for winning against ‘master blaster’ in the thunderdome, (and you’re within about 2.5 hours by car of Redbank NJ) I’ll be happy to come speak gratis. I can do 40 minutes on virtually anything I write about so if that seems interesting, ping me at the email in my bio.

You know how it is… even when you have time on your hands it’s good to stay sharp.

Monday, June 6, 2011

- Weiner's (Lack Of) Public Shame

I've got to admit, the press conference just now by Anthony Weiner was as satisfying for me, as it would be for a New York Times or CBS News staffer to see Sarah Palin get struck by lightning.

I have felt for a long time that Anthony Weiner was a despicable man whose poor judgment was revealed every time he opened his mouth. Now we've had a full dose of it. Thankfully, this is probably the end of him. And while I think there is very little I can say to add any light on this story, I do have this one point.

I'm astounded at how utterly shameless he remains. It's obvious he regrets getting caught, and it's equally clear that he regrets the likely consequences of his actions. But it seemed to me that he was not expressing shame over his behavior, only regret for its outcome. He isn't resigning his position because some part of him believes that even though he openly lied to the whole world on national TV, his supporters will give him a pass over it. That strikes me as truly astounding.

This is a horribly arrogant man getting at least a small part of what he deserves. He'll never survive this politically and that can only be a good thing for America. Regrettably he'll probably just end up with a job as a lobbyist somewhere.

But since I believe in a just world, I still think humility will come to Anthony Weiner. And if I see him begging for change outside a midtown subway station, I'll know that it finally has.

Sunday, June 5, 2011

- Getting Machine Guns At The Gun Show

Here is the always impressive Kevin Williamson vigorously trashing the falsehood that you can walk into a gun show and buy yourself a fully automatic assault weapon:

It is not easy for a U.S. civilian to legally possess a “fully automatic assault rifle,” or any fully automatic firearm at all. If that civilian is not a federally licensed firearms dealer, owning a fully automatic weapon manufactured after 1986 is categorically illegal; fully automatic weapons that were legally owned and registered with the federal government before 1986 may be transferred to a qualified buyer with the approval of federal and local law-enforcement authorities, a rigorous background check, and, of course, a sign-off from the U.S. Treasury Department: there’s a couple hundred bucks in fees and taxes involved. (You may examine the application here.) Selling a fully automatic weapon to an unlicensed party, at a gun show or anywhere else, is a very excellent way to land yourself in prison for a good long while. Mr. Gadahn, and the editors of the New York Daily News, are full of it.

And in the process he also details some of the often repeated media falsehoods about gun shows and the gun show loophole:

So, no, the nation is not covered up with fully automatic assault rifles bought at gun shows.

That is also because, as it must be repeated for the 10,000th time, there is no gun-show loophole. If you are not in the business of selling firearms for a living, you do not have to have a federal license permitting you to sell firearms for a living. If Uncle Bubba gives up hunting and wants to swap his deer rifle to Otis for $100 and a case of Bud, Uncle Bubba does not have to register with Washington, D.C., or perform a background check on Otis. That is true whether the transaction happens at a gun show or in Uncle Bubba’s back yard. If you are a gun dealer at a gun show, the usual rules apply. If you are not a gun dealer, they don’t. Similarly, you can sell your car without incorporating as a car dealership.

The rest of his flawless argued view can be found here:

Al-Qaeda Boosts Bloomberg’s Antigun Campaign

As you would expect, I absolutely agree with every word of it.

Wednesday, June 1, 2011

- The Odds Of Complete Collapse

So last summer we stood peering off the brink, with the markets all set to roll keel over mast before bubbling to the bottom. Then the Fed implemented QE2. I personally think QE 2 was useful in that it propped up risky assets. This pushed us back from the brink a bit, and gave the government time to smell the coffee and begin to make rational economic choices. They have since squandered that opportunity. So here we are again. Same people, same brink, same choices.

A few months ago I got in a big argument with one of my more knowledgeable friends about the likelihood of QE3.

“It would be a disaster.” he said “And may mean the end of the fiat money system.”
“You’re right, I replied, ‘but we’ll get it anyway.”
“No, you don’t understand.” He said, “It would be ineffective and would set the stage for hyperinflation, which might inevitably mean the end of everything.”
“You’re right.” I said, “But we’re going to get it anyway.”

We went back and forth like that for a while. Him saying what the right thing to do would be and me agreeing, but not believing the people in Washington would do it.

In short, it was my contention that QE3 would always happen. I believed that after QE2 (which ends this month) risky assets would sell off, and make another round of QE more politically viable. What looks crazy with the S&P at 1400 looks absolutely essential with it at 1050, so I always thought the political wind would change. And with falling S&P would come the rising demand for government to ‘do something’ to save the system. It would be all but universal…not the least of all from those seeking reelection.

So the fed would implement QE3 – not just because they could, but also because we haven’t actually done anything to improve our fundamental growth issues. Higher oil prices still kill more jobs than the subsidized windmill and solar panel companies create. The housing market is a wreckage, unemployment remains lofty and the only thing the Keynesian stimulus package actually stimulated was union jobs, union dues, and Democratic campaign contributions.

The only thing that’s really different now is that we have a lot more debt. The federal government continues to borrow 40c of every dollar it spends, and the number of dollars spent continues to be astounding, so we’ve reached our debt limit yet again.

As I’ve said, I’d be in favor of leaving the debt limit where it is so long as we could be sure the Obama administration would continue to pay all the debt. But to be honest I’m unsure that they’ll do so. In fact, I don’t think Obama is aware of any of the real costs of a default. He sees the political costs to himself of course, but I think he underestimates even those. I think he believes that with some careful spin, even a debt default could be portrayed as his administration standing up to the rich wall street fat cats and making them ‘share the burden’.

Remember, Obama’s economic worldview is based almost entirely on fantasy. In his world, supply and demand are mutable, and the only real constant in economics is the “exploitation” of the lower classes by “the rich”. In his world, he’s the only thing that can prevent this exploitation, and if the rich bond holders are hurt by being forced to give up a coupon payment, then that can only mean that the poor will benefit from it in some small way. I’m sure he believes he can portray it that way if he has to, and to him a US debt default can become one more populist political piece to move around the chess board.

So if we were to try to estimate the probability of a US debt default we need to consider 2 issues. The first is that we need to guess at the odds that the congress will not get the debt limit raised before the federal government runs out of cash. I personally would put the odds of that event at somewhere between 20% and 40%, but feel free to use your own estimate.

Then we need to multiply that by the odds that lacking the funds to pay for everything they want, the Obama administration will elect to pay for windmill subsidies and AFL-CIO giveaways instead of debt coupon payments. I personally would put the odds of something like that at about 80%. So some rudimentary math shows us that at present, my estimate of a US debt default is a cumulative risk of about 16% to 32%. As much as 1 chance in 3. Those are pretty short odds for an event with such utterly cataclysmic consequences. But the American voter wanted hope and change… I would certainly call that a change.

What about the odds of QE3? I’d still put them at 100%...the only issue is when. Given today’s numbers, I’d say the autumn is looking more likely.