Many have predicted in recent years, that the international debt bubble would lead to global inflation and sky high interest rates. So far, this has not happened. What's going on? Well, the debt has been propped up by more debt. How and when it ends is anybody's guess.
The European Union had yet another emergency summit and came up with yet another set of proposed solutions. Okay, not really solutions, but delays. One plan involves individual nations in the Euro group lending money to the International Monetary Fund (IMF), who would then make loans to troubled countries like Greece, Italy and Spain in return for assurances that they get their cash flow under control. This gets around an EU rule that does not permit European central banks to loan directly to member countries. It also takes the risk for such loans out of the hands of the EU central banks and places it instead with the IMF, which includes the U.S..
Another plan is to create new European Union rules that mandate certain budget constraints and has automatic penalties for violators. In exchange the European Central Bank would more aggressively buy member country bonds, keeping interest rates lower while they try to get their budgets under control. The details of the new rules and the automatic penalties have been conveniently delayed until at least March of 2012.
The reason for all this debt on top of debt is that the world's economies cannot support higher tax rates. Even if they imposed them, they'd actually lose revenue due to a further decrease in economic activity.
So why don't countries just print more money instead of borrowing? Well, the U.S. and the EU could certainly do that, and to some extent they have. In the U.S. we've had several rounds of what's called "Quantitative Easing" or QE. Essentially, the Federal Reserve creates new money and uses it to buy U.S. Treasuries (debt). So far, the demand for dollars has outpaced the production of new dollars and has not yet lead to inflation. So why has all this debt not caused massive inflation yet? Because the debt is still being primarily addressed with more debt.
Japan has a debt to Gross Domestic Product (total amount of goods and services produced in a year) of over 200%, yet their currency remains strong. This is because they continue to borrow and investors continue to lend. As long as Japan keeps issuing more debt, investors will seek Japanese currency to lend them. The same is true in the U.S.. The large banks and institutions continue to roll over profits and even proceeds from Treasury securities sales, back into Treasuries. They see few alternatives in the private sector, so they are even willing to loan the U.S. government money at zero percent interest for very short terms, and recently even at below zero which means they're willing to pay to keep their money safe until better days. Dollars flow from central banks to large organizations, corporations and countries, right back to the central banks. It's not showing up in the marketplace.
This only comes to an end when countries move from primarily borrowing to cover debt to printing instead. If the U.S. for example, suddenly decided to print their way out of debt, the institutions that had been investing in Treasuries would be forced to park their dollars elsewhere. If those trillions actually find their way to the private sector economy, inflation could pick up in a hurry and you could see "panic buying". That is, people would be desperate to exchange their currency for something, anything, that they can expect to hold it's value better. The value of the currency plummets and the price of everything skyrockets.
This obviously would be devastating for anyone on a fixed income. Additionally, the main tool used to counter inflation is higher interest rates, clobbering anyone with variable interest rate debt.
Another solution would be for countries to default, or not pay some or all of their outstanding debt. This is a no go, because most of that debt has been used as collateral for more debt. Hence a default on $100 could cause the elimination of many times that amount in capital. Economies would come to a complete standstill.
Of course governments could also drastically cut spending and embrace free market policies which would stimulate private sector earning and therefore tax revenues. This is not likely either because most of the powers that be don't believe in the free market. They cling to the belief that government can and must control the way resources are allocated and distributed. Leaving such important decisions in the hands of individuals is out of the question.
So at what point does it become necessary to stop borrowing and start printing with reckless abandon? I don't know. Maybe never. The central banks can continue with Quantitative Easing without causing inflation, as long as they do so at a pace that encourages investors to send that money right back to the Treasury markets. A sudden increase in private sector investment and economic activity would actually work against this plan, since it would take dollars away from Treasury investments, causing interest rates to spike, which might just prompt increased currency production. Absent some new innovation in the private sector that would cause such a thing, it's really up to the patience of the people. How long will the populace tolerate the continued downgrade of most of their standards of living while all the currency stays in the government/institution merry-go-round?
If hyper-inflation does come to pass, the good news is that it does eventually come to an end. It really is just another form of default, but the losses are spread out among the entire population rather than just among bondholders. It's nasty. It's tragic, and it can lead to lots more bad decisions if we're not careful, but it may just be the only real solution.
Wednesday, December 14, 2011
Monday, November 14, 2011
The Politics of Personal Destruction explained
This is not an opinion. It's a fact. Progressives or liberals or whatever you want to call collectivists this week, often employ the tactic of totally smearing an adversary in the media, regardless of any factual basis for the negativity. Free Market Capitalists almost never engage in this particular tactic, at least not without evidence.
Why is that? First you must understand that the philosophical tug-o-war going on in this country is not simply about different means to a common goal. The goals are very different. The Progressives would like to bring about a top-down society. One in which the government directs the flow of resources, human and material. They decide what kind of jobs people ought to have, what they should make, how they should spend their time, etc. It's all for the greater good of society as a whole. The individual is insignificant compared to the whole.
Free Market Capitalism is about free people engaging in free trade in the absence of force. The individual is the center of the free market universe. Society is the cumulative result of billions of individual decisions. It is not above the individual because it is not an entity unto itself. It would be meaningless without the individual.
The two models obviously cannot exist in the same place at the same time. They are polar opposites. We are nearing a point in history where one or the other is going to win out. People need to choose sides. The political arena has never been uglier and it's going to get worse.
But back to the smear campaign element. Herman Cain has been accused of sexual harrassment and essentially assualt, by women (at least the one's who's names have been revealed) with a history of making such claims against employers. The harrassment claims were investigated and found baseless. The ridiculous Gloria Allred stunt doesn't even merit analysis. Yet NBC, MSNBC, CNN and others can't stop repeating the charges and commenting on them as if they actually happened. Why? Because they are in the Progressive camp. Remember, the individual doesn't matter. They are working for the greater good. So what if Herman Cain and his family are destroyed? The important thing is that Progressives retain power, for the good of us all.
No doubt the Free Market Capitalist crowd will be fighting passionately as well, and they may very well employ some dirty tricks, but they generally will not destroy someone personally with information they know to be false. This is simply because it's a different mindset. The individual does matter. The individual is essential. The individual is not disposable.
Don't take my word for it. Watch and evaluate yourself. Keep in mind, the fact that a lie has been repeated a million times does not constitute proof (they will be repeated at least that many times. This is not a new tactic.) Use logic and objectivity. Evaluate facts, not emotions. Use common sense. Use a variety of information sources.
Why do I think it's important to point out the brutal tactics of the Progressives? Because they appear to be working and awareness is the only countermeasure.
Why is that? First you must understand that the philosophical tug-o-war going on in this country is not simply about different means to a common goal. The goals are very different. The Progressives would like to bring about a top-down society. One in which the government directs the flow of resources, human and material. They decide what kind of jobs people ought to have, what they should make, how they should spend their time, etc. It's all for the greater good of society as a whole. The individual is insignificant compared to the whole.
Free Market Capitalism is about free people engaging in free trade in the absence of force. The individual is the center of the free market universe. Society is the cumulative result of billions of individual decisions. It is not above the individual because it is not an entity unto itself. It would be meaningless without the individual.
The two models obviously cannot exist in the same place at the same time. They are polar opposites. We are nearing a point in history where one or the other is going to win out. People need to choose sides. The political arena has never been uglier and it's going to get worse.
But back to the smear campaign element. Herman Cain has been accused of sexual harrassment and essentially assualt, by women (at least the one's who's names have been revealed) with a history of making such claims against employers. The harrassment claims were investigated and found baseless. The ridiculous Gloria Allred stunt doesn't even merit analysis. Yet NBC, MSNBC, CNN and others can't stop repeating the charges and commenting on them as if they actually happened. Why? Because they are in the Progressive camp. Remember, the individual doesn't matter. They are working for the greater good. So what if Herman Cain and his family are destroyed? The important thing is that Progressives retain power, for the good of us all.
No doubt the Free Market Capitalist crowd will be fighting passionately as well, and they may very well employ some dirty tricks, but they generally will not destroy someone personally with information they know to be false. This is simply because it's a different mindset. The individual does matter. The individual is essential. The individual is not disposable.
Don't take my word for it. Watch and evaluate yourself. Keep in mind, the fact that a lie has been repeated a million times does not constitute proof (they will be repeated at least that many times. This is not a new tactic.) Use logic and objectivity. Evaluate facts, not emotions. Use common sense. Use a variety of information sources.
Why do I think it's important to point out the brutal tactics of the Progressives? Because they appear to be working and awareness is the only countermeasure.
Saturday, October 29, 2011
How bureaucracy poisons an economy
We all know government paperwork costs businesses money. But the government can print more money. It's not always the best yardstick by which to measure cost and value. As the government prints more, it becomes less valuable. A more consistent and meaningful approach is to use the measure that gives money its ultimate value. Time.
You may be familiar with the term "opportunity cost" as it's used in economics. If not, in a nutshell, it means that every dollar you spend on something is a dollar that is no longer available for something else. For example if a vendor is selling apples and pears for $1 each, and you only have $1, if you buy the apple, it cost you the opportunity to buy a pear.
It works the same for time. You only have 24 hours in a day. Less than that in a work day. Every hour you spend on one task is an hour that is no longer available for any other task.
According to the US Census Bureau, in 2007 there were 7.7 million firms with employees in the United States. Forcing one employee at each firm to spend 10 minutes on non-productive paperwork or procedures costs the economy 1.28 million man hours. That's 617 man-work years. Put another way, an unproductive 10 minute mandate on business costs the equivalent of hiring a crew of 617 people, full time, for a full year. What could you accomplish with that kind of manpower? And that's 10 minutes a year. Ten minutes a week and you've got a good sized army at your disposal. Ten minutes a day and you're rivaling economies of entire cities.
What is the average number of minutes spent at your business, filling out paperwork that you would not do if it were not mandated by some level of government? Multiply that by 7.7 million. We're already slowing ourselves down enough and some politicians want to add more dead-weight to the system.
When you hear of a new regulation or requirement and it's sold as something that only takes a few minutes, or the cost is negligible, think of it in terms of the cumulative waste of productive activity across the board. The free market is an expression of the cumulative effect of countless individual decisions and the productive moments of millions and millions of individuals. Taking man-hours out of the system removes value from the economy. Who do you think is a better judge of what an employee should be working on from 2pm to 3pm? The employer or the employee, or some a group of government bureaucrats?
You may be familiar with the term "opportunity cost" as it's used in economics. If not, in a nutshell, it means that every dollar you spend on something is a dollar that is no longer available for something else. For example if a vendor is selling apples and pears for $1 each, and you only have $1, if you buy the apple, it cost you the opportunity to buy a pear.
It works the same for time. You only have 24 hours in a day. Less than that in a work day. Every hour you spend on one task is an hour that is no longer available for any other task.
According to the US Census Bureau, in 2007 there were 7.7 million firms with employees in the United States. Forcing one employee at each firm to spend 10 minutes on non-productive paperwork or procedures costs the economy 1.28 million man hours. That's 617 man-work years. Put another way, an unproductive 10 minute mandate on business costs the equivalent of hiring a crew of 617 people, full time, for a full year. What could you accomplish with that kind of manpower? And that's 10 minutes a year. Ten minutes a week and you've got a good sized army at your disposal. Ten minutes a day and you're rivaling economies of entire cities.
What is the average number of minutes spent at your business, filling out paperwork that you would not do if it were not mandated by some level of government? Multiply that by 7.7 million. We're already slowing ourselves down enough and some politicians want to add more dead-weight to the system.
When you hear of a new regulation or requirement and it's sold as something that only takes a few minutes, or the cost is negligible, think of it in terms of the cumulative waste of productive activity across the board. The free market is an expression of the cumulative effect of countless individual decisions and the productive moments of millions and millions of individuals. Taking man-hours out of the system removes value from the economy. Who do you think is a better judge of what an employee should be working on from 2pm to 3pm? The employer or the employee, or some a group of government bureaucrats?
Tuesday, October 25, 2011
Catastrophe is vital to a free market system
Greece is broke and owes more than anyone believes it can ever pay back. They got there on sales of bonds to investors, which include nations, banks, businesses, organizations and individuals. These investors fear the consequences of having to actually realize the losses they've incurred. It's a very similar scenario to the pre-TARP days here in the United States. The investors argue that it would not just be a financial loss to them, but a shock to the whole system as a consequence of their failure. They hope the general fear will be equal to their own and everyone will work to cushion the blow. Cushioning the blow means transferring the loss to the general public to the largest extent possible.
This has worked in the sense that large businesses have been spared the calamity of letting nature run its course, and the system is in a long term funk rather than getting a short term wallup. The problem is that the bad ideas don't get the drubbing they deserve. The status quo, which failed, is kept alive. Nothing is learned. Innovation is not incentivized. Proven failures in policy are kept in place and even expanded upon. No pain, no gain.
Physical pain, is in one regard, a warning to the occupant of the body: "Don't do that." or "Don't do that again". It has a purpose. In fact a human, on it's own, without the capacity to feel pain would not likely live very long. Even mental pain and regret serve a purpose. The message is: "That course of action was a mistake. Don't do it again."
Fiscal pain serves a similar purpose in the market place. At the transaction level, if a consumer feels like he or she got less value than he or she anticipated, that's regret and will prevent the consumer from buying the product or service again. Bad value propositions die out over time. Now if the government stepped in and offered to pay half the purchase price for you, you might change your assessment of the value proposition, and the bad model is saved. Incompetence, deception, low quality, bad ideas are kept alive and well.
At the government level, the same dynamic is at work. Their ability to borrow is based on the market's confidence in their ability to make good on the bonds over time. If the bonds are backstopped, guaranteed or insured by a group of other governments, investors need not worry about whether or not the system of government can produce a viable, vibrant economy. Succeed or fail, they're going to get paid. Failed policies live on. Unsustainable governments are sustained. Bad ideas are reinforced.
The marketplace of ideas is directly connected to the actual marketplace. You have to acknowledge and remove the trash periodically or you will simply wallow in trash. Free market forces are very efficient at spotlighting the trash. Committees, elected or otherwise, are not. In fact, many governments prefer to deny the existence of trash to having to actually point it out or acknowledge it. Care free investors enable this approach. Investors are care free when taxpayers absorb their losses.
Imagine if investors actually had to consider whether or not a system of government would produce happy, productive citizens with a desire to excel. The only way to get that back into the equation is to take away the safety nets. Pain hurts. That's why it's effective. Making ourselves numb is not a path to a better future.
This has worked in the sense that large businesses have been spared the calamity of letting nature run its course, and the system is in a long term funk rather than getting a short term wallup. The problem is that the bad ideas don't get the drubbing they deserve. The status quo, which failed, is kept alive. Nothing is learned. Innovation is not incentivized. Proven failures in policy are kept in place and even expanded upon. No pain, no gain.
Physical pain, is in one regard, a warning to the occupant of the body: "Don't do that." or "Don't do that again". It has a purpose. In fact a human, on it's own, without the capacity to feel pain would not likely live very long. Even mental pain and regret serve a purpose. The message is: "That course of action was a mistake. Don't do it again."
Fiscal pain serves a similar purpose in the market place. At the transaction level, if a consumer feels like he or she got less value than he or she anticipated, that's regret and will prevent the consumer from buying the product or service again. Bad value propositions die out over time. Now if the government stepped in and offered to pay half the purchase price for you, you might change your assessment of the value proposition, and the bad model is saved. Incompetence, deception, low quality, bad ideas are kept alive and well.
At the government level, the same dynamic is at work. Their ability to borrow is based on the market's confidence in their ability to make good on the bonds over time. If the bonds are backstopped, guaranteed or insured by a group of other governments, investors need not worry about whether or not the system of government can produce a viable, vibrant economy. Succeed or fail, they're going to get paid. Failed policies live on. Unsustainable governments are sustained. Bad ideas are reinforced.
The marketplace of ideas is directly connected to the actual marketplace. You have to acknowledge and remove the trash periodically or you will simply wallow in trash. Free market forces are very efficient at spotlighting the trash. Committees, elected or otherwise, are not. In fact, many governments prefer to deny the existence of trash to having to actually point it out or acknowledge it. Care free investors enable this approach. Investors are care free when taxpayers absorb their losses.
Imagine if investors actually had to consider whether or not a system of government would produce happy, productive citizens with a desire to excel. The only way to get that back into the equation is to take away the safety nets. Pain hurts. That's why it's effective. Making ourselves numb is not a path to a better future.
Tuesday, October 4, 2011
How taxes regulations and madates kill an economy
You may know intuitively, that taxes and price controls and government mandates are bad for economic growth. But, do you know the mechanics of how they strangle an economy? It's really not that complicated, but experts like to use the lingo of the industry to make themselves sound much smarter than you. Here's an explanation in plain English.
Suppose you have a watchamacallit and I don't. You feel that watchamacallit is worth 20 cents. I believe it's worth 23 cents. There's a potential for a transaction there, created by our slight disagreement over the value of the watchamacallit. I could pay you anywhere from 20 to 23 cents and we'd both feel like it was a fair deal. Now suppose the government imposes a 5 cent tax on watchamacallits. To get the 20 cents you would need to feel good about parting ways with it, I'd have to pay you at least 25 cents. But I only think it's worth 23 cents. Transaction killed. Transactions that don't happen, don't show up in government statistics.
A tax of 1 or 2 cents may not have killed our transaction. There was still enough room in our margin of disagreement to make a deal. But when government gets too big, and demands too much, many transactions die and they get nothing.
Any third party mandate that adds cost to a transaction is a potential deal killer. Value is subjective. The point at which a transaction dies is totally up to the opinion of the buyer and the seller. You can't pass a law that makes me believe a whatchamacallit is worth more than I believe it's worth, and without putting a gun to your head, I can't make you accept less than you're willing to accept. Even if I put the gun to your head, how enthusiastic are you going to be about producing more whatchamacallits from that point forward?
Free markets means free people engaging in free trade in the absence of force. That last bit is why we need government. Yes, it has to be paid for, but the cost has to be low enough and the interference in the marketplace minimal enough that it doesn't kill the deal.
This is why companies go offshore. This is why small businesses don't expand. Third party add-ons make the risk/reward ratio too high. The government is trying to control too much, provide too much, take care of too much. It just costs too much. To add insult to injury, they aren't very good at it either.
Suppose you have a watchamacallit and I don't. You feel that watchamacallit is worth 20 cents. I believe it's worth 23 cents. There's a potential for a transaction there, created by our slight disagreement over the value of the watchamacallit. I could pay you anywhere from 20 to 23 cents and we'd both feel like it was a fair deal. Now suppose the government imposes a 5 cent tax on watchamacallits. To get the 20 cents you would need to feel good about parting ways with it, I'd have to pay you at least 25 cents. But I only think it's worth 23 cents. Transaction killed. Transactions that don't happen, don't show up in government statistics.
A tax of 1 or 2 cents may not have killed our transaction. There was still enough room in our margin of disagreement to make a deal. But when government gets too big, and demands too much, many transactions die and they get nothing.
Any third party mandate that adds cost to a transaction is a potential deal killer. Value is subjective. The point at which a transaction dies is totally up to the opinion of the buyer and the seller. You can't pass a law that makes me believe a whatchamacallit is worth more than I believe it's worth, and without putting a gun to your head, I can't make you accept less than you're willing to accept. Even if I put the gun to your head, how enthusiastic are you going to be about producing more whatchamacallits from that point forward?
Free markets means free people engaging in free trade in the absence of force. That last bit is why we need government. Yes, it has to be paid for, but the cost has to be low enough and the interference in the marketplace minimal enough that it doesn't kill the deal.
This is why companies go offshore. This is why small businesses don't expand. Third party add-ons make the risk/reward ratio too high. The government is trying to control too much, provide too much, take care of too much. It just costs too much. To add insult to injury, they aren't very good at it either.
Monday, August 22, 2011
Is the stock market going out of style?
With the economy in rough shape and uncertainty in the marketplace, it’s no wonder that individual investors are frustrated with the stock market these days. But if the stock market is going to be a reliable venue for growing and storing wealth over the long term, there are issues that go much deeper than the current economic climate that may need to be addressed.
Let’s look at the performance of the most widely known index, The DOW Industrials over the past 100 years. During that time the index has risen from around 100 points to around 10,000 points. That’s 100 times your money! Pretty good right? Actually, that’s just about a 4% annual rate of interest, before adjusting for inflation. If you could go back in time 100 years and invest $1,000, you might do just as well or better if you bought $1,000 worth of actual quality baskets rather than a basket of quality stocks.
Stocks had a momentus run between about 1985 and 1998. During that period, if you had bought at the lows and got out at the high, you’d have made a whopping 18% annual return. This was the advent of the internet age. All of a sudden information was cheap and easily obtainable. Commissions plummetted as internet trading houses like E-Trade and Ameritrade hit the scene. There was an explosion of individual investing. Prices soared, new companies took off like rockets. Then, of course, the bubble burst. It took a while for the individual investor to regain confidence and get back in the game, but back they came. Prices began to rise again. Then, of course, the housing bubble burst. Now, just three years later, the market is approaching 10,000 again. This time on the way down.
Not only are prices on the way down, but trading volume has actually been in a declining trend for the past two years. There’s good reason to be concerned. The very nature of the market has changed as much as the economy with the advancement of technology.
The vast majority of today’s trading volume is generated by computer programs called “quants” These programs make automatic, instantaneous transactions based on whatever data the programmers designed it to monitor. They look at trading data and try to find patterns. Some are even programmed to learn from their mistakes and make adjustments on the fly. Of course, much of that trading data is generated by other computer program trades. The result is that you have computer programs responding to the decisions of other computer programs. In the extreme you get situations like the “flash crash” of May 2010 when many large company’s stocks actually traded for $.01 (the exchanges later cancelled most of those trades). But how much does this type of trading effect stock prices when it’s not expressed in the extreme? The answer is nobody knows.
Stock prices are subjective. You can look at historical averages, but there is no price that any stock is “supposed to be” at on any given day or minute. These quant trades account for around 70% of daily volume. Most of the rest is day-trading, hedge funds and professional equities traders with outlooks of around 18 months. The traditional buy and hold investor, saving for retirement or school makes up just about 5% on any given day. The more computerized trading based on trading data takes place, the more divorced a company’s stock price becomes from any consideration of its business model or performance. Stocks go up because they go up and they go down because they go down. Moves in both directions are magnified as computerized triggers are set off. This is heaven for day traders, not so much for the passive investor.
I don’t believe the stock market is going to go away anymore than I believe lottery tickets or Las Vegas casinos are going to go away. But buying and holding equity in widely-held, publicly traded companies may not be a wise long-term investment strategy anymore. That’s not to say people wont make money. But predictability and connection to events on the ground is going out the window. Even a ban on computerized trading would only mean that you’d have to input the computer generated trade manually rather than automatically. You can’t put this genie back in the bottle.
Don’t take this as investment advice or a prediction of where the DOW is going to go in the future. But it is information you might want to consider and talk over with your investment advisor before deciding what to do with your hard earned savings.
Let’s look at the performance of the most widely known index, The DOW Industrials over the past 100 years. During that time the index has risen from around 100 points to around 10,000 points. That’s 100 times your money! Pretty good right? Actually, that’s just about a 4% annual rate of interest, before adjusting for inflation. If you could go back in time 100 years and invest $1,000, you might do just as well or better if you bought $1,000 worth of actual quality baskets rather than a basket of quality stocks.
Stocks had a momentus run between about 1985 and 1998. During that period, if you had bought at the lows and got out at the high, you’d have made a whopping 18% annual return. This was the advent of the internet age. All of a sudden information was cheap and easily obtainable. Commissions plummetted as internet trading houses like E-Trade and Ameritrade hit the scene. There was an explosion of individual investing. Prices soared, new companies took off like rockets. Then, of course, the bubble burst. It took a while for the individual investor to regain confidence and get back in the game, but back they came. Prices began to rise again. Then, of course, the housing bubble burst. Now, just three years later, the market is approaching 10,000 again. This time on the way down.
Not only are prices on the way down, but trading volume has actually been in a declining trend for the past two years. There’s good reason to be concerned. The very nature of the market has changed as much as the economy with the advancement of technology.
The vast majority of today’s trading volume is generated by computer programs called “quants” These programs make automatic, instantaneous transactions based on whatever data the programmers designed it to monitor. They look at trading data and try to find patterns. Some are even programmed to learn from their mistakes and make adjustments on the fly. Of course, much of that trading data is generated by other computer program trades. The result is that you have computer programs responding to the decisions of other computer programs. In the extreme you get situations like the “flash crash” of May 2010 when many large company’s stocks actually traded for $.01 (the exchanges later cancelled most of those trades). But how much does this type of trading effect stock prices when it’s not expressed in the extreme? The answer is nobody knows.
Stock prices are subjective. You can look at historical averages, but there is no price that any stock is “supposed to be” at on any given day or minute. These quant trades account for around 70% of daily volume. Most of the rest is day-trading, hedge funds and professional equities traders with outlooks of around 18 months. The traditional buy and hold investor, saving for retirement or school makes up just about 5% on any given day. The more computerized trading based on trading data takes place, the more divorced a company’s stock price becomes from any consideration of its business model or performance. Stocks go up because they go up and they go down because they go down. Moves in both directions are magnified as computerized triggers are set off. This is heaven for day traders, not so much for the passive investor.
I don’t believe the stock market is going to go away anymore than I believe lottery tickets or Las Vegas casinos are going to go away. But buying and holding equity in widely-held, publicly traded companies may not be a wise long-term investment strategy anymore. That’s not to say people wont make money. But predictability and connection to events on the ground is going out the window. Even a ban on computerized trading would only mean that you’d have to input the computer generated trade manually rather than automatically. You can’t put this genie back in the bottle.
Don’t take this as investment advice or a prediction of where the DOW is going to go in the future. But it is information you might want to consider and talk over with your investment advisor before deciding what to do with your hard earned savings.
Wednesday, August 17, 2011
Buffet and Stien miss the point on taxes
Both Warren Buffet and Ben Stien have advocated higher taxes on the rich lately. I suppose they see this as very humanitarian, to offer to pay more of your own, and lots of others income for your country. Enabling incompetence is not a virtuous endeavor. These gentlemen are only looking at cost and ignoring value.
The message that sends to government is that doing a lousy job will not slow down your growth. We don't want you to finance the growth of failure. If the government can actually balance budgets and is limited in size, and therefore scope, one might make the case for budget increases. That's how it works in the real world. You don't expand failing divisions. You don't promote people who don't actually advance toward a desired goal. You don't put fuel in a broken truck.
Downsize, clean house, start acting like you have some value as an employee of the biggest market force in the world, then we can talk about govt taking on more responsibility. That's many years down the road.
The message that sends to government is that doing a lousy job will not slow down your growth. We don't want you to finance the growth of failure. If the government can actually balance budgets and is limited in size, and therefore scope, one might make the case for budget increases. That's how it works in the real world. You don't expand failing divisions. You don't promote people who don't actually advance toward a desired goal. You don't put fuel in a broken truck.
Downsize, clean house, start acting like you have some value as an employee of the biggest market force in the world, then we can talk about govt taking on more responsibility. That's many years down the road.
Sunday, July 31, 2011
A perspective on the decline of manufacturing in the U.S.
You don't have to be an economist to understand that something is seriously, systemically wrong with the manufacturing industry in the United States. Consider the demise of the Great Lakes region in terms of employment and manufacturing.
First, you have to understand that the cheapest, most reliable way to transport tonnage over large distances is over water, if possible. If you have access to the Great Lakes, you have a direct water route to both international and domestic markets through the Atlantic and the Mississippi. This is a huge competitive advantage. How much extra costs do you have to pile on before that advantage evaporates? I don't have an exact number, but I know we've surpassed it. I know because people and companies are leaving the area and are not being replaced.
You can argue about the causes, but an exodus from an area that should be a geographic no-brainer from a manufacturer's point of view is an undeniable symptom that something is very wrong. The status quo is a loser.
I think we're finally getting to a point in our national conversation where things are becoming evident in terms everyone can clearly understand; dollars and cents. Good ideas attract cash. Bad ideas repel it.
First, you have to understand that the cheapest, most reliable way to transport tonnage over large distances is over water, if possible. If you have access to the Great Lakes, you have a direct water route to both international and domestic markets through the Atlantic and the Mississippi. This is a huge competitive advantage. How much extra costs do you have to pile on before that advantage evaporates? I don't have an exact number, but I know we've surpassed it. I know because people and companies are leaving the area and are not being replaced.
You can argue about the causes, but an exodus from an area that should be a geographic no-brainer from a manufacturer's point of view is an undeniable symptom that something is very wrong. The status quo is a loser.
I think we're finally getting to a point in our national conversation where things are becoming evident in terms everyone can clearly understand; dollars and cents. Good ideas attract cash. Bad ideas repel it.
Sunday, July 24, 2011
Could a balanced budget send the U.S. economy to new highs?
You may find all the talk about Federal deficits and National debt boring or tedious, but something of pretty heavy global historic significance is taking place before our eyes. I find it fascinating.
The country is in the midst of deciding whether to limit the size and cost of Federal government or to continue to leave the upper limits an open question. Regardless of what you believe the government should or should not provide, a growing number of people are making those provisions contingent on operating within a budget. Even tithing is set, in most cases, at 10%. If religions can set a limit on how much they ask from their members, why can’t the government? The other option is to implement the programs and address the priorities you’ve decided to advance and worry about the fiscal consequences later.
If the United States actually implements a credible, feasible plan to get to and stay at a balanced budget, we will have achieved a level of fiscal strength unmatched around the globe. Europe’s string of bail out packages is just stall tactics. They have not addressed the underlying problems. Much of China’s growth has come from construction of cities that nobody lives in, highways nobody drives and mass transit systems they can’t maintain. This makes their numbers look good today, but they will be liabilities in the future.
A Constitutional amendment requiring a balanced budget is a must. Congress cannot write a law that binds a future Congress. Membership in Congress rolls over every two years. A plan that spans decades doesn’t stand a chance if it relies on the support of new members through several election cycles. They have to be bound by the Constitution. They could still over-ride spending limits with a ⅔ majority in case of emergency.
The underlying issue is that America may put fiscal and economic strength ahead of social and political agendas in the priority list. This would be a break from global consensus and a giant leap ahead of the pack for the United States.
The country is in the midst of deciding whether to limit the size and cost of Federal government or to continue to leave the upper limits an open question. Regardless of what you believe the government should or should not provide, a growing number of people are making those provisions contingent on operating within a budget. Even tithing is set, in most cases, at 10%. If religions can set a limit on how much they ask from their members, why can’t the government? The other option is to implement the programs and address the priorities you’ve decided to advance and worry about the fiscal consequences later.
If the United States actually implements a credible, feasible plan to get to and stay at a balanced budget, we will have achieved a level of fiscal strength unmatched around the globe. Europe’s string of bail out packages is just stall tactics. They have not addressed the underlying problems. Much of China’s growth has come from construction of cities that nobody lives in, highways nobody drives and mass transit systems they can’t maintain. This makes their numbers look good today, but they will be liabilities in the future.
A Constitutional amendment requiring a balanced budget is a must. Congress cannot write a law that binds a future Congress. Membership in Congress rolls over every two years. A plan that spans decades doesn’t stand a chance if it relies on the support of new members through several election cycles. They have to be bound by the Constitution. They could still over-ride spending limits with a ⅔ majority in case of emergency.
The underlying issue is that America may put fiscal and economic strength ahead of social and political agendas in the priority list. This would be a break from global consensus and a giant leap ahead of the pack for the United States.
Tuesday, July 12, 2011
Here we go again - European 3 card Monty
When is a default not a default? When it's a buyback!
The new, old strategy for dealing with Greece's debt problem is for the European Financial Stability Facility (aka taxpayer funded pile of money) to buy Greek bonds on the secondary market, then allow Greece to pay back less than the face amount of the bonds or "retire them at a discount".
This is really a variation on the "Special Purpose Facility" scheme in which a quasi-private entity is formed, which owns Greek bonds. The former bondholders are now shareholders in this entity and the entity is backed up by guarantees from the European Central Bank. In both scenarios, the end game is to relieve the bondholders (the folks who actually made the investments) from risk and instead, place the risk on European taxpayers (who had nothing to do with the bond purchase decisions).
To put the buyback program in perspective, let's say Bob and John are coworkers of yours. Bob owes John $100. It's beginning to look like Bob wont be able to pay it all back. Your boss steps in and buys the debt from John (so now Bob owes your boss $100). Then your boss tells Bob he only has to pay back $45 and takes the difference ($55) out of your paycheck.
Sound ridiculous? That's essentially what's being proposed. And if it works over there, they'll do it over here.
The new, old strategy for dealing with Greece's debt problem is for the European Financial Stability Facility (aka taxpayer funded pile of money) to buy Greek bonds on the secondary market, then allow Greece to pay back less than the face amount of the bonds or "retire them at a discount".
This is really a variation on the "Special Purpose Facility" scheme in which a quasi-private entity is formed, which owns Greek bonds. The former bondholders are now shareholders in this entity and the entity is backed up by guarantees from the European Central Bank. In both scenarios, the end game is to relieve the bondholders (the folks who actually made the investments) from risk and instead, place the risk on European taxpayers (who had nothing to do with the bond purchase decisions).
To put the buyback program in perspective, let's say Bob and John are coworkers of yours. Bob owes John $100. It's beginning to look like Bob wont be able to pay it all back. Your boss steps in and buys the debt from John (so now Bob owes your boss $100). Then your boss tells Bob he only has to pay back $45 and takes the difference ($55) out of your paycheck.
Sound ridiculous? That's essentially what's being proposed. And if it works over there, they'll do it over here.
Tuesday, June 14, 2011
Minimum wage = Minimum opportunity
Recently, some friends and I were having a bit of a debate over the minimum wage. It actually came up during a discussion of a $900,000 federal grant that was given to a local organization to train 720 youngsters in “soft job skills” aka basic customer service. The idea is to provide them with at least the bare essentials of workplace behavior so they might stand a better chance of gaining employment. A worthy goal, but it got me to thinking why such a program was necessary. The answer was obvious.
Colorado’s minimum wage is currently $7.36/hour. When you factor in unemployment insurance, workers comp and payroll taxes, it’s closer to $9/hour. Now consider a 15, 16 or 17 year-old starting their very first job. They aren’t familiar with any workplace, never mind yours, or the equipment, the procedures, basic workplace etiquette; they are essentially clueless. It’s likely going to take a month on the job before they are productive enough to justify even $9/hour and you’re only going to have them for 3 months total.
The investment in training a brand spanking new entrant into the job market might make sense at say $5.50/hour. At $7.36, it’s a much bigger risk. This is why unemployment among teenagers is around 25%. The math just doesn’t make sense.
The opposition comes from the notion that nobody can live on $5.50/hour or even $7.36/hour. But that’s a straw man. The entry-level wage isn’t intended to be a living wage. Most teenagers are looking for some spending money. A low-paying summer job gives them valuable experience so they can get a better, higher paying job next year and it keeps them in iPhones, concerts and their favorite jeans over the summer.
In the longer term, the ability to fill very low skill positions with very low paid workers enables businesses to expand and provide better jobs. The workers gain experience which they can use to get better jobs. The alternative is what we have now. Those jobs simply don’t exist and junior sits on the couch playing video games at Mom and Dad’s expense, gaining zero work experience. The business can only hire employees who are ready and able to produce on day one, i.e. experienced employees. There is no room for entry-level.
I know the intentions of those who favor mandated wages are noble, but the results are in. It’s not a matter of opinion. It’s a matter of fact. When you remove the bottom rungs on the ladder of opportunity, there are people who just can’t get on it. There aren’t enough federal programs in the world to fill the void.
Colorado’s minimum wage is currently $7.36/hour. When you factor in unemployment insurance, workers comp and payroll taxes, it’s closer to $9/hour. Now consider a 15, 16 or 17 year-old starting their very first job. They aren’t familiar with any workplace, never mind yours, or the equipment, the procedures, basic workplace etiquette; they are essentially clueless. It’s likely going to take a month on the job before they are productive enough to justify even $9/hour and you’re only going to have them for 3 months total.
The investment in training a brand spanking new entrant into the job market might make sense at say $5.50/hour. At $7.36, it’s a much bigger risk. This is why unemployment among teenagers is around 25%. The math just doesn’t make sense.
The opposition comes from the notion that nobody can live on $5.50/hour or even $7.36/hour. But that’s a straw man. The entry-level wage isn’t intended to be a living wage. Most teenagers are looking for some spending money. A low-paying summer job gives them valuable experience so they can get a better, higher paying job next year and it keeps them in iPhones, concerts and their favorite jeans over the summer.
In the longer term, the ability to fill very low skill positions with very low paid workers enables businesses to expand and provide better jobs. The workers gain experience which they can use to get better jobs. The alternative is what we have now. Those jobs simply don’t exist and junior sits on the couch playing video games at Mom and Dad’s expense, gaining zero work experience. The business can only hire employees who are ready and able to produce on day one, i.e. experienced employees. There is no room for entry-level.
I know the intentions of those who favor mandated wages are noble, but the results are in. It’s not a matter of opinion. It’s a matter of fact. When you remove the bottom rungs on the ladder of opportunity, there are people who just can’t get on it. There aren’t enough federal programs in the world to fill the void.
Tuesday, May 31, 2011
America at a crossroads? or have we already crossed the event horizon?
For a while there, it looked as though there might be a chance that the United States would do what was necessary to get back to some sort of fiscal sanity....for a while there.
Today we still have our $14+ trillion dollar national debt, trillion dollar deficits as far as the eye can see and, perhaps more importantly, something like $57 trillion in unfunded liabilities, that is, money we've promised to pay out in entitlements that nobody has a clue where it's going to come from.
Paul Ryan and friends proposed to cut the growth of Medicare at least, by block granting fixed amounts to the states. You would have thought he proposed internment camps for the elderly. "Hands off Medicare" is the popular chant. I don't imagine Social Security reform is going to fare any better. Lest you think that government will be forced to make reforms just in the nick of time, consider Eastern Airlines. Unions knew full well that if they didn't make major concessions the company would go under. They didn't, it did. In the case of the auto industry, the government took the companies from the rightful owners, the bondholders, and just gave it to the unions. No incentive for concessions there. It's not just unions. It's everyone that get some kind of check from the government, and boy there are a lot of them.
Americans still like to think in terms of the land of the free, home of the brave, baseball, apple pie, etc., but they also seem to want to continue to work toward a society where everyone's basic needs are taken care of by somebody else. This has never worked and never will, but that's not slowing down the movement. Americans are looking for that fairy tale hybrid of capitalism and socialism. They want the vitality, innovation, creation, wealth and productivity of capitalism, with the carefree security of cradle to grave socialism. I guess the hope is that there are enough people who are genetically inclined to produce and excel, regardless of incentive or motivation, that they will deliver enough to take care of everyone else. It's a fairy tale.
It's entirely possible that hundreds of years from now, the decline and fall of the United States of America will be marked as beginning around 2007. I hope that I'm wrong, but I don't see any popular movement that would change it. No China is not going to be the new global superpower either. In fact, the alleged economic behemoth wont even be able to produce enough electricity to keep their own factories operational this summer. They have tightly controlled the power industry to the point that it's tied up in knots and they have no idea how to fix it. Getting out of the way is not on the proposed solutions list. I think a rudderless, backwards world economy is the more likely scenario for quite a while.
I don't know exactly what the future will bring in my lifetime. But I do know that, in general, the American public is not in the mood for limited government and real free markets and politicians are not going to do anything long term or substantial without the express consent of the voters.
I'm beginning to feel that we are not, as many like to say, at a "crossroads", a point where we can determine whether we're headed for greater prosperity or history's dust bin. We may have already crossed the event horizon into the black hole of "something for nothing" land. We're just too close to the situation to see it clearly.
Today we still have our $14+ trillion dollar national debt, trillion dollar deficits as far as the eye can see and, perhaps more importantly, something like $57 trillion in unfunded liabilities, that is, money we've promised to pay out in entitlements that nobody has a clue where it's going to come from.
Paul Ryan and friends proposed to cut the growth of Medicare at least, by block granting fixed amounts to the states. You would have thought he proposed internment camps for the elderly. "Hands off Medicare" is the popular chant. I don't imagine Social Security reform is going to fare any better. Lest you think that government will be forced to make reforms just in the nick of time, consider Eastern Airlines. Unions knew full well that if they didn't make major concessions the company would go under. They didn't, it did. In the case of the auto industry, the government took the companies from the rightful owners, the bondholders, and just gave it to the unions. No incentive for concessions there. It's not just unions. It's everyone that get some kind of check from the government, and boy there are a lot of them.
Americans still like to think in terms of the land of the free, home of the brave, baseball, apple pie, etc., but they also seem to want to continue to work toward a society where everyone's basic needs are taken care of by somebody else. This has never worked and never will, but that's not slowing down the movement. Americans are looking for that fairy tale hybrid of capitalism and socialism. They want the vitality, innovation, creation, wealth and productivity of capitalism, with the carefree security of cradle to grave socialism. I guess the hope is that there are enough people who are genetically inclined to produce and excel, regardless of incentive or motivation, that they will deliver enough to take care of everyone else. It's a fairy tale.
It's entirely possible that hundreds of years from now, the decline and fall of the United States of America will be marked as beginning around 2007. I hope that I'm wrong, but I don't see any popular movement that would change it. No China is not going to be the new global superpower either. In fact, the alleged economic behemoth wont even be able to produce enough electricity to keep their own factories operational this summer. They have tightly controlled the power industry to the point that it's tied up in knots and they have no idea how to fix it. Getting out of the way is not on the proposed solutions list. I think a rudderless, backwards world economy is the more likely scenario for quite a while.
I don't know exactly what the future will bring in my lifetime. But I do know that, in general, the American public is not in the mood for limited government and real free markets and politicians are not going to do anything long term or substantial without the express consent of the voters.
I'm beginning to feel that we are not, as many like to say, at a "crossroads", a point where we can determine whether we're headed for greater prosperity or history's dust bin. We may have already crossed the event horizon into the black hole of "something for nothing" land. We're just too close to the situation to see it clearly.
Monday, May 16, 2011
Jefferson the American Prophet
Among the many inspirational and insightful quotes collected for Brett Sizemore's book 'Here's a Straw, Suck it Up.' is this gem from Thomas Jefferson in 1802 that's eerily relevant today:
"Banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them, will deprive the people of all their property until their children wake up homeless..."
Here's how that works. First, consider the purchase of a home. Now hold the value of the home constant and consider it is the value of the currency that fluctuates. During a time of inflation, or rapidly rising home prices, you buy your house (with a mortgage) at $200,000 with the expectation that prices will continue to rise. Now, deflation hits the housing market instead. Prices fall. Your house is now worth $100,000. You were counting on rising home prices to allow you to take out a mortgage to cover your other bills. Now you can't afford the payments and you can't sell the house for enough to cover the mortgage.
Whether you foreclose or walk away, the bank gets the house back. Not only that, they were insured against losses with companies like AIG, so they also get the other $100k. On paper it looks as though the bank just broke even, or took a loss after expenses. In reality, if we're still keeping the value of the house constant, they started with the house, ended with the house + $100k minus expenses and insurance premiums. They did fine. The fluctuating value of the dollar is a smoke screen.
In the simplified scenario above, a number of players are inclusive in "the bank". I don't believe banks and real estate financing are inherently evil, but they are susceptible to great abuse if customers are not wary.
Banks give currency value in that they provide an orderly, secure delivery and storage system. They are run by human beings, who must not be entrusted with all our cash unsupervised and unchallenged. Trust, but verify.
The recipe is simple: Inflate, Deflate, Repeat.
"Banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them, will deprive the people of all their property until their children wake up homeless..."
Here's how that works. First, consider the purchase of a home. Now hold the value of the home constant and consider it is the value of the currency that fluctuates. During a time of inflation, or rapidly rising home prices, you buy your house (with a mortgage) at $200,000 with the expectation that prices will continue to rise. Now, deflation hits the housing market instead. Prices fall. Your house is now worth $100,000. You were counting on rising home prices to allow you to take out a mortgage to cover your other bills. Now you can't afford the payments and you can't sell the house for enough to cover the mortgage.
Whether you foreclose or walk away, the bank gets the house back. Not only that, they were insured against losses with companies like AIG, so they also get the other $100k. On paper it looks as though the bank just broke even, or took a loss after expenses. In reality, if we're still keeping the value of the house constant, they started with the house, ended with the house + $100k minus expenses and insurance premiums. They did fine. The fluctuating value of the dollar is a smoke screen.
In the simplified scenario above, a number of players are inclusive in "the bank". I don't believe banks and real estate financing are inherently evil, but they are susceptible to great abuse if customers are not wary.
Banks give currency value in that they provide an orderly, secure delivery and storage system. They are run by human beings, who must not be entrusted with all our cash unsupervised and unchallenged. Trust, but verify.
The recipe is simple: Inflate, Deflate, Repeat.
Friday, May 13, 2011
The oil pantry effect
Crude oil supplies are plentiful. Use has not spiked, yet prices did? What's going on?
Well, the common explanation is "speculators". But, I'm familiar enough with speculation to know that paper trading of commodities one never takes delivery on cannot cause sustained price increases. It must be something else. So what?
What do you do if you believe food prices are going to go up substantially in the near future? You stock up your pantry and your freezer. I have to believe that large corporations and governments that consume a lot of petrol do the same.
The U.S. government publicly discloses figures for the U.S. strategic oil reserves, but private companies, the military and most other governments do not. If they see uncertainty ahead in the market, it is only prudent that they fill their reserve storage. This would explain how you get a spike in prices even without a spike in actual usage.
It also explains why the price of crude sometimes falls like a rock. When end users stop filling reserves, demand falls. If they actually start drawing from them for their day to day use, demand plummets. Prices follow.
This is the most logical and simple explanation for the behavior of oil prices, and according to Occum's razor, the most likely.
Well, the common explanation is "speculators". But, I'm familiar enough with speculation to know that paper trading of commodities one never takes delivery on cannot cause sustained price increases. It must be something else. So what?
What do you do if you believe food prices are going to go up substantially in the near future? You stock up your pantry and your freezer. I have to believe that large corporations and governments that consume a lot of petrol do the same.
The U.S. government publicly discloses figures for the U.S. strategic oil reserves, but private companies, the military and most other governments do not. If they see uncertainty ahead in the market, it is only prudent that they fill their reserve storage. This would explain how you get a spike in prices even without a spike in actual usage.
It also explains why the price of crude sometimes falls like a rock. When end users stop filling reserves, demand falls. If they actually start drawing from them for their day to day use, demand plummets. Prices follow.
This is the most logical and simple explanation for the behavior of oil prices, and according to Occum's razor, the most likely.
Thursday, April 28, 2011
What you're really up against
Recently a friend of mine called, very upset at something he had just read. In the newest Superman comic, the Man of Steel will allegedly renounce his American citizenship. So much for Truth, Justice and the American Way. He was also irked by the fact that while we put moratoriums on drilling for oil in the U.S., we have actually proposed subsidizing drilling in Brazil, and a number of other policies and trends that seem to be leading to the decline of the U.S.. Has the world gone mad?
As I explained to him, when you understand the game plan, it all makes perfect sense. I used to think the differences between free market capitalists and Progressives was simply a disagreement in how to reach a common goal; a better quality of life for everyone. I have come to learn that this is not the case. Progressives believe that the world would be a better place if the production and distribution of its resources were overseen by an elite group of our best and brightest (as determined by Progressives) rather than by the cumulative effect of individuals making decisions on their own. The world being a better place, in their minds, is not contingent on improving anyone's quality of life. It's all about fairness and sustainability. If everyone lives in squalor, that's okay, as long as it's fair and sustainable.
In fact, worrying about the happiness of any one individual, especially yourself, is not only frowned upon, it's heresy. One should derive satisfaction and fulfillment only from the knowledge that you have served the collective well. Praise is heaped on those who demonstrate the least concern for their own well being. After all, the self is irrelevant. Unfairness must be wiped out wherever it is found. Evidence of unfairness is when one person has more success or more material goods or is generally happier than another. Obviously the fact that one person is less successful than another is clear evidence that they are disadvantaged. The playing field must be leveled. This is not done by providing opportunities for the latter, but by removing "advantages" from the former.
Top priority is given to the well being of the planet, the environment, wildlife, "society", culture. You are not even on the list. One big stumbling block is the image of the United States of America. The country was founded on the idea that the state exists solely for the protection of the individual. That the state is accountable to the individual. That the individual trumps the mob. This is all counter to Progressive thinking. The fact that a country based on such beliefs became and remains the world's top super power is a problem. That's what the Progressive movement is currently trying to rectify. Statements that countries like China and India may overtake the United States in terms of world economic power are not dire predictions to Progressives, they are goals, and short-term goals at that.
The next time you start scratching your head when policies enacted in the name of fixing a problem obviously just make it worse, remember this post. The premise that we all have the same goals in mind, just different opinions on how to get there, is a false one. Worse yet, those working for central control will not advocate for it honestly or out loud. But their actions speak volumes.
As I explained to him, when you understand the game plan, it all makes perfect sense. I used to think the differences between free market capitalists and Progressives was simply a disagreement in how to reach a common goal; a better quality of life for everyone. I have come to learn that this is not the case. Progressives believe that the world would be a better place if the production and distribution of its resources were overseen by an elite group of our best and brightest (as determined by Progressives) rather than by the cumulative effect of individuals making decisions on their own. The world being a better place, in their minds, is not contingent on improving anyone's quality of life. It's all about fairness and sustainability. If everyone lives in squalor, that's okay, as long as it's fair and sustainable.
In fact, worrying about the happiness of any one individual, especially yourself, is not only frowned upon, it's heresy. One should derive satisfaction and fulfillment only from the knowledge that you have served the collective well. Praise is heaped on those who demonstrate the least concern for their own well being. After all, the self is irrelevant. Unfairness must be wiped out wherever it is found. Evidence of unfairness is when one person has more success or more material goods or is generally happier than another. Obviously the fact that one person is less successful than another is clear evidence that they are disadvantaged. The playing field must be leveled. This is not done by providing opportunities for the latter, but by removing "advantages" from the former.
Top priority is given to the well being of the planet, the environment, wildlife, "society", culture. You are not even on the list. One big stumbling block is the image of the United States of America. The country was founded on the idea that the state exists solely for the protection of the individual. That the state is accountable to the individual. That the individual trumps the mob. This is all counter to Progressive thinking. The fact that a country based on such beliefs became and remains the world's top super power is a problem. That's what the Progressive movement is currently trying to rectify. Statements that countries like China and India may overtake the United States in terms of world economic power are not dire predictions to Progressives, they are goals, and short-term goals at that.
The next time you start scratching your head when policies enacted in the name of fixing a problem obviously just make it worse, remember this post. The premise that we all have the same goals in mind, just different opinions on how to get there, is a false one. Worse yet, those working for central control will not advocate for it honestly or out loud. But their actions speak volumes.
Monday, April 18, 2011
The Speculator Myth
Oil and gas prices are on the rise once again, and once again fingers are being pointed at those nasty speculators. What's a speculator? A gambler, really.
It's someone who buys contracts to buy oil or other commodities at a certain price within a certain period of time (i.e. oil futures contracts), in the hopes that they can resell them at a higher price. Two important things to keep in mind: The speculator has no intention of ever taking delivery and the contracts expire. If you can't get the price you're looking for by expiration time, you take delivery or take the loss. In the speculator's case, you take the loss. They have nowhere to put all that oil and they don't have the cash to actually buy all the oil they bought options on.
The refrain is that speculators "drive up the prices". How would one drive up prices? By paying increasingly higher prices for the contracts. Intentionally paying above market prices for anything is a good way to go broke fast. Speculators take advantage of short term fears, supply interruptions, knee jerk reactions, by trying to get in the market before prices rise, or at least well before they peak. Speculators also make bets that the price of oil will fall, but that doesn't seem to bother anyone.
The role of the speculator in the marketplace is to provide liquidity. That is, if you want to buy or sell a contract, you don't have to wait until an end user wants to buy or a producer wants to sell. There's always a speculator ready to buy or sell at most any point in the trading day. Speculation is risky, by definition and can only affect prices over a very short term. Ultimately prices are determined by supply and demand.
So why is oil soaring when supply is plentiful? Because we import most of our oil from producers who aren't terribly interested in our financial well being. They decide how much to pull out of the ground and make available for sale on any given day. We curtail production in the U.S. and then complain that we're being gouged by the Saudi's, the Iranians, the Venezuelans, the Libyans and all the other folks we've handed control of the market over to. We don't want to drill for oil, use coal, nobody wants a windmill farm in their neighborhood, or solar panels, or a nuclear plant. We seem to subsidize only alternatives that have no chance of viability in the marketplace and penalize or criminalize energy sources that are proven to work. Nobody can make the case that ethanol laden gas is a better product than non-ethanol laden gas or that the ethanol program is a success, or that it even makes sense. Yet it continues. Enabling more drilling is shunned because it can "take years" to develop a field. We'll still need oil in "years" and we're not getting any closer to it by continuing to put it off.
If the price of oil and gas is causing you grief, Washington D.C. is your problem, not the speculators or even the Saudi's. Then again, as one reader helped point out, politicians and bureaucrats do what the polls tell them to do. So I guess we're the real culprits.
It's someone who buys contracts to buy oil or other commodities at a certain price within a certain period of time (i.e. oil futures contracts), in the hopes that they can resell them at a higher price. Two important things to keep in mind: The speculator has no intention of ever taking delivery and the contracts expire. If you can't get the price you're looking for by expiration time, you take delivery or take the loss. In the speculator's case, you take the loss. They have nowhere to put all that oil and they don't have the cash to actually buy all the oil they bought options on.
The refrain is that speculators "drive up the prices". How would one drive up prices? By paying increasingly higher prices for the contracts. Intentionally paying above market prices for anything is a good way to go broke fast. Speculators take advantage of short term fears, supply interruptions, knee jerk reactions, by trying to get in the market before prices rise, or at least well before they peak. Speculators also make bets that the price of oil will fall, but that doesn't seem to bother anyone.
The role of the speculator in the marketplace is to provide liquidity. That is, if you want to buy or sell a contract, you don't have to wait until an end user wants to buy or a producer wants to sell. There's always a speculator ready to buy or sell at most any point in the trading day. Speculation is risky, by definition and can only affect prices over a very short term. Ultimately prices are determined by supply and demand.
So why is oil soaring when supply is plentiful? Because we import most of our oil from producers who aren't terribly interested in our financial well being. They decide how much to pull out of the ground and make available for sale on any given day. We curtail production in the U.S. and then complain that we're being gouged by the Saudi's, the Iranians, the Venezuelans, the Libyans and all the other folks we've handed control of the market over to. We don't want to drill for oil, use coal, nobody wants a windmill farm in their neighborhood, or solar panels, or a nuclear plant. We seem to subsidize only alternatives that have no chance of viability in the marketplace and penalize or criminalize energy sources that are proven to work. Nobody can make the case that ethanol laden gas is a better product than non-ethanol laden gas or that the ethanol program is a success, or that it even makes sense. Yet it continues. Enabling more drilling is shunned because it can "take years" to develop a field. We'll still need oil in "years" and we're not getting any closer to it by continuing to put it off.
If the price of oil and gas is causing you grief, Washington D.C. is your problem, not the speculators or even the Saudi's. Then again, as one reader helped point out, politicians and bureaucrats do what the polls tell them to do. So I guess we're the real culprits.
Sunday, April 17, 2011
Can the private sector grow while government shrinks?
The Federal Government and the states are in a financial pickle, to be sure. That's not going to end any time soon. However, the conversation in Washington D.C. and in state capitals around the country these days is about how to cut and how much to cut. It's no longer about new government programs and increased spending. From the standpoint of the business community, the worst may be over.
Whoever wins the next election, it's not likely to be the candidate or party that promises continued deficits and bigger government. Politicians down to the local level are now seeking ways to encourage and incentivize small business. Many of them still don't really understand or trust the free market, but at least they're now giving it a look. That's a positive development.
The health care law is not likely to survive intact and may well be scrapped and replaced altogether. A Constitutional amendment requiring a balanced budget was a pipe dream just a short time ago. Now it is at least a real possibility.
Growing government sucks resources from the private sector, not the least of which are human resources. When government increases its payroll, a lot of talented, creative people wind up in less than productive jobs. When the unemployment checks run out and the government's not hiring, people find another way to make a living, whether it's considering employment they had previously shunned, trying something completely new and out of their comfort zone or starting their own business.
They also start paying closer attention to how government affects the marketplace. Not everyone comes to the same conclusions, but more people really paying attention means we have a better chance of getting it right over time.
There is new technology coming to market now and in the near future that can spawn a new run in productivity and economic activity. The new political reality may well inspire cash-heavy companies and even shoe-string entrepreneurs to get back in the game. Inspiring people to take a chance with their assets, talents, ideas, time and effort doesn't require waiting until conditions are ideal. There just has to be a light at the end of the tunnel. If the business community gets a sense that their efforts wont be wasted, real recovery will take hold.
We could be at the beginning of an odd situation. One in which the private sector is growing and thriving while the public sector continues to struggle with the financial mess they've made of their budgets. Will the public keep up the pressure for fiscal discipline in a healthy private sector environment? I don't know. The big government proponents will no doubt argue that their big spending caused the recovery, not the anticipation of its ending. Will that spin sell? I don't know. It has in the past, but there are a lot more people tuned in these days.
My sense is that, at least in the near term, tax hikes, increased regulation and more government are a no go. Americans have no more stomach for stimulus and bail outs and subsidies. I wont say the era of big government is over just yet, but it's looking tired and starting to get wobbly. I think we have better economic weather ahead. I hope we will take this opportunity to better educate the younger generations, not only in reading, writing and 'rithmatic, but also in the role of government, the art of civil discourse and debate, the meaning of freedom and the consequences that come with it and the mechanics of the free market.
Whoever wins the next election, it's not likely to be the candidate or party that promises continued deficits and bigger government. Politicians down to the local level are now seeking ways to encourage and incentivize small business. Many of them still don't really understand or trust the free market, but at least they're now giving it a look. That's a positive development.
The health care law is not likely to survive intact and may well be scrapped and replaced altogether. A Constitutional amendment requiring a balanced budget was a pipe dream just a short time ago. Now it is at least a real possibility.
Growing government sucks resources from the private sector, not the least of which are human resources. When government increases its payroll, a lot of talented, creative people wind up in less than productive jobs. When the unemployment checks run out and the government's not hiring, people find another way to make a living, whether it's considering employment they had previously shunned, trying something completely new and out of their comfort zone or starting their own business.
They also start paying closer attention to how government affects the marketplace. Not everyone comes to the same conclusions, but more people really paying attention means we have a better chance of getting it right over time.
There is new technology coming to market now and in the near future that can spawn a new run in productivity and economic activity. The new political reality may well inspire cash-heavy companies and even shoe-string entrepreneurs to get back in the game. Inspiring people to take a chance with their assets, talents, ideas, time and effort doesn't require waiting until conditions are ideal. There just has to be a light at the end of the tunnel. If the business community gets a sense that their efforts wont be wasted, real recovery will take hold.
We could be at the beginning of an odd situation. One in which the private sector is growing and thriving while the public sector continues to struggle with the financial mess they've made of their budgets. Will the public keep up the pressure for fiscal discipline in a healthy private sector environment? I don't know. The big government proponents will no doubt argue that their big spending caused the recovery, not the anticipation of its ending. Will that spin sell? I don't know. It has in the past, but there are a lot more people tuned in these days.
My sense is that, at least in the near term, tax hikes, increased regulation and more government are a no go. Americans have no more stomach for stimulus and bail outs and subsidies. I wont say the era of big government is over just yet, but it's looking tired and starting to get wobbly. I think we have better economic weather ahead. I hope we will take this opportunity to better educate the younger generations, not only in reading, writing and 'rithmatic, but also in the role of government, the art of civil discourse and debate, the meaning of freedom and the consequences that come with it and the mechanics of the free market.
Saturday, March 26, 2011
The Failure of Statism - Again
Turmoil in the Middle East has resulted in the fall of governments in Egypt, Tunisia, probably in Libya and Yemen, possibly in Bahrain, Syria, maybe even Iran and more. Protests continue in Greece, London, Portugal and other EU nations. Here in the United States, actions to curb union power in Ohio, Wisconsin, Indiana and Michigan have sparked unrest. Is there a common thread? Yes. Statism or collectivism, has once again proven unsustainable.
Whether it comes about through military coup or democratic elections, the underlying principals of statism, or collectivism are the same. The central authority, which produces nothing, takes from some and redistributes to others. The idea is that a small group of knowledgeable, wise, benevolent overseers can more efficiently and fairly distribute the fruits of the labor of the general population for the benefit of all. Overseers can be unions, elected officials, kings or dictators, but the promise is the same.
It has proven to be a compelling proposal. It’s failed a number of times, yet people still gravitate to it. The idea that you can contribute a little and have all your worries and cares tended to by someone else seems to be quite attractive. In fact people are even willing to give up quite a bit of their own personal freedom in exchange for such security, if you can deliver. Therein lies the rub.
The upheaval in the Middle East is not centered on religion or ethnicity or even political philosophy. It stems from shortages of food, employment, basic services and all the things the totalitarian governments there have promised to deliver. After decades of living under oppression, the people there have finally determined that it’s not working. They don’t necessarily have a new system in mind. They just know the current one is no good.
In the case of EU democracies, politicians have gotten themselves elected by continually promising more and more from government in the form of services, employment, pensions, housing, job security and other entitlements. Now they’re at a point where even the politicians have to admit that they can’t deliver what they promised. People are angry. They are actually demanding a continuation of the status quo, which is impossible. Something’s going to give.
In the U.S., the Great Lakes States were once the center of global manufacturing. There was lots of money and there were lots of jobs, but all was not well. Workers were getting a raw deal. Enter the unions. For a small fee, the union would advocate on your behalf in negotiations with management. This seemed to make perfect sense, until they evolved far beyond employee advocacy organizations. Unions began offering benefits in addition to advocacy. This costs money. Dues went up. They further evolved to take on political advocacy. The idea was that what they couldn’t achieve at the negotiating table, they could accomplish through legislation. They increasingly got involved in funding political campaigns. Of course, the very notion that a group of union representatives can better select your government representatives than you can, assumes that your life is primarily about your work; the work you do for the collective. If you prefer a different candidate, well, you’re just not a team player. As unions increased the mandates on producers, producers left the states and/or the country, seeking more affordable locales and workforces. Some went out of business. All turned increasingly to automation. The more expensive humans become, the more affordable machines become by comparison. The union movement sought more fertile grounds in the public sector. That worked out great for awhile, as the public trough seemed bottomless. It’s not, and once again they and their membership have to tangle with the reality that they cannot possibly deliver on their promise.
The alternative to the collective is self-reliance and a government that provides an infrastructure that makes it possible. Government can remove the threat of force from transactions so that a free market can be developed based on the cumulative decisions of individuals engaging in free trade. Government can also serve as arbiter between parties who disagree in good faith as to whether or not one or the other has upheld their agreement. There’s no guarantee that you’ll get what you want or even what you need, but there’s no fees for empty promises involved either, and contrary to popular belief, charity still takes place and even thrives within free markets.
I don’t know if the current global turmoil will result in a shift away from statism and collectives and toward self-reliance and limited government or if people will opt for a “new and improved” brand of collectivism. I’m inclined to think that most people still hold out hope for state-provided, cradle to grave security, no matter how many times its futility is demonstrated. I do know for certain that if you expect bigger, more pervasive governance to improve your quality of life, you’re going to be sorely disappointed. As Plato put it, you’ve got to tend your own garden.
Whether it comes about through military coup or democratic elections, the underlying principals of statism, or collectivism are the same. The central authority, which produces nothing, takes from some and redistributes to others. The idea is that a small group of knowledgeable, wise, benevolent overseers can more efficiently and fairly distribute the fruits of the labor of the general population for the benefit of all. Overseers can be unions, elected officials, kings or dictators, but the promise is the same.
It has proven to be a compelling proposal. It’s failed a number of times, yet people still gravitate to it. The idea that you can contribute a little and have all your worries and cares tended to by someone else seems to be quite attractive. In fact people are even willing to give up quite a bit of their own personal freedom in exchange for such security, if you can deliver. Therein lies the rub.
The upheaval in the Middle East is not centered on religion or ethnicity or even political philosophy. It stems from shortages of food, employment, basic services and all the things the totalitarian governments there have promised to deliver. After decades of living under oppression, the people there have finally determined that it’s not working. They don’t necessarily have a new system in mind. They just know the current one is no good.
In the case of EU democracies, politicians have gotten themselves elected by continually promising more and more from government in the form of services, employment, pensions, housing, job security and other entitlements. Now they’re at a point where even the politicians have to admit that they can’t deliver what they promised. People are angry. They are actually demanding a continuation of the status quo, which is impossible. Something’s going to give.
In the U.S., the Great Lakes States were once the center of global manufacturing. There was lots of money and there were lots of jobs, but all was not well. Workers were getting a raw deal. Enter the unions. For a small fee, the union would advocate on your behalf in negotiations with management. This seemed to make perfect sense, until they evolved far beyond employee advocacy organizations. Unions began offering benefits in addition to advocacy. This costs money. Dues went up. They further evolved to take on political advocacy. The idea was that what they couldn’t achieve at the negotiating table, they could accomplish through legislation. They increasingly got involved in funding political campaigns. Of course, the very notion that a group of union representatives can better select your government representatives than you can, assumes that your life is primarily about your work; the work you do for the collective. If you prefer a different candidate, well, you’re just not a team player. As unions increased the mandates on producers, producers left the states and/or the country, seeking more affordable locales and workforces. Some went out of business. All turned increasingly to automation. The more expensive humans become, the more affordable machines become by comparison. The union movement sought more fertile grounds in the public sector. That worked out great for awhile, as the public trough seemed bottomless. It’s not, and once again they and their membership have to tangle with the reality that they cannot possibly deliver on their promise.
The alternative to the collective is self-reliance and a government that provides an infrastructure that makes it possible. Government can remove the threat of force from transactions so that a free market can be developed based on the cumulative decisions of individuals engaging in free trade. Government can also serve as arbiter between parties who disagree in good faith as to whether or not one or the other has upheld their agreement. There’s no guarantee that you’ll get what you want or even what you need, but there’s no fees for empty promises involved either, and contrary to popular belief, charity still takes place and even thrives within free markets.
I don’t know if the current global turmoil will result in a shift away from statism and collectives and toward self-reliance and limited government or if people will opt for a “new and improved” brand of collectivism. I’m inclined to think that most people still hold out hope for state-provided, cradle to grave security, no matter how many times its futility is demonstrated. I do know for certain that if you expect bigger, more pervasive governance to improve your quality of life, you’re going to be sorely disappointed. As Plato put it, you’ve got to tend your own garden.
Sunday, March 6, 2011
Free idea - thumb drive vending machines
Here's yet another great idea that I don't have the resources to pursue. I would sign up or the service if it existed however. It involves actually stripping away functionality of existing hardware and software, so it can't be that tough.
First, invent the machine (I'll get to the parameters here in a minute). Next, deploy them around your test market as kiosks or boxes (like a Redbox) in very high traffic, public venues. You, the owner, can log into the machine and upload new files. Users can download files for free, onto a thumb drive. That's basically the extent of the parameters for the machine -a hard drive with monitor, secure upload, users can view icons and/or thumbnails and download only.
Revenue would come from local magazines, publications, artists, who want to make their material available to locals, free from the clutter of the web. It's the new info-tech equivalent of the free publication rack. It would also make electronic media readily accessible, even to people with low quality or no Internet access. But perhaps more importantly, it's a means of spotlighting and promoting locally produced digital content.
You'd probably have to pay for space or split revenue for kiosk placement. You'd also have to track downloads individually and collectively so you have compelling numbers to show potential customers (content creators). It's not without risk, as you may have to offer the service free until you can demonstrate effectiveness.
Have at it.
First, invent the machine (I'll get to the parameters here in a minute). Next, deploy them around your test market as kiosks or boxes (like a Redbox) in very high traffic, public venues. You, the owner, can log into the machine and upload new files. Users can download files for free, onto a thumb drive. That's basically the extent of the parameters for the machine -a hard drive with monitor, secure upload, users can view icons and/or thumbnails and download only.
Revenue would come from local magazines, publications, artists, who want to make their material available to locals, free from the clutter of the web. It's the new info-tech equivalent of the free publication rack. It would also make electronic media readily accessible, even to people with low quality or no Internet access. But perhaps more importantly, it's a means of spotlighting and promoting locally produced digital content.
You'd probably have to pay for space or split revenue for kiosk placement. You'd also have to track downloads individually and collectively so you have compelling numbers to show potential customers (content creators). It's not without risk, as you may have to offer the service free until you can demonstrate effectiveness.
Have at it.
Monday, February 14, 2011
Why the change in Facebook's news feed?
Although I only have a few hundred followers or 'likes' between my personal and business pages on Facebook. I had resolved to work harder on them, because I recognized great potential value there. Now, Facebook has removed most of that value, and I believe it was deliberate.
Until recently, when you made a post to your Facebook page (business or personal) it would show up on all your friends news feeds, unless they went to the extra effort of blocking you. The significance of this for a business owner is huge. If you have a business page with several thousand followers or 'likes', you could reach the same size audience as a good sized direct mail campaign, at no charge. The fine folks at Facebook must have realized this and decided they needed to put a stop to it immediately.
Now, your news feed on Facebook will only show updates from people with whom you've had some interaction recently (a post on their wall, message or something). You can change the setting so that you'll see all of the posts on your personal page, but there's no fixing the business page, and most people will likely go on using the default setting, having little interest in or knowledge of the omni-setting.
I guess Facebook believes they'll sell more ads if they severely limit their users' ability to communicate for free. Maybe they're right, but I doubt it. My own use of Facebook, as a form of business communication, will likely drop off instead of increasing, as it has now lost much of its potential value. Well, there's still Twitter, and Facebook has now created an opening for an ambitious potential competitor. I really can't argue about the price, but I don't believe the gatekeeper mentality will serve Facebook or its users well in the long run.
Until recently, when you made a post to your Facebook page (business or personal) it would show up on all your friends news feeds, unless they went to the extra effort of blocking you. The significance of this for a business owner is huge. If you have a business page with several thousand followers or 'likes', you could reach the same size audience as a good sized direct mail campaign, at no charge. The fine folks at Facebook must have realized this and decided they needed to put a stop to it immediately.
Now, your news feed on Facebook will only show updates from people with whom you've had some interaction recently (a post on their wall, message or something). You can change the setting so that you'll see all of the posts on your personal page, but there's no fixing the business page, and most people will likely go on using the default setting, having little interest in or knowledge of the omni-setting.
I guess Facebook believes they'll sell more ads if they severely limit their users' ability to communicate for free. Maybe they're right, but I doubt it. My own use of Facebook, as a form of business communication, will likely drop off instead of increasing, as it has now lost much of its potential value. Well, there's still Twitter, and Facebook has now created an opening for an ambitious potential competitor. I really can't argue about the price, but I don't believe the gatekeeper mentality will serve Facebook or its users well in the long run.
Tuesday, February 8, 2011
The Case for Democracy
The situation in Egypt has put U.S. policy around the world under the microscope once again. People are rallying in the streets, demanding freedom and democracy. Surely, the land of the free and the home of the brave must support that. But wait, the current autocratic leader has been a good friend to the U.S. for thirty years. In return we helped them build a very formidable military machine. The waters are quite muddy.
Some argue that we should tread lightly. If true democracy comes to Egypt, we may wind up with a regime similar to that in Iran or Gaza. The problem with those comparisons is that Iran is far from a true democracy and the thugs in Gaza still rule largely through intimidation.
Free democracy is about more than one citizen; one vote. Freedom of assembly, speech, freedom of the press and rule of law are all absolute requirements. These are the freedoms that guarantee that even if good ideas are put down today and bad ideas are implemented, the good will be back and the bad will fall by the wayside. The power of the people to communicate, observe, evaluate and speak out is what keeps a society moving forward.
We should not be concerned about who might come to power in a free and fair election in countries like Egypt. We should concern ourselves with whether or not their next election and the one after that, and the one after that will also be free and fair and whether the people will be able to interact and speak freely in between.
The United States is at its best when it is a beacon of freedom and hope, not simply an instrument of preserving order. It should always be our position that governments, including their militaries, are servants of the people and that church and state be separate. We may not be able to dictate these things, but we can voice and promote them at every opportunity. The separation of church and state is not ant-religion, it’s anti-autocracy. After all, if someone who claims to speak for God or Allah, is in charge, what’s the check on his or her power? The rule of law must apply equally to all citizens of all religions or no religion. It is not the role of government to determine God’s or Allah’s will, but to protect the rights of individuals on Earth.
We need not be hostile toward countries or populations that don’t exhibit our values, but neither need we be shy or apologetic about what our values and beliefs are. As for me, I don’t believe that the people of the Middle East or Northern Africa or anywhere else are genetically pre-disposed to autocracy and/or theocracy. It may take them generations to work it out, but if we help them keep free, open, honest conversation going, they will work it out. In the tug-o-war between freedom and order, order has been vastly over-rated I think. I hope that U.S. foreign policy starts trending more American in the future.
Some argue that we should tread lightly. If true democracy comes to Egypt, we may wind up with a regime similar to that in Iran or Gaza. The problem with those comparisons is that Iran is far from a true democracy and the thugs in Gaza still rule largely through intimidation.
Free democracy is about more than one citizen; one vote. Freedom of assembly, speech, freedom of the press and rule of law are all absolute requirements. These are the freedoms that guarantee that even if good ideas are put down today and bad ideas are implemented, the good will be back and the bad will fall by the wayside. The power of the people to communicate, observe, evaluate and speak out is what keeps a society moving forward.
We should not be concerned about who might come to power in a free and fair election in countries like Egypt. We should concern ourselves with whether or not their next election and the one after that, and the one after that will also be free and fair and whether the people will be able to interact and speak freely in between.
The United States is at its best when it is a beacon of freedom and hope, not simply an instrument of preserving order. It should always be our position that governments, including their militaries, are servants of the people and that church and state be separate. We may not be able to dictate these things, but we can voice and promote them at every opportunity. The separation of church and state is not ant-religion, it’s anti-autocracy. After all, if someone who claims to speak for God or Allah, is in charge, what’s the check on his or her power? The rule of law must apply equally to all citizens of all religions or no religion. It is not the role of government to determine God’s or Allah’s will, but to protect the rights of individuals on Earth.
We need not be hostile toward countries or populations that don’t exhibit our values, but neither need we be shy or apologetic about what our values and beliefs are. As for me, I don’t believe that the people of the Middle East or Northern Africa or anywhere else are genetically pre-disposed to autocracy and/or theocracy. It may take them generations to work it out, but if we help them keep free, open, honest conversation going, they will work it out. In the tug-o-war between freedom and order, order has been vastly over-rated I think. I hope that U.S. foreign policy starts trending more American in the future.
Friday, February 4, 2011
Why isn't oil soaring on MIddle East unrest?
Before things blew up in Egypt, pundits and market mavens were predicting $100/barrel, even $200/barrel oil coming very soon. Two weeks into the uprising in the country that controls the Suez Canal, oil has barely budged and is currently at around $90. What's the deal?
Well, perception and emotion can be very powerful, but reality usually wins, especially in a market that's as "just in time" as the petrol market. It's much cheaper to leave oil in the ground than it is to store it, long term, in tanks above ground. For that reason, there's not a lot of "extra" petrol sitting around, so when you get a spike in demand, you can get a rapid spike in price as immediately available supplies dry up. By the same token, if demand drops even a bit, you can find yourself with a lot of excess inventory and nowhere to put it. Prices can drop just as fast as supply is unloaded on the cheap.
There is a threat of supply cut off, but it hasn't yet materialized. In addition, the historic cold snap in the U.S. has caused thousands of flight cancellations, school cancellations, business closings and has kept a lot of people who would otherwise be traveling, hunkered down at the house. The increase in energy being used for heat is not offsetting the huge amounts of petrol that are not being used for transportation.
If the situation in Egypt simmers down without anyone disrupting operations at the Canal (and there doesn't seem to be any party that would benefit from such a move), expect to see oil drop 5-10% in a hurry. If the canal is shut down, a huge spike up, and in the meantime a very gradual downward trend as what is actually happening slightly beats out what might happen.
Well, perception and emotion can be very powerful, but reality usually wins, especially in a market that's as "just in time" as the petrol market. It's much cheaper to leave oil in the ground than it is to store it, long term, in tanks above ground. For that reason, there's not a lot of "extra" petrol sitting around, so when you get a spike in demand, you can get a rapid spike in price as immediately available supplies dry up. By the same token, if demand drops even a bit, you can find yourself with a lot of excess inventory and nowhere to put it. Prices can drop just as fast as supply is unloaded on the cheap.
There is a threat of supply cut off, but it hasn't yet materialized. In addition, the historic cold snap in the U.S. has caused thousands of flight cancellations, school cancellations, business closings and has kept a lot of people who would otherwise be traveling, hunkered down at the house. The increase in energy being used for heat is not offsetting the huge amounts of petrol that are not being used for transportation.
If the situation in Egypt simmers down without anyone disrupting operations at the Canal (and there doesn't seem to be any party that would benefit from such a move), expect to see oil drop 5-10% in a hurry. If the canal is shut down, a huge spike up, and in the meantime a very gradual downward trend as what is actually happening slightly beats out what might happen.
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