Can't Raise the Bridge? Just Lower the Water..

What's the best way to ensure that we get a gee-whiz-largest-decline-in recent-history number for weekly jobless claims?

First, you go with seasonal adjustments, which make it possible to over-ride any inconvenient trends. Then, you bump up the number from the previous week so it looks like there's some daylight..

The newspapers helpfully report it as a huge decline. Merry Christmas everyone.

Uh course the numbers aren't all that great, when you see them side by side, but hey, it's the buzz phrase that counts.

In related news, I had the least amount of turkey on record in my Christmas ham dinner yesterday.

Chart of the Day #26

We should probably be somewhat relieved that the bucket gets filled at $10 billion less a month; but lest anyone thinks this is a big improvement, take a look at this chart from ZeroHedge.

Market Players are happy to take this as a sign that they can run free and easy in the market for a long while before A: a real taper happens, or B: something unforeseen happens.

Odds and Ends

People often make rational economic decisions, even with large numbers. Take the Powerball lottery for example. The  chances of getting the top prize is understood to be one in 175 million. Many people are willing to play whenever the top prize exceeds that. After all, only when it is over 175 large is it a fair bet; and you are playing then with other people's money -- other people being the ones who played the previous 5 weeks and didn't win. But wait, there's more: the odds are greater than 50-50 that by the time the number rises to 175 million, you will be splitting the pot with someone else. This is because more players dive in.

You see, the Powerball market wants you to believe there is a rational play here, but there really isn't. Game theory aficionados will all see the fallacy of the numbers, and the play is limited to those who are bad at math.

Which brings me to the stock market. There are big numbers there, too, but the same people who rationally play when they believe the odds are in their favor are now jumping into a market after the odds of continued gain have clearly worsened. Like the Powerball game, there is only so much money to go around. Unlike Powerball, the prices of the tickets continues to rise, as the Fed stretches the asset bubble one more step.

Stock prices can continue to rise, in concert with the Federal Reserve moneyprinting. At some point, however, there has to be earnings that stay up with the valuations. This is where the game tops out. Earnings for the nation's corporations in the recent past are due to the fact that they haven't hired anyone or invested any money since 2009 (thanks to the uncertainty of Obamacare). Further growth from here depends on total wages going up. The Fed's strategy for that is to keep the printers going. However, the fiscal policy is to maintain uncertainty, so we sit and wait. Meanwhile, the price of a pound of bacon is $5.00.

One indicator of stock market valuation is Cyclically Averaged Price to Earnings ratio or Shiller P/E after the Yale economist who first reported it.

One figure to keep in mind. The average stock price to earnings ratio over the decades is 16.5. Today it is 25.4. If the earnings begin to fall faster (as I expect they will), we will be back up to 2000 dotcom numbers in a jiffy. Note that Wikipedia defines a jiffy as 3 × 10⁻²⁴ seconds.
When this snaps back, how is everybody who plays going to get their gambling money back? Answer: They're Not.

Chart of the Day #25

Groundhog Day Observance in Washington

There is no way that this winter is *ever* going to end as long as this groundhog keeps seeing his shadow. I don't see any other way out. He's got to be stopped. And I have to stop him. Phil Conners, Groundhog Day, 1993

If you haven't seen the movie, then this is your spoiler. As the plot line develops, we get to the same start of every day (read: debt cycle), and every day it turns out to be the same things, the same people, and the same events. This is why there are 116,000 hits so far on the search string "Groundhog Day in Washington". Might as well add one more.

Did you know that the debt ceiling has been raised 100 times since 1941? The Republicans and Democrats like these little gatherings. It allows them the illusion that they are working (but not in cooperation, mind you) to resolve the financial difficulties of our government.

This time there was a twist. Some Republicans wanted to be on record, once again, in opposing Obamacare; like this needed to be restated somehow. Look, people already know whose program Obamacare is (hint: starts with an "O"). So why did they feel they needed to add this to their little wish list? I can think of two reasons:

One is that they really do fear on behalf of their constituents for the consequences of Obamacare, and this was the last opportunity to save us. I really would like to think this is the case, a possibility that proves that someone is still there in DC who sees what the rest of us do...the looming creation of a bureaucratic and stagnating health care system patterned after the post office and dozens of other bureacracy. 

The other is they are afraid that it might work, and they had to try to kill it. Of course, the "might work" theory was proved wrong on the same day as the shutdown happened, due to the failure of the exchange. 

At the end of the day (or is it the start?) the Republicans tagged Obamacare once again to the Democrats, and then caved. Did they really use this news cycle only to score some cheap political points? It would appear so.

They both wanted exactly the same thing in the end. They wanted to position themselves for re-election. And I say that without even a trace of cynicism. Neither side cares what effect of their latest can kick has on the economy. People are watching closely, because, and this is exasperatingly so: everything the government does now affects us financially. Think about that for a moment. Why does what happens in Washington affect us at all? How is it that billions, now trillions of dollars flow one way or another as a result of what our elected representatives do? Is that natural? Is that right? Most importantly, is it slavery?

That is the problem. In my opinion, The government should have little, perhaps no impact on an economy. John Tamny writes today, summing up why I will never watch another debt ceiling Groundhog Day cycle, at least while either Republicans or Democrats are in charge.

Considering the possibility of ‘default' whereby the feds would cease paying bills, it's already been well covered by the commentariat that this wasn't going to happen. Indeed, it's shooting fish in the barrel to point out that a self-interested political class would never knowingly do that which would be inimical to its own interests. Political types in D.C. love to borrow cheaply, this is true no matter party affiliation, so there was no way a default was ever going to happen. They'd sooner cut programs altogether, and as they should, than potentially imperil their ability to borrow.

The Victim in Chief

There's no one who wants this over more than I do. I would like my life back.   - BP CEO Tony Hayward, May 31, 2010

There are a whole bunch of things that I'd like to see pass through Congress that the House Republicans haven't passed yet. - Barack Obama, October 1, 2013

The public didn't like the BP CEO's characterizing himself as a victim. Why, then, does the press give Obama a pass every time he acts like one of the victims instead of the guy who is supposed to lead us through it? As president of the United States, his role is to work with the Congress and other policy makers, and find a successful solution to the country's problems. Instead, there's no room for negotiation with this guy.

It's no wonder the government is this dysfunctional if the president can't sit at the same table as the lawmakers. Fine, I am okay with Obama's dereliction of duty; because his involvement adds heat, not light.. However, when he acts like an aggrieved heckler with a microphone, it hardly advances the dialog.

We have Tony Hayward running this country, and this time the people are cheering him on

Do Nothing, Even if it's Wrong?

The degree in which a measure is necessary, can never be a test of the legal right to adopt it; that must be a matter of opinion, and can only be a test of expediency. The relation between the measure and the end; between the nature of the mean employed toward the execution of a power, and the object of that power must be the criterion of constitutionality, not the more or less of necessity or utility. ... - Alexander Hamilton, 1791


This week, as we all saw, the Federal Reserve's Open Market Committee (FOMC) narrowly avoided a unfettered opportunity to do the right thing. Instead of taking the action to slow the purchase of treasury bills (an activity which Bernanke himself referred to as 'easing up on the accelerator'), it's full speed ahead into 2014.

This is an admission that the economy is not recovering. This is a fact we all knew, but does not constitute a reason to "distaperfy" (the Fed inspires a lot of new words these days). The conclusion that should have been made from observation of facts available to all of us is that this extraordinary distortion of the bond market is not helping the economy.

It is as if the committee is watching the speedometer, forgetting that they were just supposed to go to the corner store for a gallon of milk. Sometime before the end of the year, they will leave the solar system. Everybody else knows the speedometer they are reading no longer has a relevance to this economy. So, why do they continue to press on? Surely it is harder to do nothing.

One clue is that it actually turns out to be a profit center for the Treasury. Warren Buffet calls it the greatest hedge fund in history. Since the Fed "owns" all of the bonds, it is returning all the profits back to the US Treasury.  Heck, 80-90 billion dollars a year come right back into the till. Not only is the government financing their debt, they are actually getting it all virtually for free. What a system!

A taper of any kind will be a signal that the game is up; that the government will have to start paying for its debt. This is a serious problem right now, because (1) interest rates were creeping up with the hint of a taper, (2) we are already at the debt ceiling. So, the FOMC is essentially hedging for the US Treasury; and somehow feels it needs to continue to provide cover for this scam.

The weaker data will continue to trickle in, and the Fed will use it to further monetize the debt, but when the game does end, it will do so not based on what the government thinks, but based on what the market thinks. Right now, the market doesn't know what to think. If interest rates stay below 2%, stocks continue to look cheap; but when the corporations are done buying their own shares for lack of anything better to do, the earnings will take over. With the economy still in a down mode, lower productivity produces lower incomes, and that leads to lower consumption.

Lower consumption leads lower earnings, and then the stocks will start to look expensive. Meanwhile, if the Fed continues to soak up 1/3 of the bonds, it means that the smart money could start leaving the US. That's going to leave a mark, exacerbating the problem now with a declining dollar. It would be a different matter if we were positioned to leverage exports. Unfortunately, we are not. We import a lot, and it will all be more expensive. That will look an awful lot like inflation when it comes.

The fed has this inflation wish going on. Bernanke is decidedly fearful of deflation, so he has jammed the gas pedal to the floorboard. Deflation is probably what the doctor ordered; but even if you don't agree, inflation is hardly a desireable result. Thinking they were facing a damned if you do, damned if you don't moment, the Fed has probably damned us to a raging inflation before the next bubble pops..

Chart of the Day #24

Update: Giving this chart "double power"
-------
Wish I could give this chart "double power".

Many of our nation's economic policies (both fiscal and monetary) are predicated on some assumed growth rate. The growth rate, if properly calculated, allows us to plan, to set future spending, and to prepare the right sized infrastructure for the resulting economic times.

You don't hear the number out loud very often. It does vary a little, depending on who is doing the calculating. Most politicians say they can keep us growing at 4-5%. If you set it too high, you run into gross overspending and overinvesting. If you set it too low, you get restriction of the very growth you want to achieve.  Sometimes the numbers are pure fantasy. For example, Detroit had consistent negative growth of 1.5% per year for 60  years (suggesting a planned slowing of city expenditures), but instead, the city used 8% growth in their calculations for revenue growth. I'm not holding Detroit as a microcosm of US trends except for this: You have to get the math right.

From time to time, it's necessary to get realistic about things, and Robert Gordon has done this with the analysis conducted for the National Bureau of Economic Research, titled  Is US Economic Growth Over?: Faltering Innovation confronts the 6 Headwinds

It may not be pleasant to contemplate a 0.2% growth scenario in a 2.5% Fed inflation target environment. Gordon points out that the path to higher growth will require much more than our leaders are thinking.

When Keynes will work

Jeffrey Dorfman posts an insightful piece in Forbes.com that should encourage the Keynesians out there...even though it renders their cause obsolete. Keynes was right about the stimulative effects of deficit spending...assuming we existed in an alternate universe.

It might have had a positive effect when there was a budget surplus, but the last one was squandered away quickly,  12 years ago. The next one isn't coming any time soon. Dorfman writes:

When government spends money at best they can manage to perfectly anticipate what we want, thereby matching the benefit we would have gotten from our own spending, or they can do worse. Government cannot do better unless it knows what we want better than we know ourselves.

Sadly, the government does typically pose as an entity that can anticipate our every need. This ruse gives the politicians just enough cover to plunder the system.

Economic literacy is taking a horrible beating these days. It's not something government schools will teach, either. Educate your children. I just sent mine a copy of Henry Hazlitt's Economics in One Lesson. I urge all parents to do the same.

Channeling Keynes

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. -- Paul Samuelson, economist (1915–2009), Inside the Economist’s Mind (2006)

John Maynard Keynes is my economic idol, which is why I jumped at the chance to write the intro to the new edition of The General Theory.  -- Paul Krugman

I know, it's usually broad and shallow sport to pick on Krugman. Anyone who spends that much time on one side of the teeter totter is bound to be dropped in the dirt fairly often. He's one of many voices you might be exposed to on economic matters (particularly if you follow the New York Times). He is known as the biggest voice for demand side economics. There are many who believe he is 93.6% or more wrong (your Wizer included).

Jeremy Hammond is the latest blogger to put him away

Know when to say when

Working more could ultimately mean thousands of dollars less for you under a quirk in the new health-care law going into effect this fall. This could prompt some people to cut back on their hours to avoid losing money. -- CNBC report on Value Penguin analysis

Chart of the Day #23

http://yelnick.typepad.com/yelnick/

Enough Time Has Passed

News Item:

NEW YORK—Claiming that enough time had surely passed since they last caused a global economic meltdown, top executives from the U.S. financial sector told reporters Monday that they are just about ready to completely destroy the world again.
Representatives from all major banking and investment institutions cited recent increases in consumer spending, rebounding home prices, and a stabilizing unemployment rate as confirmation that the time had once again come to inflict another round of catastrophic financial losses on individuals and businesses worldwide.
“It’s been about five or six years since we last crippled every major market on the planet, so it seems like the time is right for us to get back out there and start ruining the lives of billions of people again,” said Goldman Sachs CEO Lloyd Blankfein. “We gave it some time and let everyone get a little comfortable, and now we’re looking to get back on the old horse, shatter some consumer confidence, and flat-out kill any optimism for a stable global economy for years to come.”
“People are beginning to feel at ease spending money and investing in their futures again,” Blankfein continued. “That’s the perfect time to step in and do what we do best: rip the heart right out of the world’s economy.”
According to sources, the overwhelming majority of investment bankers are “ready to get the ball rolling” by approving a host of complex and poorly understood debt-backed securities that are doomed to quickly default, as well as issuing startlingly high-risk loans certain to drive thousands of companies into insolvency.
Top-level executives also told reporters that when it comes to depleting the life savings of millions of people and sending every major national economy into a tailspin, they feel “refreshed and raring to go.
“The other day I actually overheard someone on the sidewalk utter the words ‘I’m saving up for retirement,’ and right away I thought to myself, ‘Well, time to get down to work,’” said Morgan Stanley chairman James P. Gorman, adding that the increasing number of individuals entertaining ideas of starting their own businesses or buying houses was the financial sector’s cue to set off another devastating global recession. “We’re definitely thinking on a huge scale again, because we all really enjoy toying with the livelihoods of millions of people overseas and forcing them to wonder why reckless, split-second decisions made thousands of miles away dictate their whole country’s socioeconomic future.”
“Plus, it’ll be nice to finally wipe out the Euro once and for all this time,” Gorman added.
While most private equity firms, investment banks, and hedge funds are reportedly still undecided on the precise route to take in order to torpedo the job market and crash all international stock exchanges, sources confirmed they are nearly in position to resume gambling away trillions of dollars belonging to the American populace.
“We’ve got a lot of options on the table; it’s just a matter of picking which one we want to use to paralyze every single sector of the world economy,” said Capital One executive vice president Peter Schnall. “We already burst the dot-com and housing bubbles, so this time we can maybe mix it up by popping the education bubble and shattering the lives of everyone with outstanding student loans. Or maybe we’ll artificially inflate prices of stocks in social media companies and then pull the rug out, bankrupting every investor tied to companies like Facebook and Twitter. Or do both.”
“On second thought, maybe we’ll wipe out the housing market again too, just for the hell of it,” Schnall quickly added. “Might as well, right?”
According to a recent survey of Wall Street officials, 82 percent said they were “excited to shake off the rust” and send the Dow and NASDAQ into another freefall. Additionally, 75 percent of respondents admitted they have been “champing at the bit” for months to wholly undermine the nation’s local banks and money market accounts, leaving Americans too terrified to leave their savings anywhere.
Moreover, the chief financial officers from Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo unanimously told reporters that it has been “way too long” since they last saw the utterly dejected faces of American families whose homes had just been foreclosed on due to circumstances totally beyond their control.
“Now that the public’s efforts to curtail questionable Wall Street trading practices have all but ceased, it’s time for us to bring the world to its knees again,” said AIG CEO Robert Benmosche. “There are still plenty of opaque financial derivatives, high-frequency trading operations, and off-balance sheet transactions out there, all with virtually no federal regulation. Trust me, we can definitely work with that. And if anything, we can always just lobby for further concessions and deregulation in Washington—which, by the way, is so, so easy to do—and then we can cause as much damage as we want.”
Added Benmosche, “And while we’re at it, we’ll make sure we once again come away from this whole thing scot-free and far wealthier.”

Reposted from The Onion

Chart of the Day #22

 

When one has finished building one's house, one suddenly realizes that in the process one has learned something that one really needed to know in the worst way - before one began. -- Friedrich Nietzsche

From Political Calculations

From Allvoices.com

Chart of the Day #21

I can calculate the motion of heavenly bodies, but not the madness of people. -- Sir Isaac Newton

From Streettalklive. I'm not a technical trader type, but I do understand the significance of "reversion to mean" and "99% probabilities".  What I still don't quite have a handle on is the actual money printed as a percent of what's out there. I know what we've been told; ....85 Billion, or another 3% of the Adjusted Monetary Base. ... every month. That money has to go somewhere. Right now it goes to the market.

The new normal could be a continued bull run. I think the size of the resulting bear ticks up every time, though.

What still glitters

After seeing the carnage in the gold market, I decided there is something more going on than routine private market price manipulation. Private manipulation can move the market two or three perent at a time, but this kind of massive collapse requires government cooperation. The facts that I have pieced together (some significant, others not as much):

• Central banks have been net buyers of gold, the most significant piece of the market right now. China mines more than the rest of us combined, keeps every ounce, and is still the largest buyer on the world market.
• These same central banks have a need to obfuscate the future inflation they've been producing through their unprecedented money printing.
• By owning the lion's share of gold, they will essentially control price. By manipulating the price, they can continue to sweep the early emerging inflation news under the rug.
• The best way to own all the gold is to convince the current holders of gold that there is a looming deflation coming.
• This is an easy argument to make, because the central banks have been printing money all along, and yet the velocity of money remains at historic lows. This money is created, but not yet distributed. It is sitting in reserves waiting for some trigger event.
• By nurturing the myth of deflation, the inflation brew they've concocted stays in the back room, ready to boil over, but not just yet.
• Before that happens, the more gold the governments hold, the better positioned they will be to manipulate economies when inflation does hit.

Not everything has to be a conspiracy theory, but do we have any reason to not to believe this is crony capitalism at work?  There are a lot of important people (mostly politicians) who need the price of gold to remain low, 1) so they can acquire as much of it as possible before the currencies collapse. And 2) so they can continue to monetize the debt through stealth and overt inflation. Since they are masters of disinformation, they'll be able to accomplish this largely at the expense of the individual investors. This is the modern equivalent of Executive Order 6102.

Meanwhile, they are feeding the "ministry of information" the line that:

The economy is improving, and the fear quotient in the gold market is wringing out.

India's tax on gold is going from 4% to 6%.

Cyprus is selling $400 million dollars worth to pay the bills.

These are part of the disinformation campaign, and are laughable as explanations for yesterday's market moves.

Now, it is possible, on the other hand, that we really are headed for a raging deflation. If that's the case, then everybody should want to be in cash right now. What people fail to realize is that the govenment's reaction to deflation is always going to be even more inflation. So, gold should be the last asset someone should want to turn into cash right now.

People who think that gold is a bubble will feel vindicated (they will say they were right in 2013), but they haven't seen anything yet. The real bubble is the dollar.

Chart of the Day #20

Chart of the Day #19

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.-- H. L. Mencken

What the Supreme Court Could Do for us.

If particular precedents have proven to be unworkable, they don't lead to predictable results, they're difficult to apply, that's one factor supporting reconsideration. --John Roberts

In the Wizer's post "Follow the Money", I pointed out that the gay rights advocacy people don't want the rights so much as the rewards they perceive are due them, simply by virtue of their civic unions.

Now it is time to address the real issue: Favorable treatment for married people. This is special rights accorded to married people.  There is nothing in the constitution that addresses alimony, child support, insurance coverage for spouses, or the ever popular "married filing jointly". Why are married people given more rights than the unmarried? That is what is wrong with the law.

Okay, fine. The right thing to do now, it seems, is to discontinue any rights ascribed to marriage that would not otherwise covered under contract law. The beauty of such an approach is that people, all people, are free to enter into contracts with each other. It eliminates a big problem with the chief constitutional aspect of this initiative: that is, that there would be any laws that seek to assign rights to special interest groups. The measure would have the side benefit of causing people to be more responsible for the nature of their relationships. An employer, through its employment structure is free to extend additional benefits to spouses as they see fit, but the government would be prevented from extending "rights" to any special interest group...traditional or otherwise. Just simply end favorable treatment for married people.

This way it will prevent an endless parade of special interest groups wanting "rights" extended to them by virtue of one association or another. Freedom of association has long been a hallmark of our government and our constitution. But those associations should not be given free rein to carve out special rights of their own.

Since John Roberts has seen fit to rewrite an argument before, here's one where he could actually fix the real problem, instead of blandly weighing arguments from two wrong sides. That would be a nice precedent for this court to make.

Navigating The Big Picture

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine - the special pleading of selfish interests.


― Henry Hazlitt, Author of Economics in One Lesson
People make economic decisions every day. From signing a home mortgage on down to buying a candy bar. Economic choices are made by all of us, every day. Each choice is itself a simple one, and properly reasoned. Yet few stop to think of the impact of the choices they make on the overall economy. No, we are not missing anything, because we can't live our daily lives watching the big picture.

As it turns out, the big picture has a disproportionately larger effect on our lives now. For example, did you buy a house in 2006? I did, and because of the big picture, it was worth $35,000 less two years later. Would I have made the same transaction if I was aware of the big picture? No, I'm the Wizer, I would have done something different. You can be sure that I am a more diligent witness of the big picture since then.

What have I learned?

• That this "Big Picture" aka socioeconomics has an outsized effect on personal economics.
• That those who manipulate the money probably don't have your best interests at heart.
• That our learning what's really going on is not in the best interests of those manipulators.
• There are many theories of what's going on.
• Most of them are wrong.
• Some of them are intentional disinformation.
• We will be negatively impacted by our ignorance.

So, how do we  work our way through this? If you are like me, you have learned that the purveyors of disinformation tend to use traditional outlets. Talking heads who are raving about the stock market, or telling you it's a good time to buy a house, or car, are usually those who benefit from the transactions: Real Estate professionals on  one TV program who say it's a good time to buy a home will be on the other TV program tomorrow telling you it's a good time to sell. Stock market professionals are the same way. Mortgage professionals only benefit when there are buyers and sellers. Much of the promotion is from what insiders call "talking their book". To a stock broker, if he needs more sellers in the market will tell you to sell, even though the market is going up (because he has an excess of buyers in his queue). You have to follow the money, not the talker.

The news by nature gives conflicting viewpoints "equal time". You have to use an evolving filter to sort it out. You need a filter that progressively discredits wrong sources, and favor the ones that tend to be correct. Being discriminatory about the quality of information you get is what will save you. Over time, you will come to understand simple truths that can save you from ruin. One of the most important things I understand better now than before is that a person making economic choices has to develop a philosophy on economics. This would be an overarching thesis on the likely outcome of key decisions.

You can be an optimist or a pessimist, and it would only change slightly. You could be a republican or a democrat, and there might not be any difference at all in philosophy. The biggest danger is if you do not have an economic philosophy.

If there is no philosophy, where you merely try to react to current events, you are the target. People will take advantage of your willingness to abandon one strategy and move towards another. There are people positioned to profit from your many changes. Right now, there are people telling you that the stock market is a big opportunity, and people telling you there is an imminent collapse. What both sides want to do, really, is get you to do anything at all, because nobody profits until you do something, and they don't really care if it is the right thing for you. They are not in position to know if it's the right economic choice for you, so how can it even matter to them whether it is or not?

What you really have to do is imagine the world ten years from now. If you can figure that out, you have it made. Crystal ball, you say? Ouija board? No, but if you look in the right places, the biblical handwriting appears on the wall.

And when it does, that should become your philosophy, at least until the handwriting is no longer legible. You see, because the constant reallocations of economic funds, and the fact that someone is always profiting at your expense from the changes, it is best to develop a philosophy based on the larger trends, and let the nervous nellies pay for the short term changes.

So, what do you think will be there 10 years from now?

Do you think there will be deflation? Read Gary Shilling.
Do you think there will be inflation? Read/Listen to Jim Puplava.
Do you think there will be hyper-inflation? Read Peter Schiff.
Do you think there will be a great depression? Read Harry Dent.
Do you think the stock market will fall? Read Chris Martenson
Do you think the stock market is going to soar? Read Jim Cramer

In fact, read all of these people, if you haven't already, and then pick one economic philosophy. Just one. The magic in doing so is that you will be right in ten years. At least once. Which is more than you will be right if you don't pick one economic philosophy.

Hammer Time

News Item:

WASHINGTON (AP) -- Ben Bernanke sent a message Tuesday to Congress: The Federal Reserve's low-interest-rate policies are giving crucial support to an economy still burdened by high unemployment.


The Fed chairman acknowledged the risks of keeping rates low indefinitely. But he expressed confidence that such risks pose little threat now.Bernanke was asked whether the Fed's bond buying could push its balance sheet to $4 trillion. He said that it has no target for how much in bonds it plans to buy.

(...)

He noted that the Fed's balance sheet is less than that of the Bank of Japan, which has battled for more than two decades to strengthen the sluggish Japanese economy.

"Trust me, I know what I'm doing" -- Sledge Hammer

Chart of the Day #18

Wizer looks at the SoTU #6

Item #6: Minimum Wage

President Obama used the word "jobs" 31 times in his recent speech. You can't really be sure it is what he wants, though. He also advocates against jobs. He mentioned wages 9 times in the same speech, and made a big pitch for a higher minimum wage. He is evidently unaware of the simple economic relationship between wages and jobs. If wages go up, jobs go down. If he understands it differently, he is certainly not making a case why he his ideas should be adopted.

Your Wizer has long advocated the elimination of all wage and price controls so that the real economy can kick in. Even so, quite simply, it is the best possible outcome for the lower class. Everybody does better when everybody is working. Everybody works when the government doesn't prevent them from working. The government prevents working by eliminating the possibility of employment of low skilled workers. Why is the government outlawing jobs?

If a worker isn't worth hiring at $7.25, how is he going to get a job at $9.00? How? How does that open up even an opportunity for him to feed his family? The simple economic truth is he is then that much further away from getting a job. Then, there's the inflationary effect of the higher wages paid to people who survive the layoffs. All prices go up to meet the new minimum wage. The beneficiaries are not the people who got a 75 cent raise, when the cost of their burger has gone up 75 cents too. Nobody benefits from that, except maybe the investor who has bet on inflation. Perhaps that is Obama's target beneficiary.

Even though Obama's message was 31 for jobs and 9 against jobs, the fight against jobs is the one he appears ready to fight.

Wizer looks at the SoTU #5

Item #5: Immigration

I've long thought that one difference between republicans and democrats was actually a similarity. Both wanted to open up immigration without changing immigration laws. The difference is that the dems wanted the immigrants so they could fill the rolls of the dependent class, while the republicans wanted immigrants to fill the rolls of the productive class. Either way, both really wanted the same thing, so only one outcome was guaranteed. Both parties would continue non-enforcement until one eventuality or the other was met.

I see we have a winner.

By bringing new residents in, and making it easy for them to live here without working or learning the language, the democrats got what they wanted.

From here the only win-win is to turn these residents into productive citizens. That means teaching them the language, and upgrading their productive skills. And, to make sure they pay their taxes like everyone else (which has a way of making them more intelligent voters, by the way).

You have to stop with the "citizenship gauntlet" talk. If the people are here, get them into society, and make that productive society, pronto.

In the SoTU, Obama talked about "skilled immigrants", as if those were the only ones we were interested in. A hypothetical good president would talk about increasing the skills of the immigrants who are already here.

Chart of the Day #17

The Triffin Dilemma

Wizer looks at the SoTU #4

Item #4: PreSchool for all.

If there's one area that the federal government has failed in, it is education. Your Wizer has recounted many times why federal government involvement in education is unproductive, and even dangerous. Obama now wants to double down on governments education bet by taking the last couple of developmental years out of parents' hands.

Either the government is desperate enough to go for an even earlier socialistic indoctrination, or it's the only area of growth left for an outdated big-government program. At a time when we really should be rethinking the federal role in education, Obama wants to push on through to a bigger, more intrusive government protected entity.

It's for the children, they'll say.

Don't be fooled. They've been saying that for years, and every year, the children are worse off. No it's not for the children; it's for the department of education. The department of education. What did we do before there was a department of education? We did a lot more math, science, reading, and arithmetic.  What do we do now that there is a department of education? We do diversity studies. We do self esteem seminars. We create gun-free target zones.

The department of education, started by Jimmy Carter has 3000 employees and a budget of $12B. Not much by federal spending standards. But elimination would free up the states to run a more efficient school system. That's where the real savings are.

It's time to retire the education department. return all the money to the states. Let them figure out the best way to teach their students what they need to know. A natural diversity of education systems is the more resilient path.

Most importantly, do not turn over your pre-school kids to this government. Instead, use that time more productively by spending this important time with your child.

Wizer looks at the SoTU #3

Item #3: Executive action on climate change

Obama claims to be concerned about global warming. He has inexplicably bought into the myth that CO2 causes hurricanes to hit Staten Island.

It's the new paradigm, don't you know? If you don't like the weather, spend a trillion, it will change. The most misguided of all his proposals, he wants to drag Congress kicking and screaming into this economic blizzard. ... and if they won't go with him? Why he'll just do everything he can with executive money-printing for this.

You get the impression that he doesn't want pesky old Congress involved in his plans in any case. Believe me, I know how he feels. Unfortunately, the US Constitution (which I understand he has twice promised to uphold) is also very pesky.

Obama takes a patently ridiculous notion that we can do something about the weather, and wants to build a massive federal program around it. It's his version of a big idea. Kennedy goes to the moon, Obama cools the earth. Then go play 18.

The reality is we could burn every last drop of oil known to man, and the planet will do what it always does, which is regulate its own temperature. I only wish Obama himself would be as self regulating. As it is, the only thing overheating right now is executive branch hubris. 

A hypothetical good president would realize that the planet will save itself. Our job is to make sure its inhabitants are taken care of. Such a president would clearly be striving for more freedom and less government spending on follies like this.

Wizer One-Liner # 30

If you don't like the weather, spend a trillion, it will change. -- Barry

Wizer looks at the SoTU #2

Item # 2:  New manufacturing jobs

A lot of people make the mistake of thinking that the loss of manufacturing jobs is both a disease and a symptom. In a productive economy, the most useful work is done at a very high level. Machine repair, CAD design, research, testing, etc. Manufacturing skills are easily taught. Manufacturing as an activity is most economical when it lifts the least skilled persons into a position of added value. Currently, those skills are more economically provided in China, Thailand, and Burma. If it were more economical here, this is where the jobs will be.

At $7.25+ / hour going rate for US workers (more on this later, as you might guess), it will continue to be more economical to make things somewhere else.

The return of manufacturing jobs may not be an indication that the economy is improving. It could actually be an indication that we are not efficiently allocating the resources to the work. If it costs $6 to make a part in China and $8 to make it here, the company that is making in the US is at a distinct disadvantage in the global market. The market has a way of equalizing this type of imbalance.

The president brought up the "manufacturing institute" in Youngstown OH. Said they were doing something unique and fundamentally important. The truth is that there are thousands of Youngstowns now that are competing against government money now, yet are further advanced in the development of 3D manufacturing equipment. Why does Youngstown get subsidized? Because Obama likes to pick winners and losers.


The only worthwhile jobs are ones that add value. Obama wants to blindly chase after manufacturing jobs, without consideration of whether there is clear economic value. He now wants to spend borrowed money on 15 new "manufacturing hubs" of very dubious benefit, as if they have any sense of what might be successful in manufacturing development. A hypothetical good president would retire the labor department, free up the economy to create its own manufacturing hubs, and would eliminate the minimum wage. Then, anyone who wants to operate a manufacturing plant or work in manufacturing can do so without artificial restriction, and might even find a formula hat works economically.

Wizer looks at the SoTU #1

We all knew that what Mitt Romney wanted was not necessarily the best for the country. He wanted to be the President. You could see that in his heart. In telling us his story, we saw the issues lurking in his proposals. He would run the government like a business. He would make our choices for us, but tried not to say "we weren't in a position" to make them for ourselves. He didn't have any particular problem with Obamacare, and thought Obama himself was an upstanding citizen who meant well, but he was just just a little over his head. In fact, Romney was clearly misjudging Obama, Obamacare, and the serious issues of the day. His own plans for micromanagement of the US economy,had been tried before by Hoover, and we had just already gone through George (Hoover) Bush and Barry (FDR) Obama for the last twelve years and didn't need to start anew down that path.. In the spirit of "better the devil you know", enough people voted against that kind of change to prevent it from happening.

So, what did we get instead? Instead, we got liberalism on steroids. Our first look at Obama unchained came this week with the annual State of the Union address. As we have in the past, it is instructive to strike a contrast between what the president is talking about doing, and what a hypothetical good president would do instead. As we will show, the gap between Obama and a hypothetical good president couldn't possible be any wider than it is now.

Item #1. You can get ahead no matter who you love.

Was it really necessary in the first 3 minutes to attempt a pander to a special interest group? It is mindless and vapid to advocate for unity by calling attention to differences. If Obama really wanted everybody to unite, then why does he say things that underline those differences? Obama routinely chooses to identify people along his pet categories. It's as if he tells them that they don't really belong, but he's throwing them a bone anyway. Shouldn't he be inclusive to a fault? A hypothetical  good president already has everybody in mind when he says something like "you can get ahead". You can get ahead because you're an American. period.

Chart of the Day #16

News item: GDP Shows Surprise Drop for US in Fourth Quarter

Apparently, everybody but the economists expected this.

Another 300 million Sandy victims

News item: Emergency funding for Hurricane Sandy plus billions more in unrelated spending cleared its final hurdle Monday after the Senate narrowly voted to approve the massive $50 billion measure. --

The way the math works, my family covered over 800 dollars of this mess. That is on top of the previous 180 billion ($3000 per family) already spent. What did we do to deserve this? We have chosen not to live in hurricane prone areas, or to build our homes and schools on sandy beaches. Still we were assessed $600 and now $166 each to subsidize those who do.

I think it is important for people to be accountable. And they can do so easily, by self-insuring. There are thousands of insurance companies developed to assess this kind of risk, and to charge us more if we build on a beach. But no, that's not enough. We have to rush in with government buckets of dollars and send another 50 billion to rebuild the roller coasters on the east coast.

Hey, what about us? We're now victims of Sandy too. We'd like to claim our $3800 back. Sooner or later, the government is going to have to start justifying these unconstitutional transfers of public money. There should be a website generated, that shows any funding bill  in per capita form. Some examples (based on 300 million verifiable citizens)

Annual Federal spending:
Defense:   About $2467 per capita (probably worth it).
Departments and Agencies: About $2200 per capita (probably not worth it)
Interest Expense: About $1500 per capita (I thought I paid that credit card off)

Total debt: 16.4 trillion : $54,667 per capita.

Would you agree to send over 800 dollars of your money to the east coast? Well, you might, but you would also expect that they will be more careful with the money, and it would not include rebuilding casinos.  As it is, few of us away from New Jersey realize that we were also victims of Sandy.

Chart of the Day #15

Tick, Tick, Tick

Sandy Claws back

News item:  More than two months after hundreds of thousands of homes and businesses in the tristate area were destroyed or damaged by Hurricane Sandy, Republicans in the House of Representatives intentionally killed the $60 billion bill passed by the Senate by refusing to bring it to a vote on New Year’s Day. - The Daily Beast


 I always like to get to the next question, and today, the next question is: HOW did we get to the point where the Federal government is expected to offer free storm insurance to New Jersey? Chris Christie is as bad as any pirate, wanting to have 49 states pay for his cleanup. The guy has some nerve.

Fortunately, the bill was too saturated with pork to make it to the top of the heap of 2012 House bills, so it got shelved for a couple of weeks. For some reason, shelving a spendulus bill that was two months in the making for a couple of weeks is some sort of crime, too. 

What is insidious about this is the assumption that the federal government has any charter here. San Francisco with their earthquake, Chicago with its fire, and Galveston with it's devastating hurricane all did much better by dealing with it locally. Contrast their disasters with Katrina and Sandy, and you can see what I mean. ... that in modern disasters, everyone waits around for the federal money. There's nothing efficient, compassionate, or economically beneficial about this arrangement. Here, we have whole chunks of society waiting for uncle sugar to rebuild their house for them. and indeed, he will. It's expected of a nanny government. The houses will be built on the same shores, and rebuilt again every 25 years when there's another hurricane. Doubt that? Check the construction schedule for the 9th Parish in New Orleans.

If the matter were to be dealt with locally, the people would be persuaded to build on higher ground, and the states resources would be more efficiently used for real assistance. As long as the free money rains down from Washington, nobody will feel the least bit of pressure to fix the roof.

Cliff Notes

(...) wealth is not the same as income. The argument to tax the rich has really meant tax those whose current wage and salary income is high. However, let’s offer the reader a choice—who is richer—the $30 billion-plus portfolio manager or the $1 million salaried worker? The problem is that we are defining rich based on current income without any accounting for wealth. Therefore, it is no surprise that so many billionaires in terms of wealth have no problem raising taxes on the millionaires in terms of income (actually, $200,000 single and $250,000 married couple).  -- Fiscal Cliff and True Reform, Wells Fargo Securities, LLC Economic report, December 18, 2012

I have been a reader of Wells Fargo Securities reports for about 6 months now, and have found every one to have high value. After reading this report, I was no longer concerned about what might happen if we traverse the fiscal cliff (as still seems likely here on New Year's Day). The conclusion that can be drawn is that policy makers are addressing the wrong problem.

Here's a primary viewpoint of the report, which I agree with:

(...) running fiscal policy based  on  the  opinion polls of who should get taxed is not an intelligent form of policymaking. Of course a majority of the opinion favors taxing a minority. This is the worst form of taxing the man behind the tree. As indicated above, the problem is that the tax base has been narrowed too much both in terms of incomes taxed and our definition of rich. Such opinion polls represent the tyranny of the majority for a majority that is unwilling to tax themselves for the benefits they receive.

 The report goes on to emphasize that neither Simpson-Bowles, nor the baseline fiscal cliff scenario addresses the real problem, which is that the promised entitlements require 4% growth in an economy that will max out at 2 percent on into the future. Further, if the debt level does not immediately fall to 90% or less, we're not even going to get that. Simpson-Bowles took Obamacare off the table, and left Social Security and Medicare untouched. As such, it did not address the elephant in the room.

Since the congress that takes over for this one is comprised almost entirely of democrats and republicans, there isn't much we will expect in the way of useful fiscal policy. The problem begins with the two parties arguing over a fallacious pivot point...which is that we should begin confiscating income. Why is that fallacious? Income is the desired result of a growth economy. If policies seek to limit income by taxing it, there will be less growth. When there is less growth, the economic assumptions made that foretell any semblance of stability go out the window.

So, place your bets accordingly. Economic growth of 4% against the headwind of Obamacare, declining demographics, and near certain inflation vs. all that with higher taxes. Happy New Year.