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.