Exile From the Herd - Armchair Analysis

Are economic cycles that easy to predict?

nospam@example.com (Mark Jeftovic) — Tue, 30 Oct 2007 20:49:54 -0400

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I'm currently reading Joseph H Ellis' Ahead of the Curve - A Commonsense Guide To Forecasting Business and Economic Cycles. So far there are a couple of refreshing departures from conventional consensus, like his views on "recession".

The idea of an economic recession should be an objective measurement of reality, instead, in today's climate it simply isn't discussed in polite company. According to the politicians, it'll never happen.

Ellis argues that whether we are headed for recession is academic, because recessions are lagging indicators of a down cycle, not leading ones. By the time a recession hits, he says, a lot of the economic damage has already taken place.

What really matters, according to Ellis, are a series of leading economic indicators and a shift in the way we measure economic data....
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That comfy cozy Nanny State

nospam@example.com (Mark Jeftovic) — Thu, 08 Feb 2007 15:29:08 -0500

A couple of recent developments have got me thinking about the nature of the socialist, nanny state, what it does to people's self-reliance and the insidiousness of entitlement programs in general.

South of the border, a minimum wage raise has been passed while up here the airwaves are full of cheery ads from the CDIC that the amount of bank deposits covered by the CDIC has been raised to $100,000.

The Canadian implementation of deposit insurance is supposed to be funded by the premiums of its member institutions. Thus the CDIC is a Crown Corporation funded by it's member banks and it pays out settlements from its own reserves, or if depleted it is allowed to borrow up to $6 billion to cover banking collapse. So on the surface it appears as if bank failures covered by CDIC don't come out of the taxpayers pockets.

This looks nice on paper. In reality the CDIC has cash reserves on-hand of 1.4 billion to cover payouts on a failed bank. It can, in a pinch, borrow that further 6 billion which brings it up to 7+ billion. Which basically means it has the resources to cover about 1.6% of the 437 billion worth of deposits insured, most of it with borrowed money. In the event of some sort of systemic or cascading banking failure, the rest would have to come from the Federal Government, better known as, the taxpayers.

We've seen exactly this happen in the US during the S&L scandal of the late 80's. The sister body to the FDIC, the FSLIC (which covered S&L's specifically) went insolvent and the entire debacle is said to have cost the American taxpayer $150 billion.

In a very under appreciated and obscure book called The Monetary Elite vs. Gold's Honest Discipline by Vincent LoCascio, the flawed logic of government underwritten deposit insurance is revealed time and again.
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Boom or Crash for 2007?

nospam@example.com (Mark Jeftovic) — Wed, 27 Dec 2006 22:30:13 -0500

With the Dow Jones Industrial Average making new highs, Wall St. experts and pundits all agree that 2007 will be an up year for major indices. By the way, they always agree that next year will be an up year. If things look particularly and undeniably bleak, then they'll predict a "second half recovery" but an up year all the same.

Nobody can say for sure what the future will bring. In general terms you can come out ahead simply betting against economists and weathermen. It may not work all the time, but I suspect it's statistically better than playing the lotto.

Modern day economists fulfill more of a cheerleading role than anything else. What economists basically do today is explain to the general public in easy-to-understand terms why anything bad that has just happened or is about to happen, is actually a good thing when you look at it from a different context, and why people should just go on about their business and not ask too many deeply probing questions about the current state of the economy or the financial system.

Examples include reporting core inflation figures ex-food and ex-fuel, not reporting M3 money supply at all, or explaining why adjustable rate mortages are a good thing when interest rates have nowhere to go but up and property values nowhere to go but down.

So one must decode this fog of obfuscation that surrounds all things economic and financial if one hopes to make a reasoned guess about the future.

Over the holidays I picked up two books with diametrically opposed hypotheses: The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel and The Next Great Bubble Boom: How to Profit from the Greatest Boom in History 2006-2010
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Why I want free markets and honest money

nospam@example.com (Mark Jeftovic) — Tue, 29 Nov 2005 16:15:33 -0500

This post was gelling in my mind prior to yesterday's fall of the Liberal government, but now that every political hack in the vicinity is going to bombard me with ~~lies~~ promises for "change" I'll outline the kind of changes we need to see and why there is no politician equipped to attempt to deliver it.

I'm currently reading two books: Empire of Debt by the Daily Reckoning's Bill Bonner and Addison Wiggins, and The Monetary Elite Vs. Gold's Honest Discipline by Vincent LoCascio, whom in an act of supreme flattery, sent me a copy asking for my thoughts.

The former cautions against the folly of "world improving", proving the old adage of the road to hell and demonstrating how the unbridled fiscal disaster looming in the world today is a direct consequence of a desire to think up what is best for other people, and then setting about to impose those improvements upon a hapless world.

The latter argues for "honest money", describing in excrutiating detail why what we have today is anything but, and why as a result of this, markets are not free the system is not stable and that things we take for granted as "normal", such as inflation and boom-bust business cycles, aren't. They are symptoms of an abberant monetary system.

When I reflect on material such as this I realize that at heart, I'm a free market conservative in a lonely place. It's loney here because what passes for "free markets" in this day and age are really heavily rigged ponzi-schemes based on debt financing, and what passes for "conservatives" are actually magical thinking "New Economy" flakes using pixie dust to cut taxes, goose spending, borrow more money than is made and somehow come out "wealthier" on the other end.

Ideologies are dangerous things, but as a political animal I find myself in abject disagreement with the status quo in the West today, how things are run, what is promoted as "beneficial" and what are true motivations are, that I find myself frequenting the fringes of the political sphere, places where eccentric libertarians hang out and even other places where left leaning collectivists gather to "stick it to the man".

This latter group misunderstands free-market economic conservatism as much as the fake, conservative wannabees do themselves. I'm sure if they understood it, they would embrace it.

Dishonest money booby-traps the system.

Honest money would mitigate what I call "the rampant pursuit of money" (i..e "Rampant Capitalism"). Rampant Capitalism is not greed for greed's sake but it is a horrible, unnatural side-effect of a dishonest monetary system.

Because of inflation, which always recall is neither natural or inevitable, earnings and savings are eroded. It is a form of theft. If you go out and make a million dollars, you can't just take it off the table and retire. Especially if you're reasonably young, say under 50. Odds are you'll outlive your money because it inexorably loses its purchasing power over time, thanks to politicians and bankers who keep devaluing your million dollars by endlessly printing up billions upon billions more and then buying votes with it.

Business owners and entrepreneurs tend to understand this more acutely, and the only "cure" for this is to try to invest any retained earnings or savings into investment vehicles whose rate of return is higher than the inflation rate. This is exacerbated in today's climate where interest rates are held artificially low and the widely reported inflation rates are routinely manipulated to make them more palatable (i.e. reporting them ex-food and ex-energy because nobody eats or heats their home). The result is a treadmill and short sited investment horizons which blur into daytrading and speculation.

Money that would have been well enough left in a savings account somewhere and preserving its buying power for a generation joins a frantic lemming-like rush around the world for returns on investment exceeding the destruction wrought by inflation: carry trades evolve, leverage is sought through margin, complex derivatives arise, it becomes "hot money".

A dumbed-down picture of the cycle, as enabled by dishonest money and world improving looks like this:

A politician steps forward to tell us what his vision of what is best for everybody is.
He makes promises so that if many people back his vision, he will distribute money from the few to the many (this is the only way the economics of vote buying works)
The politician is elected and he proceeds to improve the edges of the empire
Money is created to pay for the votes (promises, entitlement programs)
More money is created to finance the improvement of the world (wars are expensive)
next electoral cycle starts
after a few of these, the next boom-bust business cycle starts

I think that complaints about "rampant capitalism" and "unbridled market forces" are really complaints about things that impede free markets and if leftists understood that, they'd turn into libertarians overnight.

When collectivist systems fail it usually reveals the folly of central planning and how it is often the most clueless way to try to organize a society.

So the failings in capitalism and socialism turn out to have one common element: a government run by a panel of short-sited monkeys deciding what's best for everybody else.

I think where libertarians differ from leftists is that the former understand that governments are part of the problem, and the solution is a minimal government whose function shouldn't stray too far beyond protecting the rights of the individual, while leftists don't like the governments that routinely get elected and think things will improve drastically if their idea of a big government was able to run the show for awhile.

My personal belief is that it is illogical bordering on delusional to think anybody knows what's best for anybody else. It's hard enough getting through your own life without getting smucked by a car on the way home from work, how are you supposed to know what everybody else is supposed to do?

Get rid of 99% of the government, make money honest, and everybody mind their own business. What could be so hard about that?

Thieves and other opponents of property rights lament ETR ruling

nospam@example.com (Mark Jeftovic) — Fri, 25 Nov 2005 11:23:54 -0500

I was driving to an appointment last night listening to talk radio and heard whiner after whiner complaining about recent court decision that empowers the operators of the privately owned and operated ETR ( express toll route) to prevent toll route debtors from having their license plates renewed until they pay up.

This is a new turn of events and people who owe the ETR money are plenty steamed about it. Calls were coming in from people who owed upwards of $4,000 and $5,000. They're upset. They assumed they would be able to continue stealing services forever. Now that they've been caught out they're all armchair experts on why the ETR is a bad idea and should never have been allowed to happen in the first place.

Here's a newsflash: if it's a bad idea, if you think privately owned and operated roads are such a bad thing then don't drive on them. Could it be any simpler?

Now here's a few facts of life: oil is getting more expensive, not cheaper. Mark my words, the days of three-digit oil prices aren't far off and when they get here, they'll be here to stay.

The same people today who complain about the end of their ability to steal services from the ETR will be the same people tomorrow complaining about the price of gas when it heads north of $2/litre and more. They will argue for government price caps.

At the same time, these people have lives of their own, they work, they own businesses, and when they start demanding their right to steal services from private property owners or demanding government imposed price caps on gas I will say "why don't we put a goverment imposed cap on your wages too, then?" If they own a candy store, I will start demanding the right to walk in, help myself to the finest chocolate they have, and walk right out.

How will these people justify having other people's property rights stricken down and their own upheld in the same breath?

Toll roads are good and gas prices must rise according to the laws of supply-and-demand. Why? Because that's the natural and fair way to reign in consumption in a future where demand would otherwise outstrip supply.

Environmentalists should be all over privately owned toll roads and market dictated gas prices.

Complainers should go join the communist party, because that's what they're arguing for.

Corruption, not terrorism, is the true enemy of our time.

nospam@example.com (Mark Jeftovic) — Sat, 20 Aug 2005 11:40:34 -0400

As I watch more of our rights being chisled away, such as random searches on subways in NYC or the impending "Lawful Access" here in Canada, I realize that like it or not, some form of surveillance society is probably inevitable. I also thought this long before 9/11 as this post of mine on the OpenFlows mailing list describes back on Sept/99.

In it I cite Damon Knight's short story I See You which describes a not-so-distant future society where everybody can monitor anything in both time and space. Crime becomes impossible and privacy extinguished. As David Brin once observed, "Everybody wants privacy for themselves and accountability for everybody else".

If we are headed where I think we are headed, I will trade some privacy if I get everybody else's accountability in exchange. That means I will not sit still for a "top down" Big-Brother type surveillance society where politicians and lawmakers confiscate our rights to enforce laws which benefit their backroom deals. But I will settle for a massively parallel "everybody-sees-everything" society or "somebody-sees-everything" society that would sufficiently impair the corrupt from operating at any level of society.

So if a cop wanted to search me as I enter the subway that's fine. I'll scan in his badge number with my PDA and if he finds something on me he doesn't like, then he better not have any unexplained cash deposits into his own or his family's bank accounts and he shouldn't be driving a Ferrari on a beat-cop's salary. My lawyer will be checking out all of his dirty laundry, not to mention the chief of police, the TTC commissioner and whoever passed the goddamn law in the first place.

In a massively parallel surveillance society, you look at mine means I'll look at yours. If the police can call my ISP and get my access logs, I'll agree to it if I (and everyone else) can look at the banking records of my political candidates. I'll sit still for something like "Lawful Access" as long as I can also call Irwin Cotler's ISP and get the logs of his internet activity. After all, if he's doing something "subversive" then he shouldn't be the Justice minister, should he? The higher up the food chain people get, the more responsibility they shoulder, then the more maginifying glasses they should be under. The stakeholders of a given situation should be able to monitor the activities of the rulemakers.

I'm being overly dramatic to illustrate a point. The point is this: we are being observed more and more. This tide may be impossible to reverse. It is also increasingly clear that our leadership is rampant with corruption. Wars have been started on based on lies. Funds are misappropriated. Backroom deals abound. If the state can monitor the citizens "for safety's sake" then the citizens must be able to monitor the state for the same reasons.

And then we need to get serious about corruption and have some real world consequences for breaches of the public trust, which I think is one of the highest crimes imaginable.

The sad state today is politicians and financiers can abuse their power, lie, employ the powers of the state for their private gain, and even when caught they get a walk or some token prison sentence and will be pardoned down the road once their fate fades from public memory.

China may not be a free an open society like ours is supposed to be. But over there white collar criminals and corrupt politicians get the same treatment as a common murderer: they are executed.

What kind of signal would it send if Kenneth Lay and Bernie Ebers were hanged? What about next politician who is found to have lied to his constituants with grave consequences?

People who hold office need to be scared to death (literally) of abusing that power. They shouldn't have to be, they're supposed to be there out of a sense of public service, but until that sentiment returns to the land,forget terrorism, we need to get tough on corruption. We need to have a War on Corruption, one that may not end in our lifetimes.

Not enough guns for Sieg

nospam@example.com (Mark Jeftovic) — Wed, 17 Aug 2005 17:32:59 -0400

My friend Sieg is back from his vacation in the USA and he laments the sad state of gun ownership in Canada and compares with the States. This is another area where I have mixed feelings and sometimes disagree with him.

Sieg's problem is he gives people too much credit. Although he advocates "outlaw idiots, not guns". We live in a society where you are pretty much rewarded for being docile and stupid and penalized for being smart enough to know better. He also doesn't live in downtown Toronto, like I do.

Here in Toronto it's not unheard of to get your head blown off waiting at a bus stop. There's been between 3 and 5 fatal shootings within a 10 block radius of my apartment in the last month. If there were any more guns around this place would be Beruit, or maybe Fallujah.

Would I feel safer about things if everybody owned a gun? Probably not. It would imply that I trust people to have half a brain in their heads when it came to using them and I don't have that faith in my fellow man. Not when I turn on the evening news.

Of course, on the other hand I see the logic in gun ownership and responsible self-defense. Don't come crying to me if, while breaking into somebody's house they empty a shotgun into your gut, or your face. As we unix geeks like to say "Don't do that then". In my book when you violate somebody else's rights you forfeit your own. It seems almost silly to have to explain that but the point seems lost in civilized society.

There is an unconfirmed anecdote I've seen around (seems almost urban legend-ish to a guy here in Canada) that the Swiss citizenry are all well armed and trained. There is a gun in every household apparently, and they know how to use them. The Swiss haven't been in a war in over 500 years. After 9/11, while the rest of us were hastily giving up our rights and having our shoes x-rayed at airports, the Swiss advised their citizens to begin carrying their bayonets on flights. Any would-be hijackers trying to commandeer a plane with a pair of box-cutters would find themselves confronted by a plane full of bayonet-wielding passengers.

Which approach has more long-term viability?

Alas, if this were true, it illustrates a completely different headspace and culture among the Swiss, far more enlightened and not easily transportable to our instant-gratification addicted and attention span deficient culture. It would probably take 2 to 3 generations of intense, conscious therapy on our own collective society to get the maturity level up to a point where that approach would work.

Otherwise all you'll have is what they have in the US (or maybe downtown Toronto). And that clearly isn't working.

All Extremists should be lined up against a wall and shot

nospam@example.com (Mark Jeftovic) — Sat, 09 Jul 2005 14:24:27 -0400

In fairly short order today I've read some pretty emotional posts from varying sources on some closed boards I'm on.

One advocates the US "nuke" the border areas between Afghanistan and Pakistan to (paraphrasing) "make sure we get Bin Laden before he gets a suitcase nuke into NYC" . Another posits that we are in the midst of the "Third Holy Jihad" being undertaken by Moslems to bring the world under Islamic Law.

The latter quoted Jordan's King Abdullah who noted "The real struggle is between moderate and extremist Moslems" and it occurs to me that everywhere The Real Struggle is between moderates and extremists. The same conflict arises in Israel, Palestine, the USA. Everywhere. What we have are minority extremists getting into pissing contests with each other and getting the majority moderates slaughtered like lambs in the crossfire.

The "Them or Us" cornerstone of almost every extremist ideology is basically irreconcilable with the inevitable "Chicken or Egg" paradox which is at the center of every militant ideological conflict occurring in the world.

Neocon extremists in the USA would have us believe that "The War on Terror" began on Sept. 11/2001. Militant Islamists would have us believe the conflict started earlier, a lot earlier than that. Perhaps with the establishment of Israel. A militant Zionist would say that's nonsense and that their beef with the world has it's origins elsewhere.

Nothing changes but the names, all of these camps are defined by a burning hatred of "the other" and I can guarantee you they all have one other thing in common: They ALL believe "the other guys started it".

In normal times, extremists are at best harmless nutjobs and at worst criminals. They provide comic relief, ample material for the "what not to do" files. They make themselves easy targets for talk show monologues and when they go over the line and take things too far and people get hurt or killed, we round them up and throw them into the prisons they belong or in certain jurisdictions, execute them. In any case the extremists are noise against the signal of life and dealt with by the prevailing cooler heads of society.

These are not normal times. There are places in the world where the extremists are in charge. We have idealogues calling the shots and setting policy. (These places aren't all "over there").

The problem with this is when extremists take shots at each other, they hit the other guy's moderates. The vast majority of the population are ordinary people who would routinely treat others with courtesy and respect each other's differences in cultures and lifestyles. Most people just want to be left alone to run their own lives and raise their families. Then all of the sudden a useful idiot on errand set by some far away extremist nutjob comes along and kills you or your family. It enrages enough victims that a few of them become local extremists and they eventually return the favour.

So then somebody from the former victim's camp goes over and kills off a bunch of ordinary people who had nothing to do with the prior incident as "revenge". Repeat, ad infinitum.

This isn't rational and it's pretty self-evident to moderates. To extremists, saying this much is blasphemy or treason. (A handy self-test which is probably accurate to within a few percentage points: If you are going to leave a disparaging comment to this post, you are closer to being an extremist than you are to being a moderate)

Extremists believe they can do no wrong, have never done anything wrong, don't make mistakes, have God on their side and will be ultimately victorious against The Other Guy. They believe they are justified when they go kill a bunch of ordinary people "over there" that had nothing to with the last round of ordinary people some other extremists killed over here.

Extremists are bad for business.