I'm Betting on a Rising Stock Market

The belief that the stock market will go up forever is  a bubble psychology that goes back to the South Sea Bubble, which fooled even Sir Isaac Newton. Since 2009, and especially since President Obama's reelection in 2012, the stock market has been going at a tear. The tear will continue. The editorial page of the New York Times proves it.  The Times wrote this yesterday: 

On one side is a small yet vocal minority of Fed officials who want to head off inflation by raising rates sooner rather than later. On the other is a majority that thinks a near-term rate hike would stifle growth and, with it, any chance of restoring health to the labor market. That group includes Janet Yellen, the Fed’s chairwoman, and most members of the Fed’s policy committee…The economic evidence indisputably favors Ms. Yellen, who has indicated that rate increases should not begin until sometime next year, at the earliest. It will take until then to be able to say with confidence whether recent improvements in growth and hiring are sustainable.

The reason that the Times's editorial is important is that the nation's hierarchy of decision making with respect to interest rate policy is as follows:

Investment banker cronies--> Ochs Sulzberger family-->The New York Times--> public opinion among Democrats --> President Obama's opinon --> Janet Yellen's opinion --> Federal Open Market Committee decision

If a Republican were in office, the Wall Street Journal would play the equivalent role.

Rates will be lower, or will increase less, than stock market participants expect because the Democrats have a commitment to boosting the stock market. The Times goes on to make the curious claim that keeping interest rates low will improve real wages; that real wages have declined while interest rates have been kept at historically low levels for the past 43 years does not deter them.  Recall the old saying about insanity.  

 Seeking Alpha says that George Soros is currently hedging the S&P 500. I'm sure that there is a logical or statistical basis for his tactic  because all evidence says that the stock market is high now.  The support of the Fed will continue to keep the market at high levels into next year, though.  I'm not buying the S&P short ETF, SH, just yet. However, I have about 1% of my portfolio in the VIXX index and an interest rate short index, both of which have declined and are near all-time lows. The VIXX index measures market volatility, and it goes up when the stock market goes down.  It is at all-times low, which is an indicator that the stock market will go down.  

From a policy standpoint the New York Sun's Seth Lipsky continues to offer a still, small voice of financial sanity among the Sodom and Gomorrah of the American media.  Sadly, Paul Krugman will have to turn into a pillar of salt before any change in America's addiction to print-and-spend economics ends. 

For now, I'm buying a little more Chicago Bridge and Iron (CBI).  It's gone up a few percent since Buffett bought a second set of shares; according to Seeking Alpha several other hedge funds are piling in.  The sharp decline due to rumors about improper accounting and the firm's president's illness seems to have offered Buffett and other hedge funds a buying opportunity; including pension fund holdings, Berkshire may own 25%. 

My Week at the Charles G. Koch Foundation's Market Based Management Seminar

I spent Wednesday to Friday at a seminar sponsored by the Charles G. Koch Charitable Foundation's market-based management initiative.  The seminar was in Wichita.  It was a first rate experience. Without exception, the speakers, mostly Koch executives, were enlightening. The audience was made up of talented libertarian academics from around the country.

On the first full day Mr. Koch spoke with a panel of executives.  It was thrilling to listen to a business genius.  He has built a medium size oil services firm into a $100-billion-in-sales nimble behemoth, the largest closely held corporation in America, using the principles outlined in his book, The Science of Success.  Koch Industries' management style is more advanced than other corporations'.  In contrast to billionaires like George Soros who live off the Fed and immiserate the public, Koch makes money by producing value.  The legacy media therefore libels Koch.

Richard Fink, a former Rutgers economics professor and president of the Charles G. Koch Charitable Foundation, gave several talks about economic freedom.  Charles's son Chase spoke on Friday morning about  how one of the firm's subsidiaries applies market based management. As well, we heard from finance, operations and HR executives about how the firm implements Charles's market based management model. Besides being an innovative competitor Koch displays ethical standards that are beyond anything I have witnessed in academia or in the New York business community.  Koch Industries is MORE ETHICAL than most higher education institutions.

The culture shock of going from upstate New York, which is devoid of industry, to Wichita, which has numerous thriving businesses including Coleman Lanterns, Cargill, and Koch, made me reflect on the reasons for New York's economic failure.   In New York, state and local government spend 23.3% of gross state product while in Kansas state and local government spend 18.17%.

This was a great opportunity because academia excludes and discriminates against libertarian professors. The Koch seminar provided me with an introduction to colleagues who share my views. As well, I enjoyed learning about state of the art management practice.

TRU TV's "Conspiracy Theory" Best Television News Show

My vodka bottle's running low and I needed something to do to relax from reading my students' papers so I violated my rule about not watching television news. In particular, my wife mentioned that Jesse Ventura's "Conspiracy Theory" is on truTV.  I'm watching the episode where a guy was talking about a nuclear bomb on the phone and the FBI came to his home six hours later because they can listen in via satellite. I think Jesse Ventura is performing a major public service. Whether the power plant in Alaska is really a Tesla death ray machine or there were bombs used at the World Trade Center on 9/11 are grist for Ventura's imagination.

What I think is especially important about this program is that it suggests that a large number of Americans have little or no trust in the government or the run of the mill media analysis and so emphasize conspiracy theories. In a sense this is a diversion because the underlying problems are ignored. Moreover, the conspiracy theories re enforce the sense of powerlessness that many feel.  But belief in conspiracy theories is a beginning.  The next step ought to be analysis, uncovering issues that are controllable. Then, empowerment is necessary so that people who have become alienated from the government can act on their concerns.

Many people have little faith in our government because it is too large.  The element of participation and control is lost with the enormity of the American state. This leads to a sense that shadowy powers are in control.  This may be close to the truth, although the conspiracies that Ventura emphasizes at most are symptomatic, if they are real.

The American state needs to be downsized through decentralization.  I'm not sure if "Conspiracy Theory" is empowering Americans or if it is just re enforcing their sense that Big Brother is out of control.  But I believe in the show's spirit to a much greater degree than say NPR, which apparently is now under George Soros's control and censorship.

Indymac Boys Get Sweetheart Deal

Jim Crum forwarded this description of how the FDIC (the Obama administration) is directly benefiting George Soros and Goldman Sachs executives via Indymac Bank. 

Glenn Beck and Conspiracy Theories

Contrairimairi sent me this link on the Grand Delusion blog concerning Glenn Beck. The writer makes several good points. He should have stopped at his discussion of the Fed. Claiming that 9/11 was a US government conspiracy is a path which angels ought fear to tread. The freedom movement fails to serve itself by advocating conspiracy theories. The writer states that a few people resigned from the 9/11 commission but that is insufficient to claim a conspiracy.

There have been true conspiracies in American history, such as the one involving the assassination of Abraham Lincoln. There is still debate whether the Kennedy assassination involved a conspiracy. Such debates are fine but ought not be the basis of a political platform. Any movement or group that makes such a debate part of its fundamental belief system or platform consigns itself to the margin. So Beck is right.

Which does not change the Grand Delusion writer's key point. By making himself seem a "mainstream" leader of the freedom movement Beck can do considerable damage to it.

As I have previously blogged, I do not watch television or listen to radio news. The clips I have seen of Beck do not seem to indicate that he has taken a forthright stand on the Fed. I would also be interested in knowing his position on the United Nations. The video below opens questions, unlike any other media source, but Beck himself does not take a position. There is no one on any major media outlet who questions US involvement with the UN, so Beck's position is unbalanced. Balanced does not mean balancing 100% with 0%. Taking a 50-50 position where coverage is 100-0 means that you are advocating 99.5 To 0.5.

The importance of the Federal Reserve Bank issue cannot be overstated. It is the chief issue of interest to the "military industrial complex" and to anyone who favors socialism. Without the Fed and its wealth redistribution mechanism neither big government nor Wall Street's current form of organization would be possible. There is no need for a conspiracy theory. Bald economic interest and straightforward, mechanical economic relationships are all that are required to identify why George Soros favors the Fed and opposes the Second Amendment. Any advocate of the closed society and for a privileged elite would find considerable virtue in Soros's positions.

Thirty Year Bear Market

An economic forecaster once told a class I attended that he loved to make thirty year forecasts because no one would remember his forecast when the events actually occurred. So he could collect his fee without fear of request for a refund. I will make a thirty year forecast, nonetheless. We are in for soft and declining markets for the rest of my life.

The unfolding of the banking problems in the past two years and the ongoing subsidization of the housing and stock markets via low-to-negative real interest rates will have predictable effects. The current situation is complicated by the de facto pegging of the dollar by international central banks. The real effects of the subsidization are wealth transfers from productive to unproductive factors of production. The chief beneficiaries of the transfers are beneficiaries of government (both employees and welfare recipients), investors and speculators in assets, including stocks, currency, bonds, commodities and real estate. The chief losers are savers in cash and productive workers.

The debt of the US government is growing in absolute numbers to an extent unparalleled in history. Generally, large government debt increases have been associated with monetary expansion and inflation. This time, central bank dollar pegging has limited inflation in the US. The pegging is a form of international inflation. That is, the nations that are supporting the dollar are making their citizens poorer in order to keep them working.

Ultimately, the complex deception becomes untenable. The public starts to question why harder work is met with ever lower rewards. Larger and larger transfers to asset holders are required to keep markets steady, and workers will become poorer and poorer, driving increasing numbers out of the labor market. Democrats and collectivist altruists will say that the deprivation of the productive is in the public interest.

It has become apparent that the US government will not allow the stock and real estate markets to fall. As well, it cannot afford to pay off its massive, ever-increasing debts. So it will depreciate the dollar.

The alternative to stock markets that are soft and retain value only because of government subsidy and dollar holdings that are vulnerable to hyper inflation is commodities. But there is no reason to trust the stability of commodity markets. The pegging system coupled with carry trade and hedge fund activity ensures support for the dollar when it weakens.

The forces for inflation and dollar (and international currency) depreciation are far more powerful than the forces for stability, for the debt is growing too quickly to ever be repaid; the Fed is creating a bubble in US Treasury debt; and the Fed has shown that it will not permit real estate or stock markets to fall. So in the long run, over thirty years, commodities will be better than dollars. But it will be a bumpy road.

Given the uncertainty, firms cannot think long term in the new world socialist order and so sustainable economic growth is out of the question for the foreseeable future. Likewise, the growth absorbing power of government will ensure a declining economy. Innovation in the US once powered the world's advancement, but unless the Asian nations more aggressively permit entrepreneurship, there is no longer a growth engine. It certainly is not the United Socialist States of America. As George Soros pushes for an American society ever more closed and totalitarian, opportunities for shorting and going long on commodities and currency become greater.

Do not expect the highs of the early 2000s to be significantly surpassed in real dollars. But there will be plenty of inflation to confuse everyone.

Dollar Gains, Gold Falls--Can a Chimera Last Forever?

A couple of weeks ago I blogged that my coin flip test confirmed that the dollar was in a strengthening trend and gold in a weakening trend, and it seems that the coin (it was a 1982 penny) was right. Kitco's Jon Nadler notes (gold closed at $1,080 per ounce today):

"The final session of the final January trading day in New York opened with a $1.50 loss in the yellow metal, which was quoted at $1083.90 per ounce. Gold traded in a band of from $1078 to $1088 overnight, as few additional physical buyers (other than pre-Chinese New Year buyers) emerged to take advantage of yesterday’s further significant dip. Today’s GDP numbers may yet aim gold back towards yesterday’s lows."


Nadler adduces a chart that shows that gold supply exceeds demand this year by the largest amount in three years. He quotes bearish sentiment on gold at Goldessential.com and adds:

"George Soros said yesterday that despite the current headline-making woes that Greece is experiencing, he expects the country to get its act together and not collapse in terms of debt. He referenced a six-month turnaround by Hungary some time ago as an example of how a comeback can be achieved. That said, Mr. Soros also mentioned the fact that Germany is in no mood to pump money into the direction of what it sees as ‘profligate spenders in the southern parts of Europe.”

He also notes that Soros has said that he believes that there is a risk of a gold bubble because of low interest rates. But of course, monetary expansion causes both low interest rates and gold speculation. No great insight there. Nadler mentions $1,030 as a possible low-end targeting. As well, he quotes Bloomberg:

"Commodities headed for the biggest monthly drop in 13 months on concern that demand may wane as governments seek to control economic growth."

In the short run, traders like Soros and, more generally, Wall Street hedge funds, are likely to support the dollar. This will also be true if there is any kind of bad economic news.

But what are we seeing in Washington? Ever increasing deficits and insanity. If someone tells you they're a Democrat, send them to a psychiatrist.

This is hard to take. Short term, the dollar looks buoyant. Long term, there could be a breakdown in the dollar that could happen quickly. Prices of gold and stocks go up with monetary expansion. The world's monetary system is unstable unless everyone inflates along with the US, which has already expanded its potential money supply three-fold. So no currency seems safe, including the dollar.

So far, the international financial system has supported the dollar. But how long can a chimera last?

A Conspiracy Theory of the Obama Phenomenon

I'm not a big fan of conspiracy theories but let's try one. A group of investment bankers, George Soros, David Rockefeller, Rupert Murdoch types gather at the Bilderberg, Trilateral Commission or some similar venue. They aim to loot the public by injecting a huge amount of monetary reserves into the banking system, hyper-escalating a stock market depressed by media rumors (media that they control), sell at the peak and then sell dollars. They aim to find a fall guy for the ensuing market collapse and hyper-inflation. They create the image of a messianic president who turns out to be corrupt. What could be worse than discovering the Anointed One is a corrupt fraud? They play to racism thinly veiled by "progressive" cognitive dissonance and "liberal guilt". The monetary reserves do their work while, simultaneously a series of corruption scandals evolve even before the Annointed One takes office. The scandals start almost instantaneously, but take several years to coalesce around the Anointed One. By then, the stock market has peaked and goes into free fall, the dollar is plunging and there's hyper-inflation. The banker conspiracy pulls their dollars out of the US into gold, commodities or Euros. Who better to hang the problems on than the corrupt Messiah?

Tin foil hat stuff, right?

Open Letter to Mr. George Soros and Open Society Institute Re Obama Birth Certificate

Mr. George Soros
Open Society Institute
400 West 59th Street
New York, NY 10019, U.S.A.

Dear Mr. Soros:

You have made a point of claiming that you believe in an "open society" and you have assertively backed Barack Obama's candidacy. At present, the State of Hawaii has violated the requirements of its Open Records Law and § 338-18 of its statute concerning birth records by refusing to provide Barack Obama’s birth certificate to every American. Yet, every American has a direct and tangible interest in seeing this information first hand. I have written to Mr. Obama and asked that he open this information to society and he has not responded. Instead, Obama supporters have offered a fraudulent birth certificate via a Web site. I am curious as to how Mr. Obama's willingness to engage in manipulative secrecy jibes with your belief in an open society. Do you continue to support Mr. Obama's candidacy despite his indifference to an open society?

Some have argued that Mr. Obama's birth certificate is not problematic and that he is merely manipulating public opinion, intending to reveal favorable information at an opportune time. If so, is this sort of political manipulation the foundation of your interpretation of what the term "open society" ought to mean?

Sincerely,

Mitchell Langbert

The Obama Cabinet and the Teapot Dome Scandal

Rev. Jeremiah Wright and William Ayers (1968).







During recent debate about Barack Obama's associates, Mr. Obama's proponents have claimed that he should not be accountable for his friends' opinions. But presidents appoint their friends to cabinet and staff posts. In 1924 it was revealed that Warren G. Harding's cabinet appointees had illegally sold medical supplies and leased oil wells to Sinclair Oil interests in the famous Teapot Dome scandal. Let us imagine President Obama's potential cabinet:

Secretary of Education: William Ayers
Secretary of Health Education and Welfare: Rev. Jeremiah Wright
Secretary of the Treasury: George Soros
Secretary of the Interior: Rev. Michael Pfleger
Attorney General: Reverend Louis Farakhan
Secretary of State: Sami al Arian
Postmaster General: Barbara Bowen (president of CUNY's faculty union)
Secretary of Defense: Bob Avakian

Given Mr. Obama's poor judgment in his choice of associates, how many Teapot Dome scandals will ensue from an Obama cabinet?

Are Left-Wing Speculators Causing the Run-Up in Fuel Prices?

A friend who is interested in gold and commodity investing just questioned whether well-heeled left wing or Democratic speculators might be causing a run-up in oil prices as part of a concerted anti-Republican campaign. I wonder if that argument has any merit. Is there an ideological component to the recent run up in oil prices?

Keywords: George Soros, Hollywood, oil prices, speculation, Republican Party, presidential campaign

Barack Obama Is A Racist and, Worse, a Social Democrat and a Progressive

Howard S. Katz has just written blog that argues that Barack Obama is a racist:

"...Barack Obama is a racist. He sees white people through the prism of hate. He sees them in clichés...So now we know what the election of 2008 is really about. The Democrats may nominate a racial bigot who hates the large majority of the people in the country he is trying to lead. The campaign will be very simple. The Democrats probably won’t come right out and say it, but their position will be, “We hate America...

"I first met these people at Harvard in the late 1950s. The issue has nothing to do with black or white. They hate America because America is the country based on freedom. They are not liberals. Neither are they democrats (with either a lower or upper case “D”).

"The formal name of these people is Social Democrat. This was a movement founded in 1875 in Germany to prevent the ideas of freedom and democracy from advancing across the continent of Europe. In 1912, the Social Democrats took control of Germany and fomented W.W.I. Then another Social Democrat, named Adolph Hitler, fomented W.W. II.

"...This will be the Presidential campaign of 2008. The Democratic position will be, “We hate America.” The Republican position will be mealy-mouthed compromise. And the people of the world run around killing each other over the food which does not exist"

There is little doubt in my mind that Barack Obama represents a fringe element. There is also little doubt that the Democrats who back him, such as George Soros and Warren Buffett, are anti-American bigots.

Warren Buffett Attacks Middle Class Businessmen and Farmers

On February 14, 2001 BBC News reported that:

"A group of the United States' most wealthy citizens have urged Congress to reject a plan by the new Bush administration to phase out taxes on estates and gifts by 2009...A petition, to appear in the New York Times on Sunday, is being organised by William Gates Sr, father of Microsoft chairman Bill Gates...Around 120 rich Americans, including billionaire investors George Soros and Warren Buffett, support the petition...Mr Buffett, who himself did not sign the petition because he thought it did not go far enough, said that repealing the estate tax would be a "terrible mistake."

Fox News reports today that Buffett:

"told the Senate Finance Committee on Wednesday that Congress should keep the estate tax rather than repeal it and help a few rich Americans like him."

When you think about it, it makes sense for America's wealthiest citizens to support the estate tax since it doesn't affect them. There has been an estate tax in effect for nearly 100 years, yet America's wealthiest families have mostly avoided it. In fact, virtually nothing in the tax code is as it seems. The tax code is full of exceptions, regulations, exceptions to the exceptions and regulations that regulate the exceptions to the exceptions.

In contrast, wealthy but middle class businessmen and farmers worth $3 or $4 million have trouble affording legal talent to lobby for or find the exceptions. Not so the Rockefellers. The Gates-Buffett pro-inheritance tax movement is an effort by the very wealthy to attack and impoverish the upper middle class.

Farmers and small businessmen may find that they lack the cash to pay an inheritance tax. Owners of expensive Manhattan apartments may have to throw their less lucky children onto the street because the parents fear that they will not have the cash to cover the inheritance tax on the apartment.

It is logical for the super-rich to favor the inheritance tax because the inheritance tax has never prevented them from establishing trusts. Many of the signers of the Gates petition may do so when the glare of the news media is turned away.

Moreover, cronyism and nepotism, the hiring of friends and relatives as opposed to the best qualified candidate, is morally indefensible. Yet, Buffett has appointed one of his children to run Berkshire Hathaway. The not-so-wealthy can't afford to appoint their children to a corporate sinecure.

The opposition of the super-rich to inheritance is hypocritical for another reason. If the state did not interfere with the money supply and the economy, an inheritance tax would not be so big a problem because asset values would be lower. But it is because the Fed inflates the money supply, artificially depressing interest rates, that illiquid estates are problematic. Apartments and houses that have been in families for generations must be liquidated. Small businesses must be broken up.

Were the Fed to allow interest rates to float to a market level, rates would rise. This would be fair because interest is just the price of money. We do not subsidize the price of shoes to benefit shoe retailers or of cars to benefit car retailers. Why do we need to depress the price of money, interest, to protect stock market investors, Wall Street and commercial bankers? Can't these guys create value in a free market?

Higher, market-responsive interest rates would depress the stock market and make the super-rich less rich. Moreover higher rates would stop inflation from elevating asset values. Thus, farmers' land and New Yorkers' apartments would become less unrealistically expensive.

Messrs. Buffett, Soros and Gates do not lobby for market-driven interest rates. Instead, Messrs. Buffett, Soros and Gates argue for tax code provisions which everyone knows are complex, often unnecessarily complex, frequently dodged and subject to manipulation by the very wealthy. Hence, we must suspect that Messrs. Buffett, Soros and Gates are insincere. If they were concerned about income inequality, they would speak out for market-neutral interest rates, not for complicated enhancements to the byzantine tax code.

Although financiers like Buffett, Soros, Gates et al. have above-average intelligence, this may not be true of all who have built successful businesses. Some may have average intelligence. Their children may also have average intelligence. Why should the hard work of the parents be forfeited? In contrast, because of income taxation, government regulation, licensure and inflation, success in today's world increasingly (and unfairly) depends on the ability to gain entry to Ivy League colleges and obtain a job on Wall Street, as has been the case with Messrs. Buffett and Soros. Mr. Gates attended an Ivy League college but did not work on Wall Street. If the children of Ivy League graduates are more likely to be able to attend Ivy League colleges because of inherited genetic endowment, then they benefit by inheritance tax. They benefit because small owners are forced to sell their family businesses to large businesses such as those that Messrs. Buffett and Soros own. The low interest rates benefit them; and the emphasis on academic scores tends to benefit them. In contrast, the hard working farmer sees the state violently rip his life's work from his children. But this is fine with Mr. Buffett because Berkshire Hathaway is ready to buy at bargain basement prices.

Frankly, I see little moral or respectable in the anti-inheritance or pro-inheritance tax position. Buffett's position is vicious. If the super-rich want to give their money to charity, they have every right to do so. But shouldn't the hard working upper middle class be permitted to shield their children from the rapacity of the marketplace? Or must their children be subjected to the inflationary stealing of a new generation of financial manipulators and beneficiaries of government intervention?