Professor Robert Paquette Takes On PC U

Professor Robert Paquette, an esteemed historian who courageously suffers Hamilton College's political correctness, has posted on the unsustainability of the United States  as evidenced at Hamilton.  Like most American colleges and universities, Hamilton advocates environmentalist ideologies that benefit American investment-and-commercial banks; it happens that senior officials of Goldman Sachs are on Hamilton's Board of Trustees, and it was the Goldman Sachs trustees who pushed Hamilton toward sustainabilty indoctrination. 

Paquette points out that universities seek grant money from the same investment banks that have benefited from Bush-and-Obama socialism.  Politically correct, green university students are eager to work on Wall Street, while most are eager to condemn Charles Koch.

Paquette and I were lucky enough to hear Charles Koch speak, and I was impressed.  At a time when academics were extolling Enron, Paul Krugman was collecting honoraria from Enron, Harvard Business School was selling case studies advancing Enron's philosophy, and Fortune was naming Enron the most creative firm, Koch rejected the advice of executives he had hired from Enron.  He suggested that he had found their ideas to have been absurd, yet these were the ideas the American business academy had considered the nation's most creative.  Koch is now the fourth-richest American, and Enron's former supporters now attack Koch because he does not adhere to their ideology, an ideology that was entirely consistent with the views of Jeffrey Skilling and Andrew Fastow.

Paquette makes the following point:

(T)hose who graduate (from Hamilton), precisely because of the deficiencies and one-sidedness of their education, will prove defenseless in articulating a thoughtful response to the caricatures of American and Western history that now pass as gospel as precincts of the cultural left capture ever more ground inside and outside the academy. 

Paquette emphasizes that American history is neglected--even among history majors. This is an understatement, for even if American history were required, it would be taught in an ideologically slanted, uninformed way.  Frederick Jackson Turner's nonsensical frontier thesis is presented as fact in Mickey Mouse history classes while ideologues in academic garb ignore T.S. Ashton's reasoned assessments of the industrial revolution.

Worse, American universities are purveyors of illiteracy.  At Hamilton, which is an elite college, the students have been adequately prepared at the primary and secondary levels.  In contrast, at public universities the students have been indoctrinated in public schools from their early years, but they have not been taught to read, write, or do basic mathematics.  Academics are uninterested in teaching their half-literate students how to read, write, or do basic math because it is much more fun to indoctrinate them than to educate them.  

Still worse, New York's public education system, and the American university system, are not just purveyors of ignorance, illiteracy and lack of historical knowledge.  They are purveyors, along with its inventor--The New York Times--of holocaust denial.My students have never heard of the differences between Hamilton and Jefferson, but they also have never heard of the Gulag Archipelago, and they have never heard of the twentieth century's socialist mass murders.   Their education has been silent with respect to the vicious bloodshed that the ideas of the academic left have caused, for they are taught that workers who voluntarily immigrated here are victims of the worst harm and discrimination in history.

Let us conclude with some certainty:  American universities are a load of crap. They are purveyors of illiteracy, ignorance, and holcaust denial.

 To see the history and origins of political correctness and its link to Wall Street, turn to the history of investment banking and George Peabody.  Peabody was one of the earliest American international investment bankers, but his success at first was as a Baltimore merchant. After some success selling State of Maryland bonds, Peabody sold railroad bonds. Since the best market was in London, he moved and spent his mature years there. 

On one of a handful of return trips to the United States from his home in London, when Peabody was already a famous philanthropist, he counseled another Baltimore merchant, Johns Hopkins, on how to establish a university.   Johns Hopkins University relied on the Peabody Library for decades.  Prior to his death, Peabody invited a partner, J.S. Morgan, to join his firm.  J.P. Morgan, J.S.'s son, was a student at a German university and, in effect, worked as an intern at Peabody's firm. Peabody supported J.P. Morgan during his early business career.  

After his death, at Peabody's request, the Peabody firm's name was changed to Morgan Grenfell.  J.P. Morgan did not graduate college, but his son, J.P. Morgan Jr., graduated from Harvard in 1886.   Morgan Sr. donated generously to the Harvard Medical School, whose transformation can be viewed as the most important historical step toward the modern university.  Abraham Flexner's 1912 report on medical schools, which extolled the Johns Hopkins Medical School, established the Johns Hopkins model (which Harvard followed) as the basis not only of medical education, but of modern American education and the modern American research university.  In effect, two Peabody pupils provided financing for the transformation of the religious American colleges of the nineteenth century into the modern university.  The money trail extends further, for the Carnegie fortune, which was the source of the Carnegie Foundation's funding for Flexner's report, was crystallized through J.P. Morgan's acquisition of Carnegie Steel, and his creation of the steel trust--U.S. Steel.  The university was linked to Progressivism and Wall Street from its beginning.   Today, buildings at Harvard include the Peabody Museum (there is also one at Yale), Morgan Hall (Harvard Business School), Mellon Hall (Harvard Business School), Rockefeller Hall, and Lehman Hall.  

  

Trading Skyrockets My Retirement Account to New High

I had gotten out of the market in the weeks before election day.  During the week following the election, the market plummeted by six or seven percent.  There was one day of a huge drop and a few days of big but smaller drops.  I got back in the day before the final drop.  Since then the market has come back.  My retirement account is at an all-time high, while my two stock accounts are near their highs.  My high-dividend stocks, which have low beta or risk, were badly socked in my bokerage account, but they have come back dramatically in the past few days.  I'm hoping for a 20 percent increase in the stock market in the coming year.  If it reaches something in that area I will pull out again.  As I blogged earlier this evening, the mining stocks will probably be sluggish for a while longer, but they are good buys now.

Flies in the Molten Nickel: Mining Stock Prices = K / QE

After college in the 1970s,  my first job in the actuarial department of a small insurance company lasted about seven months, after which I worked in the employee benefits department of Inco Ltd., then the capitalist world's largest miner of nickel (Inco was an acronym for International Nickel Company).  Founded by JP Morgan as the nickel trust, and formerly one of the 30 Dow Jones industrials, Inco was  a sleepy, old firm on a 1950s model.  It was not a global monopoly because the Soviet Union controlled a large share of  the world's nickel, but Inco was considered a monopoly of the free world's nickel supply.  Its chief competitor, Falconbridge, was one fourth its size. The monopoly picture changed during the 1970s when third world producers received government subsidies and forced significant downsizing at Inco.  Inco suffered a strike in the late 1970s, and I recall calculating pension benefits for hundreds of miners taking early retirement rather than layoff. Also, Inco made an ill-advised acquisition of Rayovac Batteries.  Thereafter, its stock price was stagnant for two decades.  That changed in the millennial decade with the rise in commodity prices that began in 2001.  According to Wikipedia in 2006 Vale, a Brazilian natural resources behemoth, purchased Inco for $18.6 billion.  To date, that was the largest acquisition by any Brazilian firm.  Vale Inco is now the world's second largest nickel producer following Russia's Norilsk Nickel.

In this week's Kitco Commentaries Rick Mills writes about the world's nickel market. Nickel has a wide range of industrial uses, and government-funded green energy programs are likely to make use of it.  Mills notes that there are two kinds of nickel deposits:  sulphide and laterite.  He adds that there is no simple separation or mining technique for laterites: "Laterite projects require large economies of scale at higher capital cost per unit of capacity to be viable. They are also generally much higher cash-cost producers than sulphide operations."

Although 60 percent of the world's nickel is in laterite deposits, they are low grade and difficult to mine.  Mills states that cheaper-to-produce sulfide deposits, which are the source of 58% of the world's nickel, are depleting. Nickel mining, like mining in general, is capital intensive.  Mills states that the average capital input for mining is one half of total costs, while for the economy in general it is 21 per cent.  Moreover, capital costs have been increasing.  Vale's New Caledonia plant has faced repeated setbacks.  In May 2012 Vale declared force majeure, allowing it to ignore contract obligations, because of an accident at the mine's sulfuric acid plant, according to Reuters.  The Brazilian government has halted production at Onca Puma because of effects of the Onca Puma mine on the Xikrin and Kayapo tribes in northern Brazil. Vale had failed to pay damages to the tribes. Meanwhile, Mill states this:

Indonesia (the world’s top exporter of nickel ore) enacted an export tax system, effective May 6, 2012, under which a 20% export tax is levied on 14 raw ores of Indonesian origin, including nickel – the result was to drive hundreds of small miners out of business and sending Chinese laterite buyers elsewhere. This is the first step by Indonesia towards a full ban on the export of minerals that is scheduled to begin in 2014.

Mill states that 35 years of underinvestment have limited new discoveries.  China has been demanding nickel so that demand has increased  since 2000.  Mill makes the case that now is the time to invest in nickel via junior exploration firms.

Nevertheless, there are three flies in the molten nickel: QE1, QE2, and QE3.  The large capital costs of mining are reduced by sharp reductions in interest rates, and this would improve natural resource producers' stock prices were it not for hyper-low interest rates' effects on competition.  Reductions in interest rates stimulate supply and competition. Because of increased production and competition, stock prices of mining firms are reduced during the initial phases of a monetary boom. Low interest rates reduce the very capital costs that impede production. The excess competition deflates commodity-and-stock prices. It is not until monetary expansion results in inflation that commodity prices start to rise.

Vale, one of whose many products is nickel, is selling at a multiple of six times earnings despite its five percent dividend.  That is a Great Depression-era valuation, suggesting a buying opportunity, notwithstanding the all-thumbs management history that Mills describes.  At the same time, gold stocks have fallen precipitously over the past two years.  The initial market reaction that gold will go up because of monetary depreciation has petered out.  Along with Vale, mining-and-natural resource stocks are selling at Great Depression price-earning multiples.

The sector needs to go through a period like the 1980-2000 one. Contrary to popular belief, the Greenspan Fed consistently increased the money supply, and that was associated with depressed natural resource prices.  The Bernanke Fed is the most stimulative in history, but I suspect the metals price depression won't be that long because there had not been a Volcker Fed to raise interest rates and stabilize the economy prior to the monetary expansion.  Inflation in the coming decades will be worse than in the 1970s, and the Fed will have limited power to reverse it. However, these outcomes are at least two years away, and probably more.  Gold-and-commodity stock prices will increase once the stimulative effects of the monetary expansion are dissolved. My guess is three-to-five years or more.

At the same time, Mills is right. It is not too early to buy nickel stocks. Vale's five percent dividend is a draw.  Mills doesn't like Vale because of its diverse range of products.  The natural resource sector in general will rise with nickel, and it's nice to count some shekels from a five percent dividend while waiting for a turnaround in the commodities sector. 

Incidentally,  I have been buying gold and other stocks, and junior nickel miners are of interest.  

A people who allow a tyrant to tell them how much they can eat and drink are beneath contempt.

A people who allow a tyrant to tell them how much they can eat and drink are beneath contempt.