Free Markets, Free People
Further Reading: The Devil’s Dictionary Edition
The story of professional curmudgeon and cynic Ambrose Bierce and The Devil’s Dictionary. Bierce’s astringent satire and observations made Twain seem treacly sweet:
POLITICIAN, n. An eel in the fundamental mud upon which the superstructure of organized society is reared. When he wriggles he mistakes the agitation of his tail for the trembling of the edifice. As compared with the statesman, he suffers the disadvantage of being alive.
HISTORY, n. An account mostly false, of events mostly unimportant, which are brought about by rulers mostly knaves, and soldiers mostly fools.
MAN, n. An animal so lost in rapturous contemplation of what he thinks he is as to overlook what he indubitably ought to be. His chief occupation is extermination of other animals and his own species, which, however, multiplies with such insistent rapidity as to infest the whole habitable earth and Canada.
SATAN, n. One of the Creator’s lamentable mistakes, repented in sashcloth and axes. Being instated as an archangel, Satan made himself multifariously objectionable and was finally expelled from Heaven. Halfway in his descent he paused, bent his head in thought a moment and at last went back. “There is one favor that I should like to ask,” said he.
“Man, I understand, is about to be created. He will need laws.”
“What, wretch! you his appointed adversary, charged from the dawn of eternity with hatred of his soul — you ask for the right to make his laws?”
“Pardon; what I have to ask is that he be permitted to make them himself.”
It was so ordered.
HEAVEN, n. A place where the wicked cease from
troubling you with talk of their personal affairs, and the good listen with
attention while you expound your own.
For several years now we have been trying to explain repeatedly that buybacks are in general a bad deal. Jason Zweig looks at the question. That being said, the The PowerShares Buyback Achievers Portfolio has done very well over the last three years. We’ll let that hang there and discuss in more detail later.
Economics proceeds on the assumption of ‘given data’ and produces a beautiful, aesthetically satisfying theory to show how these data determine a resulting order, but [economists] forgot that these data are purely fictitious: the data are not given to anybody.— F. A. Hayek
Ben Bernanke and the Costanza Effect
Yesterday I wrote The Bear Arrives. Then it left in the space of less than an hour. Supposedly it is because a new plan is coming to save the Eurozone. This one seems to require lenders to take more losses. Unsurprisingly some banks are not happy with that idea. Still, we may be getting somewhere. Somebody will need to take a loss. I suggest this interview from Kyle Bass to put this in perspective:
there’s only one way out in my opinion of this debt mess and it’s through restructuring and that means default. It’s not the end of the world. It just means a lot of people are going to lose a lot of money and then we’ll get up the next day and go back to work.
Researchers believe they have found the written form of the ancient Pict language.
UCLA has restored Robert J. Flaherty’s LOUSIANA STORY (1948), a portrayal of Cajun life and the disruption an oil company causes when it enters the bayou.
The Robin Hood Tax is a bad idea, at least as described.
While a recession may be coming, Mark Perry reviews the reasons we are “not experiencing any of the significant, persistent and widespread declines that would lead the NBER to declare sometime next year that the U.S. economy entered a recession in any of the recent months.”
Auto Sales strength should help lead to a weak, but improved, GDP number for the third quarter.
More doubts about leveraging the EFSF
Capital goods orders and shipments remain strong according to Ed Yardeni:
It’s hard to put a negative spin on such strong numbers, other than to note that they looked this strong during the previous two cycles when they peaked and then took a dive. On a more fundamental basis, capital spending is driven by corporate profits and cash flow, which have been very strong. They should remain strong, though both are likely to grow at slower paces through next year.
On the other hand he sees issues for earnings overall going forward, especially in the materials sector.
Odds are that there will be lots of disappointments in the earnings season ahead, most likely led by the Financials and Materials sectors. Of course, the bad news for the quarter may have been discounted already. However, there could also be lots of cautious guidance about Q4 and 2012. Industry analysts are already trimming some of their earnings estimates for next year, particularly in the Financials sector.
Goldman is getting more and more bearish.
“What is the gross number and what’s the difference between the gross and the net?” Citi CFO John Gerspach replied: “I don’t think that the gross number is relevant.”
It isn’t? So, we are all supposed to trust that as an industry (really, five US banks) you have a handle on a total derivatives book of 332 Trillion! Seriously? This reminds me of one of my favorite posts from back in 2008, JP Morgan, Lehman and Nightmares:
Personally there are better ways to make money than hoping a company with 90 trillion in derivatives exposure has a handle on it in my book, but then again, I am admitting that I have no idea what I am talking about, and cannot find anyone else who does either.
Warren Buffet often speaks of defining a circle of competency when investing and staying inside it. It doesn’t matter how big the circle is, just knowing when you are inside it. Well, 90 trillion in derivatives exposure is outside of my circle of competency to assess.
The nightmare is what if it is outside of JP Morgans circle?
Personally the idea that Trillions, netted or not, are within anyone’s circle of competency is ridiculous.
We are often told that we cannot be about to have a recession because they are always preceded by an inverted yield curve, to which we reply:
- Glad to know the Fed can therefore outlaw recessions.
- Funny, when we pointed out a few years ago the yield curve was inverted and flashing recession the yield curve wasn’t considered such a great barometer.
Ruslan Bikbov at BofA Merrill Lynch found that a weak argument and decided to adjust for that fact and then tested his method. What do you know, the yield curve is flashing recession.
HSBC says there will be no hard landing in China.
Deutsche Bank agrees forecasting a slowdown to 7% and a drop of 10% in housing prices. However, this interests me:
Readers may ask why we are not projecting a 30% drop in property prices. Those who understand China’s political economy should know that a 15% decline in average property prices in 35 cities within a few months must be accompanied by a range of economic and social consequences. These will include a sharp decline in real estate transactions, a visible deceleration in real estate investments, rising unemployment in the property construction and agency sectors, a further decline in construction material prices, demand destruction due to inventory destocking, and finally a worrying decline in GDP growth and the resulting concern of social stability. In other words, the government will most likely not tolerate a 30% drop, and probably not even 15% in our view. We expect real estate policies will likely be relaxed way before a 30% price decline is observed.
I see, the old “the government won’t allow it” explanation. Maybe, but the idea that we can assume government policy can control the economy is awfully presumptuous. Now that we know that can be done, market and economic realities be damned, we should all just merrily bid stocks up because governments have eliminated business cycles, haven’t you noticed?
Sam Harris on the Future of the Book and how writers need to adapt.