Bogus Jobs Pay Big Bucks

The political differences of today’s two leading parties are not over ultimate questions of principle.  Rather, they are over opposing answers to the question of how a goal can be achieved with the least sacrifice.  For lawmakers, the goal is to promise the populace something for nothing, while pretending to make good on it.

 

The short and sweet definition of democratic elections by eminent American wordsmith and political philosopher H.L. Mencken [PT]

 

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An Astonishing Statistic

As the final FOMC announcement of the year approaches, we want to briefly return to the topic of how the meeting tends to affect the stock market from a statistical perspective. As long time readers may recall, the typical performance of the stock market in the trading days immediately ahead of FOMC announcements was quite remarkable in recent decades. We are referring to the Seaonax event study of the average (or seasonal) performance across a very large number of events, namely the past 160 monetary policy announcements and the 10 trading days surrounding them. It looks as follows:

 

We have highlighted the period of maximum profit over the past 20 years in dark gray, which is achieved over a holding period of  8 trading days and amounts to an average of 60 basis points. At first glance that may not look like much, but it actually works out to a 21.89 percent annualized gain, which exceeds the gain generated in the “rest of the time” by a vast margin. As the detailed returns in individual years at the bottom show, in some years particularly large gains were posted around FOMC meetings – these were as a rule associated with new cyclical bull markets just after the end of major bear markets. The largest losses were obviously primarily associated with bear market periods, but they are both much fewer in number than the gains and much smaller on average – click to enlarge.

 

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When Bakers Go Fishing

Government intervention into a nation’s economy is as foolish as attempting to control the sun’s rise and fall by law or force.  But that doesn’t mean governments don’t meddle each and every day with the best – and worst – of intentions.  The United States government is no exception.

 

From the “When the government helps the economy” collection: Breaking a few eggs while baking the bridge to nowhere omelet. [PT]

 

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The Gift that Keeps on Giving

Every year a certain stock market phenomenon is said to recur, anticipated with excitement by investors: the Santa Claus rally. It is held that stock prices typically rise quite frequently and particularly strongly just before the turn of the year.

 

Unbeknown to many, Santa Claus paid a high price for enriching investors [PT]

 

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Questions and Answers

A reader emailed us, to ask a few pointed questions. Paraphrasing, they are:

 

  1. Who cares if dollars are calculated in gold or gold is calculated in dollars? People care only if their purchasing power has grown.
  2. What is the basis good for? Is it just mathematical play for gold theorists? How does knowing the basis help your readers? Is it just a theoretical explanation of what has already happened?
  3. Prove that if someone has known the basis for the last four years, he has benefited.

 

Tell us about your crystal ball, oh great oracle. Is it any good? Can you divine the future for us and make us all rich? Quick? [PT]

 

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Rude Interruptions

As long as the US Empire can be funded and maintained on the backs of its taxpaying public, the chance of a deescalation of tensions not only on the Korean peninsula, but throughout the world are practically nil.  And as long as the nation’s current interventionist ideology holds sway, it will only be through a financial meltdown that the role of the US as global policeman will come to a much-needed end.

 

Hamhung, North Korea, June 30, 1950; an example of minor collateral damage suffered by North Korea during the behavior-modification police action of the early 1950s. Let us be clear that we have no sympathy for the hereditary Stalinist dynasty/junta oppressing the people of North Korea. Nevertheless, it should be crystal clear by now why military interventionism is problematic: it usually not only fails to achieve anything remotely resembling the desired result, in most cases it actually brings about the exact opposite. It bolsters popular support for even the vilest regimes, as the focus of the population’s anger is redirected at an external enemy; instead of destabilizing  autocrats and tyrants, it often ends up fortifying their position. Anything short of a complete victory will leave an implacable enemy in place, who as we can see in the example of North Korea can end up posing a major problem for decades. Past attempts to persuade the regime to abandon nuclear weapons (usually in exchange for economic concessions) often failed because the NK regime sabotaged them; all indications are that its decisions are driven by intense paranoia. In light of this, past agreements were often ill-conceived, as they inter alia involved the transfer of nuclear technology for supposedly “peaceful” purposes. The regime’s actions are mainly informed by a desire for self-preservation – its threats and posturing have to be seen in the context of this overarching goal. Given the deep scars left by the Korean war and the examples of tinpot dictators elsewhere who surrendered their WMD capabilities only to be hunted down and killed while their fiefdoms were bombed back into the stone age, it should not be too difficult to figure out why the NK regime wants to hang on to its nuclear weapons. [PT]

Photo credit: STR/AFP/Getty Images

 

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Eternal Spendathon

The Senate just passed a 500-page tax reform bill. Assuming it lives up to its promise, it will cut taxes on corporations and individuals. Predictably, the Left hates it and the Right loves it. I am writing to argue why the Right should hate it (no, not for the reason the Left does, a desire to get the rich).

 

The Federal debtberg has grown beyond all measure since Nixon’s gold default. So has the money supply and the amount of private debt. No-one expects this debt to be paid back ever. The idea that it is payable (without a massive devaluation of the currency) is a kind of illusion we have collectively decided to live with. Government spending perforce leads to capital consumption – while it disturbs the  production structure intra- rather than inter-temporally, it still results in an allocation of scarce resources that is not in line with actual consumer wants. Government bureaus cannot possibly ascertain the opportunity cost of their spending. They are not expected to make profits, economic calculation is not something they even care about. On the contrary, their incentives are often quite perverse: the more lavishly they spend, the better from their perspective, as that is often the best way to ensure they will receive the largest possible budget allocations every year. [PT] – click to enlarge.

 

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Style Over Substance

There are many things that could be said about the GOP tax bill.  But one thing is certain.  It has been a great show.

Obviously, the time for real solutions to the debt problem that’s ailing the United States came and went many decades ago.  Instead of addressing the Country’s mounting insolvency, lawmakers chose expediency without exception.  They kicked the can from yesterday to today.

 

The empty chairs meeting – this is slightly reminiscent of the Clint Eastwood skit in which he addressed an empty chair that was supposed to represent Barack Obama. No-one can accuse the current tax reform plan of making a lot of sense, but the problem is that any comprehensive sensible reform package would never make it past the lobbies interested in maintaining the status quo. Given that elections are advance auctions of stolen goods (h/t HL Mencken), any perceived interference with the stealing will tend to be strongly resisted. [PT]

Photo credit: Kevin Dietsch-Pool/Getty Images

 

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A Twitch of a Toe

In our recent update on credit spreads we proposed to use the seemingly deceased  Monty Python parrot Polly as a stand-in for the suspicion of creditors in today’s markets.  The question was whether Polly was indeed dead or merely in a deep coma. Depending on this, one should be able to gauge how powerful a miracle will be required to resurrect her.

 

Meet Polly. Is she alive?

 

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Known for Being Terrible

For the past few decades, Japan has been known for its stagnant economy, falling stock market, and most importantly its terrible demographics.

 

 

A chart of Japan’s much-bewailed demographic horror-show. Most people consider a declining population to be a bad thing due to the implications for assorted state-run pay-as-you-go Ponzi schemes, primarily those related to retirement. It is hard to be sympathetic, since it would have been possible to do something completely different from the outset. Even with respect to existing schemes, we don’t recall that anyone forced politicians to direct funds designated for funding social security claims to alternative uses at the time when these schemes still enjoyed a surfeit of revenues. Of course one has to be sympathetic to the future victims – those who paid in during their working lives and will end up getting stiffed. However, this is a problem that could be easily resolved by simply winding up the State in orderly insolvency proceedings prior to abolishing it. Most nation states have large amounts of assets at their disposal (e.g., they are often the by far largest land owners in the territories they control), which should suffice to cover the claims of creditors and to pay out the NPV of accumulated pension claims in lump sums. There is one way in which a declining population still has to be regarded as a drawback though. The market will so to speak have to function with fewer network nodes as the population shrinks. There will inevitably be a concomitant decline in distributed knowledge. Thus fewer ideas will occur to people and will be pursued; markets will become less efficient, the division of labor in the broadest sense will suffer a setback. Consider in this context that the market is the opposite of central economic planning in every way – the larger the network of people included in it, the better it will work for everyone. [PT] – click to enlarge.

 

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Grain of Salt Required

The price of gold fell $7, and that of silver 24 cents. This was a holiday shortened week, due to Thanksgiving on Thursday in the US (and likely thin trading and poor liquidity on Wednesday and Friday). So take the numbers this week, including the basis, with a grain of that once-monetary commodity, salt. We will keep the market action commentary brief.

 

Relatively modern examples of salt money which was widely used in African countries until the early 20th century. The bars were clad in fibers to keep them from breaking up. The specimen at the top and in the bottom left corner were collected in Ethiopia (formerly known as Abyssinia), where they are used as a medium of exchange among nomads living in the Danakil Plains to this day. The salt-filled package made of leaves in the bottom right corner is late 19th century salt money from Angola. [PT]

 

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A Useful Infographic

When we last wrote more extensively about Bitcoin (see Parabolic Coin – evidently, it has become a lot more “parabolic” since then), we said we would soon return to the subject of Bitcoin and monetary theory in these pages. This long planned article was delayed for a number of reasons, one of which was that we realized that Keith Weiner’s series on the topic would give us a good opportunity to address some of the objections to Bitcoin’s fitness as a medium of exchange voiced by critics (we have kept the final three parts of Keith’s discussion in abeyance as well, we intend to publish these concurrently).

 

BTC was easily the best investment asset of 2017 (we may have overlooked some other “alt coins”, but in terms of market cap only the 6 – 10 largest cryptocurrencies look like serious contenders in this market). We should probably write more often about it, then you would e.g. have learned that we thought BCH (the post-fork younger brother of BTC) was likely to play catch-up at some point. We actually believe this particular valuation gap is likely to narrow further, and the same may well happen with DASH, another cryptocurrency with quite similar features (both BCH and DASH are lacking some of the legacy technical drawbacks of BTC). As an aside, we always had a certain minimum target for the coming gold bubble in mind which we never mentioned in public, because we felt it sounded silly. Usually we just recommend that people use their imagination, in the hope that their imagination is big enough. By now it probably sounds a lot less silly –  we will revisit this topic once gold has overcome certain technical hurdles – click to enlarge.

 

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Most read in the last 20 days:

  • Japan: It isn’t What the Media Tell You
      Known for Being Terrible For the past few decades, Japan has been known for its stagnant economy, falling stock market, and most importantly its terrible demographics.     A chart of Japan's much-bewailed demographic horror-show. Most people consider a declining population to be a bad thing due to the implications for assorted state-run pay-as-you-go Ponzi schemes, primarily those related to retirement. It is hard to be sympathetic, since it would have been possible to...
  • What’s the Point? Precious Metals Supply and Demand Report
      Questions and Answers A reader emailed us, to ask a few pointed questions. Paraphrasing, they are:   Who cares if dollars are calculated in gold or gold is calculated in dollars? People care only if their purchasing power has grown. What is the basis good for? Is it just mathematical play for gold theorists? How does knowing the basis help your readers? Is it just a theoretical explanation of what has already happened? Prove that if someone has known the basis...
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      When Bakers Go Fishing Government intervention into a nation’s economy is as foolish as attempting to control the sun’s rise and fall by law or force.  But that doesn’t mean governments don’t meddle each and every day with the best – and worst – of intentions.  The United States government is no exception.   From the “When the government helps the economy” collection: Breaking a few eggs while baking the bridge to nowhere omelet. [PT]   Over the...
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      A Twitch of a Toe In our recent update on credit spreads we proposed to use the seemingly deceased  Monty Python parrot Polly as a stand-in for the suspicion of creditors in today's markets.  The question was whether Polly was indeed dead or merely in a deep coma. Depending on this, one should be able to gauge how powerful a miracle will be required to resurrect her.   Meet Polly. Is she alive?   In the first half of November there was actually a small sign that...
  • The Complete Idiot’s Guide to Being an Idiot
      Style Over Substance There are many things that could be said about the GOP tax bill.  But one thing is certain.  It has been a great show. Obviously, the time for real solutions to the debt problem that’s ailing the United States came and went many decades ago.  Instead of addressing the Country’s mounting insolvency, lawmakers chose expediency without exception.  They kicked the can from yesterday to today.   The empty chairs meeting – this is slightly...
  • Precious Metals Supply and Demand – Thanksgiving Week
      Grain of Salt Required The price of gold fell $7, and that of silver 24 cents. This was a holiday shortened week, due to Thanksgiving on Thursday in the US (and likely thin trading and poor liquidity on Wednesday and Friday). So take the numbers this week, including the basis, with a grain of that once-monetary commodity, salt. We will keep the market action commentary brief.   Relatively modern examples of salt money which was widely used in African countries until the...
  • The Stock Market and the FOMC
      An Astonishing Statistic As the final FOMC announcement of the year approaches, we want to briefly return to the topic of how the meeting tends to affect the stock market from a statistical perspective. As long time readers may recall, the typical performance of the stock market in the trading days immediately ahead of FOMC announcements was quite remarkable in recent decades. We are referring to the Seaonax event study of the average (or seasonal) performance across a very large...
  • The Rug Yank Phase of Fed Policy
      Bogus Jobs Pay Big Bucks The political differences of today’s two leading parties are not over ultimate questions of principle.  Rather, they are over opposing answers to the question of how a goal can be achieved with the least sacrifice.  For lawmakers, the goal is to promise the populace something for nothing, while pretending to make good on it.   The short and sweet definition of democratic elections by eminent American wordsmith and political philosopher H.L. Mencken...
  • The Party of Spend More vs. the Party of Tax Less
      Eternal Spendathon The Senate just passed a 500-page tax reform bill. Assuming it lives up to its promise, it will cut taxes on corporations and individuals. Predictably, the Left hates it and the Right loves it. I am writing to argue why the Right should hate it (no, not for the reason the Left does, a desire to get the rich).   The Federal debtberg has grown beyond all measure since Nixon's gold default. So has the money supply and the amount of private debt. No-one...
  • The Santa Claus Rally is Especially Pronounced in the DAX
      The Gift that Keeps on Giving Every year a certain stock market phenomenon is said to recur, anticipated with excitement by investors: the Santa Claus rally. It is held that stock prices typically rise quite frequently and particularly strongly just before the turn of the year.   Unbeknown to many, Santa Claus paid a high price for enriching investors [PT]   I want to show you the Santa Claus rally in the German DAX Index as an example. Price moves are often...
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      Rude Interruptions As long as the US Empire can be funded and maintained on the backs of its taxpaying public, the chance of a deescalation of tensions not only on the Korean peninsula, but throughout the world are practically nil.  And as long as the nation’s current interventionist ideology holds sway, it will only be through a financial meltdown that the role of the US as global policeman will come to a much-needed end.   Hamhung, North Korea, June 30, 1950; an example...

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