QE and hope and change, oh my!

Monday anecdotes flesh out fiscal, political Q&A. Photo: CBO

WASHINGTON, October 8, 2012 – Since the Maven has close to a zero budget for conducting original research, he resorts to hunting through the World Wide Web each morning in search of micro and macro trend directions. This research is often valid. For a day or so, anyway, as QE3, HFTs, algos, and hedgies regularly screw up traditional technical and fundamental analysis to the point where it barely functions.

At any rate, what a surprise this morning to find that one of our happy hunting grounds, law professor Glen Reynolds’ Instapundit—famed as the ultimate libertarian blog aggregator and one of the co-founders of PJMedia—should be chock full this morning of salient political-economic anecdotes that go a long way toward explaining the current mess.

Anecdote 1: Lies, damned lies, and statistics

Around market open, Instapundit led with its own brief comment followed by an intriguing chart that instantaneously gives the lie to a good deal of time-worn anti-Bush propaganda with regard to spending and deficits:

“HOPEY-CHANGEY, here’s an updated version of that deficit chart, showing how absurd it is to blame today’s huge national debt on George W. Bush’s spending on Iraq and Afghanistan.”

CBO chart measuring annual FY deficit numbers.

Lefty wonks will scream that the FY 2009 figures are distorted as that budget went into effect in the waning days of the Bush Administration. (For you non-Washington accounting weenies, the Federal Government starts each new fiscal year on October 1 of the year preceding the calendar year. I.e., FY 2009 begins on October 1, 2008, etc.)

Unfortunately for that argument, it’s never mentioned that the Bushies arranged—out of realism and courtesy, believe it or not—to leave monetary discretion and possible bailout decisions up to the next President, who promptly used what was already there via TARP, plus nearly $800B more in fake stimulus money to bail out the United Auto Workers, particularly at GM; illegally screw the GM bond holders; and bail out government employees and their unions, primarily in blue states like the People’s Republic of California. Ergo, the 2009 figures ended up as the creature of the Obama Administration as did the entirety of the massive deficits thereafter, as amply illustrated in the chart provided by the Congressional Budget Office.

What’s also clear in this chart is that Bush’s “warmongering” budgets look like anthills when compared to what followed as the current Administration turned its attention to redistributing money it had to borrow to redistribute. (Cf. Hugo Chavez.) This is real “voodoo economics” in action.

Anecdote 2: Après moi, le déluge

Glenn leads another clip with a bit of French he dredged up somewhere:

“Comme Margaret Thatcher a dit, ‘le problème avec le socialisme est que par la suite, vous exécutez hors de l’argent d’autrui.’”

He suggests using the Bing translation utility to get this into English, but that ends up a bit lame. The Maven would translate a bit closer to American vernacular, thusly: “As Margaret Thatcher once said, ‘the problem with socialism is that in the end, you run out of other people’s money.”

Erm, yeah. The Iron Lady scores again, which describes exactly what’s happening in Europe and America right now. With our resources, we still have time to resolve this mess over here if we can get a change in leadership in November. The Euros, however, are unlikely to escape the debt-quicksand of their own making as the corruption on that continent is likely terminal. Need anecdotal proof? Take a look at what’s going on with Hollande’s “tax-the-rich” scheme in France in this Instapundit-linked article.

Before anybody laughs at this latest oeuvre from the French theater-of-the-absurd, note the similar exodus of wealthier taxpayers from the Peoples’ Republics of New York, Maryland, and California, all three of which lose more individuals and businesses every time they raise taxes to buy votes redistribute income.

How’d that old lefty refrain go? “When will they ever learn?”

Anecdote 3: Pensées from Tigerhawk

Instapundit also has a link today to Tigerhawk, a down-to-earth conservative commentator who dips into and out of our consciousness here from time to time. But once again, as with so many of Instapundit’s links today, Tigerhawk also takes a look at matters budgetary, again probably—at least indirectly—of the fallout from last Wednesday’s debate in which Mitt Romney showed he knew what he was talking about when it came to numbers and budgets, while The One seemed only competent in this area when it came to calculating golfing handicaps.

Tiger opens by recalling Indian Princess Elizabeth Warren’s immortal declaration—later appropriated by the President—that America’s mom and pop entrepreneurs, and great big ones for that matter, had no part in building their businesses:

“The American left frames the current election in terms of debt — what one group of people owes to another. In their formulation, the wealthy owe more to everybody else, their ‘fair share,’ in the politically correct expression of the idea. About a year ago, the now Democratic candidate for the United States Senate, Elizabeth Warren, won the hearts of lefties everywhere with a speech that claimed that successful businesses were fundamentally collective instead of individual accomplishments….”

Since the time that President Obama notoriously repeated the essence of Warren’s “You didn’t build that” remarks in his own speech in downstate Virginia, his lefty supporters have cried foul, accusing Republicans of indulging in the left’s own favorite tactic of quoting their opponents out of context. In fact, that was never necessary here, as Warren’s and Obama’s respective contexts were always clear:

“In all the argument over whether conservatives were taking ‘you didn’t build that’ out of context, few on the left acknowledged that he was trying to say what Warren had said to such acclaim from the Democratic base. Even in context, the argument that accomplishment in business is collective is deeply offensive to most people in business, at least when they are not camouflaging themselves at a college town cocktail party. Since many liberals are genuinely baffled about why this should be so, I shall try to explain.”

Tiger counts the ways, to wit:

The very argument is disingenuous.

Nobody argues that “successful” people should not pay more tax than, er, unsuccessful people.

Beyond the roads, cops, honest courts, and firefighters, government is an obstacle to entrepreneurs, not the helpful partner that Warren and Obama imply.

If you don’t buy these bullet points, go read Tigerhawk’s full article for a complete explanation, including an observation that we’ve made here again and again—mainly that it’s a small number of huge companies, headed by crony capitalist CEOs who regularly donate huge amounts to faux socialist Democrats, who DO benefit by government largess. That’s mainly because they are the direct beneficiaries of Federal government contracts, which, statistically in dollar amounts, almost never go to small corporations. Since these crony capitalists, Democrats, and other elites in academia and the entertainment industry (also funded by government grants and, in Hollywood at least, huge tax loopholes) are also good buddies with media elites (except, of course, for the Koch Brothers) they get a pass and the small business guys get the bill and the rap. This irritates us, and Tigerhawk as well:

“Of course, the most frustrating aspect of all of this to [small] business people is that these points seem so obvious as to be self-evident, so when the chattering classes do not recognize them as such we distrust their motives and assume they are all a bunch of cynical parlor pinks. Increasingly, though, I believe that there are a great many people, especially in the educated elites, who are profoundly disconnected with the reality of commerce, and actually have very little idea how small and growing businesses struggle to create the wealth that we all need to support our prosperity. That is to America’s great misfortune.”

Yeah, it is. Which is what connects Tiger’s remarks to our other two anecdotes, all three of which offer ample evidence that the free world’s “leaders” no longer have any idea at all as to what they’re leading or how to lead.

Like nearly everything else in this century, capitalism, economics, and even Marxism itself have become unmoored from their historical antecedents. We now live in a world where cause is almost entirely divorced from effect, where actions appear to have no connection whatever to outcomes, where s–- happens but it’s never anybody’s fault, where there’s no such thing as discernable truth and therefore there are no discernable consequences.

All of which is a highfalutin’ way of saying that these three anecdotes go a long way toward explaining why it’s getting harder and harder to make money in the market today. With hedgies, algos, and HFTs running wild and out of control, markets today are far more of a random walk than they ever might have been before. And that’s largely because the markets themselves have forgotten that they’re supposed to exist in order to raise and trade capital to start new businesses and continue to nurture the growth of older ones.

That’s gone, now, it appears. The government and the exchanges don’t care, as the wealthy video-gamers running HFT schemes and their ilk are paying the bills since actual investors have been driven off. What we are witnessing now, in addition to huge overspending by Western governments is the death of capital markets which are now being run almost entirely by catastrophically wealthy faux socialists and the politicians they own, none of whom any longer have one wit of understanding as to what created the wealth they’re destroying to begin with.

And in conclusion…

On this happy note, let the games begin this week. Markets are likely to gyrate wildly as another earnings season is upon us—one that’s likely to show increasingly anemic numbers in most sectors. Averages are off moderately this morning and show a negative tone. We’re continuing to hedge our bets, having added this morning to our gold and silver ETF positions (IAU and SLV) and juicing things a bit by investing in leveraged gold and silver ETFs, DGP and AGQ, which we’re prepared to trade right back out of at a moment’s notice.

Our chart services are still listing only precious metals, 30-year government bonds, healthcare, and airlines(!) as the only safe places left in the market at the moment, so anything else we have we’re also prepared to jettison in an instant. Earnings happiness and/or disappointments will drive this market in the week ahead. The Biden-Ryan VP debate may influence the markets as well on Friday, but who knows?

Let’s all be very careful, understanding now as we do that the dudes now running the financial markets are no longer doing so (if indeed they ever were) on behalf of the average taxpayer’s interests.

Other than that, have a nice day.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently owns positions in IAU, SLV, DGP, and AGQ as indicated in this article.

Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  



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