Wednesday, July 18, 2012

Grin and Bear It

I have commented before about the immense power of the world wide web.
It literally puts any information in the world at your fingertips.  It connects you with great minds, great thoughts and great ideas as never before.  It is as if you have millions of people at hand to call on for another perspective or to solve a problem.  It provides a platform to extend ourselves while the technology continues to extend itself.
It also provides easy access to the amazing wit, humor and creativity of the human race like never before.

President Obama has become a pretty easy target of the witmeisters (did I just invent a word?-NO-see right below) with his comments of last week where he said,
If you’ve got a business, you didn’t build that.  Somebody else made that happen. " 
Here are just a few examples of the humor and creativity out there on the internet reacting to that statement.

Nice computer.  Who is that interloper with it?




Thomas Edison should never have left Milan,Ohio to build that bulb in New Jersey.  Somebody else made it happen, anyway.  What was the point of all that effort?




We might as well teach these lessons early.  All the good ideas have already been thought of already.  Besides, why would we want anyone to think they need to work hard to move up the economic ladder?



Of course, to be fair, there are some things in this world where it really can be said that you did not earn it and somebody else did made it happen.





Moving to another subject, this ought to sum up a lot of people's feelings on the Obamacare penalty tax.


"They actually believed me when I said it wasn't a tax"!

Finally, sometimes you find someone that has found a way to convey a message that is simple, straightforward, and a little too scary for the good of our Republic about our choice in November.



It never hurts to laugh a little along the way.  There are plenty of reasons to grin and bear it right now.

Wednesday, July 11, 2012

Play Chess Rather Than Checkers

President Obama has called for a one year extension of the Bush tax cuts for the "middle class" which he defines as couples making less than $250,000 per year.

Under current law, all of the Bush tax cuts expire for all taxpayers on January 1, 2013.

He argues that there is agreement between both Democrats and Republicans on this point so that Congress should go ahead and extend the cuts for the "middle class". Of course, by doing this those making over $250,000 will see a significant tax increase next year.

(Note-these tax increases are in addition to the new 3.8% flat Medicare tax on the same taxpayers that is  a part of Obamacare on all investment income that is effective 1/1/13.  The same taxpayers must also pay an additional .9% Medicare flat tax (beyond what they are already paying right now) on their salaries and wages effective in 2013 that is also a part of Obamacare).

President Obama argues that the Republicans need to compromise on their position that the Bush tax cuts should be extended for all (including the rich) so as to not hold middle class taxpayers hostage.

He has also stated that he is interested in bringing down the federal deficit. Remember how he stated in the 2008 campaign that he was going to cut the deficit in half?  Never mind that the deficit was $458 billion in fiscal 2008 and has not been below $1 trillion in any year of his Presidency.

The Republicans also very much agree on the need for deficit reduction.  Another point of agreement with President Obama.


I have my own idea about a compromise that the Republicans should offer to President Obama.

  1. Agree to extend the Bush tax cuts permanently for everyone right now.
  2. Agree to increase taxes on those making more than $250,000 at the beginning of the first calendar year after the end of the first future fiscal year (ending September 30) in which federal government spending is less than 20% of GDP.

This provides the middle class tax cut everyone wants.  This proposal also provides a deficit reduction target that everyone states they want but which no one does anything about.  It provides the tax increase on the rich that President Obama wants.  However, it also assures the Republicans that the tax increase will only be used to facilitate deficit reduction and not fund greater federal spending.

President Obama states that he merely wants to return the tax rates on the rich to the same as they were in the Clinton Administration.  The Republicans should counter that they merely want to return federal spending to the level of spending during the Clinton years (20% or below).  This compromise proposal would allow both parties to reach their stated goals.

The chart below shows federal spending by President from Carter to Obama.  We are currently spending over 24% of GDP.  During the Bush 43 years we were spending about 20% of GDP.  In the last four years of the Clinton administration, we were actually below that level of spending each year.  That is why a 20% of GDP target seems imminently reasonable as a target.

This chart also should put to rest President Obama's claims that he is a misunderstood fiscal conservative who has been restraining government spending.

Source:  US News &  World Report


I have no doubt that many Republicans will gnash their teeth and howl about this proposal.   They are adamantly opposed to any tax increases.   I understand and respect their view because every time tax increases and spending reductions are paired together in a so-called "balanced" package the tax increases go into effect immediately and the spending reductions never seem to get implemented.  That is why the spending cuts must come first or there will be no tax increases.

Spending under this proposal would have to be reduced by about 4.3% of GDP before any tax increase could occur on the rich.  That is equal to about $700 billion in annual spending.  The tax increase on the rich is projected to bring in about $85 billion per year.  That means that we would get about $8 of spending reductions for every $1 of tax increases out of this proposal.  And the spending reductions would have to come first.  There would also be no tax increases now when the economy can ill afford any on the job creators in the economy.

A very smart man I worked for used to tell me to play chess rather than checkers when negotiating.  In other words, know where the end game is and think three steps ahead of the other guy.  The President thinks he is being very clever with his class warfare tax policy.  He thinks he can use this simple stratagem to jump ahead in the polls.

It is time for the Republicans to start playing chess.   Give the President what he says he wants.

He said he want to compromise with Republicans in Congress.  He's got it.

He said he wants a middle class tax cut.   He's got it.

He said he wants he wants a plan for serious deficit reduction.  He's got it.

He said he wants a tax increase on the rich.  He's got it.

Pass the bill and send it to him for his signature.

He has two choices.


He signs and gives the Republicans what they want ( an extension of the tax cut for all taxpayers) and  spending reduction targets as well.  The tax increase on the rich would not take effect until spending was substantially reduced.  This might be years in the future the way Washington operates.

Or

He vetoes the bill and has to explain why he got everything he says he wanted but would not sign the bill.  Who is the real obstructionist in Washington?   


Checkmate.


Tuesday, July 10, 2012

Ten Internet Trends Worth Knowing

Ten internet trends worth knowing.
  • There are 513 million internet users in China.  215 million of them were added since 2008.  Total population penetration is 38%.  By contrast, the United States has 245 million users but only 15 million were added since 2008.  Penetration is 79% of the population.
  • There are 121 million internet users in India.  Over half have been added since 2008.  However, only 10% of the population is using the internet.  There is a lot of potential in India.
  • There are 208 million 3G mobile phone subscibers in the United States equal to 64% of the population.  Japan has the next highest total at 122 million subscribers but that is a 95% penetration rate.  South Korea is at 85% penetration, Portugal at 78%, Australia at 76% and Sweden at 73%.  On the other hand, China is at 6%, India at 4% and Russia at 8%.
  • Almost 70 million iPads were sold in the first 2 years after launch.  By comparison, only 20 million iPhones and about 1 million iPods were sold in their first 8 quarters on the market.
  • Android phones have outsold iPhones globally by a factor of 4x in their first 13 quarters after launch.
  • There are 953 million smartphones in use in the world compared to 6.1 billion mobile phones.  Smartphones still have a huge upside in the world, particularly in China and India.  The higher cost of the equipment is the biggest obstacle for growth in these countries.
  • 29% of U.S. adults own a tablet or eReader, up from 2% 3 years ago.
  • 10% of internet traffic is now over mobile devices.  Only 1% of internet traffic was on mobile devices as recently as December, 2009.
  • 7% of people's media time is spent on print but 25% of current ad dollars go to print.  Conversely, 10% of people's media time is spent on mobile but only 1% of ad spend is directed at mobile.  This is huge opportunity.
  • In 1994 there were about 800 million landline telephone lines in the world and less than 100,000 mobile phones.  In 2009, there were 4.7 billion mobile subscribers globally and about 1.2 billion landlines.  Landlines peaked at 1.3 billion in 2006.

All of these factoids are included in an excellent presentation prepared by Mary Meeker of Kleiner Perkins Caufield Byers, the Silicon Valley venture capital firm.

The world is changing at an accelerating pace.  Meeker documents it as well as anyone can.  The entire presentation is 110 slides but is well worth your time.  You should definitely look at her slides on how the internet is resulting in the re-imagination of almost everything. (Slides 33-84).

Monday, July 9, 2012

Photo Shop or Not?

I was browsing through the June, 2012 issue of Vanity Fair a couple of weeks ago and came across this picture of Barack Obama and his girlfriend, Genevieve Cook, when he lived in New York City shortly after graduating from Columbia.  The photo accompanied an excerpt from David Marannis' book, Barack Obama: The Story, that was recently published.

Source:Vanity Fair

Am I hallucinating or is this photo obviously photo-shopped?  Obama's head seems to be completely out of proportion to the rest of the body.  If you look closely at the original in the magazine it also appears that there is a wedding band on the left hand of "Obama".

I was curious as to the source of this photo.   There was no credit given in Vanity Fair other than the reference to the Marannis book.  Therefore, I drove over to the local Barnes and Noble to view the photo in the book and see who Marannis credited the photo to. Tellingly, there was no photo credit given even though almost every other photo in the book had a photo credit.

I am not a conspiracy theorist or birther.  I just look at facts, logic and ask questions when things don't seem to add up.

Is the image photo-shopped?   Any expert opinions out there?

If it is, why would someone go to all of the trouble to do this?

Where did Marannis get the photo?  Why didn't he give any photo credit for it in the book?

Why does it seem that there are always more questions than answers when looking at the background of Barack Obama?  They just never seem to go away.  The Marannis book continues the trend by seeming to show that a good part of Obama's memoir, Dreams From My Father, "is contradicted by the people and events in his life".

What is especially interesting when you consider all of this is the statement Obama advisor David Axlerod made last week in which he stated that "Mitt Romney is the most secretive candidate since Richard Nixon".

Is he really serious?  We know infinitely more about Mitt Romney's background than Barack Obama and Romney has not been the President of the United States for almost four years.

John Hinderaker of Powerline clearly does not think so in his post Who's Secretive?


Was Nixon a secretive candidate? Not that I recall. It was John Kennedy, not Nixon, who kept secret a serious medical condition (Addison’s disease) that almost certainly would have cost him the election had it become known. And, of course, it was Kennedy, not Nixon, who carried out endless secret dalliances both on the campaign trail and while in office. But let’s compare Nixon with Obama: Nixon didn’t publish a fictional memoir in his thirties to create an essentially false identity for himself. How secretive is that?
The litany of Obama’s non-disclosures is familiar. Unlike other recent presidential candidates, to cite just one example, Obama has kept his college and law school records under wraps. But that is relatively trivial. It seems to me that another instance of Obama’s secretiveness is much more significant: his refusal to release his medical records. Almost all major party nominees in modern election cycles have made their medical records public. (Bill Clinton is the notable exception.) Mitt Romney has said that he will release his. Yet in 2008, Obama did not make public any medical records at all; instead, he produced a one-page letter from a doctor to the effect that he is in good health.
In the end, all of this is just a trivial side show.

We may not know everything there is to know about what shaped Barack Obama into the man he is today. However, in his time in office, we have gotten to know his views, his attitude and his abilities very well.  We don't need to know too much more to know that he has not produced the kind of leadership and results the country needs from its President right now.

Photos can be photo-shopped.  Barack Obama's record and results as President of the United States cannot.

Sunday, July 8, 2012

It Doesn't Have To Be This Way

Another month and another anemic jobs report.  

Unemployment is at 8.2% overall.

Unemployment for African Americans is 14.4%.

Unemployment for Hispanics is 11.0%.

Unemployment for teenagers is 23.7%.

Unemployment is 14.9% if you include "all persons marginally attached to the labor force, plus total employed part time for economic reasons."

The most interesting statistic in the jobs report is the fact that in June more people went on the disability  rolls with Social Security (85,000) than the number of new jobs created in the month (80,000).

This actually continues a trend that started three years ago where the disability ranks have consistently outpaced job growth throughout the so-called Obama recovery.  Recall that an $800 billion stimulus package was passed in February, 2009 that was supposed to reduce unemployment to 5.6% by this time.

This chart shows that since June, 2009, 3.1 million workers have signed up for disability benefits while only 2.6 million new jobs have been created in the U.S. economy.  Of course, none of these 3.1 million former workers are now considered unemployed and are not in the unemployment statistics.

Source: Investor's Business Daily


Why is this important?  As I have written before, the unemployment rate is a flawed number the way it is calculated today.  It only considers those persons who are actually seeking work.  It does not include those that are too discouraged to continue looking for work.  It does not include those who become discouraged and go back to school or seek retraining for a new occupation.  It does not include those who become discouraged and file for disability.

However, every American is a mouth to feed, clothe and shelter.  If there are fewer people pulling the wagon and more people in the wagon, we have a fundamental problem.  The money gets spread around in thinner and thinner increments.  That is just basic economics.

You can see the issue when you look at the employment-population ratio.  This compares those employed to the entire population 16 years and over.  It currently stands at 58.6%.  In 2000 it was close to 65% and it was about 63% before the recession began.


Source:  James Pethokoukis, American Enterprise Institute

A 4% change since 2008 may not seem huge.  However, the civilian noninstitutional population is 243 million.  4% of this number equates to almost 10 million more people not working compared to four years ago.

Let's be conservative and calculate that each of these people need at least $1,000 per month for food, shelter and clothing.  That is $120 billion per year that has to come from somewhere if they have no income from a job.  If they were working and each made $40,000 per year and were paying taxes (income, social security, sales, gas etc) at 25% overall, that would be an additional $100 billion of government revenue.   You have a swing of almost one-quarter trillion dollars.  

What is most amazing to me is that the polls continue to show that the Presidential race is a toss-up.  

Governor Romney said it well in his response to the jobs data on Friday.

"It doesn't have to be this way."

There are too many people who seem to believe that nothing can be done about our current situation.  They do not think that it matters who is elected.  How else do you explain the fact that African Americans, Hispanics and Young Americans were large voting blocs for Obama in 2008 and apparently most are going to continue to support President Obama reelection based on recent polling data.  

These groups are suffering the most under President Obama's economic policies.

Don't they realize that it doesn't have to be this way?

Thursday, July 5, 2012

A Candle In The Kitchen

I was reviewing my investment statements for the second quarter and noticed my investment return for the year on a money market fund I own.

I have almost $14,000 in this Treasury money market fund.

My total return for 6 months----66 cents!  This is an annualized return of .01%.  That is 1/100 of 1%.  At that interest rate it will only take me about 7,000 years to double my money.

The policies of Ben Bernanke and the Federal Reserve are killing savers.  I have written previously about this subject here and here.

These policies are also accelerating the demise of Social Security as we know it.  They are also preventing our politicians from facing the tough decisions that need to be made.  As a result, the can is being kicked further down the road.

Social Security has a so-called "Trust Fund" which is owed about $2.75 trillion from the federal government.  These special treasury securities carry an interest rate that is set by a formula that averages market based bond yields over a rolling three-year period.  This formula was established in 1960 to  insulate the Trust from transitory changes in interest rates in order to provide stability to the Trust Fund.

This formula has worked to the benefit of the Trust Fund over the last few years as interest rates plunged.  However, we are now over three years into the low-rate Fed policy and the interest income outlook going forward will no longer work to the benefit of the Trust Fund.  For example, last month $135 billion of securities earning an average yield of 5.64% were replaced with bonds yielding only 1.375%.

Bruce Krasting writes an excellent blog on the financial issues of the day that I read regularly.  His most recent post is on the impact of the Fed low interest rate policy (Krasting calls it ZIRP-the Zero Interest Rate Policy) on the Social Security Trust Fund (SSTF) which highlights all of the above and much more.  Here is how Krasting sees it looking forward.

As a result of the Fed’s extended ZIRP policy, and the SSA's interest rate setting formula, it is now a certainty that interest income at SSA is going to substantially drop over the coming decade. The problem is that SSA has provided projections for its interest income over this time period that don’t jive with this reality. From the 2012 SSA report to Congress:


The SSTF believes it will earn an average of 4% over this period. That is not possible any longer. I calculate that the most SSA could earn is an average of 2.3% (it could be significantly lower). The drop in yield translates to a reduction in income of $535B over the forecast period. That’s a lot of dollars.  
Consider again the base case provided by SSA in April. The following compares the size of the trust fund based on SSA’s estimates and my adjustments for what interest income will be (everything else is constant).

Based on a realistic assessment of interest income at SSA, the trust fund tops out in 2015, its peak value will be ~$2.823B. The SSTF has reported that the TF will top out at $3,061B, and that milestone will not be reached until 2021. Essentially, the train wreck will happen six years earlier then assumed, and the TF will be $250B short. It gets worse.
The other key ingredients in the SS "pie" are tax receipts from workers and the amount of monthly benefit payments (the assumptions used is that GDP growth will average 4%, and unemployment falls to 5.5% -  no recessions over the ten-year horizon). These are not realistic assumptions. This means that once the SSTF hits its peak in 2015, the run off in assets will happen very quickly. 
The SSTF has stated that the date in which the TF falls to zero will be 2033. The actual termination date of the TF is much closer than that. It could come as early as 2023.
I referred to it as a "so-called Trust Fund" above.  That is because there is nothing about it that anyone should have any trust in.  There are no assets in the Trust Fund beyond a promise from the Treasury to make good on a future payment.  The promise is only as good as the government's ability to raise future tax revenues (or borrow even more money) to transfer to Social Security.  Therefore, the promises will only be met if the next generation is willing to absorb significantly higher Social Security taxes than are being paid today.

Of course, in order to maintain all of the federal spending we have today on things other than Social Security, that also means significantly higher Medicare taxes and income taxes as well.  We also have to figure in the new taxes to help pay for Obamacare and its increase in government spending.  Something has to give.  Spending levels must be reduced or taxes will need to be sky high in the future.  Oh, to be young and have all of this to look forward to!

One could argue that since the Trust Fund is nothing but an illusion, it does not really matter what the interest crediting rate is on the bonds owed to Social Security.  However, the illusion that everything is fine with Social Security because it has $2.75 trillion in its "Trust Fund" masks the danger ahead.  It also allows politicians like Harry Reid to say there are no problems with Social Security.  Rest assured everyone, Senator Reid states that he is willing to look at fixing Social Security in two decades!

The same can be said for Bernanke's low interest rate policy which is permitting the federal government to finance its massive debt at unrealistically low rates.  It is another illusion that is permitting our elected representatives to avoid doing what has to be done.   For example, with nearly $16 trillion in federal debt, if interest rates were 3% higher across the board (close to historical averages) the annual federal deficit would be almost $500 billion higher.  This year's estimated $1.1 trillion deficit would balloon to $1.6 trillion from higher interest rates alone.

In effect, we have a house that is fully engulfed in flames but the illusions of the Trust Fund and the Fed's ZIRP make it seem that the only thing burning is a candle in the kitchen.  At least that is how our elected officials are acting.

Of course, all of this can be solved if voters lit a fire under the collective rear ends of our elected representatives.  We truly get the representation we deserve.  We soon will get other things that we deserve.  There are going to be a lot of promises that will not be kept.  Or there are going to be a lot of new taxes.  Start preparing or start voting to change what is happening in Washington.

Sunday, July 1, 2012

Improper and Wicked Projects Redux


wrote previously about The Original Argument which is an updated writing of the Federalist Papers.  I have moved around the book reading different Papers as I have time.  It really is unfortunate that more people are not familiar with the Federalist Papers for in this contemporaneous writing we have the theories, rationale and reasoning underlying our Constitution. What is truly amazing in reading the Federalist Papers is how well our Founders understood human nature.  Power, politics, greed, fallibilities, bias, conflicting interests, oppression. There is nothing going on today that they did not anticipate.

Due to the intelligence and insights of our Founding Fathers they wrote a document that considered all of the above and more in writing the U.S. Constitution.  They knew that instability, injustice and confusion within the institution of government had caused many to fail.  They were determined to build a governmental structure that could endure for the ages.

Federalist Paper #10 was written to describe "How the Union Will Act as a Safeguard Against Domestic Division and Rebellion". They understood that opposing political factions were the greatest potential threat to any government and that in many governments the only redress was violence. They wanted to insure that factions could not wield power that would be dangerous to either the rights of other citizens or the common good.  What did they see as the most common and tangible source of potential division? The conflict between rich and poor. Here are the exact words from #10.
The most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. 
Where did they see the most danger for a majority to trample on the rights of a minority?  Taxation.
The apportionment of taxes on the various descriptions of property is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice. Every shilling with which they overburden the inferior number, is a shilling saved to their own pockets. 
The inferior minority they are talking about?  Have you heard about the so-called 1% that is castigated continually by so many?

The Founders understood that those that governed us had to be a cut above to balance and mediate these conflicting interests and put the public interest above any special interests.  However, they also knew that this was naive. The Original Argument modern translation puts it this way.
Enlightened statesmen will not always be in power, and even if such mediation could happen, it would rarely take place with long-term interests in mind, since the immediate "here and now" interests of the party in power would most likely win the day at the expense of the rights of the other party, or the good of the whole.
Our Founding Fathers were one smart group.

They also knew that there was little they could do to prevent factions from occurring.  That could only be done by either limiting liberties or insuring every citizen has the same opinions, feelings and the same interests. Neither was acceptable to the Founders.  They had no interest in preventing the causes, which is what Communist and Totalitarian governments do.  They focused on controlling the effects of factions.  Thus, they constructed a republican governmental framework with an ultimate goal of securing both the public good and private rights against the dangers of an oppressive majority faction.  Everything in the Constitution was built on this foundational principle.

They built a government which derived all of its power directly or indirectly from the People, administered by representatives who hold their offices at the pleasure of the People, for a limited period of time, or during good behavior.  Using different time periods for holding office, including the separation of powers between the three branches of the federal government and limiting the power of the federal government relative to the states were all important foundational principles to achieve their overarching goal of facilitating majority rule but protecting minority rights.

Perhaps most applicable to today is what Federalist #10 says in the second to last paragraph.  It explains why they set up the republican form of govenrment we have and not a democracy or parliamentarian system. It literally stopped me in my tracks when I read it.  I re-read it several times in The Original Argument and then went to the actual Federalist Papers to read it exactly as it was written.  There could not be a better example to show how far we have deviated from the path the Founders established and why they set up safeguards in the Constitution to protect the People.  It reads as follows with the bold emphasis being mine:
The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State.
How much more relevant can you be to what we have seen in recent years in this country, most particularly in the Obama Administration?  The Founders found all of these to be "improper or wicked projects"by dangerous factions.  These were the types of government abuses they were trying to prevent.  However, we see calls for each of these "projects" almost everyday from those in power in Washington.

  • a rage of paper money (what is the Federal Reserve doing?)
  • an abolition of debt (what was done to the secured creditors in the GM and Chrysler bankruptcies, with the bailout of Wall Street?  What do we hear should be done about mortgage and student loan debt by many liberals?)
  • for an equal division of property (Redistribution of income and wealth through a focus on taxing the rich, in particular the very small 1% minority)
Isn't it interesting that each of these "improper or wicked projects" is also at the core of what motivated the Tea Party?  Terrorists?  I think not.  These are the sons and daughters of the Founding Fathers united against the very factious leaders our forefathers warned us about.

It seems that if we are looking for guidance on how to solve are many problems we should return to some of our key foundation principles.  It is right there in the Federalist Papers for all to see.

Saturday, June 30, 2012

I Need Your Help. The Country Needs Your Help.

Today marks 18 months since I started writing BeeLine.  This is also the 253rd blog post I have written since I began.  I sincerely appreciate all of the kinds words and the encouragement I have received from many of you.

Unfortunately, there are just not enough of you.  Readership is steady but it is not growing.  I need your help in spreading the word.  Please consider recommending BeeLine to your friends if you see a post that you like.  Chances are someone else will also.  I definitely see an increase in volume when one of you links BeeLine on Facebook or in other forms of social media.  It does make a difference.

I know in talking to a lot of you that you forget to check BeeLine from time to time.  You are busy and there is too much to do, too much to read and too much to keep up with.  I fully understand.

An easy way to solve that problem is to subscribe to BeeLine by email.  It is easy to do by going to the "FOLLOW BY EMAIL" box in the upper right hand corner and entering your email address.  Whenever I publish a new post you will receive it right in your email box.

You can also follow BeeLine through Google Connect that will also let you connect through Twitter or Yahoo.  You can set that notification up in the "FOLLOWERS" section that is also in the upper right hand corner.

I want to test the power of BeeLine followers so tomorrow I am going to re-post my favorite BeeLine post of the last year and a half, "Improper and Wicked Projects".   Many new readers of BeeLine may not have seen this post from last August.   There are many, many more Americans that should read it   to better understand our founding principles and how far off track we have gotten in this country.  Please consider passing this post along to others that you believe might enjoy or benefit from it.

I consider myself a pretty good student of history.  I must admit that I never had read Federalist Paper #10 before reading it last year.   After reading it, I now have a true appreciation of the genius of our Founders and their wisdom in crafting our Constitution.   I was truly awestruck when I came across the passage on "Improper and Wicked Projects".  It was almost as if James Madison was alive today and writing about what is happening right now in our country.

If there is one thing that I have learned in all the reading and research that I have done in writing BeeLine is that we invite peril when we ignore our Constitution.  It has allowed us to enjoy the longest period of governmental stability in the world.   We invite problems when we try to expand it, extend it, extrapolate from it or excuse it.

As much as we want to think that we have evolved as People, when reading Federalist #10 we can see we have not changed one iota.  Our Founders understood our flaws, fallibilities and failings.  Even more importantly, they understood that combining these human weaknesses with someone who wielded the power of government was particularly dangerous.

Our Constitution was intended to provide the protections for us to survive the "bad actors" and the "bad times".  Our Founders could not prevent them from taking office but they designed a system to limit their individual power through checks and balances

Our three branches of government and the balance of powers among them are supposed to be our primary defense against tyrants and villains.  However, the final power in our Republic is the vote of the People.  That is the last wall of defense.

Our Founding Fathers did all they could to protect us in writing the Constitution.  Most importantly, they gave the People the power to have the government they want over the long term.  It might not always work the way the People want for two year, four year, or even six year periods at a time, due to the election cycles.  However, the People can have a major impact within two years, a significant impact within four years and almost total impact within six years (those lifetime appointments to the Judiciary can continue to upset things for a long time) on what type of government they will receive.

Therefore, the bottom line is that our Constitution gives the People the power to control their own destiny like no other country in the history of mankind.  The question that will be answered this year is what kind of country do we want in the future?

One of my favorite quotes is from Benjamin Franklin right after the Constitutional Convention had ended where the deliberations had been conducted in secret and no one really knew what the Founders had created.

Outside Independence Hall when
the Constitutional Convention of 1787 ended, Mrs. Powel of Philadelphia asked Benjamin Franklin,"Well, Doctor, what have we got, a republic or a monarchy?"With no hesitation whatsoever, Franklin responded,"A republic, if you can keep it."
Keep this in mind while reading "Improper and Wicked Projects" tomorrow and send it to others.  Many people simply do not have a solid foundation of facts.  Since I began writing BeeLine my primary objective has been to give you solid content and context first and let my opinions follow the facts.  This post stands out from any I have written in giving me facts that I never expected about the thinking behind our Constitution and its relevance to today.  More need to understand and recognize the "Improper and Wicked Projects" that are among us.

I need your help.  More importantly, your country needs your help.


Thursday, June 28, 2012

A Three Branch Cop-Out


cop-out also cop·out 
n. Slang
1. A failure to fulfill a commitment or responsibility or to face a difficulty squarely.
2. A person who fails to fulfill a commitment or responsibility.
3. An excuse for inaction or evasion.
The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009.


The Supreme Court has ruled on Obamacare and in so doing they have completed a "Three Branch Cop-Out" in which all three branches of goverment (Executive, Legislative and Judicial) failed to fulfill their responsibilities.

In diving and gymnastics, dives and routines are scored based on the degree of difficulty. The more spins and flips that are incorporated into the performance the more credit the athlete receives.

In the case of health care reform, the task was difficult at each stage. There is no disputing that fact. However, each branch of government chose not to face the difficult decisions in front of them squarely. They failed to act responsibly. I give them each a 0.0 score for they utterly failed to execute their duties for the good of the country.

Our three branch system of government was established by our Founding Fathers because they knew the fallibilities and flaws of men (and women). Especially of those who are put in a position to govern over the rest of us. Due to this fact, they put a system of checks and balances in place.

It was considered very probable that one of the three would get something totally wrong. It was possible that two of the three would take us down the wrong path. However, they reasoned it would have to be very difficult to get something wrong from all three branches of government. I doubt that they thought that all three could successfully perform a Three Branch Cop-Out. If only James Madison could score this one himself from the judging stand!

Let's look at the individual performances that made up the Three Branch Cop-Out.


Executive (President Obama)

There is little doubt in my mind that he performed the biggest cop-out. It started when he ran for President declaring that he wanted comprehensive healthcare reform with guaranteed issue coverage but with no individual mandate. Anyone who knows anything about this issue knows that this fundamentally cannot be done. He completely misled the public on this point in the campaign. If you recall, he also continually attacked Hillary Clinton on this issue in the Democratic campaign.

He further copped-out by not funding the health care program with a broad-based tax that should be the foundational revenue source of any broad social program. There is a legitimate policy argument that providing health care coverage is a fundamental function of the federal government under its duties "to promote the general welfare". However, under this "social model" concept it has traditionally followed that general broad-based taxes should be used to fund this government spending. This is the model on which Medicare and Social Security are based. It is also the model that has always been used for local schools, police and fire protection etc. President Obama chose not to follow this proven path by sleight of hand.  He paid for the extension of "general welfare" coverage but putting the entire cost on a few taxpayers in yet another redistributive income scheme.

His final cop-out was continually claiming that the individual mandate was a penalty and not a tax. We heard that he would not raise taxes on middle class families. We heard that if you wanted to keep your current coverage you could keep your coverage. We now know the whole truth and the entirety of the cop-out.

Legislative (Democrats in the House and Senate)

The legislative branch cop-out is very straightforward in this case. They had every opportunity to draft this legislation any way they wanted. The easiest way to insure that there would be no constitutional problems with the legislation (as ultimately proven by the Court's decision) would be to enforce the individual mandate with a tax rather than a penalty. Our legislators did not want to face the voters and say they voted for a tax increase. An earlier version of the bill called it a tax and this version never was put forth for a vote because they did not believe the bill could pass. Eighteen times in the statute they called the sanction for not complying with the individual mandate a "penalty". Quite simply, it was a cop-out.

Judicial (Chief Justice Roberts and the Four Liberal Justices)

The day before oral arguments on Obamacare I predicted that the law would be upheld in my blog post "Obamacare Abomination."
My guess is the Supreme Court will uphold the law.  That opinion is not based on what I think should happen but on what I think will happen. 
It is extremely rare that the Supreme Court overturns a law that Congress has passed.  The most recent data available indicates that only 158 Acts of Congress have been ruled unconstitutional since the beginning of the Republic in 1789.   This really shows the influence of politics on the Court.  There seems to be a real reluctance on the part of the Supreme Court to get involved deeply in the politics of the day.  That is a big reason that I believe that the Court will not overturn the law. 
It is difficult to see Chief Justice Roberts' actions as anything but one of the biggest cop-outs in the history of jurisprudence.  You can clearly see the "political" aspect of the Roberts opinion with the statements he made with his opinion.  Even though his job is supposed to be to protect the rights of the people under the Constitution he pulls this cop-out.

"We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation’s elected leaders.”
“Members of this Court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments. Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them. It is not our job to protect the people from the consequences of their political choices.”
I could agree with this logic if Roberts and the majority did not have to go through such contortions to uphold the law. For example, a strong majority agreed that the law was unconstitutional under the Commerce Clause. They agreed that it was unconstitutional under the Necessary and Proper Clause. They could only find support for the law by recharacterizing the penalty provisions in the law and calling it a tax.


Thus, in effect, the Executive and Legislative branches had every opportunity to write this law any way they wanted to.  They copped-out.  Justice Roberts and a majority of the Supreme Court simply rewrote the law to save it.  Is this not the most blatant example of legislating from the bench we have ever seen?


Consider what Justices Scalia, Kennedy, Thomas and Alito stated in their dissent.

"[W]e cannot rewrite the statute to be what it is not," the four Justices write. "[W]e have never—never—treated as a tax an exaction which faces up to the critical difference between a tax and a penalty, and explicitly denominates the exaction a 'penalty.' 
It is even more troubling when it is considered that the Constitution requires that tax bills originate in the House of Representatives.  Recall that the healthcare reform bill originated in the U.S. Senate.  Again, from the dissent in the case.

T]o say that the Individual Mandate merely imposes a tax is not to interpret the statute but to rewrite it. Judicial tax-writing is particularly troubling. Taxes have never been popular, see, e.g., Stamp Act of 1765, and in part for that reason, the Constitution requires tax increases to originate in the House of Representatives. See Art. I, §7, cl. 1. That is to say, they must originate in the legislative body most accountable to the people, where legislators must weigh the need for the tax against the terrible price they might pay at their next election, which is never more than two years off.

The Federalist No. 58 “defend[ed] the decision to give the origination power to the House on the ground that the Chamber that is more accountable to the people should have the primary role in raising revenue.” United States v. Munoz-Flores, 495 U. S. 385, 395 (1990). We have no doubt that Congress knew precisely what it was doing when it rejected an earlier version of this legislation that imposed a tax instead of a requirement-with-penalty. See Affordable Health Care for America Act, H. R. 3962, 111th Cong., 1st Sess., §501 (2009); America’s Healthy Future Act of 2009, S. 1796, 111th Cong., 1st Sess., §1301. Imposing a tax through judicial legislation inverts the constitutional scheme, and places the power to tax in the branch of government least accountable to the citizenry. [...]
Another point for consideration.  Private sector businesses are held to strict rules on truth-in-advertising, laws against bait and switch and fraudulent misrepresentation.  How does the Supreme Court square the  legal standards that would be used against a business in a similar situation and what was done in this case?  Would this not be considered fraud or bait and switch in any other case involving a private business or person?

What happens now? I wrote in my earlier blog post that if the law was sustained that it might result in public opinion finally turn in favor of the health care law.  However, it also might become a rallying call for its opponents in the upcoming election.

The Republicans and Governor Romney definitely appear to be heading down this path already.  The House has already scheduled a vote on repeal of the law for next week.   The November election now looks like it could be a referendum on both the economy and Obamacare.

If I were in charge I would take this one step further.  This is also the approach I would have taken if I were the Chief Justice.

Instead of rewriting the law as the Court did, I would have sent the law back to Congress and given the legislative branch the ability to re-do the legislation by inserting the taxing power for the penalty provision.  In effect, I would give them until the end of the year on a re-write of the law.  If they failed by that deadline, the law would be ruled unconstitutional so that the country could move on.  If they could pass it in such a way that it would pass Constitutional muster, it would stand.  This is how I believe that Roberts could have given himself political cover but also not subverted the Constitution.

There are some of you who will undoubtedly say, "How could the Supreme Court do that?"  My response is that they have shown they can do almost anything, so why would my approach have been any further outside of their powers than what was done in this case?

To House Speaker Boehner I would recommend that he follow a similar approach.  Move ahead with a repeal vote next week.  However, before that vote is taken, I would call for another vote on Obamacare that replaces the penalty language with tax language.  Do this in order to get every member of the House's (of which every one of the 435 members is up for election this Fall) vote on the record.  This would then also conform the law with what the Supreme Court has ruled is the constitutional version of the bill.  After this vote is taken, then vote on repeal of the original law.

It is time to see who cop-outs and who is truly committed to the Constitution.

The people can then take notice of the votes on the record and "fully understand the consequences of their political choices" in November.  That is the ultimate power that was given to all of us by our Founders as the final check and balance on those that govern us.  Choose wisely.

Sunday, June 24, 2012

The Changes in How We Die

This looks like it will be the week that the Supreme Court will rule on the constitutionality of Obamacare so what better way to start the week than a health care topic.

The New England Journal of Medicine recently published an article by Drs. David Jones, Scott Podolsky and Jeremy Greene on "The Burden of Disease and the Changing Task of Medicine".  Translated for mere mortals-"The Changes in How We Die".

The authors look at data from 1900-2010 to demonstrate how disease and treatment is a moving target.  You can see the changing nature of disease and death in this chart of the Top 10 Causes of Death comparing 1900 and 2010.

New England Journal of Medicine Using Data from the Centers for Disease Control and Prevention
The chart shows the considerable advances of health care over the last century.  Overall deaths per 100,000 have been cut in half.

Deaths from pneumonia and influenza, which were the largest killers in 1900, have been reduced by 90%.  TB and GI infections, the second and third largest causes of death at the beginning of the century, do not even make the chart today.  Deaths from accidents have been cut in half even though automobiles, airplanes and other complicated types of machinery did not exist in 1900.

Despite the progress on these fronts, other diseases have taken their place, as you can see from the increase in deaths from heart disease, cancer and diabetes.  The authors note this change and comment that "In many respects, our medical systems are best suited to diseases of the past, not those of the present or future.  We must continue to adapt health systems and health policy as the burden of disease evolves."

The decision involving Obamacare will have a significant impact on the future of health care in this country.  We can only hope that it is the right one.


Wednesday, June 20, 2012

The End is Nigh

At some point the money runs out.  There are only so many dollars to dole out, euros to expend, and yen to spend.  The can cannot be kicked down the road once again.  At some point the can reaches the end of the road.

We are increasingly reaching this point around the world.  The point at which the only choices left are either tough or bad, or both.

The headline in yesterday's Cincinnati Enquirer provides an example of the place we are coming to as it reported on the City of Cincinnati's choices on its fiscal problems.  Cincinnati is not unique.  There are stories like it all over this country...and in other places around the world.

CITY COUNCIL: NO property tax hike

Which means: NO swimming pool renovations .... NO new police stations ... NO new police and fire vehicles ... NO new playgrounds ... NO more money for Music Hall renovation, repaving streets or building demolition

Today's Cincinnati Enquirer turned its attention to Hamilton County's (Ohio) budget choices.

County cuts could mean 'anarchy'

Planned Hamilton County budget cuts could mean convicts will have less supervision, the courthouse may close one a day week, and mortgage paperwork could be delayed. 
Chief probation officer Mike Walton, put it this way: “It’s called anarchy.” His department faces a 30.9 percent budget cut.

Faced with up having to slash up to $24 million to balance the 2013 operating budget, Hamilton County department heads learned just how much they’ll have to cut.
Of course, California has its only challenges as reported in this Reuters story


California likely will need to cut spending more: S&P

California's $15.7 billion deficit is about 30 percent of the total gap all states face in the coming fiscal year, Standard & Poor's said in a report on Monday, saying the state likely will have to cut spending further to balance the 2013 fiscal budget.

We are all familiar with the stories out of Europe.  This headline from The Telegraph in the U.K. about Greece is just one example.


However Greece votes, there is no way out of austerity

The key fact for Greece is that it is running a current account deficit of between 7-8 per cent of GDP, and a fiscal deficit of around 7-8 per cent of GDP. Or in other words, Greece – the entire nation – is borrowing around 8 per cent of its national income from abroad every year. All in bail-out funds.
The reason for that is because between 2002 and 2010, the euro masked a fundamental loss of competitiveness; cheap money flooded in from German savings, funding a profligate and corrupt government's deficit, and pushing up wages and prices. Over the period, Greek wages increased by 30 per cent, while German ones fell by 8 per cent. In the single currency, that was unsustainable, and when it stopped, it stopped very suddenly indeed.

All roads are leading to the road where the can has been kicked down the road.   And that road is a dead end with only one way out-walk back and reverse all the excesses that led to the debt spending binge.

The time has come for government to live within its means.  Spending no more than what they take in from tax receipts and understanding that trying to increase taxes under the economic environment today is a losing proposition that few voters will accept.

Our elected officials also have to realize that the era of big benefit and retirement packages for government workers is over.  Look at the headlines above.  Voters are simply not going to accept reduced police, fire and other essential services in order to preserve the rich pension and health care benefits of government workers.

The same is true for entitlement spending.  It will not survive in its current form. We are close to only having only enough in tax revenues to pay for entitlement spending and nothing more.  It is unsustainable and people are not going to give up all of the other things that government provides to pay for entitlement spending.   There is a need for national defense, prisons, national parks, highway spending and other basic services.  

No one likes to pay taxes.  However, there has generally been a connection between these costs and some form of benefit.   We are at a point where this connection is being lost.  If I pay taxes to my city and I don't get adequate police protection, schools and paved roads but the city employees are getting a rich pension, there is a problem.  The same is true at the federal level.  Two-thirds of federal government spending is not to support government functions but is a direct payment to individuals in entitlement spending.  This is simply not supportable or sustainable over the longer term.  In the end, it will not stand.

There is little question how this will end. The difficult task to predict is when it will end.  However, the end is nigh.   





Thursday, June 14, 2012

The Private Sector Is Doing Fine

President Obama stated last week that "the private sector is doing fine."

Really???

  • The overall unemployment rate is 8.2%.  There are 12.5 million unemployed Americans.  Another 11 million are discouraged, underemployed or working part-time so are not considered unemployed.
  • The unemployment rate for government workers is 4.2%.  Compare that to private sector workers in construction(14.2%), hospitality services (9.7%), agriculture (9.5%) and professional and business services (8.5%).
  • There are 89 million million Americans over the age of 16 who are not in the labor force.  This includes students, stay-at-home parents, retirees and those too discouraged to look for work.  This number has increased by 9 million over the last 4 years.  It is up almost 6 million in the last 2 years. There are 2.7 million more Americans not in the labor force than this time last year!
  • It doesn't matter if people are not working because they are unemployed, discouraged, retired, in school, on disability, or caring for children at home. There are bills to be paid in this country. People need shelter, food, energy ,medical care whether they are working or not.  Those bills can only be paid by those who are working.  They are either paid for directly by individuals and their families, by charities (via charitable contributions) or by the government (via taxes). The lower the percentage working, the greater burden those working carry for everyone else.  
  • The average American family has seen their net worth drop 40% from 2007 to 2010 (from $126,400 to $77,300) according to a recent survey by the Federal Reserve.  
  • Average wages for federal civilian employees (using the most recent data available from the U.S. Bureau of Economic Analysis in 2010) are $83,679 compared to $51,896 for those in the private sector.
Source: The Cato Institute 
  • Total compensation (including employee benefits) for federal civilian employees in 2010 averaged $126,141-more than double the $62,757 that private sector workers earn.
Source: The Cato Institute
  • Total GDP growth since 2008 in the private sector was an abysmal 5.3% between 2008 and 2011.  On the other hand, GDP growth in the public sector over the same period increased by 7.7% according to U.S. Bureau of Economic Analysis data.  Recently, private sector GDP has improved and public sector GDP has fallen, primarily due to cutbacks in state and local budgets.  This is the data point that I think that President Obama was thinking of when he made his comment.  Of course, these state budgets are out of whack due to unsustainable government pension and benefit programs and a lagging private sector that has reduced tax revenues. 
If you have access to all of this data and information, how would anyone come to the conclusion that the private sector is doing fine?  It only occurs if your perspective is that government is the only answer to our problems. 

Tuesday, June 12, 2012

The Bubble in Bonds

I used to tell people about the story of the financial bubble involving tulips in the early 17th century and most had a hard time grasping it.  They would say something like, "That is stupid.  Why would anyone bid up the price of a tulip bulb?  What does that have to do with us today?  We are much smarter than that."

If you are not familiar with "tulipmania" as the story was popularized in Charles Mackay's 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, you should be.  It is one of the most important lessons that any investor should be aware of.

In the early 1600's in Holland a man of means had to collect tulips or be considered totally devoid of good taste.  Rare species of tulips were in high demand as the rich sought to impress their friends.

It was not long before the status of owning tulip bulbs caught the attention of the middle class.  Even those of modest means wanted to own tulip collections.  As demand increased, prices increased.  As prices increased, many people made money.  As more people made money, many more people wanted to share in the wealth and tulips seemed the easiest way to do it.  There is no greater motivator than greed.  And nothing that makes one greedier than to see their neighbor become rich.

At the peak of Tulipmania, it was not uncommon for a single tulip bulb to sell for ten times the annual income of a skilled craftsmen.

Of course, the bubble burst.  As more and more got in on the tulip investment there became fewer and fewer people that wanted to buy tulips.  Slowly, and then suddenly, people came to their senses.  After all, it was just a tulip bulb and they needed money for food, shelter and clothing.  There were no more buyers, just sellers. The price on some bulbs dropped to 1/100 of its previous value in a matter of weeks.

It is easier to get people to understand "bubbles" today because many experienced the dot.com stock bubble in the late 1990's and almost everyone has seen the effects of the housing bubble of the 2000's.  However, we could be living through one of the largest investment bubbles of all time right now and very few seem to be aware of the danger.  I am speaking of the bubble involving sovereign debt securities.  We all know that Greece, Spain and Italy are in trouble.  As a result, investors want to avoid the debt of these countries but they are pouring money into the debt of other countries out of this fear.

Bonds of countries like the UK, Japan, Germany, France and the U.S.  Does any of this make sense?

Grant Williams writes an excellent weekly missive called "Things That Make You Go HMMM..."  He sees all of this activity as something similar to a Pavlovian response on the part of investors.  They are conditioned to run to safety in bonds when there is trouble.  However, are they really running away from trouble this time?  The debt of the countries they are buying are also countries that have their own fiscal challenges and will also likely have to bail-out the weaker players to avoid a total financial worldwide meltdown.

How does this make any sense?  It doesn't according to Williams.  Consider the U.K.

The U.K. Treasury has been issuing "gilt bonds" for centuries.  The U.K. government has never been able to borrow money cheaper than it can today.  That is NEVER.  Going back to 1750 based on this chart that Williams sourced from Thomson Reuters/Credit Suisse.


Britain's budget deficit is 8.24% of GDP.  Its debt as a % of GDP  is almost 90%.  Does this look like the profile of a country that should command a current 5-year bond interest rate of .704%?  That is 7/10 of one percent.  A level not seen in over 250 years of U.K. history!  I don't think so.

Germany is in better fiscal shape than the other countries we are talking about.  However, Germany is the lender of last resort for all the other European countries.  What are they going to look like if they have to pay the debts of a good part of the rest of Europe? How does Williams see all of this?

The biggest bubble in the world right now (apart from that in political incompetence) is the sovereign bond market and the bubble has inflated for PRECISELY the same reasons that all other bubbles do—investors stampeding into an asset without thinking about the underlying dynamics of the instrument they are buying. Often it’s based on greed; this time it’s based on fear. The outcome is the same in both cases I am sorry to say. It was ever thus.

To illustrate the point, let’s return to Germany and imagine you invested €1mm into 2-year bunds today. At the end of your 2 years, you would receive back from the German government €1,008,618.49. Pretty good, huh? Nobody ever got poor making a profit, right?

Well let’s see.

On the day you received your money back from the German government, a basket of goods that would have cost you €1,000,000 today will cost you €1,052,676 (assuming Eurozone CPI stays constant at 2.6%).

How’s that $8,618.49 profit looking now?


Although people are looking for safety in these sovereign debt instruments they can be anything but safe if yields rise.  For example, if a 3% 30-year bond moves to a 5% yield, the investor will lose 30% of their principal.  If long term bond rates move from 3% to 7%, they will lose half of their money.

What about U.S. Treasuries?  Roben Farzard of Bloomberg Businessweek provides some historical perspective.

Marinate your mind in this for a minute: Long-term U.S. Treasury yields are essentially at a 220-year low, says Barry Ritholtz. Mind you, 1792 was when two dozen brokers met under a buttonwood tree in Lower Manhattan to shake hands on what would ultimately become the New York Stock Exchange. And when George Washington, while test-driving his second set of experimental dentures, cast the nation’s first presidential veto. And France first successfully used its guillotine. Those 220 years traversed at least three panics, two depressions, two world wars, multiple global economic crises, a Great Recession, and “Who Shot J.R.?”

All that history be damned; on Thursday (May 31) the 10-year Treasury touched a record-low yield of 1.5309 percent. Thirty-year bonds, for their part, fell to a yield of 2.6 percent, which is just above the all-time low they set in the midst of the Panic of 2008. Apparently our times are so fraught with fear and the need to flee to safety that the Treasury market is pricing in historic amounts of misery. As the Wall Street Journal’s Dennis Berman tweeted, “Even in ancient Babylon (4%), Medieval Europe (6%), 1800s America (4%), no one was paying 1.6% for 10-year money.

James Bianco provides this long term perspective on 30-year bonds back to 1790 in the United States.  Again, we are very close to 220 year low interest rate yields.

Source: Bianco Reseach

Grant Williams puts it pretty simply in his conclusion.

At some point—and I suspect that point will arrive sooner rather than later—intellectual reasoning will overcome Pavlovian conditioning and the same people who poured trillions into the debt of bankrupt and irresponsible governments will realise the folly of their instincts and they will go looking for a real safehaven asset. When they do, they will find that, unlike government debt which, like a gas, can expand to meet any demand, trying to hide trillions of dollars in a real asset such as gold (or farmland) will prove to be singularly difficult.

Those overcoming their Pavlovian conditioning and allowing intellectual reasoning to win out first, will find themselves at a tremendous ad- vantage once reality is forced upon the masses. That day is rapidly approaching.


Buyer Beware of the bond bubble!