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Welcome to The Distributed Republic, a blog community started by the members of the original Catallarchy blog. We blog from a classical liberal viewpoint on a variety of topics. Feel free to start your own blog by registering on the sidebar. There are no broad restrictions on viewpoints as long as a civil tone is maintained.
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What's the Plan?!?
Submitted by Kyle Eliason on Mon, 2008-10-13 03:51.No, not for the economy. For Halloween. If you're a woman my age, I'm already assuming you'll use the night as an excuse to run around public in lingerie, which is great (and if not, feel free to correct me in the comments, and more power to you, not that I object to lots of women my age running around public in lingerie). But what about us dudes?
The worst advice I've seen comes from a Yahoo! food blog:
Yul Brynner From The Magnificent Seven
Yul was Cool. And never more so than as Chris Adams in this classic western. Get yourself some cowboy gear from a local vintage store or try Goodwill for great deals. Go all black, from hat to boots. And don a dose of fierce attitude.
At first I thought, that's not a bad idea. A western remake of a Kurosawa classic that held its own and came from a time when Charles Bronson wasn't so much a punchline (althought the last 20 minutes of Death Wish III are the pinacle of sensless action movies) sounds like a great source for a costume.
If I was going to do it right, I'd have to get a bald head covering (I'm not going to shave my head just for a Halloween costume). Then, I realized, that if I was decked out with a smooth dome, in boots and matching hat, and sporting a fierce attitude, I'd probably send the wrong message to all those girls in lingerie, err... costumes.
Anyone have any good ideas? I live in Minnesota, so I doubt I'm going to run into any of you and ruin your great costume idea by being your duplicate.
10.10.08 Nightly Market Thoughts
Submitted by Jonathan Wilde on Sun, 2008-10-12 23:10.(two days late)
I was looking for Friday to be capitulation day (at least for the short term). I am putting it at better than even odds that it was such a day. Just when I couldn't imagine fear becoming much worse, it did exactly that. At about 3 PM, just before the snapback rally, my subjectively appraised nadir of sentiment occurred on various internet forums I visit. Perhaps the quote "It's darkest before dawn" carries some truth. Then again, it's also darkest before the world comes to an end.
Some quotes from message boards I read:
- "One of my neighbors dumped ALL of his stock yesterday... "
- "I did [the same] early this week"
- "Just sold all my TDAmeritrade positions... I can't take anymore of this... Lost 40% on my portfolio. There is still way to much uncertainty in the market and there is no telling where the bottom is. I'm keeping all my 401k stuff as is since I dollar cost average all of that. But this is just getting ridiculous. The problem in the market still hasn't been fixed and won't get better for another two years as I see it. I'll put my money back in once the market gets confidence back in it."
The quotes sound like classic J6P capitulators: selling at bottom, waiting till the market goes way up ("gets confidence back") before buying back.
The snapback rally in the last hour was breathtaking (as was the volatility in the beginning of the day). The DJIA went from just over 8000 to nearly 8900 in about 40 minutes. That's over 11% in 40 minutes (as in index!). I've never seen anything like it. To put this in perspective, that's a year's average historical return in 40 minutes of trading. When we finally have our exhaustion rally, it will be similarly powerful.
I'm pretty much all-in as of the close on Friday. If the market keeps going down, I'll have to raise more cash somehow.
A few people on the finance forums I visit are calling for a crash tomorrow. That could be the very skepticism that fuels a rally. When the rally comes, few will believe in it. The market will climb the wall of worry. When enough people finally believe it, these lows will be tested again.
I'm just a penny on the train track
Waitin' for my judgement day
Come on baby girl let me see those legs
Before I get flattened away...
Blame It On Brian Leiter
Submitted by Micha Ghertner on Sun, 2008-10-12 22:55.When playing pin the blame on the deregulators, one should start not with Ayn Rand, but with Brian Leiter, for offering this passionate critique of government regulation:
[T]here is no reason to have confidence that the agents of the state in America will excerise their regulatory powers in the service of human well-being and enlightenment.
Clearly, Brian Leiter has grasped Ronald Coase's central point in "The Economics of the First Amendment: The Market for Goods and the Market for Ideas," American Economic Review, 64 (May, 1974): 384-391. [Link available for JSTOR users]:
In the market for goods, the government is commonly regarded as competent to regulate and properly motivated. Consumers lack the ability to make the appropriate choices. Producers often exercise monopolistic power and, in any case, without some form of government intervention, would not act in a way which promotes the public interest. In the market for ideas, the position is very different. The government, if it attempted to regulate, would be inefficient and its motives would, in general, be bad, so that, even if it were successful in achieving what it wanted to accomplish, the results would be undesirable.
I expect Leiter to abandon his Marxism and embrace market liberalism Real Soon Now.
Blaming The Messenger
Submitted by Micha Ghertner on Sun, 2008-10-12 22:13.Robin Hanson on the bearing of bad news:
I can't imagine Pearlstein suggesting closing newspapers for a week, or banning them from printing bad finance news for a few weeks. So Pearlstein doesn't get it: financial markets are news institutions, just like newspapers! [...]
It turns out our banking system was in bad shape, and now we are finally learning just how bad. Instead of sticking our head in the sand to block bad news, we should be grateful to those who have finally told us, be eager to learn more quickly, and be angry with those who kept us from learning sooner. But don't ban news, bad or good; we need news now, more than ever.
I also get a shout out from TGGP in the comments, which reminds me that I'm jealous of my 2004 self - that creep can roll, man.
Disestablishmentarianism
Submitted by Micha Ghertner on Sun, 2008-10-12 20:19.Arnold Kling's ideological fallout:
My view of the crisis is that every sector of the establishment has been discredited. The financial establishment has been discredited. Government policymakers and regulators have been discredited. And academic economics has been discredited. The fact that we now have all three on the same page about policy going forward is hardly comforting.
Mencius concurs, chiming in with:
The Austrian School are the only people who come out clean on this one. I will not claim that Mises and Rothbard had the answer to everything. But all further work proceeds from them.
20th-century academic macroeconomics - modeling, basically - will be as discredited as alchemy by the time this is over. So will its partner in crime, Hamiltonian central banking.
This crisis has me reexamining my attraction to Chicago School econ. Misesians are looking better and better with each passing day. Mea culpa. You told us so; we should have listened.
In my defense, packaging sound economics with racism, gold-buggery, and other forms of kookery isn't a wise marketing strategy. Unfortunately, stigmatized knowledge tends to snowball. That is the unavoidable risk of stepping outside the mainstream.
DeVote: Do Your Civic Duty And Don't Vote
Submitted by Micha Ghertner on Sun, 2008-10-12 15:53.Bryan Caplan appeared on 20/20 with John Stossel last Friday. Since jam band concert promoters are unlikely to invite Caplan to speak at their venues any time soon, dudes sporting 70's style porn mustaches are our only hope. That, and South Park.
In his book "The Myth of the Rational Voter," Caplan argues that people who know little about our government ought to stay home on Election Day.
But aren't Americans always told it's their civic duty to vote?
"This is very much like saying, 'It's our civic duty to give surgery advice,'" Caplan said. "Now, we like to think that political issues are much less complicated than brain surgery, but many of them are pretty hard. If someone doesn't know what he's talking about, it really is better if they say, 'Look, I'm just gonna leave this in wiser hands.'"
But isn't it elitist to say only some people should vote?
"Is it elitist to say only some people should do brain surgery?" Caplan said. "The bottom line is, if you don't know what you're doing, you are not doing the country a favor by voting."
Since no one is qualified to run other people's lives for them, no one is qualified to vote. I will be doing my civic duty this election year by staying home.
Unsurprisingly, the democratic fundamentalists interviewed in the 20/20 segment were not pleased. As Cartman warned us, this is what happens when giggling stoners and drum circle hippies attract something much worse: an infestation of College Know it all Hippies.
Swimming With The Sharks
Submitted by Micha Ghertner on Sun, 2008-10-12 14:11.Will Wilkinson asks Why Don’t We Get the “Right” Regulations?
When the new regulatory settlement unravels, we’ll hear precisely the same things: that we didn’t have the right regulations in place because some opportunistic interests captured some part of the regulatory process. But if we know that’s going to happen in advance, shouldn’t we accept the limits on the possibility of effective long-term regulation and look for feasible alternatives to such thoroughly politicized financial markets?
Don Boudreaux makes the same point more poetically:
Among the articles of faith of "progressivism" is the theory - which never yields to experience - that you can fill the sea with enormous quantities of fresh red meat and then, Moses-like, successfully command the sharks not to devour it.
As long as Uncle Sam continues to stock the Potomac by ripping from the body politic such enormous quantities of flesh and muscle - now more than three trillion dollars worth annually - sharks and vultures will inevitably swarm throughout Washington in a competitive struggle to gorge themselves on this unfortunate feast.
This is the message that market liberals need to keep hammering home: democratic fundamentalism cannot possibly work the way its advocates want it to work. It sows the seeds of its own destruction; its internal contradictions inexorably lead to either state socialism or truly free markets. There is no middle ground. As always, Mises was prescient:
The middle-of-the-road policy is not an economic system that can last. It is a method for the realization of socialism by installments. [...]
Many people object. They stress the fact that most of the laws which aim at planning or at expropriation by means of progressive taxation have left some loopholes which offer to private enterprise a margin within which it can go on. That such loopholes still exist and that thanks to them this country is still a free country is certainly true. But this "loopholes capitalism" is not a lasting system. It is a respite. Powerful forces are at work to close these loopholes. From day to day the field in which private enterprise is free to operate is narrowed down. [...]
The impact of this state of affairs is that practically very little is done to preserve the system of private enterprise. There are only middle-of-the-roaders who think they have been successful when they have delayed for some time an especially ruinous measure. They are always in retreat. They put up today with measures which only ten or twenty years ago they would have considered as undiscussable. They will in a few years acquiesce in other measures which they today consider as simply out of the question. What can prevent the coming of totalitarian socialism is only a thorough change in ideologies. What we need is neither anti-socialism nor anti-communism but an open positive endorsement of that system to which we owe all the wealth that distinguishes our age from the comparatively straitened conditions of ages gone by.
Doing My First Write In Vote
Submitted by Brian Macker on Fri, 2008-10-10 23:13.Based on watching the Obama-McCain debate and their absolute ignorance of economics I have decided that both are totally unacceptable candidates.
Ron Paul is the only candidate that is talking sense at this point. I'm writing him in.
Rampaging Free-Market Anarchists On Wall Street
Submitted by Micha Ghertner on Fri, 2008-10-10 17:08.Joe Klein, in this week's TIME, writes:
The desire for more government activism is true across the board. All of a sudden, government-provided infrastructure programs — and that's what most of McCain's despised "earmarks" are — don't sound like such a waste of money, especially if they are married to alternative energy sources and conservation (which is why Obama talks constantly about "retrofitting" buildings to conserve energy). All of a sudden, boring bureaucracies like the Securities and Exchange Commission, which have been undermined and underfunded by Republicans, become a crucial bulwark against the rampaging free-market anarchists on Wall Street. This is, as Obama says, a fundamental change — but not a radical one. It is a modulation, a move to preserve the free market by controlling its excesses.
Where are all these rampaging free-market anarchists on Wall Street? Your ideas are intriguing to me and I wish to subscribe to your newsletter.
Nationalization?
Submitted by Jonathan Wilde on Fri, 2008-10-10 14:16.I don't wish to spread alarm on the line people but the big issue confronting the market is I'm afraid the health and sustainability of Morgan Stanley and Goldman Sachs. It is unimaginable that they can be allowed to go, I suspect that they will be nationalized at some point today or over the weekend.
-- Hugh Hendry, Partner and CIO at Eclectica, on CNBC
Gold delivery default
Submitted by Arthur B. on Fri, 2008-10-10 13:42.Right now, the price of gold implied by Comex futures is $928.60 per troy ounce, down $83.8
According to Bloomberg, investors are selling gold to get cash. Are they? On the bullionvault.com (greedy referral included in the URL) internal market, the bid ask spread is huge, but still shows a different picture. In the New York vault, people are selling for $917. Holy crap, why the difference ? Well, it could be that BullionVault only has gold bug users who will hold to their gold no matter what, but consider that gold is being BOUGHT at $892.
The truth is that there are defaults on the future physical delivery, where you are allowed to settle in cash (if you whine)... at the level of the future... which in turns prices the risk of default. This circle brings the value of the future to essentially zero. Fast. Patri Friedman asked recently,
Are there realistic situations where it would be better to stock up on physical gold & silver than on financial futures related to gold & silver.
Here's one.
LOL, Take That Halo Hardcore Gamers
Submitted by Brian Macker on Fri, 2008-10-10 09:47.There is an article over at Gizmodo I thought was funny and seems to have a grain of truth titled, "Scientists Find Gene That Makes You Good at Halo Also Makes You a Premature Ejaculator".
After a study of 200 Dutch men, scientists found that those with a premature ejaculation problem all had a version of a gene that controls the release of serotonin. And, unfortunately for all of you awesome Call of Duty players out there, those affected seem to "have very quick reflexes. They may be excellent at playing tennis or computer games, for example." Oh, cruel fate!
Now I understand why I lose so quickly to some of these guys. Bad news for the South Koreans also? I know, I know, South Korean gamers.
Roubini's blog thoughts
Submitted by Jonathan Wilde on Thu, 2008-10-09 22:19.The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.
His solution?
At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:
- another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;
- a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;
- a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;
- massive and unlimited provision of liquidity to solvent financial institutions;
- public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;
- a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;
- a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;
- an agreement between lender and creditor countries running current account surpluses and borrowing and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.
In other words, the largest globally coordinated reflation in human history.
10.9.08: Nightly Random Market Thoughts
Submitted by Jonathan Wilde on Thu, 2008-10-09 20:56.More carnage. Unbelievable. The last hour was like a knife through butter. I'm recording my thoughts every night because I don't think something like this will happen again in my lifetime.
The NASDAQ bottomed at 1100 in 2002. Today, it closed at 1645. Another couple of days like today, and we'll match those lows. Same with the DJIA: 7200 vs 8579.
Back when I first started learning about the stock market back in 1997, I came across the idea that the long bull market of the 90s was fueled by easy money policies of the Fed and the bubble would eventually pop, followed by economic devastation. The NASDAQ suffered the brunt of the blow when the bubble popped, but it wasn't nearly as swift as this recent fall, and the recession was mild. I was surprised at how well the US economy fared. Economic devastation never came. I wonder if the reason is that the economy remained distorted via other sectors such as real estate, and we're only now seeing the consequences of excess credit. The real estate bubble only really grew after the stock market bubble popped. Perhaps the consequences of the easy money policies predicted by that cabal in the late 90s are finally coming home to roost.
All sentiment indicators are off the charts. There is going to be a massive short/medium term bounce Any Day Now, though there's no telling how much lower the market will go beforehand. My strategy is to:
1) Accumulate long term positions as the market keeps going lower.
2) Play for extreme risk, short term positions (for that bounce) that could result in 10-20 baggers when people are running for the hills. Small bets, potentially large payoffs.
General Motors' market capitalization today dropped below its value at the 1929 peak. It was a great company back then, at the height of the 20s market bubble. It is a shit company today.
Iceland's government took over its three largest banks and suspended trading on its stock market for two days. Almost every talking head on CNBC after today's market close wanted the government to "do something". If war is the health of the state, so are economic crises.
Kulicke and Soffa:
Market cap: 170.51 M
Total cash: 172.76 M
(I haven't looked closely at the balance sheet, so don't make anything more of it than "heh".)
The 1 year chart for crude looks suspiciously like the state of Virginia.
All part of the New World Order.
Lick this USPS!
Submitted by Theophanes on Thu, 2008-10-09 16:10.Hassling the postal service, the perennial libertarian hobby, has a long and storied history. Perhaps the most celebrated example is Lysander Spooner's private mail company.
In the 1840s, Lysander Spooner, jurist, abolitionist, and bearded anarchist badass, founded the American Letter Mail Company to compete directly with the United States Postal Service monopoly. Unlike other illegal mail carriers, Spooner advertised widely and openly challenged the the Postmaster General to fuck with him. His rates were half that of the USPS and "in a few short months, the private mail companies had engrossed the bulk of the service between Boston, New York, Philadelphia, and Baltimore." Eventually the Post Office managed to hound Spooner out of business, but not before they were forced to adopt Spooner's rates.
Wendy McElroy tells us more about the postal service hating ways of our individualist anarchist predecessors in an article about the radical stickers sold in the pages of Benjamin Tucker's journal Liberty.
Seeing as the offices of Liberty burned down 100 years ago this year, taking the journal and stickers with it, I decided to make some of these "bits of gummed paper" for my own use. Take that, Postal Service!
These are the original sticker captions I was able to collect from the article:
Considering what a nuisance the government is, the man who says we cannot get rid of it must be called a confirmed pessimist.
Whatever really useful thing government does for men, they would do for themselves if there was no government.
Government regularly enforces its commands by the threat of violence; and government often commands things which it is ridiculous and outrageous to enforce by such a threat.
At almost every point in history government has been found to be the greatest scandal in the world. Why? And when anything else has been extremely scandalous, this has usually been on account of its association with government. Why?
Don’t enlist in any service where you are liable to be ordered to help kill a man (or men) that you think ought not to be killed.
Where everything is done through the bureaucracy, nothing to which the bureaucracy is really adverse can be done at all.
The institution known as “government” cannot continue to last unless many a man is willing to be government’s agent in committing what he himself regards as as an abominable crime.
More Random Market Thoughts: Gold
Submitted by Jonathan Wilde on Wed, 2008-10-08 22:16.
An interesting phenomenon has occured during the recent market downturn. The XAU-to-Gold spot price ratio has reached historical lows*. As an example calculation, today XAU closed at 121.53. The gold spot price is right around $900. The XAU/Gold ratio is 121.53/900 = 0.135. A couple of days ago, when the XAU reached the low of 96.61, the ratio was even lower.
What does this ratio being so low mean? That depends on what the numerator and denominator represent to investors.
Gold itself (the shiny stuff) is rarely a good investment. Perhaps once or twice in a lifetime it reaches such levels. Rather than being a good investment, it acts as a great store of value--empircally the greatest store of value civilization has known. Being a great store of value, it would be very useful if and when society collapses. It would retain its value when the rule of law disappears and gangs roam the streets. I see physical gold as a survivalist tool. Everyone should have a shelter to hide out in, just in case, with at least a week's supply of water, ready-to-eat meals, guns, ammo, duct tape, WD-40, and toilet paper, and everyone should have some bullion. Just in case.
Gold mining companies are a proxy for the price of gold, and usually are highly leveraged to it, so that potential returns are much higher**. Thus, gold mining companies can be much better investments than gold itself. If civilization collapses, nobody will honor any shares, and there may not even be a stock market left. But if the meltdown is figurative, rather than literal, gold mining shares will do well. As long as civilization doesn't collapse, gold mining shares are the way to play a rise in the price of gold.
So what does the low XAU-Gold ratio mean? It's predicting, if my views above are correct, the apocalypse itself, a breakdown of society, not just economic hardship. That scenario seems very unlikely to me. Many people will lose their jobs and life savings, but it won't be Mad Max. The ratio is discounting a highly improbably scenario.
One more variable is noteworthy. As I said below, politicians and economists fear deflation with a passion that I don't understand. I'd rather have my money worth more rather than less after whatever is coming, recession or depression. But my views don't matter (and rightly so), so the next few months will see the greatest coordinated global reflation effort in human history. As the supply of money increases, the value of money will decrease, and the value of gold will rise.
For the ratio to normalize to historical levels, either the XAU has to rise significantly, or the price of gold will have to drop significantly. I see the latter as very unlikely. Thus, the most undervalued sector in the stock market is the gold miners. As I said recently, this is the time to accumulate. A diverse basket of gold mining stocks is an excellent way to begin taking advantage of this once-in-a-lifetime buying opportunity. Large profits await those who are brave.
* HUI - Goldbugs index. It only has gold stocks that do not hedge their positions. Relatively new.
XAU - Another older index of gold-related stocks. It contains companies that hedge their positions.
Here, I use the XAU instead of the HUI, even though the HUI would be a more accurate indicator of relationship to the gold spot price, because I can't find data on the HUI before 1996.
** As a simplified example, if a company can "make" gold for $250, and the price of gold is $300, it's profits are $50. If the price of gold rises to $350, profits have doubled to $100. On the other hand, if the price of gold falls to $245, the company is losing money and can potentially go bankrupt. It is unlikely that physical gold will ever be worthless. Leverage: higher returns, higher risk.
*** As always, if you take my advice, you deserve whatever life throws at you.
Goldilocks Political Economy
Submitted by Micha Ghertner on Wed, 2008-10-08 11:44.Will's recent Marketplace commentary is confusing. First, Will says that a market is only as stable as the regulations that define it, implying that regulations imposed by the state are a necessary precursor to functioning markets. Wasn't this Cass Sunstein's shtick a few years ago?
But then Will returns to the Caplanian point at the end of his commentary, expressing skepticism that the political process can deliver the right regulation. What, then, is the point of pushing for better regulation if you know that the political process is incapable of providing it? Is it not the case that ought presupposes can? And if the political process is incapable of providing what you want it to provide, isn't that a good reason to think it ought not try?
Update: Will responds and I rejoinder here.
Random Market Thoughts: When does the downward spiral stop?
Submitted by Jonathan Wilde on Wed, 2008-10-08 07:25.There's a lot of fear out there that we're going into a depression, or that we're going to suffer deflation, which seems to be everyone's worst nightmare. I'm not an economist and don't really understand why deflation is such a Horrible Thing or why inflation is somehow less worse. I read somewhere recently that deflation represents an "inverse bubble" in which people keep hoarding cash and don't buy goods or make investments even at attractive prices. I don't see how this vicious circle (positive feedback) is necessarily what's to be expected. Instead, I expect a usual stock cycle (negative feedback) in which stock prices decreases till they reach a floor and then rebound as economic growth resumes. So what factors will create a floor under stock prices at their bottoms?
Right now, those with little cash:
consumers
financial companies
government
Those with more cash:
many non-financial companies
Those with a lot of cash:
few non-financial companies, either with cash saved up, or with strong, regular, predictable cash flow
As stock prices continue to slide, those non-financial institutions with lots of cash will see value in non-financial institutions with less cash. Consolidation will be the name of the game. Many public companies will be bought by private owners. Expectation of being bought can provide a floor for stock prices.
As stock prices continue to slide, dividends will continue to rise. Right now, GE has a yield of 6.1%. Merck's is almost 8%. These are approaching very compelling valuations. As they continue to rise, investors will choose to own stock rather than buy fixed-income investments or Treasury securities which pay a lower yield and don't have the potential to provide additional returns from price increases like stocks.
As stock prices continue to slide, PEs will continue to shrink. Right now, AMAT has a price/sales ratio of 2. As I've told Brandon in the past, I've been waiting to buy AMAT for over a decade. My standard for "great value" is when AMAT's P/S ratio is 1. Unfortunately, I missed the 1995 massive capital expenditure chip cyle, so I've been waiting for the last decade. The industry has matured and is no longer cyclical, but if and when AMAT's P/S ratio becomes 1, I will buy far out of the money 2011 LEAPS. More generally, when prices go low enough, there will be people who will realize that stock XYZ hasn't been this poorly valued in the last 5 years, 10 years, 20 years, etc and will step in to buy.
So that's my answer as to why a usual negative feedback stock price cycle will happen rather than a positive feedback vicious circle: consolidation and expectations of consolidation, dividend increases, and attractive valuation.
Fun with Polynomials
Submitted by Brandon Berg on Wed, 2008-10-08 01:18.When I started writing this post, it was to ask for help in solving a problem I'd been working on. I hit upon a solution halfway through, so I don't need help anymore, but I figured others might find it interesting, so I've outlined the problem and solution below. I do have one follow-up question, though. Details below the fold. read more »
Broken Eastern Promises
Submitted by Kyle Eliason on Wed, 2008-10-08 00:43.Putin set to reject Wilde doctrine:
If only
Submitted by Constant on Wed, 2008-10-08 00:38.Debates rotting your brain? Here's an antidote.
(inspired by Cafe Hayek)
Nick Thune
Submitted by Micha Ghertner on Tue, 2008-10-07 15:17.Today's delightful discovery is Nick Thune, stand-up comic and coffee house singer-songwriter parodist. If you like Jonathan Coulton and xkcd, you will definitely enjoy Thune.
Here is his masterpiece, Missed Connections:
Also see: Instant Messenger ("If you're laughing out loud while talking to someone on the Internet, you have to tell them") and Two Birds, One Stone ("When in history was there an abundance of birds and a shortage of stones?"). That last one is chock full of economic insights.
National Smallness Conservatives
Submitted by Theophanes on Tue, 2008-10-07 06:24.Dan McCarthy talks about The Return of the National Greatness Conservative.
But if [pro-gov, pro-war, pro-empire cons] are the national greatness/heroic/compassionate conservatives, what does that make the rest of us?
Maybe we could do worse than call ourselves “National Smallness Conservatives.” That gets at the ideas of anti-imperialism and decentralism and perhaps suggests something about the constitutional limits of federal power. It nicely echoes Chesterton, too.
I don't know about you guys but I love this label. For me the attractive parts of the mixed-bag of conservatism have always been epistemological modesty and the traditionalism, localism, and respect for diversity, community, and restraint that naturally follow from it.
Mencius
Submitted by Theophanes on Tue, 2008-10-07 02:58.For libs interested in China I recommend Roderick Long's "Rituals of Freedom: Austro-libertarian Themes in Early Confucianism"
Long argues, contra David Boaz and Murray Rothbard, that
"From a libertarian perspective, the Taoists have been overrated and the Confucians underrated."
I was forced to read some Mencius(sort of the Rothbard to Confucius' Mises in the Confucian canon) today on my long flight and I was impressed with the sophistication of his political economy--he explains the principle of division of labor, argues against fixed prices for goods, and discusses the advantages of different systems of taxation. I was also surprised with the radical tinge to some of his sayings: (not the best example but I think its funny)
Mencius said to Emperor Hsuan of of Ch'i: "Suppose one of your ministers entrusts his family to the care of a friend and then leaves on a journey to Ch'u. When he returns, he finds that the friend abandoned his family to hunger and cold. What should be done?"
"End the friendship," replied the emperor.
"And if a chief judge can't govern his court - what should be done?"
"Turn him out," pronounced the emperor.
"And if someone can't govern this land stretching out to the four borderlands - what then?"
The emperor suddenly turned to his attendants and spoke of other things.
Blood in the Streets
Submitted by Jonathan Wilde on Mon, 2008-10-06 22:01.
Fear has reached epic proportions. I follow market sentiment closely and have for the past 11 years, and I've done historical research for the data available before that. This is the greatest acute panic in the market since 1987, certainly far above what I've ever seen personally. Edit: It greatly exceeds the fear present during the bear market bottom of 2002, 9/11, the LTCM bailout of 1998, and the "Asian flu" of 1997.
Anecdotally, nobody wants to touch stocks. On various message boards I frequent, there are innumerable warnings to wait till the market "stabilizes" before buying, and nobody is recommending buying now. Jim Cramer recommended pulling out all money you might need over the next five years on the Today show this morning. 6 in 10 Americans think a depression is likely.
Many people do what's called "dollar cost averaging": dumping money into stocks at regular intervals. If we label these "dumb buys" because they do not take economic analysis or market conditions into account, buying now would certainly be a "smart buy". There is far, far greater probability of higher than market returns if one buys today than from any prior dumb buy, or when the market was at all time highs less than a year ago.
There's blood in the streets. It's time to accumulate. Far-above historical returns await the brave.