Tuesday, October 30, 2012

Quote of the Day: The Ethics of Speculation and Natural Calamities

Many of the same people who today publicly encourage us to speculate (“Make sure your family has ample supplies of batteries!”) are among the loudest critics of speculation at other times and in other markets.

But in fact the oil speculator who, say, buys oil today in anticipation of oil becoming more scarce tomorrow does just what a consumer does today in a supermarket in anticipation of a disruptive storm: both persons usefully transfer resources across time.  They both stock up on resources that are today relatively abundant in order to preserve these resources for consumption at a time when they are relatively more scarce (and, hence, more precious).  Both persons transfer resources from today – when the consumption of any one bottle of water or gallon of gasoline provides relatively less benefit – to tomorrow when the consumption of that same bottle of water or gallon of gasoline will provide relatively more benefit.

Anticipating the future and taking actions to allocate goods and services from times of relative abundance to times of relatively greater scarcity is an immensely useful activity. And we all perform such speculation whether or not we are popularly identified as “speculators.”
This is from Professor Donald Boudreaux at the CafĂ© Hayek exposing the populist schizophrenic ‘moralistic’ concept of “speculation”.

Peddling “morality” through emotions has been popular even if they emanate from wrong premises and self contradictory logic. The fact is that speculation is all about acting in anticipation of the future. Different circumstances (emergency or not) under which people “speculate”  hardly does justify a moral color or distinction.

This applies to the stock markets as well.

Btw, my phone line and dsl got busted since yesterday. Internet access has been on-and-off, so I might be low on posting.

Sunday, October 28, 2012

Phisix: Holiday Abridged Sessions Unlikely an Obstacle to the Year End Rally

Methodological Individualism Applied to Holiday Shortened Trading Sessions

Trading sessions will be limited to just three days in the coming week as two days have been declared as public holidays by the Philippine government in the tradition of paying homage to the dead.

Since not everyone practices the tradition, others have used such occasion for leisure and travel.

Yet such extended holidays are likely to divert the attention of market participants on how and what to do during the mandated respite from work.

When markets are on a vacation mode, I expect trading activities to slowdown which may be reflected on Peso volume (excluding block and special block sales).

But lethargic trading does not necessarily reduce volatility.

For the past two years, holiday abbreviated weeks with three day trading sessions have posted substantial over 1% moves

*Aug 29 and 30 in 2011, Eidul Fitr and National Heroes Day[1]

**August 20 2012 Ninoy Aquino Day (Replaced to Monday)[2]

The same goes with All Saint’s Day week celebrations since 2007.

The natural intuition for the mainstream would be to impute from the above facts statistical correlations and or to seek out patterns from which to project into the future.

For instance, it would be easy to deduce of the dominance of negative returns by simple observation and the employment of heuristics without examining the operating conditions which had led to such outcomes

Let’s say, the -1.43% from November of 2011 came amidst the oversold bounce from the flash September market meltdown, as most likely an offshoot to the US Federal Reserve chairman Ben Bernanke’s jilting of market’s expectations of QE 3.0[3]

The other instances have shown to be responses to what seems as short term overbought conditions (in April and August 2012 marked by blue arrows) following new highs.

Thus, losses from Holiday shortened week have most likely accounted for profit taking.

Nonetheless the losses from the above incidentally marked the interim bottoms which eventually led to milestone highs.

Or how about the negative output during November’s of 2007 and 2008? The unfolding bear market cycle during the said period can serve as convenient explanation.

Today, considering that the Phisix has just been marginally off the record highs, along with the ASEAN peers, this means that price volatility can go in either direction.

On the downside, profit taking, possibly to fund vacations, leisure or traditional activities, could partly explain why the proclivity for negative returns.

On the upside, aggressive participants may take advantage of any new information that could eclipse such profit taking activities that may push the market higher.

In essence, there are no linear and clear cut answers to such short term events

What this implies is that even if the week’s results should turn out negative, this may not be suggests of an inflection point as the general market trend remains on the upside. This is unless of course, exogenous tail risk events may rattle the highly interconnected and intercorrelated global markets and gets transmitted to the ASEAN equity markets and to the Phisix.

The bottom line is that it would signify a serious mistake to perceive history as mechanically repeating itself for the simple reason that history is a complex phenomenon.

History as factual episodes represents heterogeneously embedded unique circumstances as consequence to “multiple causes” where “none of the factors are in constant relationship with the others” [Rothbard 1976[4]].

This also means that historical facts, according to the great Austrian Professor Ludwig von Mises[5], “cannot be used as building material for the construction of theories and the prediction of future events. Every historical experience is open to various interpretations, and is in fact interpreted in different ways”.

This also implies that while history can give us some clues, it is the understanding of science of human actions which is most important.

Again Professor Mises from the same material[6]
The subject matter of all historical sciences is the past. They cannot teach us anything which would be valid for all human actions, that is, for the future too. The study of history makes a man wise and judicious. But it does not by itself provide any knowledge and skill which could be utilized for handling concrete tasks.
Author Samuel Langhorne Clemens popularly known as Mark Twain[7] nailed it when said ‘history does not repeat itself, but it does rhyme’.

Financial Markets Are Now About Bernanke Put

Some have expressed alarm over the recent downside volatility seen in the overseas markets.

It’s all about framing, I’d say.

This week’s retracements (blue bar) seem to be in response to last week’s gains (red bars). While the degree of price changes has been different from last week to the other week, the scale of volatility has been evident. Heightened volatility from market distortions brought about by interventionism has been the crux of the current market environment.

Yet for some, declining US markets serves as a reason for concern.

The S&P 500, which I use as a key benchmark for the US markets, have lost 1.48% this week. Add to such loss the current level of the S&P 500, which represents nearly 4% loss from the most recent or September peak, we have a short term bear market story.

But there is the other view; year-to-date the major US benchmark has still been robustly up 12.27%. This remarkable advance by the US markets as exemplified by the S&P 500 has lubricated the outperformance of the Philippine Phisix and Thai’s SET and an animated global equity markets.

There are also those who claim that declining earnings will drive US markets lower.

But this concern seems valid when markets operated on merely the platform of the barrage of promises by the FED.

Expectations of the FED’s coming steroids provided the shot in the arm that produced a risk ON environment despite material signs of disconnect with the real economy or in terms of declining earnings and of the weakening of the economy[8].

Since promises are subject to diminishing returns, they are unsustainable. Rising markets based on empty talks simply increased the sensitivity to enormous downside risks or that this represents a recipe for a market crash.

Either trapped by their own policy signalling measures, or in the realization that failed expectations could bring chaos and relive the September 2011 flash meltdown, the FED and the ECB HAD to deliver.

And they DID. Both will be flooding the world with money to the preliminary tune of $2 trillion.

Add to this that this fact that it will not just be the FED-ECB but other major central banks as well. The Bank of Japan (BoJ) just joined the bandwagon with additional stimulus[9] while the Bank of England (BoE) has once again signaled its intent to expand her balance sheet further[10].

And most importantly, the US Fed Chairman Ben Bernanke made explicit that QE Forever/QEternity has been meant to sustain asset prices[11].

Many seem to forget that it is central bank actions that really matters since the market’s price mechanism has been skewered by their repeated interventionism.

Today’s risk environment has dramatically shattered conventional thinking. In a recent “Bagehot” lecture at the Buttonwood in New York City, PIMCO’s chief Mohamed El-Erian poignantly remarked[12]
What we are ultimately talking about is an “unusually uncertain” distribution of potential baseline outcomes, as well as unusually shaped tails. This inevitably undermines the robustness of lots of conventional wisdom, as well as a range of historical contracts and entitlements. It also challenges the agility of institutions in both the public and private sectors.
If corporate earnings have hardly been a factor in driving up market prices, then why should corporate earnings become a factor in marking down prices?

Earnings have recently become a matter of concern only after central bank’s rescue mechanism has been put in place. What this really shows is of the market dynamic of “buy the rumor sell on news”.

And given the reality of the slated expansion of money supply from central banks via asset purchases, this will also mean that sales revenues of enterprises will rise faster than the costs of business, where the latter has been incurred during the time prior to additional money infusions.

This implies that inflation creates the illusion of greater ‘corporate profits or earnings’, where the more the inflation, the greater the profit margins.

As financial analyst Kel Kelly explains[13] 
Another way of looking at it is that, with more money being created through time, the amount of revenues is always greater than the amount of costs, since most costs are incurred when there is less money existing. Thus, because of inflation, the total monetary value of business costs in a given time frame is smaller than the total monetary value of the corresponding business revenues. Were there no inflation, costs would more closely equal revenues, even if their recognition were delayed…

Since business sales revenues increase before business costs, with every round of new money printed, business profit margins stay widened; they also increase in line with an increased rate of inflation. This is one reason why countries with high rates of inflation have such high rates of profit. During bad economic times, when the government has quit printing money at a high rate, profits shrink, and during times of deflation, sales revenues fall faster than do costs.
This profit mirage from monetary inflation represents the ephemeral boom phase of business cycle.
Also as previously noted, the seeming recovery in the US real estate sector[14] will likely to be used as pretext to boost stock prices.

So far, the Dow Jones US Real Estate ($DJUSRE) and the iShares Real estate (IYR) along with Regional Bank Index (KRE) and the Philadelphia Bank Index (BKX) have all backed off from the recent highs. Although there has been little signs of any material deterioration,

Finally given the explicit goal by the FED to support asset prices via the “Wealth Effect” or Portfolio Balance Channel[15], any adjustments to the newly instituted QE Forever policies will likely be in accordance to the conditions of the financial markets.

In short, the Bernanke Put is in motion: conditions of the financial markets will dictate on the FED’s actions.

This also implies of the policy of redistributing resources from main street into the financial sector.

And any attendant tail risks will likely come from rising consumer prices (inflation risk) or the escalation of political squabbles e.g. the risks of growing secession movements in Europe[16] (political risks) or the recognition of insolvency of crisis afflicted nations or the lack of capital (credit risks), all of which will be manifested through interest rate channel.

How Interest Rate Regimes Affect Asian Stock Markets

Current easing policies by developed economies have translated into a boom through most of Asia.

That’s because most of Asia has mimicked their developed economy counterparts but from a lesser aggressive stance.

In the region, interest rate regimes can be categorized as[17]

-rate cuts in 2012: These include China, South Korea, Singapore, Thailand, Philippines, India, Pakistan and Australia

-previous rate changes prior to 2012, but remains on hold through 2012: These includes New Zealand who cut in 2011, Taiwan increased in 2010 until July 2011, Vietnam raised rates in 2010 until early 2011, Indonesia cut rates from last quarter of 2011 until January 2012 and Malaysia increased rates in mid 2011.

-increased rates in 2012: Bangladesh, Sri Lanka, Mongolia 

The relationship between interest rates and equity market performance has been striking.

Countries who cut rates in 2012 mostly outperformed: Pakistan, India, Philippines and Thailand. For those whose rates were unchanged, e.g. Malaysia, Indonesia and Taiwan, the benchmark equity performance has largely been the median.

The losers or the laggards are economies that have been raising rates: Bangladesh, Sri Lanka and Mongolia.

The Philippine central bank, the Bangko Sentral ng Piliipinas (BSP) appears to have succumbed to pressures from the external agents during the recent IMF-World Bank annual gathering by raising interest rates for the fourth time this year last week[18].

The BSP announced through Mr. Amando Tetangco that such measures were meant to “help ward off risks associated with weaker external demand by encouraging investment and consumption.”[19]

Consumption does not emerge from a vacuum. Consumption would need to be satisfied through exchange via division of labor that arises out of production.

This means production has to come from capital good investments which are financed by capital or through savings, and not from printing of money or digital creation of money.

As a reminder all economic growth stems from savings. According to the great Professor von Mises[20],
At the outset of every step forward on the road to a more plentiful existence is saving--the provisionment of products that makes it possible to prolong the average period of time elapsing between the beginning of the production process and its turning out of a product ready for use and consumption. The products accumulated for this purpose are either intermediary stages in the technological process, i.e. tools and half-finished products, or goods ready for consumption that make it possible for man to substitute, without suffering want during the waiting period, a more time-absorbing process for another absorbing a shorter time. These goods are called capital goods. Thus, saving and the resulting accumulation of capital goods are at the beginning of every attempt to improve the material conditions of man; they are the foundation of human civilization. Without saving and capital accumulation there could not be any striving toward non-material end
Inflationism, thus, only dilutes the purchasing power (even Lenin and Keynes recognized this[21]), as well as, creates economic imbalances that promote bubbles and social instability.

The BSP further admits that there has been increasing risks of price inflation through “impending electricity rate increases and rising global prices for some grains could upset the inflation outlook” but recklessly assumes that “subdued global demand should temper the overall picture by easing price pressures on oil imports”

But price inflation has been creeping upward[22] in spite of “subdued global demand” and falling Philippine exports[23]. Perhaps local monetary officials have yet to discover that there exists an economic phenomenon called stagflation—high price inflation, high unemployment and economic stagnation[24]--which dominated the 1970-80s

Nonetheless with diminishing recession risks from the US despite the recent corrections in the equity markets, explicit policy support from global central bankers led by FED-ECB on the financial markets, the still “benign” domestic price inflation, the deepening domestic negative real rates regime and the recently established momentum from the breakout, we should expect domestic financial markets (the Phisix, the Peso) to outperform at least until the year end unless external shocks will derail the above dynamics

We should also expect that sluggish commodity prices in the environment of near coordinated monetary easing implemented by almost every major economy to make an eventual rally, not entirely because of ‘consumption demand recovery’ but because of reservation demand[25] or the “demand to hold stock” or “hoard” out of anticipation of higher prices or greater use of the good or more exchange opportunities of the good for other goods.

Applied to the local stock market, stocks will rise barely because of conventional wisdom of earnings or economic growth, but because of the growing urgency to chase for yields, to gamble and to punt which all represent as products of the policy regime of negative real rates. And proof of such progression has been the growing incidences of miniature bubbles[26].

[6]Mises, Ibid
[7] Wikipedia.org Mark Twain
[12] Mohamed El-Erian Mohamed El-Erian's Bagehot Lecture From Buttonwood Minyanville.com October 24, 2012
[13] Kel Kelly How the Stock Market and Economy Really Work September 1, 2012 Mises.org
[16] Atlantic Sentinel Secessionist Movements Threaten Foundation of Europe, October 17, 2012
[17] Asian Bonds Online Asia Bond Monitor September 2012
[18] ABS-CBNNEWS.com BSP ready to ease policy rates anew – Tetangco October 14, 2012
[19] Inquirer.net Philippines trims key interest rates again October 25, 2012
[20] Ludwig von Mises 2. Capital Goods and Capital XV. THE MARKET Human Action
[22] Danske Bank Brighter global outlook but every rose has it thorns, Emerging Market Briefer October 15, 2012
[24] Wikipedia.org Stagflation

Saturday, October 27, 2012

Moody’s Downgrades More Munis in 2012

Despite the seeming recent asset based recovery in the US, fiscal conditions of states remains highly fragile.

One of the major credit rating agency, Moody’s has downgraded more muni papers this year than in 2011.

From Bloomberg
Credit-rating cuts were made on more than $200 billion of municipal securities in the first nine months of this year, exceeding the total for 2011, and there’s no end in sight, Moody’s Investors Service said.

Port Authority of New York and New Jersey, Puerto Rico Sales Tax Financing Corp., Chicago O’Hare Airport Enterprise and Pennsylvania state debt accounted for more than 70 percent of third-quarter downgrades alone, affecting about $75 billion of securities, Moody’s said today in a report.

“Increased risk associated with difficult economic and industry environments, stressed budgetary and reserve positions, and challenging debt structures are the principal factors driving the downgrades,” Eileen Hawes and other Moody’s analysts said in the report.

State and local economies are still feeling the lingering effects of the last U.S. recession, which ended in June 2009. Unemployment has risen for four straight months in Pennsylvania, to 8.2 percent last month from 7.4 percent in May, according to data compiled by Bloomberg. The New York jobless rate surged to 9.1 percent in July and August from 8.2 percent in December, before declining to 8.9 percent last month.

“Local government credit quality will likely continue to deteriorate through the end of 2012 and be reflected in elevated downgrades as state funding and property-tax revenues continue to lag as expenditure pressures persist,” the Moody’s analysts said in the report. “We expect overall downgrade activity to continue to surpass upgrades through the end of 2012.”

In a report yesterday, Moody’s said more local governments are set to fall below investment grade in the coming year.
Although I don't trust credit rating agencies as they have been partly responsible for the last crisis, I share their concern over the current conditions of state governments in the US, such that should another bubble bust occur soon, through a recession or financial crisis or a combination of, dire financial conditions on the state-muni level will likely not only worsen but spread to the Fed level.

Bank of Japan Adds More Stimulus

So what else has been new, the Bank of Japan (BoJ), like their developed economy counterparts has been delivering as I have been expecting
Yet the huge amount of coming infusions from the FED-ECB will likely be complimented by the Bank of England, and Bank of Japan, as well as the Swiss National Bank whom has been the quasi-pioneer implementer of the unlimited option via the Swiss-Franc Euro price cap
Instead of unlimited QE, the BoJ steadily just keeps increasing their stimulus via balance sheet expansion, their supposed elixir to a crumbling economy.

From Bloomberg,
Japan announced 750 billion yen ($9.4 billion) of fiscal stimulus to shore up growth as bond investors told the government they’re worried about delays in financing more spending.

With lawmakers in the Diet blocking financing legislation, some of the extra money will come from discretionary budget funds, the government said in Tokyo today. The Finance Ministry said the impasse may affect a debt sale planned for December, after an emergency meeting with primary bond dealers.

Finance Minister Koriki Jojima said last week that the government will run out of money by the end of November if the financing bill is not passed. The yen touched a four-month low today as a report showed consumer prices slid for a fifth month in September and as a Bloomberg News survey indicated the Bank of Japan (8301) may expand an asset-purchase program by 10 trillion yen on Oct. 30.

“The risk of a Japanese fiscal cliff is quite big,” said Soichi Okuda, chief economist at Sumitomo Shoji Research Institute in Tokyo. “Without the passage of the bill, the government can’t pay for necessary spending and the implementation of the budget will be delayed.”


Japan seems to have been corralled into a corner with huge gross rollover financing requirements which accounts for the largest in the world in 2012.

The BoJ will likely become the biggest financier directly or indirectly, as backstop to the banking and financial industry, whom so far has been the biggest owners of government debt (both charts from Deutsche Bank-Zero hedge)

This has not been about the rising yen, this has been about political desperation to survive the current crumbling debt based political order.
Japan's default is in the horizon

Vietnam’s Banking System Has Been Short on Gold

Yet like any typical paper money based banking system, bankers distrust gold and exploit them. The public’s gold stored at the banks have essentially been “shorted” by Vietnam’s banking system supposedly to boost liquidity.

Notes the Zero Hedge, (bold original) 
any time a bank, and especially an entire banking sector, is willing to pay you paper "dividends" for your gold, run, because all this kind of (s)quid pro quo usually ends up as a confiscation ploy. Sure enough, as Dow Jones reports today, the gold, which did not belong to the banks and was merely being warehoused there (or so the fine print said), was promptly sold by these same institutions to generate cash proceeds and to boost liquidity reserves using other people's gold, obtained under false pretenses. 

And now, it is time for the forced sellers to become forced buyers, as "the State Bank of Vietnam, the country's central bank, may allow local banks to buy up to 20 metric tons of gold over the next two months to improve their liquidity ahead of a ban soon on their use of gold as a means of boosting their operating capital." What they mean is that having been caught engaging in an illegal reserve boosting operating, the banks are now "allowed" to undo their transgressions ahead of a "ban" on what inherently was not a permitted practice. What is left unsaid, of course, is that any gold anywhere in the world, that is not in one's physical possession, and has been handed over to an insolvent bank (virtually all of them) for "safekeeping", is currently being sold, lent out, rehypothecated and otherwise traded with, in a way that any demand for full delivery will generally be met with silence, blank stares and phone calls going straight to voicemail.
The growing clamor for ‘audits’ on gold reserves and the "discovery" or revelation of Vietnam’s banking system gold “shorts” should provide gold prices the necessary support.

Yet this gives further motivation for the average Vietnamese to stockpile their gold holdings at home.

War on the Internet: China’s Censorship on New York Times’s Expose on Chinese Leader’s Wealth Fails

The New York Times published an expose on the Chinese leadership which had been met by swift response and censorship by Chinese authorities.

Nonetheless, the article continues to generate readership within China via the informal or shadow internet economy.

From the New York Times (bold mine)
A spokesman for China’s Foreign Ministry on Friday criticized a decision by The New York Times to publish a lengthy investigation into assets accumulated by the family of Prime Minister Wen Jiabao, saying that the article “smears China and has ulterior motives.”

Speaking at a regularly scheduled daily briefing in Beijing, the spokesman, Hong Lei, also said that the Chinese government’s decision to immediately block access to the English- and Chinese-language Web sites of The Times on Friday morning was taken “in accordance with laws and rules.”

China’s censors also moved with unusual swiftness on Friday to delete any social media postings alluding even tangentially to the article, which cited publicly available corporate documents in reporting that Mr. Wen’s family has controlled assets worth at least $2.7 billion.

Sina Weibo, a very popular microblogging service similar to Twitter and traded on the Nasdaq in New York, on Friday morning immediately deleted the unofficial account that had been used to promote the culture and arts coverage on the Chinese-language site of The Times and that had nearly 60,000 followers. The site’s official account had been blocked since the site began operations in late June.

Even the term “$2.7 billion” was blocked on Friday on Weibo. But users were still discussing the article by using deliberate mistakes like “2.7b.”

Despite the censorship, there were signs that the article was attracting attention. According to the company’s statistics, the number of page views and unique users of the Chinese-language site fell by only a third on Friday compared with the previous Friday, even though 85 percent of users are typically located in mainland China.

The investigative article was the site’s most popular, drawing nearly a third of page views, while the home page drew another third.

The continued strength of traffic to the site was a sign that many users were using virtual private networks, or V.P.N.’s, to effectively bypass servers in China and circumvent the country’s censors.
The controversial article can be seen here

This serves as more proof that China’s largely statist regime or her practice of state capitalism, where nearly half of the enterprises remain state owned, have been tainted with favoritism, nepotism, corruption, cronyism and all sorts of economic windfall derived from the privileges of wielding political power.

And this is why policies in China have remained predisposed to Keynesianism despite its record of mounting failures and of the explosive growth of private enterprises. The latter of which has grown into a political force enough to challenge the status quo 

This also debunks the myth of selfless or virtuous leaders. Politicization of economic opportunities universally leads to immoral actions or conflicts of interests.

And importantly, the failure to censor the article in the entirety also exhibits the shadow internet economy thrives in China, which serves as further proof that internet remains a free market despite frenetic efforts of governments to control or regulate flow of information in order to protect the status quo.

Forces of decentralization (Information age or the Third Wave) have been gnawing at the foundations of the 20th century designed political establishment.

Friday, October 26, 2012

US President Obama’s Green Energy List of Failures

President Obama’s picking winners and losers have been bleeding US taxpayers. 

Here is a list complied by the conservative Heritage Foundation accounting for (so far) the 34 tax payer funded (crony) green energy companies that have lost money

So far, 34 companies that were offered federal support from taxpayers are faltering — either having gone bankrupt or laying off workers or heading for bankruptcy. This list includes only those companies that received federal money from the Obama Administration’s Department of Energy and other agencies. The amount of money indicated does not reflect how much was actually received or spent but how much was offered. The amount also does not include other state, local, and federal tax credits and subsidies, which push the amount of money these companies have received from taxpayers even higher.

The complete list of faltering or bankrupt green-energy companies:
  1. Evergreen Solar ($25 million)*
  2. SpectraWatt ($500,000)*
  3. Solyndra ($535 million)*
  4. Beacon Power ($43 million)*
  5. Nevada Geothermal ($98.5 million)
  6. SunPower ($1.2 billion)
  7. First Solar ($1.46 billion)
  8. Babcock and Brown ($178 million)
  9. EnerDel’s subsidiary Ener1 ($118.5 million)*
  10. Amonix ($5.9 million)
  11. Fisker Automotive ($529 million)
  12. Abound Solar ($400 million)*
  13. A123 Systems ($279 million)*
  14. Johnson Controls ($299 million)
  15. Schneider Electric ($86 million)
  16. Brightsource ($1.6 billion)
  17. ECOtality ($126.2 million)
  18. Raser Technologies ($33 million)*
  19. Energy Conversion Devices ($13.3 million)*
  20. Mountain Plaza, Inc. ($2 million)*
  21. Range Fuels ($80 million)*
  22. Thompson River Power ($6.5 million)*
  23. Stirling Energy Systems ($7 million)*
  24. Azure Dynamics ($5.4 million)*
  25. GreenVolts ($500,000)
  26. Vestas ($50 million)
  27. Nordic Windpower ($16 million)*
  28. Navistar ($39 million)
  29. Satcon ($3 million)*
  30. Konarka Technologies Inc. ($20 million)*
  31. Mascoma Corp. ($100 million)
*Denotes companies that have filed for bankruptcy.

The problem begins with the issue of government picking winners and losers in the first place. Venture capitalist firms exist for this very reason, and they choose what to invest in by looking at companies’ business models and deciding if they are worthy. When the government plays venture capitalist, it tends to reward companies that are connected to the policymakers themselves or because it sounds nice to “invest” in green energy.
The above list includes some adjustments, pls. go to the Heritage site for the updates

World’s Richest Women are Chinese Entrepreneurs

That’s according to the Hurun Rich List, where seven out of 10 of the world’s wealthiest self-made women are from mainland China, most of whom made their fortune from real estate and manufacturing

According to Finance Asia (table theirs too) [bold mine]
It is not surprising that most of these women made their fortune from real estate, the country’s most profitable industry, and are headquartered in Guangdong, the cradle of China’s entrepreneurial spirit.

Zhang Xin, chief executive of Soho China, has said that Chinese women enjoy many freedoms and opportunities in the country’s private business sector — more so than their foreign counterparts.


China’s dominance in the top 10 world’s wealthiest women list seem to coincide with the gender distribution in their domestic workforce, where China ranks 3rd in Asia in terms  of women managers, and ranks, second in the world female labor force participation rate according to table from the Economist.

In the world of economic freedom, gender distribution (politically coded as “inequality”) barely becomes an issue as “freedoms and opportunities” are democratized. 

The Unintended Effects of Alcohol “Sin” Taxes: UK Edition

Politicians and their academic and media supporters fail to see the human action aspects of social policies. 

For sin taxes, not only do they overestimate their understanding on the objectivity of human values, they also treat mathematical models having the same effects on the people, particularly, they mistake tax revenues as having some linear correlations with tax rates.

The Institute of Economic Affairs in a study shows why the concept of Sin taxes backfires. Here’s the summary (bold and italics original) 
The Treasury is losing as much as £1.2 billion every year to the illegal alcohol industry. A new report, Drinking in the Shadow Economy, demonstrates how illicit alcohol consumption is becoming a permanent and growing problem due to excessive taxation. 

The damaging effects of counterfeit alcohol

Failing to deal with counterfeit and smuggled alcohol threatens not only public cash, but public health and public order. Counterfeit alcohol can contain potentially life threatening levels of dangerous chemicals, whilst alcohol smuggling is linked to other illegal activities such as drug dealing, violence and money-laundering.

High taxes are encouraging the growth of the illicit alcohol market

It is evident that high taxes are causing this boom in the illicit alcohol market. As prices rise, consumers are increasingly turning to the more affordable options available in the shadow economy. Government policy might intend to improve people’s health, but it may be having the opposite effect.

With the number of seizures of counterfeit alcohol rising five times between 2008/09 and 2010/11, and growing reports of counterfeit spirits being sold by both licit and illicit retailers, it is crucial that the government reconsiders its strategy in dealing with alcohol pricing.

High alcohol taxes do not reduce alcohol consumption

Contrary to popular belief, making alcohol more expensive is not an effective way of reducing drinking rates or the problems associated with excessive alcohol consumption. Britain and Finland have some of the highest alcohol taxes in the world and yet the amount of drink consumed in these countries is the same as in places such as France and Spain, where alcohol is more affordable.

Commenting on the report, its author, fellow of the Institute of Economic Affairs Christopher Snowdon, said:

“The government’s focus on maximising tax revenues is short-sighted and dangerous. Aside from losing money by encouraging consumers to find cheaper illicit alternatives, public health and public order are also being put at risk by high prices. Policy-makers ought to take the threat of illicit alcohol production seriously when considering alcohol pricing in the future.”

"There is a clear relationship between the affordability of alcohol and the size of the black market. Politicians might view the illicit trade as a price worth paying for lower rates of alcohol consumption, but this research shows that the amount of drink consumed in high tax countries is exactly the same as in low tax countries."

“Minimum alcohol pricing might seem like a quick fix to tackle problem drinking, but it is likely to cause many more problems by pushing people towards the black market in alcohol."

Here are some interesting charts:

The shadow economy has tight correlations with corruption

So as with the relationship between shadow economy/corruptions vis-a-vis illegal and bootleg alcohol consumption.

Sin taxes has almost the same effects as the prohibition laws where the only difference is in the degree.

To quote the author of the study Christopher Snowdon 
Contrary to temperance rhetoric, high alcohol taxes are not necessarily good for public health because, although excessive alcohol consumption undoubtedly carries risks to health, so too does moonshine. Counterfeit spirits and surrogate alcohol frequently contain dangerous levels of methanol, isopropanol and other chemicals which cause toxic hepatitis, blindness and death. These are the unintended consequences one associates with prohibition, albeit at a less intense level than was seen in America in the 1920s.

It should not be surprising that excessive taxation encourages the same illicit activity as prohibition since the difference is only one of degrees. As John Stuart Mill noted in 1859: ‘To tax stimulants for the sole purpose of making them more difficult to be obtained is a measure differing only in degree from their entire prohibition, and would be justifiable only if that were justifiable. Every increase of cost is a prohibition to those whose means do not come up to the augmented price’ (Mill, 1974: 170-171).