Graphic: Origin of The Rule of Law

This seems like an introspective portrayal by Ms. Jessica Hagy apropos "rules" which she calls Don't you know better by now?

From my point of view, this seems like a good depiction of the "origin of the rule of law".

Here is David Hume's the History of England, (bold highlights mine)

``No government, at that time, appeared in the world, nor is perhaps found in the records of any history, which subsisted without a mixture of some arbitrary authority, committed to some magistrate; and it might reasonably, beforehand, appear doubtful whether human society could ever arrive at that state of perfection, as to support itself with no other control, than the general and rigid maxims of law and equity. But the Parliament justly thought that the King was too eminent a magistrate to be trusted with discretionary power, which he might so easily turn to the destruction of liberty. And in the event it has been found that, though some inconveniencies arise from the maxim of adhering strictly to law, yet, the advantages so much overbalance them, as should render the English forever grateful to the memory of their ancestors who, after repeated contests, at last established that noble principle."

Black Swan Problem: Deflation? Not In Ivy League Schools

Somebody uttered 'deflation'?

Well, definitely not in the tuition fees of Ivy league schools.

This interesting commentary and graph from Bloomberg's Chart of the Day

(bold highlights mine)

``Life on top means not having to lower your prices.

``The CHART OF THE DAY shows how the cost of a year as an undergraduate at Harvard and Princeton has risen through boom and bust. Tuition and fees at Harvard jumped 67.8 percent over the decade; at Princeton, they increased 43.4 percent.

``That hasn’t dented demand. Freshman applications at Harvard in Cambridge, Massachusetts, rose by 60.9 percent over the last 10 years. At Princeton in New Jersey, which started accepting the Common Application standardized form for admission in 2005 (Harvard did so in 1994), demand rose by 47.7 percent.

``The two Ivy League schools haven’t been entirely immune from the recession. Harvard this year reported that its endowment fell an estimated 30 percent; Princeton’s, 25 percent.

``“They say trees can’t grow to the sky, but apparently there’s no stopping college tuitions,” said Jay Diamond, a managing director at Annaly Capital Management, a New York real estate investment trust with total assets of $86 billion, and member of Princeton class of 1986. “It would appear that an undergraduate degree at a place like Princeton is actually a Giffen good. As a prospective college tuition-paying parent -- my kids are in 10th and eighth grades and kindergarten -- I wish that colleges competed on price, but that is certainly wishful thinking.”

``A Giffen good, first observed by British economist Robert Giffen (1837-1910), is something for which demand rises even as its price goes up."

Prices should be seen from a relative and not from an absolute perspective, where some prices (as the above) have been going up, in spite of the recession, while some prices have indeed been going down.

The point is deflation in the absolute sense isn't true.

Like the Black Swan problem, in the generalization that all swans are white, David Hume argues that a ``single black swan is sufficient to refute that conclusion."

Black Swan Problem: Not All Markets Are Down!

``No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion," wrote philosopher David Hume in his Treatise on Human Nature, which is a rephrase of the black swan problem posed by John Stuart Mill [Nassim Nicolas Taleb: Fooled By Randomness p.117]

When we hear experts generalize that global markets are in bearish territory as means to give emphasis to their deflationary theme, we understand this as a Black Swan Dilemma.

While it is true that MOST markets are in the red or even in bear market territory (defined as in 20% decline), it isn't true that all markets are suffering losses or even in bear markets.

This great chart from Bespoke Invest...

Quoting Bespoke Invest, ``As shown, Iceland is down the most at -89.66%, followed by Ukraine (-76%), Bulgaria (-74%), Romania (-66%), Russia (-65%), and China (-65%). Brazil is down 40% year to date and India is down 48%. Clearly, 2008 can't end quick enough for the BRIC countries. Just 3 of the 84 countries are up for the year. Ecuador is up 5.8%, Tunisia is up 17%, and Ghana is up 61%. And with a decline of 36% year to date, the US is the 33rd best performing country out of the 84 analyzed."

To add, some countries as Bostwana, Venezuela, Costa Rica, Lebanon and Morocco are down year to date but LESS than 10%-which doesn't technically bring them into bear markets.

We understand Bespoke's chart as computed based on local currency figures.

courtesy of isx-iq.com

And we would like to add Iraq's booming stock exchange, which according to Washington Post (Oct 27, 2008), is up 50% over the year.

Of course no bourse can beat Zimbabwe's turbocharged performance, from All Africa.com (all highlights mine),

``The feat continued into 2008 with industrials posting a year-to-date growth of 960 quadrillion percent, which is 4,15 billion times as much as July's annual inflation of 231 million percent.

``The resource index is up 444 quadrillion percent since January. And so, from the look of things, ZSE investors may have indeed managed to hedge their assets against the effects of high inflation but some have been at a loss in US dollar terms."

As a reminder, Zimbabwe's market has been up on local currency terms but is significantly down in US dollar terms. The seemingly fantastic rise reflects the impact of hyperinflation to its asset prices, as Zimbabweans seek shelter in the stock market from a collapsing currency.

As a final note, the Bespoke chart also shows of the massive adjustments in PE ratio on a year to date basis.