Libertarianism And The Internet

The ever brilliant GMU Professor Bryan Caplan notes that the social skills of libertarian students have materially increased over the past few years due to the internet.

Professor Caplan writes,

The best explanation I've got so far: the Internet. Back in the old days, libertarian students spent a lot of time alone with their books. It was awfully hard to meet others with a shared interest in liberty. This social isolation had two effects. The first was a treatment effect: Libertarians got a lot less practice sharing their ideas in a civilized and constructive way. The second was a selection effect: Few "people people" became libertarians because it was too depressing. As the Internet - and social networking, its favorite child - blossomed over the last two decades, these effects of libertarian isolation largely faded away. Nowadays, almost no libertarian is isolated unless he wants to be. As it turns out, few do.

Aside from linking or connecting shared interests in real time and across diverse geography, the internet offers a wealth of informational exchange, at diminishing costs, from which libertarians use to solidify their convictions, grounded mostly on philosophical, political and or economic reasons.

So convictions are not only backed by what marketing guru Seth Godin would call as ‘tribes’, but also by increased knowledge that provides confidence to libertarian adherents. And this helps increase social skills and the number of enthusiasts which likewise help reduce libertarians from isolation.

Besides, in what I would call the unfolding Hayekian knowledge revolution brought about by democratization of knowledge through the internet, libertarian philosophy blends smoothly with horizontal flow of informational exchange as previously discussed here.

In other words, my bold forecast is that the philosophy of libertarianism and classical liberalism is bound to go mainstream.

China’s Real Estate Bubble: Using Divorce As Regulatory Arbitrage

The cat and mouse game between the regulators and the markets or regulatory arbitrages have not been limited to institutions.

Even individuals practice them for profit reasons.

In China, one way to elude government administrative controls on the ballooning property bubble has been for families to apply for divorce.

Writes Teresa Kong of Matthews Asia, (bold emphasis mine)

Real estate risks are still big concerns for investors in China. The central authorities have been trying to dampen property speculation, but as the saying goes in China: “for every government policy, the people have a counterpolicy.” Trying to control demand through administrative means leads people to devise some novel ways around the rules. This begs the question of just how effective China’s new regulations may be in moderating property prices. In September last year, the Chinese government announced that all mortgages on second homes would require at least a 50% down payment, and mortgages on third homes were banned. While on tour at one of the developments, I heard one property manager say that he and his wife got a divorce to get around this rule. It was simple, he explained, a divorce certificate required 10 yuan (US$1.50), and a visit to city hall. That way they would be considered two households and his wife would be able to finance her “first” home with a traditional first-home mortgage—practical, though not exactly romantic.

And it is no wonder why China’s divorce rate has recently skyrocketed.

Yet China’s government controlled media has blamed the accelerating divorce rates on “rising wealth and independence” according to the China Post.

As earlier mentioned, governments and their apologists, as well as the media, employs such deep-seated bad habits of mistakenly treating symptoms as the underlying cause of the unfolding events.

That’s why governments end up not only having regulations that prompts for an economic backfire, but importantly, become direct promoters of the decline of a nation’s moral fibre.

Regulatory Arbitrage: Some Banks In The US Circumvent The New Capital Rule

The major flaws of the interventionist ideology are that they seem to always figuratively “fight the last war”, treat symptoms rather than the source of the disease and starkly misjudge market dynamics in adapting to a new regulatory environment.

A good example of the last condition, largely known as regulatory arbitrage, can be defined as, according to moneyterms.co.uk, “financial engineering that uses differences between economic substance and regulatory position to evade unwelcome regulation. The term is also sometimes used to describe firms structuring or relocating transactions to choose the least burdensome regulator, but this is better described as regulator shopping.”

The essence is that in search of profits, private enterprises tend to look for loopholes which circumvent unfavourable regulations from where they can operate.

It’s fundamentally a cat-mouse game between authorities and the markets.

Below is a good example.

From the Wall Street Journal, (bold highlights mine)

Some foreign banks are moving to restructure their U.S. operations to avoid one of the most-burdensome requirements of the new Dodd-Frank law.

In November, Barclays PLC quietly changed the legal classification of the U.K. bank's main subsidiary in the U.S. so that the unit would no longer be subject to federal bank-capital requirements. Several other banks based outside the U.S. are considering similar moves, according to people familiar with the matter.

The maneuver allows them to escape a provision of the financial-overhaul law that forces the pumping of billions of dollars of new capital into the U.S. entities, known as bank-holding companies.

"It's just not worth it to have all that capital trapped" in the holding company, said a New York lawyer who is advising banks on how to restructure.

The moves are the latest example of how banks are scrambling to cushion the impact of new laws and rules around the world.

Policy makers are demanding banks hold more capital and cash to help prevent a repeat of the financial crisis. But bank executives are worried that all the changes will crimp profits without making the financial system safer.

Last summer's Dodd-Frank law beefed up rules governing the quantity and types of capital banks must keep to protect themselves from potential losses. The provision also closed a loophole that allowed foreign banks to run their U.S. subsidiaries with thinner capital buffers than those of their local rivals.

All these simply show how markets are much superior to governments and how government regulations may lead to unintended consequences.

Filibustering Via Voting Boycott

In politics you can expect the unexpected.

In the state of Wisconsin in the US, minority lawmakers reportedly resorted to a bizarre form of filibustering which looks deserving of the hall of shame...

Take it away Tyler Durden (of Zerohedge)...

The farce over the Wisconsin anti-union vote has just passed into the surreal. According to the AP, democrat lawmakers, who are firmly opposed to voting on the bill which is said to already have majority support, and who have been boycotting the vote by being absent from the state capitol, have now escalated and patriotically left the state. The reason is that while the vote can not take place without at least one Democrat being present, the police had been sent out earlier, with orders to sequester the democrats. The democrat response: run away. As the AP reports: "Senate Republicans can't vote on the bill unless at least one Democrat is present. Police could be dispatched to retrieve them, but it was unclear if they would have the authority to cross state lines." So to all who were expecting the latest iteration of members of the executive class to run away (with or without gold) to come from Africa or the Middle East, will be disappointed: it was in America's very own back yard. (emphasis mine)

They certainly can run but they can’t hide as the laws of economics have been bearing down on them hard.

Ludwig von Mises has been once again validated when presciently wrote,

An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.

The People Power Handbook By Gene Sharp

This from the New York Times,

Halfway around the world from Tahrir Square in Cairo, an aging American intellectual shuffles about his cluttered brick row house in a working-class neighborhood here. His name is Gene Sharp. Stoop-shouldered and white-haired at 83, he grows orchids, has yet to master the Internet and hardly seems like a dangerous man.

But for the world’s despots, his ideas can be fatal.

Few Americans have heard of Mr. Sharp. But for decades, his practical writings on nonviolent revolution — most notably “From Dictatorship to Democracy,” a 93-page guide to toppling autocrats, available for download in 24 languages — have inspired dissidents around the world, including in Burma, Bosnia, Estonia and Zimbabwe, and now Tunisia and Egypt.

Get hold of the People power handbook “From Dictatorship to Democracy” from Gene Sharp. Just press on the New York Times link above.

An enlightened constituency will be least prone to political machinations and manipulation. Intelligence/Knowledge is our only way to defend and attain genuine freedom or liberty.

How Philippine Renewable Energy Policies Sow The Seeds To The Next People Power Revolt

Friend and libertarian colleague Nonoy Oplas has a wonderful article on renewable energy cronyism, as a result of climate change hysteria, here in the Philippines.

Politicos along with the media have successfully drummed up fear based frenzy on the public that has led to the justification of political interventionism in the local energy sector.

And like parasites, vested interest groups (associated with the political class) jump in to profit from such politically mandated economic concessions-all manifesting symptoms of crony capitalism.

Mr. Oplas’ article can be summarized into the imposition of the arbitrary law, the Renewable Energy Act or RA 9513 that has the following features:

-punishes non renewable energy with taxation and regulation while exempting clean and renewable energy

-guarantees profits (despite the inefficiency) of the politically privileged industry

-a deluge of other unilateral incentives:

a) Income Tax Holiday for 7 years, (b) Duty-free importation of RE machinery, equipment and materials within the first 10 years, (c) Special realty tax rates, (d) Net Operating Loss Carry-over (to be carried for the next 7 consecutive years), (e) 10% Corporate tax rate, (f) Tax Exemption of Carbon Credits, and (g) Tax Credit

-and an expansion of the bureaucracy:

the National RE Board (NREB) to be composed of different government agencies to some private sector players. The other is a technical secretariat, the RE Management Bureau (REMB)

You can read the rest of Mr. Oplas article here

However, the unintended consequences of Renewable Energy Act or RA 9513:

-the redistribution from traditional energy suppliers to politically endowed renewable energy suppliers is a form of political economic discrimination which means forthcoming shortages in conventional “cheaper” energy supplies.

-political economic discrimination spawns more illegitimate activities such as envy based violence and corruption

Why? Because, as the great libertarian Frank Chodorov explained,

State does not grant privileges without a quid pro quo. Every privilege involves the getting of something for nothing; it is never an honorable exchange, and therefore has to be enforced. The coercive power of the political establishment is involved. The State, far from being an impersonal fiction, consists of men who are called politicians but whose inclinations are not unlike those of other men. The only difference between the politician and the rest of mankind is that he is invested with the power to compel other men to do what they do not want to do, or to refrain from doing what they want to do. (bold highlights mine)

-Mr. Oplas further notes that renewable energy are pricier where the “current RE costs per kwh are high, between 2x to 5x the prevailing rates, and even if RE supply is unstable and unreliable. Us energy consumers will be forced to pay for their more expensive energy output”

So essentially the public will be faced with a perfect storm: rampant energy and eventually food price inflation!

Shortages in conventional energy equates to higher prices, while high costs of renewable energy means higher prices to the consumers too!

So along with the transmission channels from energy prices to food production and distribution, such policies we are likely to sow the seeds of the next “People Power” revolution here.

The Philippines is the most prone or vulnerable to food-energy inflation in Asia, as shown by the chart above by Soc-Gen and Businessinsider.

So even if prices from renewable energy are to be subsidized to the public, since there is no such thing as a “free lunch”, then the nation’s fiscal conditions will eventually bear the brunt in the substance of ballooning fiscal deficits.

Remember, the government has been tinkering here with the most politically sensitive commodities.

-in providing state guarantees where profits are privatized and losses are socialized this also means redistribution from the consumers to the cronies (robbing the poor to give to the rich).

As people pay for higher energy prices, the cronies of the ruling class will get wealthier.

And people, likely to be led astray by media, will blame 'greed' on free markets or laissez faire capitalism for what essentially is a state capitalism based on social democracy or political greed.

And when public uproar translates to the end of the system, cronies remain insured (flee the country) while fiscal situation as above worsens--public pays for the sins of the political class.

In other words, we should expect higher taxes, lower economic growth and more unemployment, if these laws remain enforced.

-the usual cycle: every new law means more bureaucracy and government spending.

All these along with the above only entails the ruling class, government employees and the cronies benefit while the society suffers.

The problem is that people or the public have been allured to the pessimism bias, which makes them all too vulnerable to the manipulation or propaganda of political-economic (ruling) elite classes.

Alternative Investments

In an inflationary boom, the tendency is for asset inflation to become broadbased and not limited to the traditional classes such as equities and commodities, but to a wider range of non conventional assets or otherwise known as “alternative investments”.

Minyaville presents 10 possible alternative investments:

1. Vintage Apple Computers and Other PCs

2. Fine Art

3. Gemstones

4. Litigation Funding

5. Rare Stamps

6. Fine Wine

7. Luxury Food and Tea

8. Baseball Cards

9. Celebrity Autographs

10. Vintage Toys

They write, (bold emphasis mine)

If you're looking to protect at least a portion of your money, one option is to move into uncorrelated investments -- buy some stamps, gemstones, wine or fine art. Risky and not always easy to exit, these markets are tempting to many because they're typically unaffected by the highs and lows of the general economy. They are said to be recession-proof, able to hold their own during downturns, or even grow at astounding rates of 10 to 20%.

If you choose to go this route, however, it's imperative to know your risks. Some experts complain that the hype about market-beating returns is based only on the success stories, not the average transaction. Critics also claim that some seemingly uncorrelated markets have become correlated -- they're now attached to traditional assets -- meaning they're just as vulnerable to larger market crashes as any other investment.

You may read on from this link or go above to the specific alternative asset markets and press on the link accordingly.

I’d like to say that I belong to the latter- the skeptics, whom are not convinced that these are ‘recession proof’ nor are they assets that signify uncorrelated nature useful for portfolio ‘diversification’.

The art markets as previously argued is one the many metrics I use in trying to gauge on the state of the bubble.

I’d also say that liquidity of such markets could also pose as a problem.

Thus returns may be greater but so are the risks.

Bottom line: There are many ways to exploit asset investments in today’s environment, but we should be circumspect or know about the risk profile of the particular asset market we intend to deal with before plunging in. Risk comes from not knowing what we are doing as value investor turned political entrepreneur Warren Buffett used to say.

Explaining Popularity In Terms of Predictions: Dr. Nouriel Roubini’s Case

This seems like good news to me. My favourite mainstream Keynesian bear, Nouriel Roubini, appears to have ‘capitulated’. Mr. Roubini, a popular and very well connected economist, has almost always been on the wrong side of the prediction fence, and this seems to be just another of chapter of his string of failed forecasts and eventual turnaround.

Mr. Roubini has turned bullish on the US markets, reports the Bloomberg,

Nouriel Roubini, the economist who predicted the financial crisis, said U.S. stocks may gain in the next few months as company earnings remain resilient.

Adds Thomas Brown of bankstocks.com

What the heck happened to the L-shaped recovery? Roubini’s view is now squarely within the mainstream expectation. Good for him. The facts changed, and so he changed his opinion. Keynes would be pleased.

For me, Mr Roubini exemplifies as one of the bizarre ironies of the marketplace where despite his persistent wrong predictions, Mr. Roubini has remained quite popular with media.

If his strategy has been patterned to a tournament bridge game called “playing for a swing” as Professor Arnold Kling suggests, where “It would appear that Roubini's strategy is to make forecasts that differentiate himself from the consensus forecast. This allows him to be spectacularly right sometimes and spectacularly wrong sometimes. As long as he succeeds in getting everyone to remember the right forecasts more clearly than the wrong ones, he becomes a prophet”, then his success reflects on the public’s poor memory (or survivorship bias).

Google search trends for Mr. Roubini vis-a-vis Dr. Marc Faber

While there may be some truth to this, I am not convinced.

The public seems jaded to the forecasting accuracy by experts.

In relative performance, another (less) popular grizzly bear (but Austrian school leaning bear), Dr Marc Faber, who appears to have consistently been accurate even in predicting short to medium term trends—even the latest divergence between EM and developed economies stocks—has almost trailed Dr. Roubini’s in terms of popularity. (note the difference in search volume index—X axis).

So the explanation of “spectacularly” right or wrong doesn’t seem to suffice.

Instead, I think, Mr. Roubini signifies what the public wants to hear more than the validity of his theories. He personifies the confirmation of many entrenched but flawed beliefs.

Search volume for Austrian versus Keynesian Economics

One would note of an almost similar performance between Dr. Faber and Dr. Roubini’s popularity variance levels—Austrian economics has largely been subordinate in popularity to Keynesian economics during the past years (although this could be changing).

Finally there could be another factor: pessimism bias sells.

In the question and answer portion of this splendid talk on innovation, economist Deirdre McCloskey points out that Paul Ralph Elrich remains quite popular in spite of his ‘spectacularly’ wrong prediction.

Mr. Elrich is known for having lost the famous Simon-Elrich wager- wager that based on the price of 5 metals anchored upon the overblown risks of overpopulation.

Perhaps many are simply more attracted to a pessimistic outlook, whether valid or not, out of the penchant to see or resist a change in the status quo, or based on social signalling (to conform with the consensus outlook or to show intellectual prowess or promote an ideology, e.g. using fear to expand government control)

As Professor Bryan Caplan writes,

David Hume—economist, philosopher, and Adam Smith’s best friend—blamed popular pessimism on our psychology. “The humour of blaming the present, and admiring the past, is strongly rooted in human nature,” he wrote, “and has an influence even on persons endued with the profoundest judgment and most extensive learning.”

Bottom line: The popularity of economic or market forecasters appear grounded mostly on the confirmation bias or giving the public what they want or desire to hear more than the validity of theories or the batting average or the accuracy of predictions.

Japan Likely To Open To More Migrants Workers

We have been forecasting that Japan, given its demographics, will eventually be compelled to liberalize its labor markets, despite the popular aversion to accept migrant workers.

Here is what I wrote in 2009,

And as its economy recovers, Japan's dwindling population (see the above chart from japanfocus.org) will endure strains from labor shortages.

While Japan can easily absorb more foreign workers when it is deemed as politically convenient, it would bear additional costs from the "learning curve" to integrate foreign workers to its society.

I guess the political pressures for such liberalization appears to be mounting, and seems even to emanate from the political class.

It isn’t just Japan’s demographic conditions that have been impelling for such changes but likewise China’s demographic trends—where the latter may provide competition for foreign workers.

This from Japan Times,

Foreign Minister Seiji Maehara called Wednesday for appropriate rules to accept more foreign workers ahead of an anticipated severe labor shortage in rapidly aging Japan, warning that China's eventual "supergraying society" could soak up migrant workers…

"If China seeks nurses and caregivers from neighboring Asian countries in 10 to 20 years' time, Japan, which already suffers from a shortage of staff, will compete with a country that has 10 times more people to secure medical workers," he said.

The foreign minister criticized the health ministry for being reluctant to accept more foreign nurses and caregivers and prioritizing the employment of existing qualified Japanese who are not working right now.

I’d bet cultural inhibitions extrapolated through politics will eventually pave way to embracing reality.

Who Is To Blame For High Energy Prices?

The upward pressure in the global prices of petrol products have prompted The Economists to ask “Are taxes or crude oil prices to blame for expensive petrol?”

Their narrative....

PETROL prices have risen steeply in rich countries, triggering heated arguments about whom or what is to blame. America’s energy department recently blamed a jump in petrol prices of 3.1 cents per gallon in the space of seven days on the political unrest in Egypt affecting crude oil prices. Japan’s government blamed the high price of crude oil for its tenth weekly price increase at the pump. The British government has given the same explanation for price increases averaging 15% in the year to January. But with the oil price still at only two-thirds of its peak in mid-2008, this is not the only cause—as the three charts below show

Elevated oil prices as we have repeatedly argued here, represents a mishmash of many factors that can be classified into two; mainly

-artificially high demand as a result of central banking inflationism (suppressed interest rate and QE) and

-on the supply side, the perceived shortages as a result of global governments restrictions to private investments (despite the lack of funding or technology) for political reasons, inadequate transparency of the actual state of reserves and attempts to manipulate the oil markets (OPEC cartel)—both of which has led to the escalating prices.

Lastly, taxes, which the Economist also raised, are also government imposed.

As to who is to blame for expensive petrol? I guess the answer is very much obvious: government interventionism.

Video On US Income Inequality: What Statistics Don’t Say

In this video, Professor Steve Horwitz explains the myth behind mainstream’s presentation of “income inequality”. (hat tip: Professor Art Carden)

Emerging Market Authorities Lean On Free Trade

Here seems to be more proof that emerging market authorities are more “free market” leaning today.

One of them, as shown below, has even been lecturing developed economies to adapt more liberalization.

This appears to be in stark contrast to the yesteryears where developing nations were subjected to the Washington Consensus or “an orientation towards Neoliberal policies” which refers to “economic reforms that were prescribed just for developing nations, which included advice to reduce government deficits, to liberalise and deregulate international trade and cross border investment, and to pursue export led growth.”

Brazil’s finance minister vehemently assailed the Federal Reserve for its QE,

From Wall Street Journal blog

Brazilian Finance Minister Guido Mantega on Tuesday renewed his attack on the Federal Reserve’s most recent program of quantitative easing, saying the policy had goosed global flows of hot capital and heightened the global problems of rising commodity prices and inflation.

Last year, Mr. Mantega warned that falling currencies — including the U.S. dollar, due to the Fed’s plan to buy up to $600 billion of Treasurys — had triggered a currency war. On Tuesday, the finance minister renewed his opposition to the Fed’s program — at one point correcting his interpreter to specify “quantitative easing” and not just “monetary policy.” (emphasis added)

And he equally slams entrenched protectionist policies...

More from the same article.

The finance minister also blamed the U.S. — and other developed markets — for playing a role in rising commodity prices. The problem, Mr. Mantega said, isn’t solely due to increased demand, unfavorable weather and natural disasters, such as last summer’s drought in Russia. Agricultural subsidies in the developed world, and higher prices for fertilizer made by advanced economies also are factors, he said. One solution Mr. Mantega offered: encouraging production of agricultural commodities in developing, low-income countries. And one sure way to make the situation worse: any type of price controls or restrictions, which the finance minister characterized as the equivalent of shooting one’s self in the foot.

Developed countries should remove subsidies and lift trade barriers to products of emerging countries,” he said. “Also, developed countries should provide new investment opportunities to prevent capital supplies from increasing commodity prices.

Looks like the table has been turned.

Economic Freedom Is Key To Prosperity

Great stuff from Professor Walter Williams, (bold highlights mine)

Poverty in Egypt, or anywhere else, is not very difficult to explain. There are three basic causes: People are poor because they cannot produce anything highly valued by others. They can produce things highly valued by others but are hampered or prevented from doing so. Or, they volunteer to be poor.

Some people use the excuse of colonialism to explain Third World poverty, but that's nonsense. Some the world's richest countries are former colonies: United States, Canada, Australia, New Zealand and Hong Kong. Some of the world's poorest countries were never colonies, at least for not long, such as Ethiopia, Liberia, Tibet and Nepal. Pointing to the U.S., some say that it's bountiful natural resources that explain wealth. Again nonsense. The two natural resources richest continents, Africa and South America, are home to the world's most miserably poor. Hong Kong, Great Britain and Japan, poor in natural resources, are among the world's richest nations.

We do not fully know what makes some societies more affluent than others; however, we can make some guesses based on correlations. Rank countries according to their economic systems. Conceptually, we could arrange them from those more capitalistic (having a large market sector and private property rights) to the more socialistic (with extensive state intervention, planning and weak private property rights). Then consult Amnesty International's ranking of countries according to human rights abuses going from those with the greatest human rights protections to those with the least. Then get World Bank income statistics and rank countries from highest to lowest per capita income.

Having compiled those three lists, one would observe a very strong, though imperfect correlation: Those countries with greater economic liberty and private property rights tend also to have stronger protections of human rights. And as an important side benefit of that greater economic liberty and human rights protections, their people are wealthier. We need to persuade our fellow man around the globe that liberty is a necessary ingredient for prosperity.

Professor Steven Landsburg shows 3 charts that arrive with same conclusion: Economic Freedom supersedes civil liberties or Political rights. In other words, democracy is only second to economic freedom.

Says Professor Steven Landsburg,

Political freedom and civil liberties are good things. I endorse them. But as far as human happiness goes, capitalism is an even better thing

Seasteading: A Dreamworld For Anarchists?

John Stossel suggests one way to escape the clutches of the government: Try Seasteading-an idea derived from Patri Friedman.

Photo from Seasteading Org

Writes John Stossel,

What is someone looking for better governance to do? In 2008, Friedman set up The Seasteading Institute. His website states: "(W)e believe that experiments are the source of all progress: To find something better, you have to try something new. But right now, there is no open space for experimenting with new societies. That's why we work to enable seasteading communities -- floating cities -- which will allow the next generation of pioneers to peacefully test new ideas for government. The most successful can then inspire change in governments around the world."

Read the rest here.

Adds Professor Bryan Caplan,

The whole point of seasteading is to get outside of existing jurisdictions, then create new institutions. Whatever else you think about seasteading, it does bypass the problem of changing either structure or policy in existing societies.

Hmmmm

Quote of the Day: ASEAN Free Trade Agreement

ASEAN+6 and the Trans Pacific Agreement could serve as starting points and become the basis of a future free trade agreement encompassing all of Asia and the Pacific.

That’s from ADB President Haruhiko Kuroda

Even multilateral institution as the ADB are discovering the importance of free trade.

A Map Of The World’s Drinking Habits

Interesting article from the Economist

THE world drank the equivalent of 6.1 litres of pure alcohol per person in 2005, according to a report from the World Health Organisation published on February 11th. The biggest boozers are found in Europe and in the former Soviet states. Moldovans are the most bibulous, getting through 18.2 litres each, nearly 2 litres more than the Czechs in second place. Over 10 litres of a Moldovan's annual intake is reckoned to be 'unrecorded' home-brewed liquor, making it particularly harmful to health. Such moonshine accounts for almost 30% of the world's drinking. The WHO estimates that alcohol results in 2.5m deaths a year, more than AIDS or tuberculosis. In Russia and its former satellite states one in five male deaths is caused by drink.

I’d like to add that institutions like the WHO, whom has called for stronger “alcohol control policies” appears to have forgotten about the epic regulatory failure in the “Volstead Act” or the US alcohol prohibition law of the 1920s.

Such prohibition, also known as ‘the Noble experiment’, according to wikipedia.org, “stimulated the proliferation of rampant underground, organized and widespread criminal activity” which eventually led to its repeal.

Noble intentions will never rescind the laws of demand and supply.

Environmental Black Swan: ‘Doomsday’ Asteroid Could Slam Into Earth on 2036!

Since many people like to scare themselves with fictitious tales of environmental doom, this should represent as the ultimate environmental horror story or a black swan (low probability, high impact) event: earth could be hit by a ‘doomsday’ asteroid!

Scientists have even pegged a date for Armageddon: April 13, 2036!

From the Daily Mail, (emphasis added)

Warning comes days after another asteroid shot over the Pacific just 3,400 miles above the Earth’s surface

An asteroid travelling at 23,000mph could crash into Earth on April 13, 2036 killing millions and causing global chaos, scientists claim.

In a plotline taken straight from a science-fiction film, astronomers in Russia are predicting that the 300-yard-wide Apophis could slam into the planet in 25 years' time.

But don't panic just yet, as it is extremely unlikely to happen.

So unlikely, in fact, that Nasa has given the catastrophic event odds of 250,000-to-1 that it actually takes place.

Read the rest here.

Goodbye anthropogenic global warming!

ASEAN Bourses Undergoing Interim Correction

Since the advent of 2011, the Philippine Phisix has been on a losing streak.

In four out of the five weeks into the year so far or a string 4 consecutive weeks in the red, the Philippine benchmark has accrued a year-to- date decline of 10.76%

Regional Event and Seasonality

Before jumping to conclude about what’s been ailing the Phisix, we should take note of the following:

Figure 1: Bloomberg: Correcting ASEAN Bourses

One, this has been a regional phenomenon.

As the above chart reveals, our ASEAN contemporaries (Thailand-green, Indonesia-orange) have been synchronically on a downside path since November of 2010 (with the exception of Malaysia (red).

To extrapolate, there seems no internal dynamic that has been causing the current weakness—not the Rabusa expose nor the Angelo Reyes incident. And I don’t think that local or regional consumer price inflation has reached critical levels yet to incite political hysteria.

The Philippines just posted a record economic growth during the last quarter of 2010[1], and so with Indonesia[2], whose economic growth hit a 6 year high.

One may suggest that these events account for as past performances that does not serve as a good indicator of the future, from which the markets could be be pricing in. This could be true.

And that perhaps the market could be portending of a possible downshift following a turbocharged upside momentum. This could likely be a factor, too. But I would refrain from fixating on this premise as the main causation to the current market action.

The other thing is that the current correction could signify a cyclical motion.

The white arrows on figure 1 points to general market infirmities at the onset of 2009 and 2010.

The first quarter of 2009 marked the trough of the 2007-2008 bear market which culminated with the post Lehman bankruptcy global market collapse in October 2008.

In 2010, the first quarter weakness was then attributed to the Greece Debt Crisis, where the mainstream had insisted that deflation would return, the financial market would collapse and that the Euro dies along with this. All of which we had set out to debunk[3] and had been validated or proven correct.

So it appears that we have a normal countercyclical trend unfolding before our eyes.

No Egypt and Middle East Domino Contagion

Next, no this isn’t about Egypt nor is it about Tunisia’s Jasmine revolution or the falling dominos of autocratic regimes in the Middle East.

Figure 2: Bespoke Invest: Flight To Safety, Where?

As the excellent Bespoke Invest[4] charts shown in Figure 2, there hardly has been material signs of widespread anxiety as seen in the US dollar (left window) or Gold (right window). In short many of so-called market stress attributed to Egypt has been predicated on available bias.

Going back to the ASEAN equity markets, the interim bullmarket reversals began in November 2010, way before such Middle East “People Power” movements or political events that had long been predicted by French judge, political philosopher and anarchist, Étienne de la Boétie[5], during the 16^th century who once wrote[6], (bold emphasis mine)

``Resolve to serve no more, and you are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break in pieces.”

In addition, people always tend to fall prey to mainstream media’s soundbites, yet the media blitz over Egypt has eclipsed the Thailand-Cambodia border military skirmishes that has also accounted for as negative news[7] this week. The risk of military escalation between our neighbors has apparently been eluded mainstream analysts.

Yet, such bellicostic incident should have prompted for a collapse in Thailand’s stocks, if we go by the mainstream’s logic. But this has not been so. Thailand SET lost 3.6% over the week was even less than Korea’s Kospi 4.6% or even nearly at par with the declines registered by the Philippine Phisix 3.18%.

I’d also like to point out that the bloody street riots[8] in Bangkok, Thailand’s capital, in May of 2010, didn’t trigger a collapse in Thai stocks, in the same way as the latest political crisis in Egypt.

In other words, political events do not necessarily or automatically create volatility in stock market pricing.

Inflation Led Slowdown? Not So Fast....

Some may argue that rising inflation could be a factor.

Theoretically, inflation will not be good for equities in general because from the corporate earnings perspective—earnings get squeezed or crimped out of rising real cost of capital and losses on the net asset position that are fixed in nominal terms.

Most importantly, the biggest threat to shareholder value, writes McKinsey Quarterly[9], lies in the inability of most companies to pass on cost increases to their customers fully without losing sales volumes. When they don’t pass on all of their rising costs, they fail to maintain their cash flows in real terms.

But I would argue that the impact to equities from an inflationary environment greatly depends on the underlying state or conditions. That’s because equities have proven to be hedges during episodes of hyperinflations, such as in 1920 Weimar Germany hyperinflation[10] or most recently the Zimbabwe hyperinflation.

I quoted an All African article[11] in 2008

``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."

A great living example of the stock market as an inflation “hedge” would be Venezuela (see Figure 3)

Figure 3 Tradingeconomics.com[12]: Venezuela Stock Market Driven By Rampant Inflation

Notice as the rate of annual change in consumer price inflation ramps up, the stock market, on a time lag, follows. As the inflation rate declines, the Venezuela’s stock market bellwether also, on a time lag, declines.

I’d like to further point out that Venezuela’s inflation rate has been at high double digits (25-35%) and appears to nearly tip over to the hyperinflation level or where inflation exceeds 50% a month[13].

The fundamental premise why stocks can function as a hedge doesn’t tag along the lines of earnings but rather on the public’s perception of the changes in the role of money—a deterioration in the “store of value” function.

As Adam Fergusson wrote about the disastrous Weimar Hyperinflation in When Money Dies[14],

October 1922, however, was the nadir for shareholders. From then on not only did money find its way back into shares, but people who could obtain cheap credit, or were unable to send their money abroad, began to realise the advantages of buying up their own country's industrial and other assets at a fraction of their true value. Although in real terms the stock market began to go up, the mark's purchasing power continued to go down.

Said differently under the state of high inflation, even if the values of shares go up, in real terms share values lose money because the money’s value erodes faster than the increase in share prices.

And those who argue on the premise where ‘company earnings determine share prices’ have found current movements in the global stock markets baffling and inexplicable. That’s because these experts have basically been focusing on the wrong aspects and has been ignoring the fast expanding role of monetary inflation’s impact on share prices[15].

Perhaps even Warren Buffett’s dramatic shift to political lobbying-crony capitalism[16] based investment approach could, in reality, be reflective of such changes.

To add, since inflation is basically a redistribution process, some industries are likely to benefit more than the others. Thus, a generalized or broadmarket decline is definitely not a characteristic of the supposed inflation based anxieties.

So all these point to an unsubstantiated premise where the decline in the values of ASEAN bourses has been imputed on the risks of inflation.

More On Growing Divergences

Here’s more: earlier we have pointed to several divergences[17] in the global market such as surging commodities, developed economy share prices and a firming Peso.

I’d like to add that one of the serious manifestations of a market meltdown/breakdown could be seen in the price actions of the local currency.

Figure 4: Bloomberg: JP Morgan Asia Dollar Index

That’s because market meltdowns tend to instigate a “flight to safety” dynamic where investors both local and foreign flee domestic capital markets and seek safehaven elsewhere abroad. In two words: capital flight.

This was demonstrably the case during the 2008 Lehman episode in 2008, (as shown by the white down arrow in the above chart) where the bellwether basket of Asian currencies represented by Bloomberg-JP Morgan Asia Dollar Index cratered.

Today, despite the quarter long weakness envisaged by the region’s stock market, Asian currencies values have remained buoyant.

Yet it is important to point out that Asian currencies tanked only during the latter half of 2008 or nearly at the pinnacle of the crisis. The Philippine Peso likewise began its descent 3 months after the peak in the local stock market.

This only means that as lagging indicators currency values can’t be used as a standalone metric to assess the state of the markets. It has to be combined with other indicators.

Finally here’s another important divergence as noted by Bespoke Invest (see figure 5)

Figure 5: Divergences in Global Markets (Bespoke Invest)

Figure 5 shows that the Exchange Traded Funds (ETF) of various emerging markets, the natural gas, various treasuries funds and gold mining issues have failed to live up to the animated performances by their contemporaries.

As Bespoke Invest[18] notes,

It's not the emerging markets in one region of the world that are struggling either. ETFs that track Brazil, Latin America, China, India, and Asia Pacific are all below their 50-days. Typically when the US market is rallying, emerging markets are rallying even more. Bulls looking to outperform the S&P 500 have been using emerging market securities to do so for multiple years now. Recently, however, this strategy has been a performance killer.

As duly noted by Bespoke, past performance can’t be expected to deliver similar results.

And it should apply opposite ways.

Although such divergences may be construed or seen by some as decoupling, it isn’t. Asian and most of emerging markets have vastly outperformed in 2010, thus given that no trend goes in a straight line, today’s relative underperformance signify as a pause or natural correction process and is likely a temporary event.

Bottom line: Current developments represent as buying opportunities.

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[1] Inquirer.net, Philippines posts record economic growth at 7.3%, January 31, 2011

[2] Financial Times Asia, Indonesian growth hits six-year high, February 7, 2011

[3] See Why The Greece Episode Means More Inflationism, February 15, 2010

[4] Bespoke Invest Where's the Flight to Safety? February 11, 2011

[5] Wikipedia.org, Étienne de la Boétie

[6] de la Boétie, Étienne The Politics Of Obedience: The Discourse Of Voluntary Servitude, Mises.org, p.47

[7] Telegraph.co.uk Ancient temple damaged by shell fire in Cambodia, February 7, 2011

[8] See Politics And Markets: Bangkok Burns Edition, May 20, 2010

[9] McKinsey Quarterly How inflation can destroy shareholder value, Winter 2010

[10] Wikipedia.org Inflation in Weimar Germany

[11] See Black Swan Problem: Not All Markets Are Down! November 11, 2008

[12] Tradingeconomics.com, Venezuela Indicators

[13] Wikipedia.org, Hyperinflation

[14] Fergusson Adam, When Money Dies: The Nightmare of the Weimar Collapse, p.78

[15] See Stock Market Prices: Inflation versus Corporate Fundamentals, February 8, 2011

[16] See Warren Buffett: Embracing Crony Capitalism, February 12, 2011

[17] See Phisix: Panicking Retail Investors Equals Buying Opportunity, January 31, 2010

[18] Bespoke Invest Emerging Markets Not Participating in Global Rally, February 10, 2011