Video: Was Robin Hood A Libertarian?

Last night I watched Ridley Scott’s magnificent ‘prequel’ version of Robin Hood (portrayed by Russell Crowe) at the HBO.

Here is the video of Robin Hood’s stirring speech on Freedom: “Liberty by Law”.

I noticed that classical liberalism seems to emerge as the du jour theme on some movies, e.g. Prince of Persia: The Sands of Time (2010) has tinges of anti-taxation (movie quotes here).

Are these movies conveying blossoming sentiments of the public?

More movies of this genre would certainly put awareness to classical liberalism/libertarianism.

Prudent Investing in the Phisix: Position for a Breakout of the 4,400 Threshold

"Investing without research is like playing stud poker and never looking at the cards."-Peter Lynch

Tidbits...

1. On the supposed day of rapture....

...Mushu[1] (in the movie Mulan) says it best: I Live!!!!!!

Any prophesy or predictions based on econometrics (yesterday’s prophetic rapture was mathematics applied to religious exegesis[2]) should always be viewed with deep suspicion.

Econometrics has always been a problem reduction: in a complex world, assumptions, interpretations and application of the models attempt to oversimplify the world’s functionality—whether it was about the attempts to predict Japan’s earthquake[3] or the 2008 crisis[4] or this time as a religious based prophesy, the common denominator has been the same: prediction failures.

2. Overheard at a clinic last Monday from a housewife who was seated in front of me, talking on a mobile phone: “Lepanto will reach 1 peso very soon!!!” [I say, housewife presumably because she was along with two children (who called her “mommy”) and a man (most likely husband).]

When housewives, students or maids babble on stock markets or on specific ‘hot’ issues we are cognizant that mania is at work[5].

ASEAN Bourses: Despite Interim Divergences, Upward Trend Remains Dominant

There have been some signs of interim divergences in the performances of the major ASEAN equity markets.

While the general trend remains in near unison, as seen from the Bloomberg chart on a year to date basis, short term trends appear to reveal signs of nonconformity.

All four major ASEAN bellwethers have drifting at milestone highs, albeit:

Thailand’s SET (red) has reached the 1997[6] level but still is about 33% away from the 1994 all time high of 1,600+. Lately the SET has been in a retracement phase.

Malaysia KLCI (green) has been on a record run[7] as seen from the long term. But the Malaysian benchmark of late, has been in an extended consolidation since the start of the year, has underperformed her peers and has remained slightly in the red going into half semester on a year to date basis.

Indonesia’s JCI (orange) still seems in a high octane drive with fresh record highs[8] repeatedly established as time goes by. The JCI appears to have tied Thailand’s SET in terms of year to date performance, both of whom has assumed the roles as market leaders among ASEAN and Asian contemporaries.

The Philippines Phisix (yellow) has likewise been on a roll as seen from the long term. But since a month ago, the local bellwether appears to be in consolidation while hovering near its resistance level.

Will the Phisix retrench over the near term to form a reverse head and shoulders pattern to generate the momentum required to leap past out of the 4,400 barrier?

Or will Phisix just go ahead and ram at the gates considering that the closing high is merely about 2.5% away?

So far ASEAN markets seem to have sidestepped the minor corrections seen in major equity markets last month[9].

And by way of how our contemporaries has been performing; encroaching on that 4,400 threshold seems imminent—outside any major shocks in the global markets.

Besides if gold continues to make a recovery, despite the constant interventions and seasonal factors, global equities should follow suit.

Gold has served as an important leading indicator of global equity markets.

The recent manipulated decline[10] of commodity prices which has also affected gold has likewise coincided with a downshift in the major world equity benchmarks (DJW), emerging markets (EEM) and even the FSEAX (Fidelity Southeast Asian Fund).

While the correlation may not be 100%, a rally in gold prices will likely filter into equity prices. This should augur well for ASEAN equities which includes the Phisix.

Gambling Versus Prudent Investing

Divergences also typify the week’s performances as reflected on the Philippine Stock Exchange.

Over the week, the Phisix has been slightly down, but the market breadth remains mixed as three out of five of the key sectors were up.

This time, the Financial sector has topped the field while the property sector also registered modest advances.

Meanwhile, the Mining index has also been on a midterm roll; the sizzling hot mines posted EIGHT consecutive weeks of winning streak, which took the second spot this week in terms of best sectoral performance.

We should expect some retrenchment or correction or consolidation as a natural response to ‘normtive’ trends on issues that has mainly buoyed the mining index. That’s unless one foolishly believes that such trends would persist in defiance of the laws of gravity.

Nevertheless, signs are that the long long long price dormant oil exploration firms have been generating some attention. This implies that the mining sector’s overall correction could be muted if a rotation from the current outperformers to peripheral underperformers does occur.

Remember chasing prices on mature trends means greater risk than potential returns. Chasing prices translates to impulsive gambling rather than to prudent investing.

To heed one of Warren Buffett’s basic precepts[11]:

For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it's going up.

With a potential break of the 4,400 level in the Phisix, discretion dictates that we should position ourselves on issues that would make this a reality.

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[1] Disneyfriends.net, Pictures Mushu

[2] See Apocalypse Today: Divination Based on Econometrics, May 21, 2011

[3] See Science Models Fail To Predict Japan’s Earthquake, March 12, 2011

[4] See How Math Models Can Lead To Disaster, February 25, 2009

[5] See Phisix: Why I Expect A Rotation Out of The Mining Sector, May 15, 2011

[6] Bigcharts.com XX:THAISI Thailand SET index

[7] Financeyahoo.com FTSE Bursa Malaysia KLCI (^KLSE)

[8] Tradingeconomics.com Indonesia Stock Market Index

[9] See Global Equity Markets: Signs of Exhaustion; What US Outperformance Means May 17, 2011

[10] See War On Commodities: China Joins Fray, Global Commodity Politics Intensifies, May 14,2011

[11] beginner-investing-made-easy.com Quotes by Warren Buffett

A Bullish Financial Sector Equals A Bullish Phisix?

For the Phisix to breakout of the 4,400 level, this requires either leadership by the component heavyweights (of the Phisix basket) or general market buoyancy. Although I believe that both are related or that the causal linkage isn’t clear; in a bullmarket either the general market’s sanguine sentiment lifts component heavyweights or vice versa.

For starters, last week’s action in Financial sector seems to give us a clue:

One would note that major banking issues appear to recoil from their February-March troughs and have mostly been on an uptrend since.

Last week Banco De Oro [BDO-green] and Metrobank [MBT-red] spearheaded the Financial’s dazzling performance up 6.03% and 7.17%, respectively. BDO represents 4.12% of the Phisix weighting while MBT is 4.71% as of Friday’s close.

Also in the chart are Security Bank [SECB-blue], Bank of the Philippine Islands [BPI-black] and last week’s chart feature Philippine National Bank [PNB-orange], all three are also on a seeming uptrend but SECB has outperformed what appears to be a lagging BPI and PNB.

Nonetheless, BPI has the largest weight in the Financial sector index (28.69%), while SECB has 8.52% and PNB 3.98%.

All told, the 5 issues comprise 81% of the Financial sector index. I purposely omitted China Bank [CHIB] because of its lack of liquidity.

Anyway, SECB as of Friday’s close represents 1.88% of the Phisix basket while BPI is 6.33% as of Friday’s close.

The above only shows that 3 (BDO, MBT, SECB) out 5 seems on a steady ascent. The laggards BPI and PNB (while also on an uptrend but has been consolidating) may eventually follow.

Two, the actions of the Phisix (blue line) seems closely or strongly correlated with actions of the Financial sector (green line). The implication is that a continued upswing in the financial sector should translate to an ascendant Phisix.

Three, the financial sector is only marginally higher (.08%) on a year to date basis. The current uptick represents a recovery from an earlier decline rather than from a sustained advance. Only SECB has been considerably up by 9.74% y-t-d.

In short, the prospective actions in the financial sector suggest that the balance of risks seem tilted towards the upside than the downside.

This makes the financial sector a likely good place to position for an eventual Phisix breakout.

[Disclosure: I have no position in any of the abovementioned banks, but I am looking at the possibility to add one]

The Awakening of the Philippine Oil Exploration Sector?

I have noticed that shares of local oil exploration firms seem to have been attracting some attention.

The chart of Philodrill [OV] suggests of an accumulation phase, where so far have only resulted to modest price advances.

In the past, bouts of large scale accumulation have led to a huge price spikes for OV, as shown by the red circles and the upward price trend.

And this hasn’t been a phenomenon limited to OV. We seem to be seeing the same dynamics in the price-volume actions of Oriental Petroleum [OPM].

Lately there has been a spike in OPM’s volume yet its share price has yet to breakout. In the previous episode of volume surges, like OV, has coincided with price surges.

Though this volume accumulation pattern hasn’t been true for other firms engaged in oil exploration such as Basic Petroleum [BSC], Alcorn Gold [APM], Trans Asia [TA] or PetroEnegy [PERC].

I would suspect that signs of accumulation could be part of the upcoming drilling projects.

Currently there have been some oil drilling activities such as Duhat 1A (Visayas Basin) Service Contract 51 and the Gindara-1 (Northern Palawan) Service Contract 54B.

Duhat 1 is operated by Otto Energy, parent firm of NorAsian Energy Ltd., whose partners are Trans-Asia Oil and Energy Development Corp., Alcorn Gold Resources Corp. and PetroEnergy Resources Corp[1].

Meanwhile Gindara-1 is operated by Australia’s Nido Petroleum which owns 33 percent with partners Kairiki Energy Ltd. (formerly Yilgarn Petroleum), 22 percent and Shell Philippines Exploration B.V. (Spex), 45 percent[2].

In other words, OPM and OV by the above reports have not been included in the above projects.

So far those included in the current exploration projects has shown mixed results

Alcorn Gold Resources Corp [APM]

APM’s chart shows of a bullish cup and handle.

PetroEnergy Resources Corp

And so has PERC’s chart

Trans-Asia Oil

The distortion of Trans Asia Oil prices may have been the result of the recent 7:10 stock rights offering.

And finally...

Basic Energy Corporation [BSC]

BSC has not been a part of the recent consortium and has seen little price actions.

Bottom line:

Current activities in OV and OPM could be signaling a resurgence of interests on oil issues as it has been with APM and PERC.

This is going to be part of the inflation based rotational process which I have long been talking about.

Since no trend moves in a straight line and where price actions are always relative, eventually part of such money flows that has lifted other issues will spillover to non-performing or laggard issues.

The reason for such dynamic will always be rationalized. As for its causal relevance would signify more of happenstance. People are entranced by superficialities and by social conformity rather than theories based on logical rigor.

At the end of the day, this means that in bullmarkets almost all issues will be higher; this essentially represents a rising tide lifts all boats syndrome. While on bear markets almost every issue will decline.

It’s part of the process known as the boom-bust cycle.

[Disclosure: I have been a long term shareholder of OPM and PERC. And I plan to add more as the opportunities arise]

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[1] USnewslasvegas.com Otto starts Duhat-1 well drilling April 20, 2011

[2] Philstar.com Nido Petroleum set to drill Gindara prospect in May, March 22, 2011

Rapture Watch: We Live!!!!!

My reply to the prophesy of yesterday's supposed econometrics derived Rapture is best represented by the video below of Mushu, a Disney character of the Mulan fame (played by Eddie Murphy):

Video: Why Tax Increases Are Wrong (and Immoral)

Here is an eloquent video from Center for Freedom and Prosperity which shows why tax increases are baneful to an economy.

Note: these has universal application which means that the enumerated factors applies to the Philippines as well. (hat tip Dan Mitchell)


To add, taxation isn't just harmful, they are essentially immoral.

Ludwig von Mises (Human Action): [emphasis added]

It is important to remember that government interference always means either violent action or the threat of such action. The funds that a government spends for whatever purposes are levied by taxation. And taxes are paid because the taxpayers are afraid of offering resistance to the tax gatherers. They know that any disobedience or resistance is hopeless. As long as this is the state of affairs, the government is able to collect the money that it wants to spend. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

To draw attention to this fact does not imply any reflection upon government activities. In stark reality, peaceful social cooperation is impossible if no provision is made for violent prevention and suppression of antisocial action on the part of refractory individuals and groups of individuals. One must take exception to the often-repeated phrase that government is an evil, although a necessary and indispensable evil. What is required for the attainment of an end is a means, the cost to be expended for its successful realization. It is an arbitrary value judgment to describe it as an evil in the moral connotation of the term. However, in face of the modern tendencies toward a deification of government and state, it is good to remind ourselves that the old Romans were more realistic in symbolizing the state by a bundle of rods with an ax in the middle than are our contemporaries in ascribing to the state all the attributes of God.

Murray N. Rothbard (Tax Day):

The first great lesson to learn about taxation is that taxation is simply robbery. No more and no less. For what is "robbery"? Robbery is the taking of a man’s property by the use of violence or the threat thereof, and therefore without the victim’s consent. And yet what else is taxation?

Those who claim that taxation is, in some mystical sense, really "voluntary" should then have no qualms about getting rid of that vital feature of the law which says that failure to pay one’s taxes is criminal and subject to appropriate penalty. But does anyone seriously believe that if the payment of taxation were really made voluntary, say in the sense of contributing to the American Cancer Society, that any appreciable revenue would find itself into the coffers of government? Then why don’t we try it as an experiment for a few years, or a few decades, and find out?

But if taxation is robbery, then it follows as the night the day that those people who engage in, and live off, robbery are a gang of thieves. Hence the government is a group of thieves, and deserves, morally, aesthetically, and philosophically, to be treated exactly as a group of less socially respectable ruffians would be treated.

Apocalypse Today: Divination Based on Econometrics

Today we all meet our creator. That’s according to the predictions of a religious Christian sect.

Here’s the Huffington Post,

Circled dates dot a calendar on John Ramsey's refrigerator door. They show the busy life of a 25-year-old: dinner parties, birthdays, holidays. But only until May 21.

Every month after May has been crossed out. As has all of 2012.

Ramsey is one of thousands of followers of a loose-knit Christian fringe movement whose members are increasingly found on sidewalks, in parks and at transit hubs in major cities throughout the United States.

They recite passages of the Bible line-by-line and say they have decoded a message for humanity: The world is about to end.

"God says when you see the sword come upon the land, you blow the trumpet and you warn the people," says Ramsey, paraphrasing Ezekiel 33:3. "All I'm doing is telling what I know."

Ramsey and the movement's followers say that at 6 p.m. on Saturday, May 21, the ground will quake, graves will open and many of the dead will ascend to heaven. Two hundred million of the 'saved' -- dead or alive -- will float up. Those left behind will be doomed to live among blood, destruction and disease for five months before God annihilates the Earth on Oct. 21.

Now how did this sect come about with the prognosis of today’s supposed rapture?

Again the Huffington Post, (bold emphasis added)

Camping, a frail 89-year-old who speaks in a slow but sonorous voice for hours each day on his "Open Forum" call-in show, is convinced that he crunched the exact date of the Rapture through a complex set of equations.

For example, he says, certain numbers repeat in the Bible along with particular themes. The number five means "atonement." Ten means "completeness." Seventeen is "heaven."

"Christ hung on the cross April 1, 33 A.D.," he says. "Now go to April 1 of 2011 A.D., and that's 1,978 years."

If you multiply that number by 365.2422 -- the number of days in the solar calendar -- it equals 722,449. And if you add 51 (the number of days between April 1 and May 21) to that number, it equals 722,500.

Multiply five by ten by 17 to equal 850, and multiply 850 by 850 and the result is the same: 722,500.

Another article brings about the same math based predictions but with a little twist.

From the Daily Beast (bold highlights mine)

Robert Fitzpatrick brings some papers to explain to me how the May 21 date was discovered. It’s not an easy thing to understand. Harold Camping’s calculation includes numbers divined from the founding of the state of Israel in 1948; Jesus’ order to “flee into the mountains” in Matthew 24; and the jubilee year of 1994. From there Camping performs handsprings back and forth through biblical time before ending up, with a great flourish, on May 21, 2011. For Fitzpatrick, the calculation’s outlandishness confirms its rightness. “A genius could not understand this,” he says, “because God has to open your mind to allow you to understand this.”

Fitzpatrick took Camping’s math and laid it out in a self-published book called The Doomsday Code, a soup-to-nuts guide to the Rapture. That cost him a few thousand dollars. He poured the rest of his savings into signage. Fitzpatrick’s belief in the May 21 date has been buttressed by various “proofs.” For instance, it is Camping’s contention that God imbues numbers in the Bible with special meaning. Five means atonement; 10 means completeness; 17 means heaven. If you were to multiply atonement times completeness times heaven and then, for a reason that remains mysterious, multiply that sum by itself again:

(5 x 10 x 17) x (5 x 10 x 17)

You’d end up with 722,500. Fast-forwarding 722,500 days from the date of the crucifixion—at least, the date as divined by Camping—lands you on May 21, 2011, the date of the Rapture. QED.

Like any instruments, which can be use for good or bad or for advancement or retrogression, mathematics can be used for many other matters (in the user's interests), whether for politics, environment, social signalling or even for religion (as the above).

Maybe like global warming, these divine 'econometric' (application of statistical and mathematical techniques in solving problems) modelers may (likely) have gotten their assumptions, applications or computations all amiss.

That's unless what they have been using could be extraterrestial models.

Video: Markets Everywhere: Markets by the Railway

Here is a food market that operates on a railway track. It's the Mae Klong Market in Thailand. (hat tip Mark Perry)

End The IMF

The sexual molestation scandal has compelled the resignation of IMF’s Dominique Strauss Khan.

Now there are have been speculations on his replacement.

As of yesterday bookmakers have placed the odds on some possible replacement candidates.

This from the Economist

Here are some of the people viewed to be plausible contenders to replace Mr Strauss-Kahn, and the odds on their getting the top job according to William Hill, a British bookmaker. A win for a non-European would be a first for the IMF, as would the appointment of Christine Lagarde, who would be the first woman to head the organisation.

Meanwhile, the Wall Street Journal describes part of how IMF politics works.

From the WSJ

Because the U.S. and European nations together have always held a majority voting stake in the IMF, that unwritten convention has guided the leadership process for the past six decades. Any executive directors on the 24-member board — representing the IMF’s 187 governments — can propose candidates for consideration, generally based on guidance from their home countries. In turn, the board has used informal straw polls — rather than formal recorded votes — to gauge support for the candidates. (Though formal voting isn’t used, the distribution of voting shares helps determine who can garner enough support as a candidate.)

At times, though, the U.S. and Europe have been divided on their options. In 2000, for instance, the European Union formally backed German deputy finance minister Caio Koch-Weser to take the top post at the fund, replacing longtime IMF Managing Director Michel Camdessus of France. But the U.S. balked, leading the White House press secretary at the time to publicly oppose the choice. Many developing nations wanted then-Acting Managing Director Stanley Fischer, an American born in Zambia, to fill the job.

After a month of heated public debate, the IMF eventually settled on German national Horst Kohler, who was president of the European Bank for Reconstruction and Development.

The U.S. has been expected to take a back-seat role in choosing the next managing director, focusing instead on its traditional role of picking the IMF’s No. 2 official. The current No. 2, John Lipsky, is slated to leave his post in August. For now, though, U.S. officials have put that process on hold considering the rush to fill the top post.

Since the IMF’s founding, all 10 IMF managing directors have come from Europe. The managing director is typically a former finance minister or central bank governor from a Western European country.

So the IMF has been mostly been a US-Europe turf, where the US has allowed Europeans to take the helm since.

Yet some have floated that the Kahn episode could even be a frame up.

Writes Bob Wenzel,

I continue to believe that the most likely explanation for him coming out of the bathroom naked is that he was expecting someone.

If he did make a call to an escort service than I fully believe a government agency could have set DSK up. What's more, this is a major French hotel, which means it his highly likely that French government agents are floating around the hotel as guests and employees.

The reasons: perhaps because he “broke free from the party line” (may have offended some vested interest groups) with his current policies or perhaps it was about the upcoming national elections in France or a combination of both.

A French poll reveals that about 57% believes that Kahn had been a ‘victim of a plot’

This only shows how politicking could have played a nasty part in the sordid Kahn affair which also reveals on the operational procedures of the IMF—which seems indistinguishable from any national agencies which redistributes resources politically.

Also the US-European political hegemony of the multilateral institution translates to the channeling resources to uphold their political interest. And this is why Emerging Markets are unlikely to gain a leadership foothold in the near future. The division of spoils belong to the winners.

Besides, the fundamental role for IMF’s existence have been exhausted, where the agency’s operations has shifted from ‘monetary’ to ‘developmental’.

As Cato’s Doug Bandow writes, [hat tip Dan Mitchell] (bold highlights mine)

The IMF's founding purpose vanished when the system of fixed exchange rates collapsed in the early 1970s. But instead of closing up shop (no jobs for international bureaucrats in that!), the IMF switched to promoting development. That is, it became a welfare program for Third World governments (and, more recently, for Eastern Europe and even Greece).

So maybe it’s not time to seek a replacement. Maybe it’s time for the IMF to stop meddling in the affairs of nations.

Maybe it’s time for the IMF to stop propping up collectivist regimes, bailing out unsustainable systems and promoting interests of political operatives behind the scenes.

As Leland B. Yeager writes in Cato (Hat tip Don Boudreaux) [bold emphasis mine]

I am inclined to concur in points made by Ian V squez (1997) and Allan Meltzer (1995) about activities of the IMF (and similarly of the World Bank). These tend to support government domination of economies, despite ``conditionality'' purporting to do otherwise; and politicization of economies increases the scope for rent-seeking. Thrusting debt onto poor countries, putting them onto a debt treadmill, ill serves economic development. Funds for bailouts create moral hazard, tending to delay reforming crisis-prone policies (see The Economist 1997b). New issues of SDRs, which the IMF staff likes to propose, accomplish international transfers of wealth in a way that most legislators do not even understand. Self-important international bureaucracies have institutional incentives to invent new functions for themselves, to expand, and to keep client countries dependent on their aid.

Maybe it’s time to abolish the IMF.

LinkedIn Doubles on Listing Date, More Signs of Tech Bubble?

For me, the success of IPOs have mostly been sentiment based, where the direction of the general markets account for the success of specific issuance. In other words, bull markets prompt for fantastic returns which would draw in more issues to list. Hence ascending markets will lead to more IPOs.

Conversely, IPOs are usually nonevents during bear markets (the above chart I earlier posted here). Ergo, IPOs can function as indicators of the whereabouts of a bubble cycle.

I recently posted about signs of brewing bubble on internet stocks.

LinkedIn which has been already a hit in the secondary markets made a scintillating debut yesterday.

In the NYSE, LinkedIn prices more than doubled!

From the Marketwatch,

LinkedIn’s stock LNKD +108.58% soared at one point more than 140% to $108.25, before receding to $94.25 by the close of its first day of trading on the New York Stock Exchange.

Propelled by vigorous demand leading up to its initial public offering, LinkedIn’s IPO priced at $45 a share, at the top end of a recently raised range of $42 to $45 a share. Previously, the IPO pricing range had been $32 to $35 for shares in the professional-networking service.

Bespoke Invest notes of IPOs with best first day returns during this cycle.

LinkedIn topped two Chinese internet companies, Youku.com (video hosting service) and Qihoo 360 Technology (internet anti-virus and security products). Again the best returns have all been in the internet sectors.

This means listing of internet stocks have drawn in alot of speculative activities and will likely serve as precedent for more frenzies.

As Tech columnist Eric Savitz writing in Forbes writes, (emphasis added)

In other ways, the current situation looks nothing like the first Internet bubble. (For instance, there is no insane salary-inflating battle for journalists this time around. Sigh.) The most obvious difference is that until now, all of the action has been taking place in the venture capital market, or at least, in the newly emerging secondary market for venture investments. There have been just a handful of IPOs, aside from a flurry of Chinese Internet deals. But many of the key social networking players have been showing signs of inching toward the exits. Facebook hasn’t filed yet, and neither has Twitter, Zynga or Groupon. (Though Zynga and Yelp both threatened to abandon San Francisco unless the city exempted them from an onerous tax on employee stock options they could have otherwise faced going public while based in the city by the Bay.) Skype, after a year in registration, agreed to be acquired by Microsoft for $8.5 billion. Zillow has filed, though and so has Pandora. There’s still the makings here of a 1999-like IPO explosion...

The market’s hunger for LinkedIn shares is a demonstration of the kind of speculative fervor last seen in the recently popped bubble in the silver market. This isn’t really about what’s rational, it’s about dreams and imagination. The risks here are obvious; buying LinkedIn shares at 20, or 30 or 40x last year’s revenues is giant game of chicken that I would personally advise against. LinkedIn is not Pets.com; it is a real company, with impressive growth, and it operates in the black. But is the current valuation rational? I’m not convinced.

History may not repeat itself, as Mark Twain said, but they could rhyme.

Cartoon of the Day: Prices are Evil

From Karen De Coster:

Raising prices is “gouging.”

Lowering prices is “predation.”

Keeping them the same is “collusion.”

Cutting costs is “scheming.”

So for governments, market prices signify a ‘damned-if-you and damned-if-you-don’t’ thing.

Yet without the pricing system there won’t be economic calculation which functions to coordinate or discoordinate the distribution of resources.

As Ludwig von Mises aptly pointed out.

A government that sets out to abolish market prices is inevitably driven toward the abolition of private property; it has to recognize that there is no middle way between the system of private property in the means of production combined with free contract, and the system of common ownership of the means of production, or socialism. It is gradually forced toward compulsory production, universal obligation to labor, rationing of consumption, and, finally, official regulation of the whole of production and consumption.

The Bolsheviks have tried this and failed, from the PBS.org (bold emphasis added)

1917-1920: With the October 1917 revolution, the Marxist concept of the moneyless economy becomes a desired goal, but not yet a practical one. The Bolsheviks nationalize the banks, but make no attempt to restrict inflation. With the destruction of the market economy, inflation soars, and money becomes virtually valueless. A black market based on barter develops to fill the vacuum.

Fox's Juan Williams: Ron Paul is Changing the Republican Party

Fox political analyst Juan Williams says Ron Paul has been changing the Republican Party. (hat tip: lewrockwell.com)



Whether 2012 will reckon as the 'Ron Paul moment' or not, 'changing the Republican Party' implies that libertarianism has been gaining constituents. This should be something to cheer for.

Can We Survive a World with 9 billion people?

Prolific author Matt Ridley says yes (bold emphasis mine)...

We trebled yields in the last 60 years without taking extra land under the plough. If we did that again – by getting fertilizer to farmers in Africa and central Asia, by cutting losses to pests and droughts through ever more subtle genetic manipulation, by improving roads and encouraging trade – then we could feed nine billion better than we feed seven billion today. And still retire huge swathes of land from farming to rainforest and other forms of wilderness.

The two most effective policies for frustrating this uplifting ambition are: organic agriculture and renewable bio-energy. Organic farming means growing your nitrogen fertilizer rather than fixing it from the air. That requires more land, either grazed by cattle or planted with legumes. The quickest way to destroy what wilderness we have left is to go organic. Bio-energy (growing crops to make fuel or electricity) takes food out of the mouths of the poor. In 2010, the world diverted 5% of its grain crops into making fuel, displacing just 0.6% of oil use yet killing an estimated 192,000 people by tipping them into malnutrition through higher food prices. We should stop such madness now.

...provided environmental politics would not lead to vicious government meddling which would subvert earlier victories with deleterious policies that would function as the proverbial cure which is worse than the disease.

He writes about how Malthusians like Paul Ehrlich, who wrongly forecasted for a worldwide cataclysmic famine, had mainly been foiled by creative persistency of the father of Green Revolution Nobel Laureate Norman Borlaug, one of the genuine unsung heroes of the world (my earlier post here).

He also writes about how technology has substantially increased farming efficiency which has led to a massive reduction in land usage for agriculture. (bold emphasis mine)...

We currently feed nearly seven billion people by farming about 38% of the land surface of the planet. If we wanted to feed that many people by using the techniques, varieties and – mostly organic – fertilizers of the 1950s, we would need to cultivate roughly 84% of the land surface. There goes the rain forest, the national parks, the wetlands. The intensification of agriculture has saved wilderness.

...and also how famine prevention defused the population time bomb.

Read Mr. Ridley’s fantastic article here

Bottomline: Mr. Ridley bets on human ingenuity (and not on econometric models) brought upon mostly by free trade. And so do I.

Deepening of Information Age: More Proof of Structural Changes in Job Markets

With the deepening of the information age, jobs will be characterized by increasing specialization, as said in many occasions in this post, such as here here and here

Here is an anecdotal proof provided by a large US manpower agency.

From the Wall Street Journal Blog (bold highlights mine)

Joerres said the global skills shortage applied particularly to technical areas, like specialized trades, but also sales staff. “There is still unemployment, but companies are having a difficult time finding the people they need to fill their positions. As the world is becoming more technical, the sales staff are having to become more technical, too,” Joerres said.

The shortage also applied to laborers, especially in developing markets. “You cannot just throw people at production to get more output,” Joerres said. “With the use of (computer numerical control, or CNC) machines, for example, it is more difficult to find the right people.”

ManpowerGroup’s sixth annual talent shortage survey, to be published Thursday, will show that persistent talent shortages across many geographies and industry sectors are frustrating employers who struggle to find qualified talent amid an oversupply of available workers.

And this has been a worldwide phenomenon. From the same article (bold highlights mine)

Although European countries aren’t yet feeling such an acute impact of talent shortages, the U.S. has seen a considerable uptick in the number of employers who can’t find the talent they need, Joerres said.

India now has the second-highest problem with skilled labor shortages. “The number of companies in India reporting difficulty filling vacancies is second only to Japan,” Joerres said.

“India is a big place with lots of people but there’s a shortage of assurance engineers, people who can read blueprints, designers and (computer-aided design, or CAD) designers.”

Manpower, based in Milwaukee, is looking to expand its operations in emerging markets that make up around 15% of its sales, which reached $5.07 billion in the first quarter of 2011.

The more the specialization, the more aggregate based statistics will become flawed and unreliable.

So when politicians and their ‘expert’ apologists speak about solving unemployment with use of aggregates, expect that these approaches to fall short because they are mostly likely addressing the wrong (industrial age based) issues.

Are US Farmlands the Next Bubble?

From Bloomberg’s Chart of the Day

U.S. farmland may turn into “the next big speculative bubble” as prices climb, according to Robert J. Shiller, a Yale University economics professor.

The CHART OF THE DAY shows that the value of agricultural land in the upper Midwest has doubled since 2002, according to data compiled by the Federal Reserve Bank of Chicago. The chart also depicts farm values in inflation-adjusted terms, which are approaching their highs from the 1970s. The region encompasses Illinois, Indiana, Iowa, Michigan and Wisconsin.

Shiller, whose book “Irrational Exuberance” foreshadowed the end of the 1990s surge in stocks, wrote yesterday that farms are “my favorite dark-horse bubble candidate for the next decade or so.”…

“Farmland, as least in certain places, seems to have the most contagious ‘new era’ story right now,” Shiller wrote. He cited the risk of food shortages related to global warming as contributing to a boom in the U.K., along with the U.S.

The price trends of farmlands (not only in the US) will almost entirely depend on the actions of the commodity spectrum. If the US and other governments continue to massively inflate, then commodities will respond accordingly. Farmlands will subsequently respond too.

It would signify as utter nonsense to say that everything that goes up represents a ‘speculative bubble’. This assumes that current conditions are hunky dory except for the ‘irrational exuberance’ by the marketplace.

Yet one would realize that it isn’t just farmlands but also the technology sector showing semblance of ‘bubble’ actions. The point being—you won’t have symptoms of bubbles (in the US and elsewhere) without fuel to inflate them.

And $6.4 trillion question is who’s been providing that?

Besides, hasn’t it been the morbid fear of falling prices that has led to the corresponding policies designed to boost prices higher?

Essentially surging farmlands (and commodities) represents the proverbial “be careful of what you wish for” pathology.

Irrational exuberance represents the secondary cause and not the main mover.

US CPI Inflation’s Smoke and Mirror Statistics

Cato’s Mark Calabria asks Is Housing Holding Back Inflation?

He writes,

Also of interest in the April numbers is that if you subtract housing, which makes up over 40% of the weight of the CPI, then prices increased 4.2 percent — twice Bernanke’s measure of stability. What has always been problematic of the housing component is that its largest piece is an estimate of what owners would pay themselves if they rented their own residence. This estimate makes up about a fourth of the CPI. As the chart below demonstrates, for much of 2010, the direction in this number was actually negative, which held down CPI over the last year. The current annualized figure for owner’s rent is 0.9 from April 2010 to April 2011. Oddly enough, this is below the actual increase in rents, which was 1.3. For most homeowners, the real cost of housing — their mortgage payment — has likely been flat, not decreasing. So whatever benefit there has been to declining housing costs, most consumers are unlikely to feel any benefit from those declines, if they are actually real.

Mr. Calabria is right. Housing data has been foundering. US housing starts dropped 10.6% in April says the Financial Times.

US Federal Reserve researchers and their apologists (academic and institutional representatives) have staunchly been defending (denying) Fed policies, by dissociating rising commodity prices with CPI inflation.

Yet, ironically, the US government has waged war on inflation by trying to influence the prices of commodities.

Importantly, putting into context Mr. Calabria’s concern, the construct of the US CPI seems mostly a statistical smoke and mirror.

Some great charts from Dshort.com can elaborate on this.

The above is the CPI breakdown

The above is the % change of each component of the CPI.

Except for housing, apparel and recreation all other categories have been moving sharply higher!

Dshort has more charts of CPI relative to Energy, Tuition and CPI versus core CPI here-where you can see the difference.

So unless you don’t eat or travel or have children in school, inflation seems nonexistent only for ivory tower based experts.

Also, it would be a wonder why Chairman Bernanke has refrained from mentioning ‘core inflation’, as Forbes Brian Domitrovic observes,

Heard a lot about “core inflation” from Federal Reserve chairman Ben Bernanke lately? You haven’t, because two months ago his handlers had him stop using the term. Now he uses substitutes, such as “headline” versus “underlying” inflation

What’s with the jargon? Everyone knows that prices are going up. Corn on the cob that used to sell a dollar a bushel is now a dollar each. Talk about core inflation: These days even cobs (which feed pigs, after all) at the center of the fruit of the stalk are worth a pretty penny.

Suppressed CPI gives the Fed the leeway to inflate more.

I am reminded of Mark Twain who once said, lies, damned lies and statistics.

War on Speculators: Restricting Short Sales on Sovereign Debt and Equities

How does government resolve the problem of their profligacy? Well, blame the speculators (a.k.a. markets)!

From the Wall Street Journal

European Union finance ministers Tuesday reached an agreement on rules limiting short-selling of shares and sovereign debt, overcoming concern from the U.K. that the legislation will give the EU's new securities regulator too much power.

The ministers must now negotiate a final version of the legislation with lawmakers at the European Parliament, which favors broader rules that would also cover short sales of credit default swaps linked to sovereign debt.

France and Germany in particular have blamed short-selling of sovereign debt for having exacerbated the euro-zone debt crisis, though regulators say there is little evidence that trading activity has caused the yields of Greek, Irish and Portuguese bonds to soar in the past year.

These has been a continuing motion to pass the blame on everyone else in what truly represents as the unintended adverse consequences of past policies.

Proximity Based Manufacturing Supply Chains as Trend of the Future?

The Economist proposes that the current trend in global manufacturing could shift based on the following priorities, other than labor arbitrages.

-Proximity to customers

Many multinationals will continue to build most of their new factories in emerging markets, not to export stuff back home but because that is where demand is growing fastest.

-Inventory Management

Firms are also trying to reduce their inventory costs. Importing from China to the United States may require a company to hold 100 days of inventory. That burden can be handily reduced if the goods are made nearer home (though that could be in Mexico rather than in America).

Read the rest here

Ballooning inflation means not only rising wages in Emerging markets which erodes the opportunities for labor arbitrage, but may also extrapolate to substantial increases in transportation costs which could alter the cost benefits of outsourcing.

So perhaps proximity based supply chains could be a dynamic that could gain a larger role in the future.

The Wonderful Effects of Deflation in the Telecommunication Sector

Telecom fees continue to fall almost everywhere.

Notably, the largest decline can be seen in developing economies. Yet in spite of this, developed economies still maintain the lowest rates.

From the Economist,

DEVELOPING countries still pay far more for communications than developed countries as a proportion of overall income. But over the past two years these services have become more affordable worldwide, according to the ITU (International Telecommunication Union). The ITU’s ICT price basket combines the average cost of fixed-line telephones, mobile phones and fixed-line broadband internet services, calculated as a proportion of gross national income per person. (Broadband is not shown on the chart because in countries where it is still rare, its high cost swamps the chart and makes it difficult to read.) Africa made the biggest gains. Of the countries covered, seven countries had overall price-basket declines greater than 50%, mainly because of declines in fixed broadband. Mobile-phone charges are higher in developing countries in part because many customers pay for calls using pre-paid scratch cards rather than via monthly contracts which include large "buckets" of calling time for which the effective cost per minute is much lower.

Developed economies have the natural advantage of having lower rates primarily because of accumulated wealth (capital stock) and high productivity.

This also shows that an industry once thought as “natural monopoly” has proven to be a myth.

As Professor Thomas DiLorenzo writes,

The biggest myth of all in this regard is the notion that telephone service is a natural monopoly. Economists have taught generations of students that telephone service is a "classic" example of market failure and that government regulation in the "public interest" was necessary.

The ITU seems reticent on why costs have been falling. Their narratives have mainly focused on the developments of falling prices rather than the essence of what makes cost of telecom services decline.

Nevertheless I’ll quote the ITU in 2008,

Market liberalisation has played a key role in spreading mobile telephony by driving competition and bringing down prices.

Lastly, telecom fees signify as great examples of what we shouldn’t be afraid of—deflation.

On the contrary, basic economics in the telecom sector has worked magnificently...

...where falling prices (arising from market based competition) equates to greater volume. This has translated to mass adaption by the public. Worldwide, there are 69 mobile subscribers per 100 people and growing. Chart from Google Public Data

To quote ITU’s Secretary-General Dr Hamadoun Touré

With ICTs now a primary driver of social and economic development, these results are highly encouraging...Our next challenge is to find strategies to replicate the ‘mobile miracle’ for broadband, which is fast becoming basic infrastructure. Countries without affordable broadband access risk falling quickly behind.

Well, the answer to the desire for "mobile miracle" in broadband should be the same dynamics that has made the above circumstances possible—market liberalisation!