Philippine Mining Index and the Manipulated Collapse of Commodity Prices

We're living in an amazing world where real assets can be purchased with fantasy money. It won't last because it's illogical and synthetic. But it has already lasted longer than most realists thought possible.-Richard Russell

The Phisix finally took a breather, falling by 2.33% over the week, the first decline over 7 weeks. Such loss substantially reduced the year to date gains to only .43%.

The decline had been broad based, but ironically the mining and oil sector eluded the downturn supposedly on a raft of speculations over prospective deals.

I say ironic because such defiance comes in the face of a manipulated collapse of commodity prices in the world markets.

The Manipulated Collapse

Abruptly changing the rules of the game represents manipulation.

Since trades are essentially anchored upon expectations based on existing information which incorporates rules and other operating parameters (e.g. architecture of trading platform), drastically altering the rules midway dramatically shifts the balance of cost-benefit expectations and the economic distribution of resources, as manipulation benefits the regulators and their allies at the expense of market participants.

While I expected the huge run up in silver prices to be met with sharp price volatility[1], I didn’t expect that this would be prompted for by a series of steep credit margin hikes imposed by the CME[2]. Silver prices fell 25% over the week.

Since commodity markets are interrelated, as many investors or institutions position in different commodities or commodity indices, the assault on the silver markets rippled throughout the commodity sphere and to other markets.

One evidence of such imbalance is that even as silver prices collapsed, the physical inventory of silver shriveled[3], instead of ballooning. This means that instead of a panic from a sharp price downswing, many have taken the price drop as an opportunity to accumulate physical silver! What appears to be happening is that the heavily leveraged positions or those who fail to meet the margin calls, have forcibly been closed regardless of price, but the new entrants have used such opportunity to accumulate substantially.

If this should serve as a clue then the interventions mean that the effect on silver prices is likely to be transitory as players adjust to the new environment.

The other point is that the fundamental drivers of silver and other commodities remain firmly entrenched.

Commodity Prices Underpin the Fate of Mining and Resource Firms

Changing the rules midway was part of the scenario of the silver bubble meltdown in 1980. The Hunt brothers, whom attempted to corner the silver market, suffered from the same credit margin hikes which led to their bankruptcy.

But of course, the major factors that led to the commodity bubble bust had been due to sharp increases in the interest rates, coming from a shift in the monetary policy stance by US Paul Volcker led US Federal Reserve, and that a global commodity glut had accrued as the globalization gradually took hold[4].

Except for the manipulation, the above events hasn’t shaped the de facto climate.

Why is this important? Because share prices of mining or other commodity based companies essentially depend on the prices of the commodity products.

The almost two decade of bear market in commodities led to the hibernation of mining and other resource based companies or a slump in terms of stock market prices.

Remember Atlas Consolidated at php 400 per share in the 70s and was seen as a ‘blue chip’? Today, Atlas trades at a measly php 15 per share following years of dormancy in the company’s operations. To consider, real or inflation adjusted prices in the 70s means a lot more Pesos today.

As one would note, the CRB Reuters futures index (lower window) courtesy of chartrus.com[5] squares with the performance of the Philippine Mining Index (upper window).

When I turned bullish on gold in 2003 I called this the “Rip Van Winkle”[6] moment. The concurrent rise of the CRB Reuters index also reflects on the Philippine Mining Index.

The point is that the buoyancy of domestic mining and oil index (or prices of mining and oil companies) greatly depends on the underlying trends of their commodity products.

Commodities As Hedge

The war against precious metals is being waged most possibly as part of the signaling channel tools which Central Banks employ to manage inflation expectations. This I think is part of the orchestrated conditioning employed by the US Federal Reserve that is being used to justify further interventions particularly the QE 3.0[7].

All talks about tightening and the ending of QE part of another series of poker bluff at work.

Given the weak housing market (which risks endangering the balance sheets of the US banking system which Fed chair Bernanke sees as the heart of the US economy), the declining interests of foreign governments to finance US deficits, insufficient private savings and the wobbly financial conditions of states[8], plus the ideological economic (quasi boom) biases and path dependency of the policymaking by US political authorities, the US is left with little option but to reengage in quantitative easing sometime in the near future after the end of the QE 2.0 in June.

And part of the propaganda, through biased research studies by the Fed and allied institutions, has been to delink the Fed’s policies with that of surging commodity prices. And the other way to create this impression is to manipulate the commodity markets.

At the end of the day commodities still represents as insurance from the adverse unintended consequences of the monetary interventionism—an addiction inspired by grand delusions of power.

To quote Michael Taylor[9],

the state exacerbates the conditions which are supposed to make it necessary. We might say that the state is like an addictive drug: the more of it we have, the more we 'need' it and the more we come to 'depend' on it.

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[1] See Hi Ho Silver!, April 23, 2011

[2] See War on Precious Metals Continues: Silver Margins Raised 5 times in 2 weeks!, May 5, 2011

[3] See War Against Precious Metals: Silver’s Collapsing Prices in the face of Collapsing Inventories, May 6, 2011

[4] See War on Precious Metals: Silver Prices Plunge On Higher Credit Margins, May 2, 2011

[5] Chartrus.com CRB Reuters Futures

[6] See Philippine Mining Index; We’ve Only Just Begun! April 10, 2006

[7] See War on Precious Metals: The Rationalization Process For QE 3.0, May 7, 2011

[8] See The US Dollar’s Dependence On Quantitative Easing, March 20, 2011

[9] Taylor, Michael The Possibility of Cooperation (Cambridge: Cambridge University Press, 1987), p. 168 Quotes.liberty-tree.ca

The Osama Bin Laden Available Bias

The history of war is the history of powerful individuals willing to sacrifice thousands upon thousands of other people’s lives for personal gains.-Michael Rivero

Correlation isn’t causation. This applies to the implied impact of Osama Bin Laden’s assasination to the financial markets.

People are so used to connecting current events with actions of market prices from which they impute cause and effect linkages. Such available bias leads people to miscalculate on what has truly been driving markets.

Why should Bin Laden’s death lead to falling markets? Because of fears of retaliation? Retaliation by whom?

Alarmism is no more than part of the political propaganda for increased social control.

Osama Bin Laden’s Al Qaeda represents a small faction whose capability is no more than to launch sporadic urban guerilla tactics with limited effect.

As Eric Margolis writes[1],

The specter of al-Qaida provided a handy pretext to invade Afghanistan to secure strategic territory next to Central Asian oil, keep China out of that region, and double spending on arms. The invasion of oil-rich Iraq was also justified by patently false White House claims Saddam Hussein was in cahoots with Osama bin Laden over 9/11.

Al-Qaida "affiliates" in North Africa, Arabia, and south Asia are simply small groups of local militants who have taken the al-Qaida brand name without having any organic or communications links to the remnants of the core al-Qaida in Pakistan. They are more a dangerous nuisance than a deadly threat.

Osama bin Laden may well and truly be dead. He predicted long ago he would die a martyr in a gunfight with US forces. Bin Laden has been more or less retired for the past 8-10 years, spending his time and energies in staying alive with a $25 million price on his head. He had almost become irrelevant.

As I earlier pointed out[2] Bin Laden’s political capital has sharply been eroding as shown in the chart above from the Economist. This underscores Bin Laden’s irrelevance.

I suspect that Bin Laden was disposed of, largely because of political expediency: President Obama’s popularity ratings have plummeted to record lows and whose chances for reelection have been rapidly shrinking. Thus, the need for a massive boost from which Bin Laden’s death provided as the fodder (which it temporarily did!).

While the general public sees Bin Laden as a mortal enemy, behind scenes Bin Laden looks more like a friend of the US military industrial complex, the huge bureaucratic tentacles of homeland defense which emerged post 9/11 and US politicians. The hunt for Bin Laden was estimated at about the $3 trillion (about 15% of national debt) that has sucked up much of resources at the expense of the economy[3].

So Bin Laden looked more like a political stooge donned as a villain for the public to lash at, but covertly have been providing benefits and profits for the political operators, her network of defense contractors and the bureaucracy.

As earlier pointed out if the report is true that Bin Laden lived in the compound, where he was killed, for 5-6 years, then either this represents a massive intelligence failure for the US government or that the US knew all along and tolerated Bin Laden’s presence.

Thus the eroding political capital base of Bin Laden meant that he was expendable and that Bin Laden would represent as the sacrificial lamb to advance the political interests of President Obama. Besides, a new substitute of Bin Laden has emerged: Libya’s Muammar Gaddafi.

So whether Bin Laden was a political stooge or not, the point is that Bin Laden’s assassination will have little impact on the markets.

As one would note in the above charts, the cratering silver prices prompted for subsequent weaknesses in S&P 500, and Emerging Markets benchmarks while the US dollar belatedly rallied. While some may argue that the sharp moves in the US dollar (obversely a dramatic fall in the Euro) may be attributed to chatters about Greece leaving the Eurozone which has been denied[4] and also on the news of the Portugal bailout[5], I see the US dollar rally-Euro decline as a natural response from overextended positions.

So one has to be careful in reading the sequences of events from which to establish causation relationships.

As a final note, it would also be oversimplistic to view the demise of Bin Laden as a ‘victory’ for the US government. After all it had been Bin Laden’s strategy to engage in a “war of attrition” aimed at bankrupting his superpower opponents...a path which the US seems headed for.

As Ezra Klein of Washington Post aptly writes[6],

For one thing, superpowers fall because their economies crumble, not because they’re beaten on the battlefield. For another, superpowers are so allergic to losing that they’ll bankrupt themselves trying to conquer a mass of rocks and sand. This was bin Laden’s plan for the United States, too.

“He has compared the United States to the Soviet Union on numerous occasions — and these comparisons have been explicitly economic,” Gartenstein-Ross argued in a Foreign Policy article. “For example, in October 2004 bin Laden said that just as the Arab fighters and Afghan mujaheddin had destroyed Russia economically, al Qaeda was now doing the same to the United States, ‘continuing this policy in bleeding America to the point of bankruptcy.’ ”

For bin Laden, in other words, success was not to be measured in body counts. It was to be measured in deficits, in borrowing costs, in investments we weren’t able to make in our country’s continued economic strength. And by those measures, bin Laden landed a lot of blows.

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[1] Margolis Eric Why bin Laden’s Ghost Is Smiling, May 3, 2011 LewRockwell.com

[2] See Osama bin Laden’s Death: Propaganda, Diminishing Political Capital and Re-election, May 04 2011

[3] Fernholz, Tim and Tankersle Jim, The cost of bin Laden: $3 trillion over 15 years, May 5, 2011, National Journal

[4] Bloomberg.com EU Finance Chiefs See More Help for Greece, Reject Euro Exit (1), May 7, 2011

[5] Monstersandcritics.com EU, IMF confirm 78 billion for Portugal aid package, May 5, 2011

[6] Klein Ezra Osama bin Laden didn’t win, but he was ‘enormously successful’, May 3, 2011, Washington Post

Common Sense Education

Another treasure from marketing guru Seth Godin; this time he talks about the basic things we need to learn about: (bold highlights mine)

-How to focus intently on a problem until it's solved.

-The benefit of postponing short-term satisfaction in exchange for long-term success.

-How to read critically.

-The power of being able to lead groups of peers without receiving clear delegated authority.

-An understanding of the extraordinary power of the scientific method, in just about any situation or endeavor.

-How to persuasively present ideas in multiple forms, especially in writing and before a group.

-Project management. Self-management and the management of ideas, projects and people.

-Personal finance. Understanding the truth about money and debt and leverage.

-An insatiable desire (and the ability) to learn more. Forever.

-Most of all, the self-reliance that comes from understanding that relentless hard work can be applied to solve problems worth solving.

In short, common sense education.

We don’t need extended years for these.

US Presidential Election Poll: Barack Obama versus Ron Paul in 2012?

According to the poll, taken before the announcement of Osama bin Laden's death, President Barack Obama has an edge over all the top GOP candidates in hypothetical match-ups.

Who does best against Obama? Paul. The congressman from Texas, who also ran as a libertarian candidate for president in 1988 and who is well liked by many in the tea party movement, trails the president by only seven points (52 to 45 percent) in a hypothetical general election showdown. Huckabee trails by eight points, with Romney down 11 points to Obama.

The poll indicates the president leading Gingrich by 17 points, Palin by 19, and Trump by 22 points.

That’s from the CNN.(Hat tip: Thomas DiLorenzo)

Amazing.

Classical Liberalism-Libertarianism appears to be gradually transitioning from the fringes into the mainstream.

Cartoon of the Day: Osama Bin Laden’s Last Tweet

(Hat tip Dan Mitchell)

War on Precious Metals: The Rationalization Process For QE 3.0

I have been saying here that the US government’s indirect interventions in the commodity markets, particularly in silver, represents a ratchet effect or rationalizing the effects of past policies by the US government with the intention to apply more of the same policies.

Ratchet effect is technically defined as “A tendency for a variable to be influenced by its own largest previous value.”

Here is what I recently wrote,

First is to apply the necessary interventions on the market to create a scenario that would justify further interventions.

Second is to produce papers to help convince the public of the necessity of interventions.

Then lastly, when the 'dire' scenario happens, apply the next intervention tools.

The rationalization process has been happening. The conditioning (brainwashing) of the public is such that Fed policies have not been inflationary and that market prices have been validating their outlook which should justify further actions.

Proof?

The Wall Street Journal blog has this article, “Commodity Rout Lends Credence to Bernanke’s Inflation Outlook”

All in all, it looks as if Bernanke’s oft-repeated view that the commodities surge, driven by supply shocks, political forces and overseas growth, may indeed be “transitory.” Of course, the issue goes beyond inflation, in that lower oil and food prices may help increase consumers’ spending power, which should help the recovery regain its step.

If you think I am talking conspiracy theory here, I’m not.

The manipulation of the public’s mindset (or mind control) is part of the technical tools used by central banks to influence expectations. This is called the signaling channel.

Writes Shogo Ishii of the International Monetary Fund on his book Official foreign exchange intervention (bold highlights mine)

Under the signaling channel, intervention can be effective if it is perceived as a signal of the future stance of monetary policy...

A central bank has an incentive to follow through with policy actions that justify intervention ex-post to safeguard its credibility and avoid financial losses....

The signaling channel depends in part on the institutional and policy credibility of the central bank. The effectiveness of intervention through signaling relies on influencing market expectations by transmitting information on fundamentals or future policy actions. Intervention must be perceived as credible signals (or threats) of future monetary policies to influence expectations.

So far, pieces of the puzzle fits.

War Against Precious Metals: Silver’s Collapsing Prices in the face of Collapsing Inventories

As prices of silver continue to plunge, physical demand for silver has been swelling.

And this has been causing a swift draining of inventories at the COMEX.

As Zero Hedge’s Tyler Durden points out

At this rate, tomorrow, for the first time, we will see a 32 handle in Comex registered silver ounces, where apparently despite the massive drubbing in paper silver, demand for physical inexplicably persists. Speculators to be blamed for this in 5...4...3...

The war against precious metals has been accentuating the price distortions. Yes they could be blamed on speculators. But the series of credit margin hikes is obviously is a form of price control being waged for political ends.

Either we will see a slump in the demand for physical silver and subsequently growing stockpiles or price manipulations will implode.

What is unsustainable won’t last.

Video: Jon Stewart Mocks President Obama's Refusal To Show Osama Bin Laden's Pictures

The Daily Show's Jon Stewart lampoons the Obama administration for not showing Obama's picture (hat tip Lew Rockwell blog)

Nice quote from Mr. Stewart about 4:17 of the video

We make decisions about war if we see what war actually is, and not as a video game where bodies quickly disappear leaving behind a shiny gold coin.

The Daily Show - Face/Off
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Has the UN’s intervention in Libya been about the Libyan Gold Dinar?, Mexico Central Bank Buys Gold

Remember when some people speculated that the Iraq war had been prompted by Saddam’s proposal to price her oil trades in Euro?

Well, here is another theory on why the UN has intervened in Libya’s civil war and wants Gaddafi ousted: the Libyan Gold Dinar.

Says the Daily Bell, (bold emphasis mine)

Some believe it [the NATO/US-led Libyan invasion] is about protecting civilians, others say it is about oil, but some are convinced intervention in Libya is all about Gaddafi's plan to introduce the gold dinar, a single African currency made from gold, a true sharing of the wealth.

Gaddafi did not give up. In the months leading up to the military intervention, he called on African and Muslim nations to join together to create this new currency that would rival the dollar and euro. They would sell oil and other resources around the world only for gold dinars.

It is an idea that would shift the economic balance of the world.

"If Gaddafi had an intent to try to re-price his oil or whatever else the country was selling on the global market and accept something else as a currency or maybe launch a gold dinar currency, any move such as that would certainly not be welcomed by the power elite today, who are responsible for controlling the world's central banks," says Anthony Wile, founder and Chief Editor of the Daily Bell.

"So yes, that would certainly be something that would cause his immediate dismissal and the need for other reasons to be brought forward from moving him from power."

Read the rest here.

I am not saying that I believe in this, but this info just adds up to the possible avenues on how things could be shaping up.

By the way, as the war against precious metal continues, the Mexican central bank has reportedly accumulated massive amounts of gold during the first quarter

From the Reuters,

Mexico massively ramped up its gold reserves in the first quarter of this year, buying over $4 billion of bullion as emerging economies move away from the ailing U.S. dollar, which has dipped to 2-1/2-year lows.

The third biggest one-off purchase of gold by any country over the past decade took Mexico's reserves to 100.15 tonnes -- or 3.22 million ounces -- by the end of March from just 6.84 tonnes at the end of January, according to the International Monetary Fund and Mexico's central bank.

This goes to show that either the Mexican Central Bank plays the role of the greater fool or that today’s manipulated decline will present itself as a buying opportunity. My bet is on the latter.

San Miguel Corporation New Listing: A Punter’s Regret

So my suspicion seems to have been proven right.

Since SMC’s offering was all about fund raising. or more importantly, a fast break deal for the exiting group, the perception of shortage appears to have been a great marketing strategy—a hype!

And such perceptions have drawn in many covetous short term players in the expectations of a free lunch trade.

Yet SMC closed slightly below the listing price, post offering. Trading for the issue resumed yesterday.

If everyone thinks the same, then who stands at the opposite side of the trade?

So goes the tale of the punter’s regret. Now these gamesters would have to wait for a breakeven or cut losses or long the stock, which essentially defeats expectations of a successful ‘scalp’.

Nevertheless as said before, SMC’s prices will be subject to the overall conditions of the market.

Since I believe that the general trend is up, then SMC should go up overtime. But fast break bets belong mostly to the operators more than us....unless we get to be lucky enough.

Bottom line: Short term trades are mostly a high risk-low return proposition.

US dollar: Forty Years of the Triffin Dilemma

The Economist calls the angst of the falling US dollar as “Forty years of hurt”

The Economist writes,

THE dollar’s recent decline has taken it to new lows. The chart shows the nominal exchange rate, in trade-weighted terms (ie, against the country’s trading partners). The index is now 30% below its level when the Bretton Woods system was abandoned in the early 1970s and the dollar has halved since 1985, when leading nations adopted the Plaza Accord to drive it lower. There was a rally in 2008 when the dollar attracted “safe haven” flows during the financial crisis, but that now looks like a blip in a 40-year decline. A weak currency should be good news for a country’s exporters, but that hasn’t stopped America from running a persistent trade deficit. And America’s creditors are having to cope with the unappealing combination of holding low-yielding Treasury bonds in a depreciating currency.

In my view, this has been forty years of the Triffin dilemma, where the international reserve currency suffers from the strains of conflicting national and international interests.

Triffin Dillemma, as Wikipedia writes,

is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives. This dilemma was first identified by Belgian American economist Robert Triffin in the 1960s, who pointed out that the country whose currency foreign nations wish to hold (i.e. the global reserve currency) must be willing to supply the world with an extra supply of its currency to fulfil world demand for this 'reserve' currency (foreign exchange reserves) and thus cause a trade deficit

The Triffin Dilemma has vastly exacerbated the diminishing purchasing power of the US dollar since the Nixon shock or when the President Nixon closed the gold window in August 15, 1971.

This, by giving the US Federal Reserve the ability to inflate the US economy (overvalue the currency), as well as, the worlds’; given her privilege of Seigniorage profits.

And part of such tensions has been vented through a gamut of global bubbles and the attendant bailouts and other redistributive policies.

A US dollar today is only worth 18 cents in 1971 dollars, that’s according to the CPI inflation calculator from the US Bureau of Labor and Statistics.

As the US Federal Reserve continues to prop up her financial system, this declining trend of the US dollar’s purchasing power should persist.

And so with all paper currencies which are founded on politics rather than the markets.

War on Precious Metals Continues: Silver Margins Raised 5 times in 2 weeks!

The war against precious metals, which I earlier pointed out, continues.

This from Reuters,

The CME Group (CME.O) sharply raised silver futures margins for a fourth and fifth time in under two weeks, an 84 percent rise in trading costs that has helped provoke a nearly unprecedented sell-off.

The 20 percent slide in silver prices since they touched an all-time high of $49.51 an ounce on April 28 has been in large part driven by selling from speculators who may be unable or unwilling to bear the surging cost of holding positions.

Holdings in the world's largest silver-backed exchange-traded fund, iShares Silver Trust, fell by 521.8 tons, or 4.78 percent, from the previous session to 10,387.26 tons by May 4.

The CME, which typically raises margins when volatility in markets increases, dealt the latest blow on Wednesday, announcing two separate, successive margin hikes.

It said margins would rise to $14,000 per contract from$12,000 effective Thursday, May 5, and again to $16,000 effective Monday, May 9. Prior to April 25 the margin stood at $8,700 per contract. One contract holds 5,000 ounces, worth about $200,000 at current prices.

Silver seems to be leading the rest of the other important commodity benchmarks as gold and oil (WTIC) down.

We also have reports that George Soros may have been unloading his holdings of precious metals.

Declining commodities have likewise placed some pressures on some emerging market stock markets as shown by the EEM index.

The point of all these seeming assault on precious metals could be to impress on the public that the Fed’s policies have not been inflationary.

And the possible deployment of price controls via higher margins appears to be supported by propaganda efforts from the US Federal Reserve, which has been issuing a stream of research papers.

Notes the Wall Street Journal Blog,

Over recent months, there’s been a steady flow of research coming out the Federal Reserve’s regional branches that aims to assess the risks generated by surging food, energy and commodity prices.

The latest comes from the Federal Reserve Bank of Boston, and it fits the arc described by much of the existing central-bank writings, which holds that long-run inflation in the U.S. is likely to remain under control despite rising prices for things like gasoline, food, and raw materials used in factories.

In the paper released Wednesday, Boston Fed researcher Geoffrey Tootell wrote “evidence from recent decades supports the notion that commodity price changes do not affect the long-run inflation rate.” He noted his conclusions in the paper were drawn from a brief given to his bank’s president, Eric Rosengren, to assist the official in preparing for a recent Federal Open Market Committee meeting.

In my view this is part of the orchestrated efforts to condition the public for the next round of QEs, particularly QE 3.0.

First is to apply the necessary interventions on the market to create a scenario that would justify further interventions.

Second is to produce papers to help convince the public of the necessity of interventions.

Then lastly, when the 'dire' scenario happens, apply the next intervention tools.

President Obama: No Pictures of Osama bin Laden

From BBC,

President Barack Obama has said publishing photos of the dead Osama Bin Laden threatens US national security.

"I think that, given the graphic nature of these photos, it would create some national security risk," Mr Obama said.

How can a dead man’s picture/s equate to national security risks?

Is Mr. Obama afraid of an El Cid effect—a legend where the dead Spanish military and political leader was mounted on his horse to inspire his troops to win a battle? Or maybe that there has been no Osama bin Laden at all? Or that bin Laden has long been buried?

Update:

UK's the Guardian has a deck of graphic pictures of the compound where bin Laden was supposedly killed. But no bin Laden and the other victims shown were apparently not buried at sea.

Self Development: Compounding Efforts as Way to Success

Agora Publishing's Bill Bonner has this outstanding article about “compound efforts over time”.

It’s basically about balancing one’s efforts using the principle of compound interest.

Here is Mr. Bonner. (bold highlights mine)

Malcolm Gladwell's book, Outliers, makes the point that there is no secret to success. Successful people just put in more hours than other people. Our point today is similar. Success is usually the product of compound effort over time. It takes time to develop contacts. It takes time to develop trust - both of your own team and outside clients/customers/associates. It takes time and experience to develop the hunches and instincts that are useful in real life. It takes time too to understand other people and learn how to work with them. It also takes time to build a foundation of human and financial capital that allows you to take advantage of the insights and opportunities that experience bring you.

Time does not work in a linear, mathematical way. As with compound interest, time pays off geometrically. As contacts, experiences, wisdom, innovations and intuition are added one to another, your opportunities multiply. A $100,000 deal that you might have done when you were 25 grows into a $1 million deal 5 years later. And instead of doing two deals a year...you might do 10 a year.

This is also why it is so important to put in lots of time. Gladwell refers to the Beatles, major league athletes and people such as Bill Gates. In every case, he found that the leading figures in their industries put in thousands of hours - usually far more than their competitors. They may appear to be 'gifted.' Their achievements may seem effortless. But they are almost always the product of time.

Not only that, but the time spent at the end is much more powerful than the time at the beginning. You can see this by looking at charts of compound interest. Starting from a low base, the first series of compound interest produce little difference. But at the end, the results are spectacular.

Start with a penny. Double it every day. At the end of a week you are still only adding 32 cents per day. By the end of the third week, however, you're adding more than $10,000 per day. So you see, the last increments of time are much more important than the first.

It doesn't exactly work that way in real life, of course. Hang around too long and you get tired...and the lessons you've learned might not be applicable to the new realities. Suppose, for example, that you had learned to make the perfect buggy whip, at age 55, in 1910! Or imagine that you were the leading expert on silent movies...just before the 'talkies' started. Or maybe you were cornering the classified advertising market...just as Craigslist and eBay made their appearance.

But aside from that kind of a setback, time compounds your advantages. At age 20, you may know less than everyone in your business. But then, you work 10 hours a day, while others only work 8 hours. In 20 years, you may know more than just about anyone. Then, who gets the new contracts? Who finds the new opportunities? Who has pricing power?

Who makes money?

Compound interest works because each addition is then put in service to earn another increment of gain. Compound effort works the same way. Every insight, innovation and useful contact helps bring on another, bigger and better one.

Remember, success is competitive. While you are adding to your business capital, your competitors tend to wear out...move on...or retire. Sticking to it is not easy. People tend to get distracted. They often want easier, simpler, faster opportunities. They give up their accumulated capital...and take up something new. That leaves you in a commanding position.

Stick to it.

Marketing guru Seth Godin shares the same thoughts (bold highlights mine)

Not everything you do actually gets a response. In fact, most of it doesn't. But each effort is a tiny brick in the wall of perception, even when it appears to be dumb and even senseless.

And as Albert Einstein once said, “The most powerful force in the universe is compound interest”. As shown above the concept of compound interest is not only about wealth generation but likewise applies to attaining excellence.

I found Mr. Bonner’s article so compelling that I sent them to my children. I hope that they don’t just read it but internalize or apply it.

Economic Freedom and the Free Trade Exceptionalism

What distinguishes today’s quality of living conditions than from the past?

It’s not that political order has changed so much to improve society, i.e. democracies doesn’t automatically translate to economic betterment.

It’s not about killing high target fugitives either...

As Professor Don Boudreaux wonderfully writes,

Secular and spiritual authorities have killed people for millennia. And these authorities have often employed impressive organizational talents and state-of-the-art techniques both to gather intelligence on the whereabouts of their prey and to perform the actually killings. In taking down Bin Laden, the U.S. government did what governments throughout the ages have regularly done. Success at this task does nothing to distinguish America from any of hundreds of other societies – societies present and past, good and bad, great and contemptible, civil and uncivil...

Our civilization is vindicated by our supermarkets full of food, by our shopping malls full of clothing, by our homes with solid floors and solid roofs and air-conditioning and automatic dishwashers, by iPads and smart phones and aspirin and antibiotics and Amazon.com, by the globe-spanning cooperation that makes these things real – and by the freedom from central direction and mind-numbing, soul-shriveling superstitions that have made so many other ‘civilizations’ sanguinary and hellish.

It is free trade (and the innovations derivative of trade) and economic freedom that has made that remarkable difference.

Video on Global Work Ethics: Why Romans Didn’t Reach The Industrial Revolution

The Economist has a nice video on work ethics: hardest working, most slothful, leaves, public holidays and etc... (hat tip Don Boudreaux)

Press on the picture which should lead you to the Economist link

This also shows why holiday economics embraced by the previous administration hasn't worked.

Osama bin Laden’s Death: Propaganda, Diminishing Political Capital and Re-election

The belief that government will give truth in information has been exposed as falsehood anew.

As I earlier argued we cannot take government’s word for it.

Proof?

From Salon’s Glenn Greenwald, (bold highlights mine)

Virtually every major newspaper account of the killing of Osama bin Laden consists of faithful copying of White House claims. That's not surprising: it's the White House which is in exclusive possession of the facts, but what's also not surprising is that many of the claims that were disseminated yesterday turned out to be utterly false. And no matter how many times this happens -- from Jessica Lynch's heroic firefight against Iraqi captors to Pat Tillman's death at the hands of Evil Al Qaeda fighters -- it never changes: the narrative is set forever by first-day government falsehoods uncritically amplified by establishment media outlets, which endure no matter how definitively they are disproven in subsequent days.

Yesterday, it was widely reported that bin Laden "resisted" his capture and "engaged in a firefight" with U.S. forces (leaving most people, including me, to say that his killing was legally justified because he was using force). It was also repeatedly claimed that bin Laden used a women -- his wife -- has a human shield to protect himself, and that she was killed as a result. That image -- of a cowardly through violent-to-the-end bin Laden -- framed virtually every media narrative of the event all over the globe. And it came from many government officials, principally Obama's top counter-terrorism adviser, John Brennan

I’d add that if we can’t take the government’s word for it, then how can we be sure that Osama bin Laden had actually been killed as announced?

Butler Shaffer at the Lew Rockwell blog resonates with my thoughts, (bold highlights mine)

I have seen a number of blogs that ask “if bin Laden did die years ago, why wouldn’t the government have so announced at the time?” Because the state depends upon a fear-ridden populace to maintain its powers, bogeymen have always been in demand. A bogeyman who cannot be seen is, perhaps, the most to be feared. What made the movie Jaws so frightening was that we couldn’t see the giant shark. (Because of some mechanical problems in operating the make-believe shark, the producers used music as a substitute source of fear.) One of the most terrifying movies I ever saw was the original version of Diabolique, in which the wrongdoer never appeared until the very end of the film; his wife forever listening to his mysterious footsteps in the hallway, etc. Who better to keep Boobus terrified and crying for Big-Daddy than a ubiquitous, but unseen, monster like bin Laden? And when he’s gone, can he be traded in on the latest model: Gaddafi? (Where is Gaddafi, anyway? Has anyone seen him lately? How will Rudy Giuliani be able to sleep, knowing of the presence of this new villain? Will Rudy keep his bedroom night-light on?)

Finally, if it is true that Osama bin Laden had been eliminated as reported, then perhaps this is because Bin Laden’s political capital has been going down.

From the Economist, (bold highlights mine)

THE announcement at the weekend that American special forces had killed Osama bin Laden in Pakistan was greeted with jubilation in America, and with more restraint elsewhere. But while he was America's most wanted man and the most recognisable Islamist terrorist in the world, in reality Mr bin Laden's influence had been declining in many Muslim countries. In polling by the Pew Research Center just before he was killed, a third of Palestinian respondents said they had confidence that the al-Qaeda leader was "doing the right thing in world affairs". That compares with over 70% when the question was first asked in 2003. Support for Mr bin Laden also fell in most of the other countries canvassed. (A 2011 figure is not yet available for Pakistan as the fieldwork is still in progress.) This may reflect a genuine change in attitudes after al-Qaeda's high-profile attacks in places such as Bali and Jordan, as well as its violence in Iraq. But it could also reflect Mr bin Laden's lower profile in recent years.

Declining political capital of both Mr. bin Laden and of President Obama translates to a political maneuvering.

Whether Osama bin Laden was killed long ago or was eliminated just recently adds only to my hypothetical that Mr. bin Laden was used as a prop for the advancement of President Obama’s political career.

Quote of the Day: Killing is Never Great

Great one from Dr. Robert Higgs,

But mere killing is never great, and those who carry out the killings are not great, either. No matter how much one may believe that people must sometimes commit homicide in defense of themselves and the defenseless, the killing itself is always to be deeply regretted. To take delight in killings, as so many Americans seem to have done in the past day or so, marks a person as a savage at heart. Human beings have the capacity to be better than savages.

Osama Bin Laden’s Death and the US Presidential Elections

I just can’t trust governments.

Especially not the news of the alleged death of the most wanted fugitive Osama Bin Laden.

Succeeding reports seem to show some inconsistencies.

While I read that DNA tests confirmed that they belonged to Mr. Bin Laden, the photos circulating the cyberspace was reportedly faked according to the Washington Post.

I’m no forensic expert but DNAs can be stored for a number of years according to easy-DNA.com. The possible implication is that the death of Bin Laden may or may not have happened exactly as claimed by the US government.

Moreover, Bin Laden’s cadaver, was reportedly buried at sea, which according to IOL news, would have prevented his followers from making it into a shrine.

Perhaps. But some say the reason is to get rid of evidence.

But what if there had been no Bin Laden? Some quarters allege that Bin Laden has long been dead.

All the above seem to be anchored on the credibility of the US government and nothing more.

Yet the US Presidential election is around the corner.

Considering that President Obama’s approval rating hit an all time low in March of 2011, there’s got to be a ‘miracle’ for him to boost his chances for re-election.

And true enough, reports of the slaying of Bin Laden did give him a boost.

From Mark Perry (Enterprise Blog)

Prediction markets (intrade.com) reveal a spike in the election odds in favor of President Obama.

Yet a day after the Bin Laden was slain, reports say that the controversial birth certificate, which President Obama recently produced in reaction to the challenge of presidential aspirant Donald Trump, could be a fake.

According to the Daily Mail

Leaders of the so-called 'birther' movement have claimed that the birth certificate produced by Barack Obama is a fake.

Despite the president providing the the full long-form document last week, the 'birthers' - fronted by Donald Trump - have taken their case to a federal appeals court in Southern California.

They claim the birth certificate had been doctored; that the document's serial number was out of sequence, the typing wasn't aligned, and it was printed on green paper instead of white paper like other Hawaiian birth records of that era.

The timing or coincidence of Bin Laden’s death raises the level of my scepticism. Has President Obama been trying to preempt or divert the public’s attention on this?

I am not in the camp of the 'birthers' as mudslinging seems to be a normal tactic employed during elections. But of course what if claim of the 'birthers' are true?

I may also sound like a conspiracy theorist but that’s because of the confusing signals I get.

Even more puzzle is that reports say that the fugitive Bin Laden could have used the compound where he was allegedly slain as a safe house for 5-6 years!

The Reuters quotes White House counterterrorism chief John Brennan, (bold emphasis mine)

"Well I think the latest information is that he was in this compound for the past five or six years and he had virtually no interaction with others outside that compound. But yet he seemed to be very active inside the compound," Brennan said on the CBS Early Show program.

Of course someone has to take the blame. That’s the nature of politics. So the scapegoat, according to US officials, should be Pakistan. According to The Hill,

Washington placed Pakistani officials in the rhetorical crosshairs Monday, questioning how they could be ignorant of Osama bin Laden’s hiding place just miles from Islamabad.

Now if the reports are valid that Bin Laden stayed in that compound for 5-6 years then this represents a troubling intelligence failure for the US government more than Pakistan. It’s the US who has been obsessed with Bin Laden.

On the other hand, we could also deduce that there had been no intelligence failure. Instead, the US government could have tolerated (or even harbored) Bin Laden’s presence until the political exigency for his elimination.

The US has placed the responsibility of the infamous 9-11 to Bin Laden, who initially denied involvement.

But 9-11 also was used by the US government to extend her coercive powers (Patriot Act, Homeland Defense) domestically and to engage in war against the Taliban in Afghanistan.

Chart from Wikipedia Federal Budget and Defense Spending Trend

Thus, Bin Laden served as one of the principal reasons for the massive expansion in US government spending on home defence and overseas wars.

In other words, the hunt for Bin Laden represented one big business for the military industrial complex. So I can’t help but piece together what may seem like a staged operation.

But one may argue that the death of Bin Laden should mean reduced expenditures for the military; not if this were part of the concessions made with President Obama. Besides, they have got Libya's Muammar Gaddafi to replace Bin Laden.

Bottom line:

Bin Laden’s death seems to produce more questions than answers.

I could be wrong, but for me, this looks a lot related to the upcoming US Presidential elections.

For President Obama, desperate times call for desperate measures.

Video: Prince Charles on Helping The Environment: Do As I Say Not As I Do

I am no fan of Royal Weddings. Not only because this is an example of how government lavishly spend other people's money to promote pompousness, but also because romantic hypes could end up in a failure.

Well speaking of hypes, here is Prince Charles talking about helping the environment by promoting less consumption. That is we should consume less. Of course, this does not apply to him. (hat tip Bob Wenzel)

Resource Nationalism Equals Government Greed

I keep pointing out how high energy (and commodity) prices have been partly due to the geographical access restrictions imposed by governments on investors.

This is aside from the tsunami of money being printed around the world by central banks led by the US Federal Reserve.

Likewise, the artificially low interest rates being used to promote spending that has been stoking new bubble cycles.

Yet the allure of high commodity prices has now been changing some government’s receptiveness to investors by virtue of resource nationalism

From the Wall Street Journal, (bold highlights mine)

The government-led ouster of the CEO of Brazilian mining giant Vale SA follows a string of moves by national governments to intervene in their countries' highly profitable and highly coveted natural-resources concerns.

Some of those moves have included rejections of efforts by foreign companies to gain big stakes in local mining and resource companies. Big miners who have sought global acquisitions, including BHP Billiton, Rio Tinto PLC and Xstrata PLC, had no new comment on the trend following the change at Vale, where Brazilian President Dilma Rousseff forced out CEO Roger Agnelli. The big miners said they didn't expect the Vale move to alter their investment or expansion plans, which have already factored in the rising tide of nationalism and efforts by governments to extract higher taxes.

Indeed, many miners are pulling back or reducing the target size of foreign acquisitions to avoid defensive moves by governments. In some cases, they are abandoning huge exploration projects, which are costly and may end up benefiting the local governments rather than shareholders or customers...

Commodity-rich Latin America has been a leader in extending government control over natural resources, such as oil and other raw materials, in recent years. Venezuela and Bolivia nationalized oil and gas assets, while Ecuador started taxing what it considered windfall oil profits at a 70% rate. After Brazil discovered enormous deep-water oil fields off Rio de Janeiro, the South American country rewrote the rules for rights auctions to give its state oil company, Petroleo Brasileiro SA, the lion's share of the business. In many cases the moves were a turnaround from the 1990s, when the mostly cash-strapped nations opened up their industries to foreign investment, prompting a boom in exploration.

But the protectionism extends to other countries. BHP Billiton, the world's largest miner, has already seen several of its mining projects thwarted by foreign government. Last year, Canada nixed BHP's planned $38 billion acquisition of Potash Corp., and Australia put up so many blocks between a planned joint iron-ore venture with Rio Tinto months earlier, the two miners quit that project.

Resource nationalism only adds to the supply imbalances which should mean lesser supplies and subsequently further upward price pressures.

Such actions are being prompted by expectations of governments to generate more revenues with the ultimate end of having more money to spend on political projects. They are doing this in the name of nationalism.

Yet because of the higher costs of doing business or a higher hurdle rate, aside from questions of security of ownership (property rights), investors naturally would back out or become reluctant to invest. This essentially defeats government’s agenda.

In addition, the lack of investments extrapolates to the promotion of unemployment and lost opportunity to grow.

Any local investments will not be sufficient. That’s why they have not been accessed.

Besides, local investments are likely to be “politicized” which means that only the political class and their economic patrons would become the beneficiaries.

And because the resources are there, illegal extraction would occur and proliferate. Subsequently, black markets will blossom.

And illegal activities will lead to more violence, more corruption and more environmental degradation.

All these because government wants more revenues for increased spending.

They blame capitalist for greed, what ya call this?

Canada’s Politics: It’s Hayek Over Keynes As Harper Conservatives Win Majority

As I earlier noted, Keynesians have been on a losing streak.

Now we seem to be seeing this phenomenon percolate even in the realm of politics, a traditional Keynesian bastion.

This from Bloomberg, (bold highlights mine)

Canadian Prime Minister Stephen Harper won a majority of seats in Parliament for the first time, giving him a mandate to fund corporate and personal income tax cuts with curbs on spending.

Harper’s Conservatives were ahead or leading in 166 districts, according to preliminary results from Elections Canada. Jack Layton’s New Democratic Party was leading in 103 seats and will form the official opposition for the first time, followed by 34 for the Liberal Party led by Michael Ignatieff. The separatist Bloc Quebecois led in four seats with the Green Party ahead in one. The Conservatives held 143 seats in the 308- seat legislature before the vote was called in March.

The victory in the national election yesterday ends seven years of minority governments that have fueled government spending, and may make it easier for Harper to open up industries to foreign investment. Throughout the campaign, Harper said he needed a majority to secure the country’s economic recovery.

Stephan Harper grew up on Hayekian ideals, as this report from Canadianbusiness.com shows...

The government’s sudden embrace of Keynesian economics — the theory that you can spend your way out of a recession — is pretty much the mirror image of everything Harper has fought for over the past two decades. He complained bitterly about big government, high taxes and profligate spending during his time at the Reform Party (1987–1997), NCC (1997–2001), as leader of the Opposition (2002–2006), and even as prime minister, since he was first elected on Feb. 6, 2006. During the latest election campaign, Harper routinely criticized the tax-and-spend policies of his opponents, and as recently as October, he declared matter-of-factly: “I know economists will say we could run a small deficit, but the problem is that once you cross that line, as we see in the United States, nothing stops deficits from getting larger and larger and spiralling out of control.”

Few of Harper’s friends or supporters believe he honestly thinks the massive stimulus spending outlined in his latest budget will rescue Canada’s slowing economy. The measures, they say, are merely an attempt to stave off a non-confidence vote, like the one that loomed after Finance Minister Jim Flaherty threatened to remove the multimillion-dollar subsidy opposition parties have come to depend on in his economic statement in November. “Stephen Harper didn’t suddenly wake up and become a Keynesian,” says Frank Atkins, an economics professor at the University of Calgary who once taught the prime minister. “This is nothing more than a political budget.”...

Returning to the University of Calgary to work on his master’s degree, Harper began reading the works of Austria’s Friedrich Hayek, the influential conservative economist. Hayek vehemently disagreed with the Keynesian notion that government spending could limit economic downturns, and instead warned that intervention in the marketplace would merely prolong suffering and create unintended, and harmful, consequences.

(hat tip Greg Ransom)

Political History: Democracy Shaped By Trade

Economics drive politics.

Author Matt Ridley points to the accounts in history where democracy had been shaped by trade (in agriculture).

From the Wall Street Journal, (bold highlights mine)

Trade is much older than farming: Australian aborigines used to trade stone axes for sting-ray barbs over long distances, showing that hunter-gatherers can benefit from exchange. The advent of agriculture accelerated the trend toward specialization—but not everywhere. In temperate zones, farming encouraged trade, but in the tropics subsistence farmers often ate and wore their own produce.

I have been pondering why this difference emerged since reading a fine new paper by Stephen Haber of Stanford and Victor Menaldo of the University of Washington. They argue that, historically, stable democracy has depended on the growing of grain, because it is a tradeable commodity and is best grown on a small scale. Therefore, they say, the parts of the world suited to grain-growing have developed the institutions that build equitably distributed human capital, and hence democracy. This explains why democracy flourishes where rainfall is modest.

Their idea has just as much to say about economic development as about politics. The key is perishability. Where farmers produced food that could be stored, especially cereal grain and pulses (peas and beans), trade flourished, specialization increased and cities emerged, filled with manufacturers, soldiers and priests who swapped their outputs for the grain supplied by the farmers.

Tropical fruit, however, was harder to store and therefore harder to trade, as were other tropical crops like cassava root, which rots after a week or so. This goes some way to explaining the lack of cities in the tropics before the industrial era: You simply cannot ship bananas to an urban elite in the way you can ship grain. Hence the invention of olive oil and wine as tradeable versions of olives and grapes. The ancient civilizations around the Mediterranean depended heavily on trading networks that brought grain, oil and wine to cities.

Read the rest here