I Told You Moment: Philippine Phisix At Historic Highs!

This is the fundamental problem with relying on macro-accounting tautologies; people often bring in causal arguments from economic theories without realizing they are doing so. Robert P. Murphy

The Philippine Phisix posted a blistering start for 2012, which also seems as a lucky initiation for me. That’s because the performance of the local composite benchmark has been realizing what I have been saying especially last December where I pounded the table on the likelihood of this occurrence.

Even better, the Philippine Phisix closed the week to take on the second spot as the best performer[1], based on nominal local currency, among global equity benchmarks (of 78 nations).

Where we had been told by an establishment analyst in a conference that the Phisix will NOT break into NEW highs unless the Euro crisis will get resolved, I argued otherwise.

As I wrote last December[2],

And even more, any hiatus from the perceived worsening of the EU crisis, which will likely be treated with the band-aid approach most likely emanating from massive ECB purchases and possibly from the US Federal Reserve, will likely lead to ASEAN bourses outperforming the region or the world.

This means that contra mechanical chartists and consistently wrong mainstream deflationists, my bet is for the Phisix to breach the August highs perhaps sometime within the first quarter of 2012. Again, all these are conditional or subject to the premise where global central banks will continue to unleash waves and waves of inflationism. Otherwise all bets are off.

Of course the other point is that charts patterns, as I previously noted, will not fulfill its gloomy portent which again validated my projections.

Charting theory says that long term patterns should have a stronger effect[3] than the short term, yet the 15 month bearish head and shoulder (blue arcs) has clearly been neutralized by the shorter 5 month reverse head and shoulder (red arcs).

In short, the limits of using chart patterns as an investing guide can clearly be observed in the above.

Breaking Out Amidst the Euro Crisis; Refuting Some Euro Crisis Bunk

The Phisix breakout DOES NOT come amidst the resolution of the Euro crisis.

Instead, as I have been repeatedly pointing out, aggressive ECB intervention will work to defer the impact of the crisis and give the pretext for the bulls and for the yield chasers to push up the markets.

Again as from the same article I wrote,

If global central bankers will inflate massively, far more than the market’s expectations from the adverse effects of the crisis then the answer should be a conditional “yes”.

This exactly is what has been happening as provided by the charts from Danske Bank[4],[5].

So far yields of Spain and Italy has positively responded to such ‘back door’ intervention[6] by the ECB, as debt auctions were reportedly oversubscribed as Euro banks took advantage of subsidized cheap loans from the ECB to acquire sovereign debt of Italy and Spain. Essentially the subsidized rates give EU banks breathing room to earn from the yield spreads and at the same time helps to finance government funding requirements.

Also, the above debunks the mainstream claims that Eurozone policy operates on a quasi “gold standard”. We won’t see monetary inflationism of such magnitude being conducted on a gold standard as this would result to capital flight or a massive outflow of gold reserves.

Writes Joseph Salerno[7],

Briefly, according to the Currency School, if commercial banks were permitted to issue bank notes via lending or investment operations in excess of the gold deposited with them this would increase the money supply and precipitate an inflationary boom. The resulting increase in domestic money prices and incomes would eventually cause a balance-of-payments deficit financed by an outflow of gold. This external drain of their gold reserves and the impending threat of internal drains due to domestic bank runs would then induce the banks to sharply restrict their loans and investments, resulting in a severe contraction of their uncovered notes or “fiduciary media” and a decline in the domestic money supply accompanied by economy-wide depression.

Also this refutes the masquerade about the alleged deleterious effects of austerity. There has hardly been a meaningful austerity (reduction of government expenditures or debt) taking place whether in Europe or the US.

This certainly has not the case in the US, where government debt has been replacing the deleveraging process being experienced by the private sector components as shown in the chart from PIMCO[8]

What has been happening instead in the Eurozone has been a transfer of resources mainly from the welfare state and the real economy into the highly politically privileged and protected banking sector and even to the arms or weapons industry (!), where the latter seems to be part of a quid pro quo agreement[9] with crisis affected PIIGS in return for bailouts.

And it is also absurd or simply false to claim that a dysfunctional banking system will aggravate current economic conditions in the Eurozone, which are premised on faulty assumptions that credit only drives growth.

Fact is, like Japan’s experience in the 1990s, as the bust phase deepened, credit supply flowed from the impaired banking system to the non-banking sector[10].

In Italy today, organized crime groups or the Mafia has taken over credit provision in many parts of their economy and was even reported as having assumed the “number 1 bank”[11]. So we seem to be seeing the same dynamics of having non-bank sectors taking over.

And this certainly has NOT been true with the US, where despite falling business loans, the US recession cycle ended in 2009. Credit conditions only bottomed out during the late 2010 way after the US economy have convalesced. Today, improving commercial and industrial loans seem to augmenting the current momentum fuelled by an inflationary boom.

Yet the mainstream gives us false choices premised on accounting tautologies premised on “400 years of accounting understanding”[12].

Try applying this to the stateless Somalia (or failed state as per media’s lingo) to see if such appeal to math and aggregates has been valid. Since there is no state (ergo government spending) such statistics becomes irrelevant. [Perhaps this could be the likely reason Somalia has been excluded in many statistics]

Yet the false dilemma being presented is that Europe’s policy option has been limited to a choice from the following: private sector leverage or public sector leverage or adjusting trade balances. The focus on accounting leads to a solution that requires MORE government intervention by acquiring MORE debt or by inflationism.

The fact is, what prompts for massive trade deficits and deficiencies in trade competitiveness has been brought about by the capital consumption effects of government spending and the boom bust cycles. Political, legal, bureaucratic and regulatory risks also contributes to the business environment uncertainties which put a shackle on entrepreneurship that drives competitiveness.

And proof to this assertion is that despite cheaper wages compared to their developed counterparts, as previously pointed out[13], the crisis affected PIIGS has been least competitive in terms of labor efficiency mainly due to bureaucratic and regulatory impediments. Most of the PIIGS rank nearly (except for Ireland) at the bottom relative to their counterparts in terms of Doing Business.

As for consumption effects of government spending let me quote the great Murray Rothbard[14], [italics original]

All government expenditure for resources is a form of consumption expenditure, in the sense that the money is spent on various items because the government officials so decree. The purchases may therefore be called the consumption expenditure of government officials. It is true that the officials do not consume the product directly, but their wish has altered the production pattern to make these goods, and therefore they may be called its “consumers.”

And boom bust policies likewise alters time preferences of consumers and producers that encourages consumption and misdirection of investments

Writes Professor Robert P. Murphy[15]

The low interest rates of the boom period mislead entrepreneurs into borrowing too much, but they also mislead consumers into borrowing too much and saving too little. This is physically possible because resources that otherwise would have gone into replenishing the capital structure are instead devoted to new projects or additional consumption goods.

Also the great Ludwig von Mises[16]

The essence of the credit-expansion boom is not overinvestment, but investment in wrong lines, i.e., malinvestment. The entrepreneurs employ the available supply of r + p1 + p2 as if they were in a position to employ a supply of r + p1 + p2 + p3 + p4. They embark upon an expansion of investment on a scale for which the capital goods available do not suffice. Their projects are unrealizable on account of the insufficient supply of capital goods. They must fail sooner or later. The unavoidable end of the credit expansion makes the faults committed visible. There are plants which cannot be utilized because the plants needed for the production of the complementary factories of production are lacking; plants the products of which cannot be sold because the consumers are more intent upon purchasing other goods which, however, are not produced in sufficient quantities; plants the construction of which cannot be continued and finished because it has become obvious that they will not pay.

In other words, what the mainstream cannot see as the principal cause of a society’s orientation towards consumption, hence the trade deficits, are government interventionism and the welfare state. The crisis affected Euro economies look as great examples of these policy induced imbalances.

And even worse is the reverential awe towards statistics as an accurate measure of the functioning economy, particularly via the GDP. Little do many understand that such spending biased statistics has been designed towards looking at the economy from the Keynesian perspective, and which in corollary, would lead to Keynesian policy prescriptions.

The fact is the GDP is a highly flawed metric.

Professor Bryan Caplan explains[17],

Gross Domestic Product is staunchly atheoretical. If someone spends money on X, X is GDP - even if "someone" is Congress, and X="a bridge to nowhere."

There are exceptions; most notably, the stats supposedly exclude "intermediate goods" to avoid double counting. I say "supposedly" because the list of "intermediate goods" is so inconsistent. Insofar as police protection and the military protect firms from harm, aren't the police and military intermediate goods? But despite these tensions, a big part of the philosophy of GDP is to eschew philosophical arguments about what's "really productive."

On reflection, though, the standard approach is anything but agnostic. Official stats tacitly make an extreme assumption: waste does not exist. Astrology counts, even though astrologers can't predict the future. Every penny of health care counts - regardless of its efficacy. The whole defense budget counts - even if it's provoking war rather than deterring it. Indeed, if two countries' militaries mutually annihilate, both countries count the cost as a benefit.

So the mainstream case has immensely been pockmarked by half-truths and by reading effects as the cause, all dedicated to the promotion of the status quo whose policies paradoxically constitutes the roots of the current crisis.

And more ironically is that their prescribed policies seem to signify as political insanity—doing the same actions and expecting different results—or as similar to engaging the mythical beast Lernaean Hydra[18] which Greek legendary hero Hercules fought as part of his second labor[19], where for each head that had been cut off from the hydra, two grows in replacement.

The crux of the matter is that current interventionist policies being applied by EU authorities have been contrived at bolstering asset prices in order to keep the balance sheets of the banking sector afloat, and in tandem, to ensure access to financing for the unsustainable welfare state.

So essentially, the tight interdependence of the banking sector and governments can be analogized as two drunks trying to prop each other up by consuming more alcohol which is continually being provided by the bartender (the ECB abetted by the FED).

And this has not been limited to the Eurozone. Mr. Ben Bernanke, the chairman of the US Federal Reserve, has reportedly been itching for QE 3.0, but this time, the Bernanke led FED appears to have changed tactic to focus on providing support to the mortgage industry[20] which may reduce political opposition than from the previous QE which concentrated on acquiring US treasuries.

Analyst and portfolio manager Doug Noland thinks the FED will make a go on a mortgage based QE3.0[21],

Fed is quite worried about Europe, global de-risking/de-leveraging, and the strengthened dollar. Especially if the euro faces additional selling pressure, the Fed will talk – and at some point implement- additional quantitative ease in hopes of dampening dollar bullish sentiment. With more Treasury purchases posing significant political risk, they’re cleverly building a case for buying MBS.

And I would add that since the mandated debt ceiling by the US congress has already been breached[22], there seems to be a big likelihood for another accord to hike the debt ceiling levels, of course after some vaudeville opposition acts.

This means that we should expect the US Federal Reserve to actively but perhaps indirectly facilitate the financing of these liabilities possibly through the banking system in exchange for the Fed’s buying of mortgages.

So the ECB and the FED will work to overcome political obstacles by resorting to legal loopholes. They who make the rules, break it.

The bottom line is that we will likely see intensification of central bank actions in 2012. Although I share the view that such conditions are unsustainable and represent as boom bust cycles, it is unclear that any unwinding will happen anytime soon.

As explained last week[23], interest rates will most likely determine the popping of this bubble where interest rates may be driven by any of the following dynamics, changes in: 1) inflation expectations 2) state of demand for credit relative to supply 3) perception of credit quality and or 4) of the scarcity/availability of capital.

And as interest rate levels remain benign, this should mean more upside for global equity markets including the Phisix perhaps until the end of the first quarter. It would be best to assess issues periodically and see how politicians respond to market developments.

The Permanence of Change Represents the Endgame

I might add that it is utter poppycock to talk about any grand finale or Mayan type Armageddon—usually heard from mainstream jeremiads—as outcomes for the current imbalances.

In reality, the ultimate outcome we should expect is the permanence of change.

For instance, the collision of the forces of decentralization with forces of the relics of the industrial era via 20^th century political institutions, legal framework and current top-down policies and mindset will likely intensify and may increase social tensions that may lead to some upheavals. Because of the many entrenched groups, profound changes will not be seamless. But eventually people will adapt.

As for inflationism, these have signified as boom bust CYCLES throughout the ages, with the worst consequence leading to death and the eventual birth, or if not, drastic reforms of the monetary system or through defaults. But again people learn to live or move on.

We must realize that in over 200 years, despite 2 major world wars and the grand but botched wretched experiments of communism, aside from pandemics[24] (e.g. Swine Flu) which resulted to massive losses of human lives and large swath of property destructions, world living standards has remarkably spiked[25].

Internal Market Conditions Supports The Phisix’s Breakaway Run

As I wrote in my last major article on the stock market for 2011[26]

Any sustained rally in the Phisix which may come during the yearend or during the first quarter of 2012 will likely translate to a broad market rally.

The 2012 rally has largely been supported by substantial advances in market internals.

The weekly averaged advance decline-spread has decisively swung to the side of the bulls.

Average daily trades have also sprung higher. This means more participation (possibly from neophytes) or more churning from existing participants or both. The spike in the trading activities exhibits snowballing confidence.

This is where the recent breakout seems amiss though, while average daily volume has improved this has not been as extensive as the intensity of the breakout would suggest.

Finally foreigners appear to be more bullish as net foreign buying averaged on a weekly basis has been on the upside.

As I used to point out, once foreigners become bullish their tendency is to push up major Phisix components or the heavyweights (largest market caps which are most liquid). The consequence is to amplify the gains of the Phisix.

Such bullishness may have filtered into the Philippine Peso, which almost in line with the Phisix was unchanged in 2011, but eked out .8% gain for this week. The Peso was at 44.11 last week compared to this week’s close at 43.75 per US dollar.

Given the strong move by the Phisix which seems to have significantly outraced our neighbors, there is a possibility that interim profit taking would be the order of the coming sessions. Yet even if profit taking mode occurs, the likelihood would be rotational activities—where previous winners may take a recess while the laggards gain the market’s attention—than a broad based decline.

However in a bullmarket, overbought conditions usually may extend.

Overall, since the market is likely to move higher overtime, the short term bias is likely to reflect on a positive sentiment despite interim volatilities.

And for as long as markets remain politicized and highly dependent on actions of policymakers, our task is to monitor their activities and assess and project the possible impacts from such actions on the markets.

---

^[1] See Global Equity Markets: Philippine Phisix Grabs Second Spot, January 14 2012

[2] See Can the Phisix rise Amidst the Euro Crisis? December 4, 2011

[3] Learntechnicaltrading.com Buying signals using trend lines

[4] Danske Bank FX Top Trades 2012 December 14, 2011

[5] Danske Bank Weekly Focus, January 13, 2012

[6] Reuters.com UPDATE 3-Yields fall sharply at Spanish, Italian debt sales, January 12, 2012

[7] Salerno Joseph T. Money and Gold in the 1920s and 1930s: An Austrian View, thefreemanonline.org

^[8] Gross William H. Towards the Paranormal, January 2012

^[9] See Greece Bailout: The Military Industry as Beneficiaries, January 12, 2012

^[10] See Japan’s Lost Decade Wasn’t Due To Deflation But Stagnation From Massive Interventionism, July 6, 2010

^[11] Reuters.com Mafia now "Italy's No.1 bank" as crisis bites: report, January 10, 2012

[12] Mauldin John The End of Europe? January 14, 2012 Goldseek.com

^[13] See Euro Debt Crisis: The Confidence Fairy Tale and Devaluation Delusion, November 28. 2011

[14] Rothbard Murray N. 1. Introduction: Government Revenues and Expenditures Man, Economy & State Mises.org

[15] Murphy Robert P. Correcting Quiggin on Austrian Business-Cycle Theory, Mises.org

[16] Mises Ludwig von 6. The Gross Market Rate of Interest as Affected by Inflation and Credit Expansion, XX. INTEREST, CREDIT EXPANSION, AND THE TRADE CYCLE, Human Action Mises.org

[17] Caplan Bryan Real Real GDP, Library of Economics and Liberty, January 14, 2012

[18] Wikipedia.org Lernaean Hydra

[19] Wikipedia.org Labours of Hercules

^[20] Bloomberg.com, Bernanke Doubles Down on Fed Mortgage Bet, January 11, 2012

^[21] Noland Doug, The Year Of The Central Bank Credit Bubble Bulletin January 13, 2012 Prudent Bear.com

^[22] See US Debt Ceiling Breached, President Obama to Seek Increase, January 12, 2012

^[23] See What To Expect in 2012, January 9, 2012

^[24] CNN.com Deadliest pandemics of the 20th century April 27, 2009

^[25] See BBC’s Hans Rosling: 200 Years of Remarkable Progress and a Converging World, December 3, 2010

^[26] See Phisix: Primed for an Upside Surprise, December 11, 2011

Quote of the Day: Why Government is Not Private Business

From Professor Arnold Kling,

In business it is actually really hard to get people to do what you want. In fact, understanding that fact is exactly what sets CEOs apart from policy wonks. Policy wonks think that you write a law and that solves a problem. They think that you promulgate regulations and people do not figure out how to game those regulations.

Someone with business experience would never announce a mortgage loan modification program and expect it to be implemented in a matter of weeks (remember, a mortgage is a legal document that is somewhat antiquated with procedures that differ by state and local jurisdiction; remember that, prior to 2008, mortgage servicers had very few staff with any experience at all in loan modification; remember that when you introduce entirely new parameters into a highly computerized business process, somebody has to determine which systems are impacted, gather requirements, redesign databases, develop logic to protect against data input errors, develop a test plan,...). Someone with business experience would not enact a program that fines companies for failing to use a fuel that does not yet exist. Someone with business experience, I dare say, would understand that chaotic organization has consequences.

The fundamental difference between private business and government is the use of force.

To survive or to thrive, businesses must persuade consumers that their products or services offered are worth the use, the consumption or the ownership, in order for consumers to conduct voluntarily exchanges. Failing to do so means that these private sector providers would lose out to the competitors.

On the other hand government, operating as mandated or legislated monopoly, forces people to comply with their edicts or regulations under the threat of penalty (incarceration, fines and etc.) for non-compliance.

In other words, for businesses, the distribution of power to allocate resources is ultimately decided by the consumers, whom are guided by price signals and where the consumer represents as the proverbial 'king'. Whereas for government, it is the politicians and bureaucrats who decides, whom act based on political priorities rather than by price signals.

Social power, thus, is distinguished between market forces relative to political forces.

Yet there are many other significant differences.

So comparisons of “government run as business” is not only patently misguided but a popular fallacy which needs to be straightened out.

Why I Don’t Bother to Give Talks

I didn't realize, until reading Seth Godin’s latest advice which he transcribes so well, the reason why I refuse or turn down invitations to talk in public.

Before you give a speech, then, you must do one of two things if your goal is to persuade:

Learn to read the same way you speak (unlikely)

or, learn to speak without reading. Learn your message well enough that you can communicate it without reading it. We want your humanity.

If you can't do that, don't bother giving a speech. Just send everyone a memo and save time and stress for all concerned.

That’s why I just write or blog.

Declining Fatalities of Natural Disasters

This should be another good news; despite the many accounts of natural disasters, the overall impact has been diminishing.

Writes the Economist, (bold emphasis mine)

THE world has succeeded in making natural disasters less deadly. Annual death tolls are heavily influenced by outliers, such as Haiti’s earthquake in 2010 (which killed more than 200,000) or the Bangladeshi cyclones in 1970 (300,000). But, adjusted for the Earth’s growing population, the trend in death rates is clearly downward. Economic costs, though, are rising as people and industrial activity cluster in disaster-prone areas such as river deltas and earthquake fault lines. The world’s industrial supply chains were only just recovering from Japan’s earthquake and tsunami in March when a natural disaster severed them again in October. The deluge in Thailand cost $40 billion, the most expensive disaster in the country’s history. J.P. Morgan estimates that it set back global industrial production by 2.5%. Five of the ten costliest, in terms of money rather than lives, were in the past four years. Munich Re, a reinsurer, reckons their economic costs were $378 billion last year, breaking the previous record of $262 billion in 2005 (in constant 2011 dollars). Besides the Japanese and Thai calamities, New Zealand suffered an earthquake, Australia and China floods, and America a cocktail of hurricanes, tornadoes, wildfires and floods. Barack Obama issued a record 99 “major disaster declarations” in 2011.

Yet the Economist has been reticent about the cause of the accounts of diminishing death toll of natural disasters: Rising global wealth.

Google Public Data

As Professor Christopher Westley writes,

the best protection against natural disasters is not an expansion of the public sector on an international basis, but wealth creation. It is no mistake that natural disasters, which are quite equitable in distribution between rich and poor countries, are more devastating to the poor than the rich. The establishment of a thriving private sector in Sri Lanka, India, and Indonesia is crucial for a quality of life to develop there that can withstand earthquakes and their aftermath as well as does the California coast.

Higher quality or standards of living allows people to take on more protection against prospective calamities.

Video: Ron Paul on Iran: Our Policy Actually Do The Opposite Of What We Intend Them To Do

The common view is that meddling with the political economy of other nations has neutral effects to the nation which is being interfered with. And that they further think that whatever evil or criminal or militant behavior seen represents as internally driven dynamics.

This view misreads or downplays or ignores the causal influences of foreign interventions.

Ron Paul addresses this popular error here on the Iran issue.

[2:15] [bold emphasis added]

You know they are a very week nation, they are responding in a natural way. But they don’t want trouble because they can be annihilated in about 40 minutes. You know even by Israel or the United States, this idea that they are looking for a fight I think that they are a concoction of the West to prepare people for a war that is likely to come when there is a policy like this. I think it makes a perfect argument for my non-intervention foreign policy that we shouldn’t be engaged in stirring up trouble, and all these things we try to do to get rid of the regime in Iran right now actually plays into their hands because once we interfere to put on sanctions this brings the Iran people together.

They are having an election in a few months, Ahmadinejad is not strong politically, but when we interfere as an outsider, those dissidents who are struggling to get control of their country and their government and have a more sensible government, we have to drive them into the arms of the government. Just as we were brought together after 9-11, we were no dissenters, we all came together, they were republicans and democrats, we have to try to understand how our policy actually do the opposite of what we intend them to do.

When we impose restrictions or culture/religion or anything else to foreigners who resist, then the expected outcome would be conflict or trouble.

Global Equity Markets: Philippine Phisix Grabs Second Spot

Below is a year to date table of 78 nations monitored and tabulated by Bespoke Invest

Bespoke Invest writes

Nine trading days into 2012, the S&P 500 is currently up 2.25% year to date. So how do we stack up with the rest of the world so far this year? Below are the year-to-date returns for the major equity market indices of 78 different countries.

The average year-to-date change for all 78 countries is currently 1.13%, so the US is outperforming the average. There are 49 countries that are in the black for the year (63%) and 29 that are in the red (37%). The US ranks 24th out of 78 in terms of performance.

Just like last year, Greece is currently down the most out of any country with a YTD decline of 5.21%. Jamaica is 2nd to last with a decline of 3.99%, and Pakistan is the third worst at -2.94%. Argentina currently ranks first out of all countries with a gain of 11.26%.

The only G7 country that is down for the year is Italy with a decline of 0.52%. Germany has been the best G7 country with a gain of 4.15%, followed by the US, Canada (1.87%), France and Britain (1.16%) and Japan (0.53%).

The overall good news is that compared to last year, the bulls seem to have reclaimed dominance. The jury is still out as to whether the salutary start can be sustained.

Further, former laggards the BRICs (excluding China) appears to be on the top ten of the list revealing rotational moves anew.

Whereas the Philippines seem to have outsprinted everyone else, including neighboring Thailand, Indonesia and Malaysia but trails Argentina whom has leapt out of the gate to take clear command of the pack (horse racing vernacular). Singapore has been in close second.

Am not sure if the regional outperformance by the Phisix will last though, but this sterling performance certainly has been validating my predictions, here and here

World Economic Freedom Down, Asia and Africa Up

Writes Mike Brownfield at the Heritage ‘Morning Bell’ Blog

Economic freedom — the ability of individuals to control the fruits of their labor and pursue their dreams — is central to prosperity around the world. Heritage and The Wall Street Journal measure economic freedom by studying its pillars: the rule of law, limited government, regulatory efficiency, and open markets. Things like property rights, freedom from corruption, government spending, free trade, labor policies, and one’s ability to invest in and create businesses all factor in to a country’s economic freedom.

Sadly, economic freedom declined worldwide in 2011 as many countries attempted — without success — to spend their way out of recession. The editors of the Index explain what has led to this troubling decline:

“Rapid expansion of government, more than any market factor, appears to be responsible for flagging economic dynamism. Government spending has not only failed to arrest the economic crisis, but also–in many countries–seems to be prolonging it. The big-government approach has led to bloated public debt, turning an economic slowdown into a fiscal crisis with economic stagnation fueling long-term unemployment.”

Though some might think that the United States — the land of the free, the home of the brave — is of course a leader in economic freedom, they would be wrong. The United States fell to 10th place in the world for economic freedom, and its score continues to drop. The U.S. ranked 6th in 2009, 8th in 2010 and 9th in 2011.

The Keynesian (kick the can) approach in resolving crises via government (deficit) spending has been experiencing rapidly diminishing returns. So the developed crisis afflicted world now utilizes more of central bank actions to supplement or buttress fiscal policies.

Yet with far more debt and accreted imbalances from inflationism, such implies temporary fixes and that we should expect another crisis down the road (perhaps at a far larger bigger scale)

Not all is bad news though. The little crisis scathed regions of Asia and Africa appears headed in the opposite direction, again from Heritage…

The United States isn’t alone in the trend away from increased economic freedom. Canada and Mexico lost ground in the Index, and 31 of the 43 countries in Europe saw reduced freedom, as well. Given Europe’s huge welfare programs and out-of-control social spending, that’s unfortunately not surprising. As the world suffers the economic repercussions of Europe’s debt crisis, the price of pursuing policies that constrict economic freedom should be clear.

For all the bad news that the Index uncovered, there is some good news for economic freedom around the world. Four Asia-Pacific economies–Hong Kong, Singapore, Australia and New Zealand–lead the Index with top scores this year, Taiwan has seen increased gains in economic freedom, and eleven of the 46 economies in sub-Saharan Africa gained at least a full point on the Index’s economic freedom scale. And Mauritius eighth place score is the highest ever achieved by an African country.

Much of the world, though, isn’t so lucky. While some countries have seen their economic freedoms increase, others such as India and China are constrained by government control and bureaucracy.

This only means that the wealth convergence dynamic will continue to intensify and that the wealth gap between the West and Asia, Africa and other emerging markets, who continue to embrace economic freedom, will persist to narrow.

Despite my cynicism, I still put some hope into meaningful reforms that can be made in the Philippines. This signifies a mixed opinion of mine, which can be called as the endowment effect or the home bias. The Philippines has shown some progress which means kudos the current administration (if true).

Yet our deepening linkage with the world will represent as the ultimate driver that would pressure the domestic political economic policies to align with the underlying trend, globalization, which drives the rest of the world.

As proof, if Cuba has been opening up her economy, which is not just statistics, (chart from Heritage Foundation), then so should the Philippines.

S&P Downgrades Ratings of 9 European Nations, Affirms Seven

The Bloomberg reports,

France and Austria lost their top credit ratings in a string of downgrades that left Germany with the euro area’s only stable AAA grade as Standard & Poor’s warned that crisis-fighting efforts are still falling short.

France and Austria were cut one level to AA+ from AAA and face the risk of further reductions, the rating company said in Frankfurt late yesterday. While Finland, the Netherlands and Luxembourg kept their AAA ratings, they were put on negative watch. Spain and Italy were also among the nine nations downgraded.

It’s important to stress that the S&P has only been reacting to what the market has already done.

Major credit ratings in the US are limited by regulation, particularly the Nationally recognized statistical rating organization, thus operates as a quasi-cartel, specifically, the big three: S&P, Fitch and Moody’s. Since these firms apply ratings not only to private companies but to sovereign securities, they are largely sensitive to political influences.

S&P’s recent downgrade of US debt was apparently timed during the congressional debate on the debt ceiling, perhaps or most likely aimed at influencing the political outcome, which of course earned the ire of the Obama administration.

Nevertheless so far the markets has proven S&P’s US downgrade as largely ill-timed as 30 year US treasury bonds gained an astounding 35%!

This seem to validate predictions of deflationists but for the wrong reason. Global bond markets have been manipulated by regulation (Financial Repression-forcing financial institutions to hold or own sovereign papers, based on Basel Accords) and by monetary policies. The outperformance of the US bonds has been magnified by the Euro crisis, and importantly, the US Federal Reserve act to monetize debts. Deflation proponents should thank the US Federal Reserve for actualizing most of their predictions.

The red circle shows of Fed’s purchases of long term treasuries (chart from Cleveland Fed)

Going back to the issues of debt, a similar furor today over S&P’s European downgrades seems to hug the headlines as Europe’s politicians/bureaucrats contest S&P’s decision.

From the G7Finance.com

The EU’s top economic official criticised Standard & Poor’s downgrades as “inconsistent” on Friday and said the currency area was taking action to resolve its debt crisis.

“After verifying that this time it is not accidental, I regret the inconsistent decision,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement, taking a jab at the ratings agency in recalling its November accident in which it informed some clients of an erroneous French downgrade.

Anyway, these represents no more than histrionics to the crisis havocked Eurozone.

Bottom line: you can’t count on what credit rating agencies say. And you can’t rely on them to materially influence the markets. Rather, these firms act largely on market’s influences, except for some instances.

And there has been no better proof than the ‘stamp pad’ activities undertaken by these credit rating agencies on mortgage securities which help facilitated the US housing bubble.

Of course the operational “conflict-on-interest” relationship which has been enabled by above cartel inducing regulation, has produced a business paradigm where debt organizers and issuers compensated the credit rating agencies. So US credit rating agencies served the interests of their consumers. The rest is history.

Andrew Napolitano on Elections: What If…?

Another gem from Judge Andrew Napolitano

What if elections were actually useful tools of social control? What if they just provided the populace with meaningless participation in a process that validates an establishment that never meaningfully changes? What if that establishment doesn't want and doesn't have the consent of the governed? What if the two-party system was actually a mechanism used to limit so-called public opinion? What if there were more than two sides to every issue, but the two parties wanted to box you in to one of their corners?

What if there's no such thing as public opinion, because every thinking person has opinions that are uniquely his own? What if public opinion was just a manufactured narrative that makes it easier to convince people that if their views are different, there's something wrong with that -- or something wrong with them?

What if the whole purpose of the Democratic and Republican parties was not to expand voters' choices, but to limit them? What if the widely perceived differences between the two parties was just an illusion? What if the heart of government policy remains the same, no matter who's in the White House? What if the heart of government policy remains the same, no matter what the people want?

What if those vaunted differences between Democrat and Republican were actually just minor disagreements? What if both parties just want power and are willing to have young people fight meaningless wars in order to enhance that power? What if both parties continue to fight the war on drugs just to give bureaucrats and cops bigger budgets and more jobs?

What if government policies didn't change when government's leaders did? What if no matter who won an election, government stayed the same? What if government was really a revolving door of political hacks, bent on exploiting the people while they're in charge?

What if both parties supported welfare, war, debt, bailouts and big government? What if the rhetoric that candidates displayed on the campaign trail was dumped after electoral victory?

Read the rest here

I view Mr. Napolitano’s trenchant questions as universally applicable to democracies including the Philippines.

Big Mac Index: Swiss Priciest, India Most Affordable

The Economist gives us an update on their Big Mac Index.

They write,

THE ECONOMIST's Big Mac index is based on the theory of purchasing-power parity: in the long run, exchange rates should adjust to equal the price of a basket of goods and services in different countries. This particular basket holds a McDonald's Big Mac, whose price around the world we compared with its American average of $4.20. According to burgernomics the Swiss franc is a meaty 62% overvalued. The exchange rate that would equalise the price of a Swiss Big Mac with an American one is SFr1.55 to the dollar; the actual exchange rate is only 0.96. The cheapest burger is found in India, costing just $1.62. Though because Big Macs are not sold in India, we take the price of a Maharaja Mac, which is made with chicken instead of beef. Nonetheless, our index suggests the rupee is 60% undercooked. The euro, which recently fell to a 16-month low against the dollar, is now trading at less than €1.30 to the greenback. The last time we served up our index in July 2011, the euro was 21% overvalued against the dollar, but it is now just 6% overvalued. Other European currencies have also weakened against the dollar since our previous index, notably the Hungarian forint and Czech koruna, which have fallen by 23% and 16% respectively. Six months ago both currencies were close to fair value, but they are now undervalued by 37% and 18%.

Except for the Philippines, neighboring ASEAN economies as Thailand, Indonesia and Malaysia’s currencies are now in China’s levels whom represent the cheapest in the world, outside India, Ukraine and Hong Kong.

The Philippine Peso from last year’s USD $2.78 seem to have narrowed the gap with a US based Big Mac to $ 2.68 (due to perhaps real appreciation, although in 2011 the Peso was unchanged nominally speaking).

Economic Freedom: Philippines Gains on Regulatory Improvements

At last some genuine good news for the Philippines.

According to the latest Heritage Foundation study on the state of world’s economic freedom 2012 Index of Economic Freedom, regulatory efficiency has significantly improved to nudge our ranking up from last year’s 115 to 107.

Here’s the Heritage,

The Philippines’ economic freedom score is 57.1, making its economy the 107th freest in the 2012 Index. Its score is 0.9 point higher than last year, with a significant improvement in business freedom. The Philippines ranks 19th out of 41 countries in the Asia–Pacific region, and its overall score is slightly below the world and regional averages.

Despite the challenging global economic environment, the Philippine economy has been on a steady path of economic expansion. The government has pursued a series of legislative reforms to enhance the entrepreneurial environment and develop a stronger private sector to generate broader-based job growth. Overall progress has been gradual, but regulatory efficiency has been notably enhanced. The economy has expanded at an average annual rate of close to 5 percent over the past five years.

There are lingering institutional challenges that will require deeper commitment to reform. Despite some progress, corruption continues to undermine prospects for long-term economic development. The inefficient judiciary, which remains susceptible to political interference, does not provide effective protection for property rights or strong and transparent enforcement of the law

While such improvements should be cheered at, we need broader advances not just in regulatory efficiency, but also in property rights, rule of law, open markets, the size and scale of governments founded on less interventionism.

But in watching mainstream media's penchant for government is the solution to our social problems, and political developments mainly focused on generating approval ratings via controversies, and by my recent experience, count me skeptical of such (statistical based) improvements.

Quote of the Day: Real Economic Power

From Robert Lawson and Richard Alm, (hat tip Professor Arnold Kling)

In 2010, a tiny cabal of 535 individuals — just 0.00017% of the population — spent $3.5 trillion, or about 23% of the $14.5 trillion U.S. economy. That leaves 77% for the other 99.99983% of us.

The group is the U.S. Congress — whose members have enormous powers to tax and spend. And they've used them to grab economic power well beyond anything found in the private sector.

If we look at the richest 535 private citizens, measured by the Forbes 400 list combined with estimates for the nation's next 135 wealthiest people, we estimate these rich people probably have about $166 billion in spendable income each year.

Internal Revenue Service data from the 535 highest tax returns give a somewhat lower figure of $135 billion.

Thus, the members of Congress wield 20 to 25 times more economic power than the same number of richest private citizens in the country.

In a heavily politicized economy, inequality mostly springs from actions of political agents whose escalating interventionism bloats the bureaucracy and the pockets of political stewards by compelling economic agents, not only to comply and finance their desires (at the expense of the consumers) but to also lobby for privileges. The result is a vicious cycle of feeding the leviathan to unsustainable levels.

US Equity Markets: Sectoral Rotation

I have been pointing out how asset markets have increasingly been driven by monetary factors, which leads to the interim relative price changes and eventually to tidal flows that in the end accounts for boom bust cycles or what I call the Machlup-Livermore paradigm.

Activities in the US equity markets seem to be following this pattern.

Here is last year’s performance by industry

Table from Money and Markets

Now we seem to be seeing a rotation of leadership away from the previous leader, i.e Utilities.… [The following great charts from Bespoke Invest]

…to the laggards…

US Debt Ceiling Breached, President Obama to Seek Increase

From the International Business Times,

President Barack Obama will ask Congress to raise the federal debt limit in "a matter of days," White House Press Secretary Jay Carney said on Tuesday.

Although the president was scheduled to ask for $1.2 trillion in additional borrowing authority on Dec. 30, the action was delayed because Congress has only been holding pro forma sessions, meaning no formal business has been conducted. Still, Carney told reporters the White House will request the third and final increase, as determined by the debt-ceiling deal reached by Congress last August.

"I'm confident it will be executed in a matter of days, not weeks," Carney said.

The vote could come as early as Tuesday Jan. 17, after lawmakers officially begin the second session of the 112th Congress.

The U.S. reached the current $15.2 trillion debt limit on Wednesday Jan. 4, The Hill reported. Since then, the federal government has reportedly tapped into its Exchange Stabilization Fund in order to avoid exceeding the limit. The U.S. Treasury Department Web site states the fund consists of three types of assets: U.S. dollars, foreign currencies and Special Drawing Rights.

More signs of the Obama administration’s insatiable appetite for spending… (the following charts from Heritage budget chart book)

…a trend where mounting deficits continue to drive US debt levels vertically

…which if sustained would eventually reach crisis levels.

Yet if other countries desist from funding skyrocketing debt, and with lack of internal savings, this means either default or the Fed’s monetization of debt, that risks an inflation spiral.

It appears that President Obama is on track to take the US to a tipping point or what I call the Mises moment.

Greece Bailout: The Military Industry as Beneficiaries

If you think that Greece’s bailout has been about genuine reforms, think again.

As previously explained, Greece’s bailout isn’t about freeing up resources, which had been tied to the welfare state that would have been made available to private enterprise, but rather a transference to the political protected banking system and the embattled welfare based governments.

Well it figures that the military industrial complex has a hand in this too, or will be part of the beneficiary from the political deals.

Writes the Zero Hedge,

As Greek standards of living nose-dive, loans to households and businesses shrink still further, and Troika-imposed PSI discussions continue, there is one segment of the country's infrastructure that is holding up well. In a story on Zeit Online, the details of the multi-billion Euro new arms contracts are exposed as the European reach-around would be complete with IMF (US) and Europe-provided Greek bailout cash doing a full-circle into American Apache helicopters, French frigates, and German U-Boats. As the unnamed source in the article notes: "If Greece gets paid in March the next tranche of funding (€ 80 billion is expected), there is a real opportunity to conclude new arms contracts." With the country's doctors only treating emergencies, bus drivers on strike, and a dire lack of school textbooks and the country teetering on the brink of Drachmatization, perhaps our previous concerns over military coups was not so far-fetched as after the Portuguese (another obviously stressed nation), the Greeks are the largest buyers of German war weapons. It seems debt crisis talks perhaps had more quid pro quo than many expected as Euro Fighter commitments were also discussed and Greek foreign minister Droutsas points out: "Whether we like it or not, Greece is obliged to have a strong military".

Read more here

It’s a truism that in every crisis lies opportunities.

And as shown above, politicians and their cronies wield political actions, whom leverages and exploits on the crisis exceptionally well to their advantage, by gaming the system. Yet, blames will eventually be pinned on capitalism when it's about cronyism.

And since the current policy thrust by supposed rescuers ensures that the imbalances will be maintained, the current crisis will hardly be resolved but will get extended or could likely even worsen.

Video: Ron Paul: A Victory for the Cause of Liberty

Mr. Ron Paul has had a remarkable showing at the New Hampshire Republican primaries. In contrast to other opponents whose surge and fall has been abrupt, Mr. Paul's rise has, so far, been surprisingly consistent.

Here is Mr. Paul's fantastic speech after a strong second place finish (hat tip Bob Wenzel)


Despite mainstream media's blatant blackout in the coverage of Mr. Paul in the recent past, the apparent snowballing of the Ron Paul revolution have been symptomatic of the marginal changes in the way forces of decentralization have been upending traditional media and the way conventional top down politics has functioned. As mainstream personality the former chief economist of the IMF Simon Johnson said, despite his flawed criticism, Ron Paul must be taken seriously.

Yet unknown to most, such phenomenon has partly been facilitated or amplified by the advances of technology.

Importantly, Mr. Paul in the above video underscores on what has been a growing or deepening trend: the emerging receptiveness of the public to the cause of liberty as previously discussed.

Ron Paul's campaign, even if he loses the nomination, will serve as showcase to inspire, not only in the US but around the world, the importance of civil liberties and economic freedom.

Interesting signs of times.

Infographics: All The World's Gold

Basic facts about gold in a splendid graph [Hat tip Zero Hedge]


From: Number Sleuth

Quote of the Day: Real Money

From Jeffrey A. Tucker (Daily Reckoning)

The new coins we use in transactions are not real. They are wearing a mask, a disguise, one put on by the state. More absurdly, the state tells us not to look at the reality, but rather to trust God that all is right with the money in the realm.

The old coins, in contrast, are precisely what they say they are and, therefore, have nothing to hide. There are no invocations that require a leap of faith. The truth is found on the scale and is told in ounces.

The gold ones are, of course, the ones you really want to hold. Their value reflects the metal content. Melt them, restamp them, make them into jewelry and they are still worth no less than the market value of the metal.

And who decides what the values of these old coins are? The coins might bear the likeness of a politician. They might bear the name of the nation-state. But these pictures and slogans are merely interlopers on the real point. What you hold is valuable not because some legislature, Treasury Department or central bank says it is valuable. Its worth was and is dictated by the market, which is to say, the choices and values of human beings. No government can add to or take away this value except by physically manipulating the coin itself.

Not only that. If you dig deep enough in the coin shop, you might run across coins that were not minted by governments at all, but by private manufacturers. In the early years of the Industrial Revolution, this was the way coins were made in Britain. Not by the Royal Mint, but by entrepreneurs no different from any other.

Falklands 2.0: War in South America?

The drums of war seem to reverberate not only in the US but also in parts of South America, as several politicians desperately look for scapegoats or political artifices to conceal economic woes in order to cling onto power.

Writes Simon Black (source: lewrockwell.com)

Naturally, the administration of President Cristina Fernandez insists that inflation is not a problem, despite the Argentine peso losing 25% of its value against the US dollar over the last three-years (and far more against gold).

Meanwhile, Fernandez has borrowed her plays from Atlas Shrugged. She’s imposed capital controls, raided pension funds, nationalized private property, and taken control of the media… all in a vain attempt to delay the endgame.

A few weeks ago, the government passed a package of new laws, essentially criminalizing public protest under the auspices of combating terrorism. The legislation, snuck in at a midnight session during the holiday period, provides severe punishment for various crimes under a very broad definition of terrorism.

Fernandez herself maintains that the law would -never- be invoked to restrict the legitimate rights of Argentines. This, from a woman who simultaneously passed legislation to seize control of the country’s newspaper industry.

In her latest move, Fernandez has stepped up her saber-rattling over the Falkland Islands, a nearby archipelago that has been a British territory since 1833 (it is now self-governing). You may remember that Argentina invaded the Falklands in 1982 and was subsequently defeated after a bloody conflict with Britain.

It’s a sore subject in Argentina; the government still claims sovereignty over the Falklands (known as Las Malvinas in Argentina), and Fernandez is waving the flag once again.

Last month Argentine naval forces were sent to frustrate commercial fishing around the disputed territory. And in the most recent development, Argentina, Brazil, and Uruguay announced that they were closing their seaports to any ship flying a Falklands flag (all 25 of them…)

Argentina has also mounted pressure on the British government to reopen negotiations over the Falklands’ sovereignty. Thus far, the Brits have refused.

Cristina Fernandez’s BFF Hugo Chavez recently added to tensions by saying, “The English are still threatening Argentina. Things have changed. We are no longer in 1982. If conflict breaks out, be certain Argentina will not be alone, as it was back then.”

At this point, it’s all just tough talk and petty annoyances. But here’s the thing – there are four billion barrels of oil estimated to be within the Falklands’ territorial waters.

Given the utter insanity with which Fernandez governs her country and the desperation in the Argentine economy, one cannot rule out the possibility of her trying to grab Las Malvinas by force. After all, military conflict is the ultimate social distraction.

Looks likely that a Fernandez led Argentina seems bound for a 1999-2002 crisis relapse.

Chart of the Day: Debt Causes Global Warming

Below is an example of how mathematical correlations (via models) can be used to manipulate public’s opinion on social issues as global warming.

The graphs show that temperature anomaly has higher correlation with debt than with carbon concentrations where a deduction can be made to say that debt may have caused global warming.

Or that maybe the faithful will suggest that ‘consumerism’ via debt has led to increased carbon emissions. But this would signify as speculative baloney.

Zero Hedge nails it… (bold emphasis mine)

since global leverage (via Debt-to-GDP) has a greater correlation to the "Temperature Anomaly" aka Global Warming, at 0.79, than CO₂ concentration, at 0.69, it is obvious that global warming is purely a function of ever increasing leverage, and not, as is widely accepted by various ecological consultancies, carbon dioxide concentration. And now you see how easy it is to make idiotic, and totally spurious statements (which however serve as fodder for even more idiotic peer-reviewed white papers and journal submissions this keeping lots of people employed while contributing absolutely nothing to society), which given enough time, will become religion to a new breed of shamans once the old ones are forcibly kicked out of their comfortable corner offices.

Amen.

As previously argued, the public hardly questions or applies critical thinking to the methods used to derive at conclusions and simply take whatever is fed to them 'hook, line and sinker'.

Many reasons for the popular appeal: many are overwhelmed or intimidated by the facade of science and math, many use maths or science as social signaling or for social status and many are allured by the appeal to the majority or etc... Yet unknowingly, this makes them very vulnerable to manipulations by politicians and their followers.

Quote of the Day: Making a Difference

One option is to struggle to be heard whenever you're in the room...

Another is to be the sort of person who is missed when you're not.

The first involves making noise. The second involves making a difference.

From my favorite marketing guru Seth Godin

Gold Flip Floppers: George Soros and Dennis Gartman

In the second half of last year, gold bears made an appeal to authority by citing George Soros and Dennis Gartman as noteworthy investors who jumped into their bandwagon.

Here are the reports:

From Bloomberg

George Soros, the billionaire who two years ago called it the “ultimate asset bubble,” cut 99 percent of his holdings in the first quarter, Securities and Exchange Commission data show.

From San Francisco Chronicle

Gold is in the "beginnings of a real bear market," economist Dennis Gartman said today in his daily Gartman Letter.

Yet in very little time the so-called new converts suddenly backslid or retracted.

From Newsmax

Legendary financier George Soros returned to buying gold in late 2011 after selling it earlier, and is due to reap the benefits later this year when Fed policies will likely weaken the dollar and send the precious metal climbing, Emerging Money reports.

In the first quarter of 2011, Soros Fund Management sold almost all its shares in the SPDR Gold Trust and the iShares Gold Trust exchange-traded funds, Bloomberg reports, citing SEC data.

From Financial Post

Investment letter publisher Dennis Gartman declared Thursday that he was wrong about his bearish call on gold last month.

Writing in his daily investment letter, Mr. Gartman said he was reversing his position on gold, and now views the precious metal as being in a bull market.

Well, one is devout statist and the other is a chart technician. Apparently, gold has proven them wrong.

Humor: Can a Noah’s Ark be Built in the US today?

What if God ordered Noah to build an ark in the US today?

Thanks to Dan Mitchell for a good laugh

…..And the Lord spoke to Noah and said:

“In one year, I am going to make it rain and cover the whole earth with water until all flesh is destroyed, but I want you to save the righteous people and two of every kind of living thing on earth. Therefore, I am commanding you to build an Ark.”

In a flash of lightning God delivered the specifications for an Ark. In fear and trembling, Noah took the plans and agreed to build the ark.

Remember,” said the Lord: “You must complete the Ark and bring everything aboard in one year.”

Exactly one year later, fierce storm clouds covered the earth and all the seas of the earth went into a tumult. The Lord saw that Noah was sitting in his front yard weeping

“Noah,” He shouted

“Where is the Ark?”

“Lord, please forgive me,” cried Noah. “I did my best, but there were big problems: First, I had to get a permit for construction, and your plans did not meet the Chicago codes. I had to hire an engineering firm and redraw the plans.

Then I got into a fight with OSHA over whether or not the Ark needed a sprinkler system and approved floatation devices. Then, my neighbor objected, claiming I was violating zoning ordinances by building the Ark in my front yard, so I had to get a variance from the Chicago planning commission. Then, I had problems getting enough wood for the Ark because there was a ban on cutting trees to protect the Spotted Owl…and finally convinced the U. S. Forest Service that I really needed the wood to save the owls. However, the Fish and Wildlife Service won’t let me catch any owls, so, no owls.” The carpenters formed a union and went on strike. I had to negotiate a settlement with the National Labor Relations Board before anyone would pick up a saw or hammer. Now, I have 16 carpenters on the Ark, but still no owls. When I started rounding up the other animals, an animal rights group sued me. They objected to me taking only two of each kind aboard.

Just when I got the suit dismissed, the EPA notified me that I could not complete the Ark without filing an environmental impact statement on your proposed flood. They didn’t take very kindly to the idea that they had no jurisdiction over the conduct of the Creator of the Universe. Then, the Army Corps of Engineers demanded a map of the proposed new flood plain…. I sent them a globe.

Right now, I am trying to resolve a complaint filed with the Equal Employment Opportunity Commission that I am practicing discrimination by not taking godless, unbelieving people aboard. The IRS has seized my assets, claiming that I’m building the Ark in preparation to flee the country and not pay taxes. I just got a notice from the state of Illinois that I owe them some kind of user tax and failed to register the Ark as a “recreational water craft.” And finally, the ACLU got the courts to issue an injunction against further construction of the Ark, saying that since God is flooding the earth, it’s a religious event, and, therefore, UNCONSTITUTIONAL. I really don’t think I can finish the Ark for another five or six years.”

Noah waited…

The sky began to clear, the sun began to shine, and the seas began to calm. A rainbow arched across the sky. Noah looked up hopefully.

“You mean you’re not going to destroy the earth, Lord?”

“No,” He said sadly.”

“I don’t have to. The government already has.”