Friday, May 31, 2013

The Hindenburg Omen Meets the Bond Bubble

Jonathan Krinsky, a technical analyst at Miller Tabak has spotted the Hindenburg Omen in  stock market activity this week, reports Joe Weisenthal. I have written about the Hindenburg Omen before:
So is the Hindenburg Omen the real thing or hocus pocus? First to the negative, it appears that the discoverer of HO appears to have just run various empirical data back tests. As far as I am concerned, it is  not very impressive to find an indicator via back testing and just running with it. In fact, empirical testing as an investing method generally results in investments that blow up, see Long Term Capital Management and subprime mortgages. That said, I am never against looking at a formula to see if it can be understood in terms of human action, to indeed see if it can show some promise as a solid indicator. So let's take a look at how HO is determined:

The 5 Criteria that Must be Triggered for an HO moment to be considered activated:

1.The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

2. The smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.

3.That the NYSE 10 Week moving average is rising.

4.That the McClellan Oscillator ( a market breadth indicator used to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market)is negative on that same day.

5.That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs).
I like the #1 factor in the formula. If you have strong activity at both ends, highs and lows, to me this shows as a shifting market, with cross trends--a very good sign of an unstable market.

#2 is a checksum, so nothing to comment about here.

#3 A moving 10 week average indicates the market is high enough for a drop. Obviously, stocks are more likely to fall from high levels than low levels.

#4 This is interesting. The McClellan Oscillator measures cash flow in and out of the market. So if you a negative MO (cash flowing out) but stocks up on a 10 week average, things are getting intense. Stocks higher on less cash is always negative to me as it indicates money is running out to support an advance.

#5 This is also interesting, since in #1 we are detecting movement at both ends. Here we are insuring that a significant part of that new high/new low action is to the downside relative to new highs.

Bottom line: I like this indicator. I wouldn't bet my house on just this indicator, but if you have slowed money supply growth and this indicator kicks in, things get interesting, since this indicator is really telling you there is significant enough upside action for a major drop, but at the same time something is already causing downside action in other stocks plus cash is leaving the market.
Here's the current situation as reported by Krinsky:
 The Theory then goes like this: 
Two such signals within a 36-day period is consider ed a Hindenburg Omen. The Hindenburg Omen portends a serious decline within the next 40 days . (note: the 36 day period is somewhat ambiguous, as we have seen some say it is a 30 day period, and some say it must be 30 calendar vs. 30 business days). 
Let’s look at the first “observation” that occurred on April 15 th of this year.
1) NYSE New 52 Week Highs = 70 , New Lows = 77 . Both exceeded 2.2% of total issues that day.
2) The 10 Week (50 Day) Moving Average Was Rising
3) The McClellan Oscillator was negative
4) New 52 Week highs were NOT more than twice 52 week Lows  
All 4 criteria were met.
Now on Wednesday, May 29 th , we got a second “observation”, which creates the confirmation of the Omen.  
1) NYSE New Highs = 58 , New Lows = 104 . Both exceeded 2.2% of total issues that day
2) The 10 Week (50 Day) Moving Average Was Rising
3) The McClellan Oscillator was negative
4) New 52 Week highs were NOT more than twice 52 week Lows

Currently, as I have been reporting in the EPJ Daily Alert, money growth is far off its highs.This falls in line with the Hindenburg Omen observation, which is indicating that money flow into the stock market is slowing. But further, I have been pointing out in the EPJ Daily Alert that when the stock market and bond market both start moving to the downside at the same time, it will be a dangerous sign. For most of the current stock market bull move, bonds have been trading down while stocks have been heading higher, that is, there has been a flight away from the perceived "safety" of the bond market and into the stock market.  

If the stock market heads down AND the bond market heads down that is a sign there is less money in the system. The stock market AND bond market both closed down today. This is just one day of activity, but it is an important signal of possibly money drain from the system.

The bond market bubble appears on the edge of exploding. Bond interest rates have been raggedly moving up since mid-2012.

 If the bubble explodes and the bond market heads down with intensity, this won't be good for the stock market. It truly will be the Hidenburg Omen meeting the Bond Bubble. It won't be pretty.

More Obamacare Shell Games (Part 3)

As I recently pointed out, Obamacare is structured to put downward pressure on health exchange premiums over the next two years by subsidizing the risk for insurers. The money for these subsidies will come from other health insurance organizations and the federal government (that is, you the taxpayer). Once these subsidies are removed, upward pressure will on premiums will develop.

But that is far from the only shell game going on with Obamacare. It turns out that even with these subsidies rates are going to be higher, if compared properly. Of course, the Obamacare propaganda machine is not conducting a fair comparison.

Forbes contributor Avik Roy explains:

Last week, the state of California claimed that its version of Obamacare’s health insurance exchange would actually reduce premiums. “These rates are way below the worst-case gloom-and-doom scenarios we have heard,” boasted Peter Lee, executive director of the California exchange. But the data that Lee released tells a different story: Obamacare, in fact, will increase individual-market premiums in California by as much as 146 percent.

Lee’s claims that there won’t be rate shock in California were repeated uncritically in some quarters. “Despite the political naysayers,” writesmy Forbes colleague Rick Ungar, “the healthcare exchange concept appears to be working very well indeed in states like California.” A bit more analysis would have prevented Rick from falling for California’s sleight-of-hand.
Here’s what happened. Last week, Covered California—the name for the state’s Obamacare-compatible insurance exchange—released the rates that Californians will have to pay to enroll in the exchange.
“The rates submitted to Covered California for the 2014 individual market,” the state said in a press release, “ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions.”
That’s the sentence that led to all of the triumphant commentary from the left. “This is a home run for consumers in every region of California,” exulted Peter Lee.
Except that Lee was making a misleading comparison. He was comparing apples—the plans that Californians buy today for themselves in a robust individual market—and oranges—the highly regulated plans that small employers purchase for their workers as a group. The difference is critical.
If you’re a 25 year old male non-smoker, buying insurance for yourself, the cheapest plan on Obamacare’s exchanges is the catastrophic plan, which costs an average of $184 a month. (By “average,” I mean the median monthly premium across California’s 19 insurance rating regions.)
The next cheapest plan, the “bronze” comprehensive plan, costs $205 a month. But in 2013, on (NASDAQ:EHTH), the median cost of the five cheapest plans was only $92.
In other words, for the typical 25-year-old male non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent.
Under Obamacare, only people under the age of 30 can participate in the slightly cheaper catastrophic plan. So if you’re 40, your cheapest option is the bronze plan. In California, the median price of a bronze plan for a 40-year-old male non-smoker will be $261.
But on eHealthInsurance, the median cost of the five cheapest plans was $121. That is, Obamacare will increase individual-market premiums by an average of 116 percent.
For both 25-year-olds and 40-year-olds, then, Californians under Obamacare who buy insurance for themselves will see their insurance premiums double.[...]
How did Lee and his colleagues explain the sleight-of-hand they used to make it seem like they were bringing prices down, instead of up? “It is difficult to make a direct comparison of these rates to existing premiums in the commercial individual market,” Covered California explained in last week’s press release, “because in 2014, there will be new standard benefit designs under the Affordable Care Act.” That’s a polite way of saying that Obamacare’s mandates and regulations will drive up the cost of premiums in the individual market for health insurance.
But rather than acknowledge that truth, the agency decided to ignore it completely, instead comparing Obamacare-based insurance to a completely different type of insurance product, that bears no relevance to the actual costs that actual Californians face when they shop for coverage today. Peter Lee calls it a “home run.” It’s more like hitting into a triple play.
For more on the Obamacare shell game:

See Part 1: here
See Part 2: here 

California Man Jailed for Painting a Crosswalk

SF Gate has the story:
A Northern California man is facing vandalism charges after authorities say he painted a crosswalk on a street, allegedly telling officials it was needed.

Fifty-two-year-old Anthony Cardenas was arrested Thursday morning in Vallejo and booked into Solano County Jail on suspicion of felony vandalism. Solano County Sheriff's Lt. Brad DeWall says workers spotted Cardenas committing the vandalism at a city intersection.

The intersection already has three crosswalks.
DeWall says Cardenas also painted lines through those.

State transportation workers painted over Cardenas' alleged crosswalk later in the day. A police cadet had been posted at the intersection until then to keep pedestrians from using it.

Cardenas remained behind bars Friday on $15,000 bail. Dewall says he did not have an attorney.
Painting a crosswalk on public land? I think he gets a libertarian pass.

Rand Paul Does Walls

From the Wailing Wall to the Facebook Wall.

During his visit to the 51st state.

Rand Paul is visiting Silicon Valley this week.

Council on Foreign Relations Reports on Deadly Virus and Viruses That Become the Property of Sovereign Nations

CFR Senior Fellow for Global Health Laurie Garrett writes, “Like the SARS virus, MERS ravages the lungs of infected people, causing pneumonia and acute respiratory distress. …But unlike SARS, it also attacks the kidneys, causing renal failure.”

“There is no cure, rapid diagnostic test, or vaccine for MERS-CoV,” Garrett adds.

But the ability to develop a treatment for the epidemic is being impeded by a concept known as “viral sovereignty”–the idea that deadly viruses are the property of sovereign nations.

Garrett writes:
"My greatest concern right now is the novel coronavirus," Chan warned the representatives of two hundred nations gathered in Geneva. "We do not know where the virus hides in nature. We do not know how people are getting infected. Until we answer these questions, we are empty-handed when it comes to prevention."

But impeding an effective response is a dispute over rights to develop a treatment for the virus. The case brings to the fore a growing debate over International Health Regulations, interpretations of patent rights, and the free exchange of scientific samples and information. Meanwhile, the epidemic has already caused forty-nine cases in seven countries, killing twenty-seven of them.

At the center of the dispute is a Dutch laboratory that claims all rights to the genetic sequence of the Middle East Respiratory Syndrome coronavirus [MERS-CoV]. Saudi Arabia's deputy health minister, Ziad Memish, told the WHO meeting that "someone"--a reference to Egyptian virologist Ali Zaki--mailed a sample of the new SARS-like virus out of his country without government consent in June 2012, giving it to Dutch virologist Ron Fouchier of Erasmus Medical Center in Rotterdam.

"The virus was sent out of the country and it was patented, contracts were signed with vaccine companies and anti-viral drug companies, and that's why they have a MTA [Material Transfer Agreement] to be signed by anybody who can utilize that virus, and that should not happen," Memish said.

Though Memish referred to a "patent," the Dutch team has not patented the viral genetic sequence but has placed it under an MTA, which requires sample recipients to contractually agree not to develop products or share the sample without the permission of Erasmus and the Fouchier laboratory. Memish said that the Dutch MTA was preventing Saudi Arabia from stopping the MERS-CoV outbreak, which appears to have started eleven months ago in the Eastern part of his country. The Dutch team denies the MTA is slowing work on the outbreak, saying it has given virus samples to any lab that has requested it.

Courts in North America and Europe have ruled that it is possible to patent life forms or their genetic sequences, spurring the practice of claiming patent control on newly identified microoganisms. Such patents give owner rights over royalties on all products derived from the genetic sequence, including vaccines, diagnostics, and genetically targeted treatments. But they have spawned controversy outside of wealthy countries, since they are perceived as guaranteeing profits for Western pharmaceuticals at the expense of country-of-origin use and access.
Obviously, this is granting of monopolistic patent rights to an insane level, as if patent rights as currently constructed weren't insane enough. Murray Rothbard correctly identified independent discovery as the correct construct for patents/copyrights. In Man, Economy and State, he wrote:
The copyright is there­fore a logical device of property right on the free market.

 Part of the patent protection now obtained by an inventor could be achieved on the free market by a type of “copyright” protection[...]  The patent is incompatible with the free market precisely to the extent that it goes beyond the copyright. The man who has not bought a machine and who arrives at the same invention in­dependently, will, on the free market, be perfectly able to use and sell his invention. Patents prevent a man from using his in­vention even though all the property is his and he has not stolen the invention, either explicitly or implicitly, from the first in­ventor. Patents, therefore, are grants of exclusive monopoly priv­ilege by the State and are invasive of property rights on the mar­ket.

     The crucial distinction between patents and copyrights, then, is not that one is mechanical and the other literary. The fact that they have been applied that way is an historical accident and does not reveal the critical difference between them.[96]The cru­cial difference is that copyright is a logical attribute of property right on the free market, while patent is a monopoly invasion of that right.
While the Dutch lab claims exclusive rights to any vaccines, diagnostics, and genetically targeted treatments for MERS, here's more from Garrett on what we are dealing with:
There is no cure, rapid diagnostic test, or vaccine for MERS-CoV, or for any of the class of coronaviruses, which includes SARS--the scourge that erupted from China in 2003.

Like the SARS virus, MERS ravages the lungs of infected people, causing pneumonia and acute respiratory distress. Also like SARS, it is previously unknown to human immune systems, so response to infection can include the classic "cytokine storm" reaction of an overresponsive immune system that hits the virus with all it's got, creating collateral damage all over the body. But unlike SARS, it also attacks the kidneys, causing renal failure.

Epidemiologically, MERS seems to be similar to SARS: It is spread by close contact, and can be airborne-transmitted between people. Both viruses can be dangerous for health-care workers and spread within hospitals. There is no rapid diagnostic test for MERS, which puts doctors and nurses at special risk since they cannot easily distinguish the symptoms between early-stage MERS-CoV patients and regular pneumonia.

The new MERS-CoV is shrouded in mystery right now as Saudi investigators are unable to determine its reservoir species--where did it come from--how it is spread from that species to people, a method for rapid diagnosis, proper treatment, and best approaches to hospital infection control. Suspicions point to fruit bats in the eastern Al-Ahsa province of Saudi Arabia, where the bulk of the cases have occurred.

Peter Schiff on the Latest Fed Manipulated Housing Price Climb

The Great Reflation
By Peter Schiff

This week economists, investors and politicians were treated to some of the "best" home price data since the frothy days of 2006 when home loans were given out like cotton candy and condo flipping was a national pastime. The Case-Shiller 20 City Composite Home price index was up a startling 10.9% for the 12 month period ending in March. Prices in all 20 cities were up, with some (Las Vegas, Phoenix, and San Francisco) notching gains of more than 20%. Meanwhile the National Association of Realtors announced that April pending home sales volume reached the highest level in nearly three years.

The strong housing data is taken as proof that the economy has turned around and that a recovery is under way. Cooler heads may simply see how government policies have channeled money into real estate in order to reflate a bubble that has been collapsing for the last five years. Although the money is entering the market through slightly different paths than it did in 2005 and 2006, its effects on housing, and the broader economy, are the same as they were before the bubble burst. When the inevitable happens again, the ensuing damage will be eerily familiar.

After five years of dismal real estate performance and a lackluster economy, it's hard to fault people for believing that rising home prices are a good barometer of economic health. There can be little doubt that rising home prices feel good. Even single digit appreciation can make modest home buyers feel like mini-moguls. The effect is magnified in a falling interest rate environment where any appreciation can be instantly turned into an opportunity for cash out refinancing. The "wealth effect" created by such activities then translates into consumer spending and other seemingly positive economic developments. But some things can taste great but be very harmful (cinnamon buns come to mind). It felt good when real estate prices were rising during the pre-financial crisis bubble, but that rise only exacerbated the problems when the bubble burst. The questions we should now be asking ourselves is why are prices rising, are those higher prices sustainable, and what are the costs to the broader economy?

The truth is that most buyers cannot afford today's prices without the combination of government guarantees and artificially low mortgage rates. The Federal Reserve has been conducting an unprecedented experiment in economic manipulation. By holding interest rates near zero and by actively buying more than $40 billion monthly of mortgage-backed securities and $45 billion of Treasury bonds, the Fed has engineered the lowest mortgage rates in generations. At the same time, Federal control of the mortgage industry has become nearly complete, with government agencies Fannie Mae, Freddie Mac, and the FHA buying or guaranteeing virtually all new mortgages. In addition, a variety of Federal programs, such as the Home Affordable Modification Program (HAMP) are in place to help keep underwater homeowners in homes that they could not otherwise afford. Taken together, these programs create far more favorable terms for home buyers than those that existed before the crash.

The big difference between then and now however is that banks are much more reluctant to extend loans to people with bad credit. But that has not stopped money from flowing into real estate. Ultra low interest rates also mean that fixed income investments, that have long been the staple of hedge funds and private equity funds, no longer deliver decent returns. To find yields in such an environment, many of these professional investment funds have scooped up single family homes out of foreclosure and put them into the rental market in order to generate a decent return on equity. These buyers come to the table with war chests full of cash which puts them in a position to avoid all of the credit obstacles that continue to plague individual buyers.

This trend has allowed a recovery in home sales even while the national home ownership rate has dropped to 65%, the lowest rate since 1995 (down from almost 70% during the last decade). Now that most of the available foreclosures have been picked through (with the rest log jammed with litigation and red tape), many of the new classes of investment buyers are striking deals directly with the large home builders to buy homes before they are even built. It is no coincidence that the southern tier markets with the fastest appreciation, and the fastest declines in inventories, have been those with the greatest participation of institutional investors.

But their activities have a latent downside. The new ownership class is not motivated to buy and hold the way Mom and Dad would. They are not looking for a place to live, raise families, and retire. They are simply looking for a decent return on equity relative to other investments. Many would happily put money in higher yielding bonds where landlord headaches don't exist. If better deals beckon, or if risks increase in the real estate market, the homes they bought will be dumped even faster.

In the meantime, bidding wars involving hedge funds are forcing real buyers to pay more, oftentimes pricing them out of the market completely. Then as these properties hit the rental market, an absence of qualified tenants will depress rents. Lower rents will in turn put downward pressure on property values. Many rental houses will also sit vacant. Though hedge funds are cash buyers, most borrow large percentages of that cash to lever up their returns. However, when interest rates rise and rents fall, hedge funds will be forced to sell. But where will the buyers come from? The current crop of renters cannot afford to buy even with mortgage rates at historic lows. When rates rise, prices will have to plunge before real buyers could even qualify for mortgages.

The current combination of low rates and investor demand has succeeded in pushing up prices. But that doesn't mean the market is healthy. For the first quarter of 2013, the Federal Reserve reports a 10% delinquency rate for residential mortgages (those with payments that are at least 90 days past due). This is more than 6 times the rate in the first quarter of 2006. In contrast, credit card delinquencies currently stand at 2.65%, the lowest rate in decades and 31% lower than the rate in the first quarter of 2006. Whether it is by choice, or simply by the ability to pay, Americans are clearly placing a low priority on paying their mortgages.

But rising home prices are currently creating residual benefits even for those who have no intention of selling. In the second quarter of this year, rates on 30 year mortgages hit the lowest level on record. Although the data has not yet been published, it would be logical to assume that homeowners have taken the opportunity to refinance, lower their payments, and in some cases, pull money out. But even if they haven't, there is evidence to suggest that an owner's belief that his home has appreciated is enough to encourage greater spending.

The "wealth effect' from rising home prices combined with the similar influence of rising stock prices creates an aura of recovery. In fact, this week's revisions to first quarter GDP revealed that consumer confidence and spending are up despite real discretionary per capita incomes plunging at a 9.03% annualized rate. That is worse than the largest plunge during the 2008-2009 crisis (7.52%). Additionally, the household savings rate fell to an abysmal 2.3%, the lowest since the 3rd quarter 2007. Debt-financed consumption supported by inflated asset prices is what led to the financial crisis of 2008. It's amazing how willing we are to travel down that road again.

Of course rising asset prices are completely dependent on continued Fed support. As we have seen time and again, whenever the Fed even hints at tapering its massive QE programs the stock market sells off. The housing market is even more dependent on that support. Given the risks, it is arguable that no private market for home loans would even exist without government intervention. The bubble that popped in 2008 consisted mainly of government-guaranteed mortgages. This time, the mortgages are not merely government-guaranteed, but government owned.

In the meantime, by blowing more air into a deflating housing bubble, the Fed is misdirecting money into a sector that investment capital should be avoiding. A successful economy can't be built on housing. Rather, a robust real estate market must result from a healthy economy. You can't put the cart before the horse. As a nation, we do not need more houses. We built enough over the last decade to keep us well sheltered for years. Private equity funds should be using their investment capital to fund the next technology innovator, not wasting it on townhouses in Orlando and Phoenix.

Of course the real risks in housing center on the next leg down, in what I believe will be a continuation of the real estate crash. We can't afford to artificially support the market indefinitely. When significantly higher interest rates eventually arrive, the fragile market will again be impacted. We saw that movie about five years ago. Do we really want to see it again?

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.

How You Are Inside an Electronic Concentration Camp

Popcorn Time: Luke Rudkowski Confronts Obama's Science Czar

During a Q&A segment at a science & technology speech given by President Obama's Science Czar, John P. Holdren, Luke Rudkowski asked him about the statements made in his 1977 book, Ecoscience. In the book, Holdren outlined ways to handle "overpopulation" which included forced abortions and sterilization. Despite co-authoring the book and telling Congress that his beliefs on depopulation have changed, Holdren stated to Rudkowski that he never held the views in the first place.

Matthew Yglesias To Muggers: Get A Government Uniform!

By, Chris Rossini

Slate's Matthew Yglesias had an epiphany:
Poverty is, fundamentally, a lack of money. So doesn’t it make sense that simply delivering cash to poor people can be an effective strategy for alleviating it?
First of all poverty is not fundamentally "a lack of money".

Widespread poverty is largely due to the Leviathan State; the destroyer of private property, savings, the accumulation of capital, entrepreneurs solving problems, and free and voluntary exchange. Widespread poverty is fundamentally caused by a lack of these!

Yglesias should strike a deal with Bernanke to take bags of freshly printed fiats and helicopter drop them over a poor country of their choice. Then come back to see that the green pieces of paper with scribbles on them have done nothing.

Yglesias continues the embarrassment:
But there’s striking new evidence that helping the truly poor really is as simple as handing them money. Money with no strings attached not only directly raises the living standards of those who receive it, but it also increases hours worked and labor productivity, seemingly laying the groundwork for growth to come.
And to think that there are muggers and purse snatchers out there who are doing it all wrong. They keep ending up in jail.

Their plight falls on deaf ears. The Cops do not care that the money was going to the mugger's poor mother and father "with no strings attached". All the mugger really wanted to do was "raise the living standards" of his Mom & Dad. He stole the purse so that Mom & Dad could increase "hours worked and labor productivity".

Why won't the Cops listen?

Haven't they heard about the "striking new evidence"?

Well, muggers of the world unite! Matthew Yglesias has solved your problems (as well as those of the poor):

Get a government uniform!

Follow @ChrisRossini

Dambisa Moyo on Africa & What's Wrong With Foreign Aid

Below is a  clip of an interview conducted with economist Dambisa Moyo. Bill Gates recently said she has evil ideas.

She's not a full libertarian, but she sure knows the evil of foreign aid. She is also real good on"celebrity aid' and note her comments about Chinese investors versus those in the US.

Here's Moyo being interviewed by Bill Maher

Why Did KKR Hire a Four Star General for a High Profile Position?

Former CIA Director and retired four star U.S. Army General David Petraeus has joined private equity giant KKR.

The statement released by KKR announcing that Petraeus joined the firm included some telling comments by Henry Kravis, co-Founder and co-CEO of KKR (my emphasis):
I have long known and respected General Petraeus and, on behalf of everyone at KKR, I welcome him to the firm. As the world changes and we expand how and where we invest, we are always looking to sharpen the ‘KKR edge.' With the addition of General Petraeus, we are building on the work we have done to understand the investment implications of public policy, macro-economic, regulatory and technology trends globally. 
Got that? KKR wants to better "understand" the public policy and regulatory implications of its investments.

Henry Kravis is one of the shrewdest operators in finance, if he is hiring a four star general that can bring him little but access to Washington D.C. power players, it is a signal of how important access to Washington is these days.

The press release went on to come as close to confirming this, as possible, without coming full out and explaining what KKR is doing (my emphasis):
 Over the past several years, macro-economic and geopolitical considerations, including the heightened role of central banks following the financial crisis, new regulation and major changes in public policy, have led to KKR's increased engagement on these areas and on environmental, social and governance issues.
Bottom line: More and more of business needs a nod from Washington D.C. for its operations. If you don't have a D.C. insider, you are not protected. KKR, in the hiring of Petraeus, just bought itself major protection. Big business is building a moat around itself, using government regulators to keep out competition. It will get tougher and tougher for new businesses to launch with just grit and a great idea, when big business is hiring DC insiders who have the power, through new regulations, to snuff out new operators.

This is one of the reasons there are fewer exciting jobs for new college graduates. They are often hired by upstarts, the type big business is doing a pretty good job of snuffing out.

Zambian Economist Blasts Bill Gates After He Calls Her Views Evil

Forbes contributor Mfonobong Nsehe sets the scene:

On Tuesday this week, Microsoft MSFTco-founder Bill Gates attended a Q&A session at the University of New South Wales[...] a member of the audience asked the billionaire philanthropist a question on whether aid in Africa has had far-reaching negative consequences, based on the central idea of Zambian economist Dambisa Moyo’s acclaimed book, Dead Aid, Why Aid Is Not Working and How There is Another Way for Africa.

Here is the question and answer and the attack on Moyo by Gates:

Here's part of Moyo's response:

I find it disappointing that Mr. Gates would not only conflate my arguments about structural aid with those about emergency or NGO aid, but also that he would then use this gross misrepresentation of my work to publicly attack my knowledge, background, and value system.
I would like to take this opportunity to address both of Mr. Gates’ claims here:
  1. I wrote Dead Aid to contribute to a useful debate on why, over many decades, multi billions of dollars of aid has consistently failed to deliver sustainable economic growth and meaningfully reduce poverty. I also sought to explicitly explain how decades of government to government aid actually undermined economic growth and contributed to worsening living conditions across Africa. More than this, I clearly detailed better ways for African leaders, and governments across the world, to finance economic development. I have been under the impression that Mr. Gates and I want the same thing – for the livelihood of Africans to be meaningfully improved in a sustainable way. Thus, I have always thought there is significant scope for a mature debate about the efficacy and limitations of aid. To say that my book “promotes evil” or to allude to my corrupt value system is both inappropriate and disrespectful.
  2. Mr. Gates’ claim that I “didn’t know much about aid and what it was doing” is also unfortunate. I have dedicated many years to economic study up to the PhD level, to analyze and understand the inherent weaknesses of aid, and why aid policies have consistently failed to deliver on economic growth and poverty alleviation. To this, I add my experience working as a consultant at the World Bank, and being born and raised in Zambia, one of the poorest aid-recipients in the world. This first-hand knowledge and experience has highlighted for me the legacy of failures of aid, and provided me with a unique understanding of not only the failures of the aid system but also of the tools for what could bring African economic success.
To cast aside the arguments I raised in Dead Aid at a time when we have witnessed the transformative economic success of countries like China, Brazil and India, belittles my experiences, and those of hundreds of millions of Africans, and others around the world who suffer the consequences of the aid system every day.
In conclusion, I am disappointed that Mr. Gates would choose the route of personal attacks rather than a logical counter argument about the role of aid in modern Africa. Such attacks add no value in the important discussions on the challenges the world faces to deliver economic growth, eradicate poverty, combat disease, and reduce income inequality, to name a few.
As I have always maintained, I respect the views of others and am open to having logical and meaningful debates with the ultimate goal of finding sustainable solutions to Africa’s economic problems.

I haven't read Moyo's book (I just ordered it), so I don't know her argument in detail, but her surface argument is correct.  Government to government aid has done nothing to alleviate poverty in Africa.

W.H. Hutt said it best:
Foreign aid is taking money from poor people in rich countries and giving it to rich people in poor countries.

Thursday, May 30, 2013

Wow, Sun-Times Lays Off ALL Its Photographers

 Free markets at work. I could not imagine this occurring in a government run newspaper operation. Gawker reports:
In a statement, the Sun-Times said the layoffs were due to a new focus "on bolstering our reporting capabilities with video and other multimedia elements." The wife of one of the laid-off photographers claimed on Twitter that this means Sun-Times reporters are being asked to use their smartphones to get pictures, while the Tribune reports that the paper will use only freelance photographers from now on. The whole truth probably lies somewhere in the middle, as more professional newsmakers are forced to confront the question of whether simply owning an iPhone and some hip filters can turn anyone into a decent photographer.

Government Interference in the Bowling Shoe Sector

New York State Senator Patrick Gallivan (R-59th District) New York State Assemblyman Robin Schimminger (D-140th District) are sponsoring a bill that would cover bowling shoes. The bill in the assembly is co-sponsored by Assembly members Brian Kolb, Crystal Peoples-Stokes and Jane Corwin.

It would require alley owners to post signs, warning keglers not to wear bowling shoes outside, lest they become wet and increase the likelihood that a bowler could slip and fall when they come inside.

I think we have pretty much everything covered. Can we now disband all state and federal law making bodies?

(Via Divison of Labour)

How Mises and Rothbard Used Academia to Undermine It

By Gary North

If you are interested in the history of ideas, at some point this question will occur to you: “How is it possible for someone to gain influence, yet at the same time retain his independence?” If you traffic in ideas, you have to be able to do both.

A crackpot can go online today and argue for his favorite theory. He is completely independent. He is also completely ignored. His independence does him no good, because what he writes has no influence.
I suppose my two favorite recent examples of people who have maintained their independence, but whose ideas have had considerable influence, are Ludwig von Mises and Murray Rothbard. They are more influential today than they were at the time of their deaths. Mises died in 1973. Rothbard died in 1995.

Read the rest here.

Amazing: Joe Stiglitz Talks about Incentives Distorting Economists' Views; The Pot Calls the Virgin Oil Black

Below Joesph Stiglitz attacks free market economists by claiming they do so only because it is in their special interest to do so. He advocates government intervention in the economy--an area where it appears he has made a comfortable living for himself,

He was Chairman of the Council of Economic Advisers under Bill Clinton, worked at the World Bank as chief economist. He founded the Initiative for Policy Dialogue, with support from crony capitalists foundations, including the Ford and Rockefeller Foundations. He chaired the Commission on the Measurement of Economic Performance and Social Progress, initiated by President Sarkozy of France.
He chaired the Commission of Experts on Reforms of the International Monetary and Financial System which was convened by the President of the United Nations General Assembly. And, in 2010, he acted as an advisor to the Greek government.

Compare this with free market advocates Ludwig von Mises and Murray Rothbard, who struggled through most of their careers to even get decent academic positions, never mind business gigs.

Who exactly would be in a position to be corrupted, Mises and Rothbard or the favorite of world government bodies, Stiglitz?

And what exactly is the ad hominem implied attack on business cycle theory? If he really sees a problem with the theory, why doesn't he tell us, rather than the ad hominem stuff?

(ht Cordination Problem)

Bitcoin Rock Star Trace Mayer: This Sunday on The Robert Wenzel Show

By, Chris Rossini

This Week's Guest
Trace Mayer
The Bitcoin Rock Star
Sunday June 2nd

Sunday June 9th
Dr. Mark Thornton
Senior Fellow at the Ludwig von Mises Institute

WWE Wrestler Kane May Run for US Senate; Reads Hayek, Mises and Rothbard

Glenn Jacobs, the seven-foot-tall professional wrestler better known as Kane, just might be the next Republican senator from Tennesse, reports the Daily Caller.

DC writes:
Jacobs insists he has “no plans to run at this point.” But, at the same time, he is not prepared to rule it out.
“Of course I know what’s going to happen is the media at first would treat this like a joke,” Jacobs says of his potential candidacy. “There would be a lot of interest in it, but it wouldn’t be taken seriously in that respect, but that’s okay — because I think as it would move along they would find out that I do understand, and I do care, very, very, very deeply. But are those enough to be able to win? Because, frankly, if I’m going to do it, that would be my goal.”
“So you know, there would just have to be a lot of things put in to place, and certainly my family would have to be comfortable with it,” he added.
Jacobs says he’s always been interested in politics, but it wasn’t until around 2004 that he began reading economists of the libertarian “Austrian school” such as Friedrich Hayek, Ludwig von Mises and Murray Rothbard. He calls Henry Hazlitt’s Economics in One Lesson “one of the best books anyone can read,” and also cites von Mises’ Human Action and Rothbard’s Man, Economy, and State as personal favorites. 
Kane has also written a number of articles for

I Was a Mole at FOX News

By Joe Muto

People would often ask me about how Fox pushes a message.

And I would always tell them the message isn’t so much pushed as it is pulled, gravitationally, with Roger Ailes as the sun at the center of the solar system; his vice presidents were the forces of gravity that kept the planet-size anchors and executive producers in a tight orbit; then all the lesser producers and PAs were moons and satellites and debris of varying sizes.

An organizational flow chart at Fox would be tough to draw up, as title alone was not the ultimate signifier of status. Sometimes the anchors outranked their executive producers, as was the case with “The O’Reilly Factor.” (In fact, Bill had procured an EP title for himself, but he outranked the two other EPs on the show, both Stan, who oversaw TV, radio, and the website, and Gayle, who focused on television and also served as a fact-checker.) Sometimes the anchors were relatively weak — as was the case with a lot of weekend shows, and maybe some of the newswheel hours — and a strong senior producer or producer outranked, or at least pretended to outrank, the host. (For example, Lizzie from “The Lineup,” who was only a producer but was tough enough that she probably could have bossed around Ailes himself had she been left alone in a room with him for more than five minutes.)

The bottom line is that each show had one person — be they anchor or producer or whoever — who was directly accountable to the Second Floor. That was the brilliance of the company’s power structure. One misconception that outsiders always had about the channel is that we’d sit around all morning planning how to distort the news that day. But there was never any centralized control like that. No “marching orders,” as it were. Instead, it was more a decentralized, entrepreneurial approach. Each show was an autonomous unit. Each showrunner — who had not risen to their position by being stupid — knew exactly what was expected of them, knew what topics and guests would be acceptable.

Read the rest here.

Murray Rothbard on H.L. Mencken

Lew Rockwell has posted today one of my favorite Murray Rothbard essays. H. L. Mencken: The Joyous Libertarian.

It is noteworthy that in the essay Rothbard wrote about Mencken:
A serene and confident individualist, dedicated to competence and excellence and deeply devoted to liberty, but convinced that the bulk of his fellows were beyond repair, Mencken carved out a role unique in American history: he sailed joyously into the fray, slashing and cutting happily into the buncombe and folly he saw all around him, puncturing the balloons of pomposity, gaily cleansing the Augean stables of cant, hypocrisy, absurdity, and cliché, "heaving," as he once put it, "the dead cat into the temple" to show bemused worshippers of the inane that he would not be struck dead on the spot. And in the course of this task, rarely undertaken in any age, a task performed purely for his own enjoyment, he exercised an enormous liberating force upon the best minds of a whole generation.

It is characteristic of Mencken that one of the things he enjoyed the most was a Presidential convention, which he almost never failed to attend. Here he plunged into the midst of the teeming, raucous, and absurd throng: into all the hilarity and inanity and excitement of the great American political process itself, his jacket off, swigging beer, partaking of all the fun while missing none of the folly. And then he would write up what he saw, slashing at the cant, hypocrisy, and concentrated nonsense of our governors in action. No one truly immersed in Mencken could emerge quite the same again; no one could retain the same faith in our "statesmen" or in the democratic political process itself, no one could ever be quite the same sucker for all manner of ideological, social, and political quackery, the same worshipper of solemn nonsense.
I suspect there was a lot of Mencken in Rothbard. No one could laugh more at the absurdities of having to live under modern day ruling sociopaths and their apologists than Rothbard. But Mencken was no Rothbard.

Rothbard also wrote in the essay:
Despite his omnivorous passion for intellectual fields and disciplines, he had no temperament for fashioning rigorous systems of thought – but then, how many people have? 
Rothbard, in addition to being much of what Mencken was, could also fashion rigorous systems of thought, including a framework for a libertarian society, complete great historical studies and make great expansions in economic theory.

Rothbard's essay is a great appreciation of Mencken by Rothbard, but in Rothbard's appreciation, we can also see the even more significant greatness of Rothbard, himself.  That said, the essay is a great read, one genius commenting on the great work of another genius. We can learn much from both these men and, in this essay by Rothbard, we get to learn something about both of them.

The Mayor of Rahmaland Makes the Cover of TIME

First, Rand Paul appears on the cover of TIME, now Rahm Emanuel.

TIME writes:
Chicago Mayor Rahm Emanuel left his job as White House Chief of Staff to run a broke, violence-plagued city. He has been dubbed “Mayor 1%” by his enemies for cozying up to corporations, and the “murder mayor” for closing 50 public schools, some of which were in gang-troubled neighborhoods. In this week’s TIME cover story, editor-at-large David Von Drehle writes that Chicago “has budget problems and crime problems, problems of inequality and racial division, problems of mutual suspicion and failing schools, of high unemployment and aging infrastructure. And behind it all, special interests so deeply entrenched you need spelunking gear to go after them.” Yet in spite of all those daunting challenges, Emanuel tells Von Drehle, ”This is the happiest I’ve ever been in public life. I’ve always wanted to be mayor.”

(HT Bill Bergman)

How is the FBI Going to Explain This?

The father of a Chechen immigrant killed while being interrogated by the FBI about his ties to a Boston Marathon bombings suspect says agents killed his son “execution style." Below the father shows a photo of his son with a shot to the head. More details here.

(HT Robert Willmann)

Father Of Florida Man Connected To Tsarnaev: FBI Killed My Son ‘Execution-Style’

The father of a Chechen immigrant killed while being interrogated by the FBI about his ties to a Boston Marathon bombings suspect says agents killed his son “execution style,” reports AP. There was even a shot to the back of the head.

At a press conference Thursday in Moscow, Abdul-Baki Todashev showed journalists 16 photographs he said were of his son, Ibragim, in a Florida morgue. He said his son had six gunshot wounds to his torso and one to the back of his head and the pictures were taken by his son’s friend, Khusen Taramov.

WESH-TV is reporting that unidentified FBI sources now say that Todashev was unarmed.

UPDATE: Photo Here.


“I can show you the photos taken after the killing of my son. I have 16 photographs. I just would like to say that looking at these photos is like being in a movie. I only saw things like that in movies: shooting a person, and then the kill shot. Six shots in the body, one of them in the head,” Abdulbaki Todashev said at the press conference at RIA Novosti news agency in the Russian capital.


From RT:

His friend Khusen Taramov told the father that Ibragim had refused to come in for questioning on May 22, and instead asked the FBI agents to come and question him at home.

“Should something happen to me, call my parents,” Taramov quoted the last thing he heard from his friend.

On the day of Ibragim’s death, Taramov was questioned by the FBI separately on the street, and was refused entry back into his friend’s house, Todashev’s father claimed. He was “sent off” to wait in a nearby cafĂ© on the grounds that Todashev was still being questioned and that “the interrogation would take a long time.” After some eight hours passed since the start of interrogation and his Todashev’s phone still was not answering, Taramov returned, only to find the street cordoned off with police cars and an ambulance.

“They tortured a man for eight hours with no attorney, no witnesses, nobody. We can only guess what was going on there, until there is an official investigation,” Abdulbaki Todashev said.
Referring to the Boston bombings, Todashev said his son believed it was a “set-up.” But Ibragim never sympathized with radical or terrorist ideas, and was not a follower of a radical Islam, he added.

Note to Ezra Klein: Obamacare is Much Worse Than Just Guesses

Ezra Klien at WaPo writes:
We’re in a bit of a whack-a-mole period with the Affordable Care Act’s insurance exchanges. Each week brings new data from a new state on the premiums insurers intend to charge on the exchanges. Some weeks bring revised data from old states. But it’s worth stepping back and keeping two things in mind. 
The first is that all these numbers are simply guesses. Really. That’s it. California’s numbers are guesses. Maryland’s numbers are guesses. Oregon’s numbers are guesses. Vermont’s numbers are just guesses. Everyone is just guessing.
Insurers have to decide now how much they’ll charge next year. Once they’ve settled on a price and the exchanges open, that’s the end of it. They can change the price in the second year. But they can’t change it in, say, February of 2014.
The problem is that insurers don’t know what their costs will be next year. So they’re guessing. They’re guessing who will enter the exchanges. They’re guessing who will choose to buy their coverage. They’re guessing whether healthy, young people will obey the individual mandate or pay the penalty. They’re guessing what price they’ll need to be competitive against other insurers, given differences in the networks, benefits, etc. But as they’ll admit to you with a bit of anxiety, they really are just guessing. If they get it wrong by being too expensive, they’ll lose customers. If they get it wrong by being too cheap, they’ll lose money.
We’re covering those guesses in the press. When they come in low, we say it’s good news for Obamacare. When they come in high, we say it’s bad news for Obamacare. But we don’t really know whether the guesses are right or wrong either.
This is somewhat true, but the real kicker is that the guesses, as I pointed out yesterday, are subsidized guesses. The government has rigged the system to provide major incentive for insurance firms to low ball their premiums by subsidizing low premiums, subsidies that must be paid for by other health insurance organizations and the federal government (that is, taxpayers). The big jump in premiums won't occur until after the subsidies are pulled in 2017. Right now, it's a scam so that MSM talks about the low premiums without the full background---, that is, the taxpayer supported subsidies of the insurance companies exchange programs.

Seven Police Gunbattles This Week in the City of Brotherly Love

Police in Philadelphia were involved in three shootings yesterday, bringing the number of police gunbattles this week to 7. reports:

 In the most recent, police in Germantown last night around 10 p.m. were called to Wayne Avenue near Berkeley Street for a shooting and encountered a gunman there, according to police sources. When cops arrived, they encountered the suspect, who refused to drop his weapon, prompting an officer to fire at him, wounding him several times. That suspect, whose identity and age were unknown late last night, was pronounced dead at Albert Einstein Medical Center.

A 2-year-old boy also suffered a graze wound to the head in the incident, police said. Officials said they were unsure whether the child, who was in stable condition last night at Einstein, was wounded by the suspect's gunfire or caught in the cross-fire from the responding officers[...]

Less than 12 hours before that shooting, police said officers responding to a call for a person with a gun encountered an armed man on 4th Street near York shortly after 10:30 a.m. The officers spotted the man there, running from another cop. As officers chased the suspect, he allegedly turned and pointed a gun at one of them. An officer fired, striking the suspect once in the back and once in the buttocks.

The suspect, whose identity was not released, was taken to Temple University Hospital in critical condition. Police said a gun was recovered at the scene.

Shortly after 3 p.m. in Kingsessing, police said officers responded to a shooting on Frazier Street near Chester Avenue and later encountered the 19-year-old male suspect a few blocks away near 53rd and Greenway. The suspect immediately shot at them, police said. The officers returned fire, striking him multiple times in the face and body.

The suspect was taken to the Hospital of the University of Pennsylvania in critical condition. Police said a silver handgun was recovered from the suspect.[...]

No officers were injured in the shootings. All three incidents are under investigation.
The rash of shootings marks seven by Philadelphia police in the past week and brings this year's total to 22. Last year, police-involved shootings rose nearly 50 percent to 52 shootings. That number marks a 10-year high.

Bitcoin Dealer Mt Gox Changes Policy: Will Require All Account Users Be Verified

There goes another piece of Bitcoin anonymity.

The major Bitcoin dealer, Mt Gox, has just announced:
Beginning May 30, 2013, all Mt. Gox user accounts are required to be verified, in order to perform any currency deposits and withdrawal.
The Bitcoin market continues to evolve, as do regulations and conditions of compliance for Mt. Gox, to continue bringing secure services to our customers. It our responsibility to provide a trusted and legal exchange, and that includes making sure we are operating within strict anti-money laundering rules, and preventing other malicious activity.
The US government, earlier this month, seized the US-based bank accounts of Mt Gox, saying it had not propery registered as a money services company. The latest announcement the Bitcoin dealer is likely an attempt by Mt Gox to get back in the good graces of USG.

Senate Banking Committee Staff Monitoring Bitcoin

This should come as no surprise. Federal regulators are considering beefing up their oversight of bitcoin and other virtual currencies, reports The Hill.

From The Hill:
In March, as the currency's value started to climb, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued the first guidance clarifying that virtual currency administrators and exchangers would be treated like any other financial institution under the Bank Secrecy Act.

Bitcoin watchers like Timothy McTaggart, a partner at the law firm Pepper Hamilton, thought the FinCEN guidance was “a little unusual” and a recognition by the government that it may have not been paying enough attention to the virtual currency market. 
Agencies most likely do not need new legal authority to expand their oversight to the new currencies.
“I think that an argument could be made that the regulations are in place, it's just a matter of clarifying that this unique, novel thing that we know as bitcoin is indeed covered by the regulation,” said Ryan Straus, a lawyer in Seattle with the firm Graham and Dunn.

An aide with the Senate Banking Committee wrote in an email that “staff have been monitoring the use of various new digital currencies, as part of their routine oversight work, and will continue to follow developments in this area.”
Government monitoring anything is not a good sign. At this point, I would say the government is about 3 steps behind Bitcoin. Will they in the near future come down with a heavy hand on Bitcoin? The longer it takes for government to act, if they plan to do so, the more difficult it will be for the government, as,over time, more forces will become aligned with those promoting Bitcoin.

The Obamacare Shell Game: The Crash that is Coming for Cadillac Insurance (Part 2)

Yesterday, I discussed the subsidies that will be paid to health insurance companies over the next two years, which will make premiums for health exchanges look reasonable.I pointed out , it is just a shell game. The costs will be absorbed by other health insurance organizations and by the government (that is you the taxpayer). Once the subsidies are removed, premiums will likely soar.

Today, I want to discuss, so-called "Cadillac insurance" and what is likely to happen to those covered with health insurance by their employer. NYT has a pretty good introduction:
Say goodbye to that $500 deductible insurance plan and the $20 co-payment for a doctor’s office visit. They are likely to become luxuries of the past[...]Expect to have your blood pressure checked or a prescription filled at a clinic at your office, rather than by your private doctor.

[...]blame — or credit — the so-called Cadillac tax, which penalizes companies that offer high-end health care plans to their employees.[...]

Bradley Herring, a health economist at Johns Hopkins Bloomberg School of Public Health, suggested the result would be more widely felt than many people realize. “The reality is it is going to hit more and more people over time, at least as currently written in law, ” he said. Mr. Herring estimated that as many as 75 percent of plans could be affected by the tax over the next decade — unless employers manage to significantly rein in their costs. [Say what? Are 75% of people driving Cadillacs?-RW]

The changes can be significant for employees. The hospital where Abbey Bruce, a nursing assistant in Olympia, Wash., worked, for example, stopped offering the traditional plan that she and her husband, Casey, who has cystic fibrosis, had chosen.

Starting this year, they have a combined deductible of $2,300, compared with just $500 before. And while she was eligible for a $1,400 hospital contribution to a savings account linked to the plan, the couple is now responsible for $6,600 a year in medical expenses, in contrast to a $3,000 limit on medical bills and $2,000 limit on pharmacy costs last year. She has had to drop out of school and take on additional jobs to pay for her husband’s medicine.[...]

“It’s really one of the most significant provisions” in the Affordable Care Act, said Jonathan Gruber, the M.I.T. economist who played an influential role in shaping the law. “It’s focusing employers on cost control, not slashing,” he said. 
Cynthia Weidner, an executive at the benefits consultant HighRoads, agreed that the tax appeared to be having the intended effect. “The premise it’s built upon is happening,” she said, adding, “the consumer should continue to expect that their plan is going to be more expensive, and they will have less benefits. ”[...]

Although the tax does not start until 2018, employers say they have to start now to meet the deadline and they are doing whatever they can to bring down the cost of their plans. Under the law, an employer or health insurer offering a plan that costs more than $10,200 for an individual and $27,500 for a family would typically pay a 40 percent excise tax on the amount exceeding the threshold.[...]

“You’re getting taxed at 40 percent,” explained Larry Boress, the chief executive of the Midwest Business Group on Health. “That kind of hit is something that is viewed as untenable by employers in general.”

What's really going on is a bizarre shell game. Many firms offer significant healthcare coverage because there are tax advantages to doing so. Peter Schiff noted, in 2009, the perverse incentive system:
The real tragedy is that the current bill does nothing to restrain the forces that are propelling healthcare costs into the stratosphere, namely: regulatory bans of insurance competition, the out-of-control medical malpractice industry, federal programs and subsidies, and a tax code that favors a third-party payment system — which alienates the patient from the cost of his care.  
Thus, instead of fixing the system by reducing the healthcare dependence that favors a third party system,  by cutting the link between businesses and health insurance and recognizing this will increase the tax burden on businesses, a burden which should then be reduced by lower taxes on businesses elsewhere, Obamacare breaks up part of the third party system by using a different formula. Instead of reducing taxes for firms elsewhere, Obamacare actually charges firms more in taxes if they plan to continue with a so-called "Cadillac insurance" plan.

Follow, the pea under the shell, your deductible is likely to go up significantly, if you have quality health insurance through your employer. Otherwise your employer will have to pay a huge excise tax penalty (40%) for providing you with "Cadillac insurance."

In bizarre fashion, this may cut out part of the third party system. Jonathan Cohn in The New Republic explains:
The story is about Obamacare's "Cadillac Tax," which isn't really a tax so much as a convoluted attempt to undo an existing tax break. To simplify things a bit, the government today doesn't treat employer health insurance as taxable income. That makes a dollar of insurance worth more than a dollar of wages, giving both employers and employees incentive to load up on insurance.
Most economists think that contributes to rising health care costs, since people with more insurance tend to spend more on medical care. The Cadillac tax would limit the value of the tax break, effectively reducing that incentive[...]
Of course, some employers will throw up their hands entirely and not provide any insurance, which will throw many into the various health exchanges, which include one per year no cost preventive medical visits, adding an entire new meaning to third party system insanity.For now there are two things to expect, 1. overtime insurance premiums will increase and benefits will decrease and 2. we haven't seen the last of the moving shell game. Who really knows what else is hidden in the 960 page Patient Protection and  Affordable Care Act?

Part 1 of my discussion on the Obamacare shell game is here.
Part 3 is here.

Imprisoned CIA Torture Whistleblower John Kiriakou Pens “Letter from Loretto”

FireDogLake reports:
Former CIA agent John Kiriakou, who blew the whistle on the US government’s use of torture under the Bush administration, is currently serving a 30 month sentence at the Federal Correctional Institution in Loretto, Pennsylvania. Below is a letter he recently sent us detailing his life in prison.

If you haven’t already, please consider adding your name to our petition asking President Obama to pardon John Kiriakou.
Fascinating reading, here.

Wednesday, May 29, 2013

Ferocious Battle Underway Over Syrian Border City

Voice of America reports:
A ferocious battle is underway in the Syrian city of Qusair near the border with Lebanon between government forces bolstered by Lebanese Hezbollah guerrillas and anti-government rebels led by militiamen linked to al-Qaida, according to anti-government activists.

Government warplanes carried out several bombing raids on Qusair throughout Wednesday and Hezbollah rushed in reinforcements in an attempt to dislodge the rebels from Qusair, a strategic city on the main highway into central Lebanon, through the Bekaa Valley and on to Beirut.

Members of Hezbollah have become key battleground allies of Syrian President Bashar al-Assad. Both follow the Shiite sect of Islam and both are closely allied with Shiite Iran. Most of the rebels are Sunnis.

Clashes between Hezbollah and rebel forces led by Al Qaeda-linked fighters belonging to the Jabhat al-Nusra raged in many districts of Qusair. The bloodiest battles were centered in the northern districts of the city, where Hezbollah militiamen have been unable to dislodge Syrian rebels. Anti-government activists said the rebels had made headway in pushing back Hezbollah on the west side of the city.

Hezbollah spokesman Ibrahim Moussawi conceded that the north of Qusair was proving the hardest to subdue. “It is very hard and difficult to take. There are snipers everywhere. This will cost us but we'll take it,” Moussawi said.

Gordon Slams Chomsky

David Gordon responds to Noam Chomsky's latest diatribe against libertarians:
Though anarcho-syndicalism is the ultimate goal for Chomsky, he thinks that for now we should support reformist measures, making use of “the state system under limited democratic control.” In particular, we need to take action to combat “catastrophic climate change.” Propaganda by the oil industry tries to undermine efforts to deal with this problem, he laments; evidently vastly greater propaganda by the government on this issue designed to cripple industrial production does not concern him. He does not ask himself why oil companies would find it in their interest to turn a blind eye to a supposed catastrophe that would bring them down as well as others.  This question might seem an obvious one to pose, but Chomsky is too busy calling for “free” university education to think of it.
Read Gordon's full takedown here.

Rand Paul: US Stay Out of Syria

It's good to see Rand Paul objecting to US meddling in Syria. He does so in a new column piece, Helping Syrian Rebels a Dangerous Risk. Rand may feel safe taking this position here as the Evangelical support he craves will back a non-interventinist position in Syria. That is Rand plays up the Christian population in Syria and  Bashar al-Assad's role in protecting the Christians. In the column, Rand writes:
There is also the quandary of nearly 2 million Christians who are uncertain of what to do. The Christian community in Syria has traditionally sided with, and been protected by, Bashar al-Assad's regime. It is troubling to think that American arms may be given to Islamic fighters who may in turn be firing them at Christians.
It's always good to see a member of Congress object to any foreign intervention, but it would be better if the objections were made in the more principled manner advanced by George Washington, when he said:
The great rule of conduct for us in regard to foreign nations is, in extending our commercial relations to have with them as little political connection as possible. So far as we have already formed engagements let them be fulfilled with perfect good faith. Here let us stop. -- George Washington, farewell address, 1796.
 I have always given it as my decided opinion that no nation has a right to intermeddle in the internal concerns of another; that every one has a right to form and adopt whatever government they liked best to live under themselves; and that if this country could, consistently with its engagements, maintain a strict neutrality and thereby preserve peace, it was bound to do so by motives of policy, interest, and every other consideration. - George Washington, from Letter to James Monroe, August 25,1796.
Is Rand courageous enough to follow in the footsteps of George Washington and advance this type non-intervention, even when it calls for staying out of the affairs of the 51st state and the squabbles they have with their neighbors?

Fannie Mae: A Deforming Monster

By Davis Stockman

Fannie Mae is a classic crony capitalist progeny of the New Deal that began life in 1938, quite innocently, as still another ad hoc New Deal program to boost the depression-weakened housing market. It grew into something quite different: a monster that deeply deformed and corrupted the nation’s entire financial system seventy years later.

The policy aim of Fannie Mae was “forcing water to flow uphill” in the residential mortgage market so that low-rate thirty-year home mortgages became available to wage-earning households of modest means. Such mortgages did not then exist for a good reason: they were not economic. No prudent local bank or thrift would take the underwriting risk.

Fannie Mae would thus override the market’s veto by turning local banks and thrifts into government contractors or agents, rather than mortgage debt underwriters. Accordingly, they would be relieved of their aversion to the risk of default loss by means of a Washington-funded “secondary market.” The latter would purchase these commercially unappealing mortgage loans for cash, enabling local bankers to reloan this cash again and again in a government-supported rinse and repeat cycle.

Meanwhile, the default losses that the market refused to underwrite would be shifted to taxpayers, since Fannie Mae’s funding would implicitly depend on the public credit of the United States. The slowly recovering residential housing sector would thus receive the kind of booster shot much favored by the New Dealers.

What Fannie Mae also did, unfortunately, was to start the home mortgage market down a slippery slope.

Read the rest here.

Krugman & Weisenthal Are Caught In The Headlights

By, Chris Rossini

We have an economy that is dependent upon and addicted to zero percent interest rates. Rates are artificially forced to those levels by the monetary easing of the Federal Reserve.

We've been told by the likes of Paul Krugman & Joe Weisenthal that such policies were necessary; that the monetary accommodation (i.e. counterfeiting) acts like "training wheels" for the market. The Fed is there to make sure the bike gets moving, and then the training wheels can be removed.

And it's no big deal...When the "training wheels" come off, you'll barely notice a thing.

The truth is that when the Fed takes away its QE, the malinvestments in the economy (which are created by the artificially low rates) will ultimately be revealed. Entrepreneurs will discover that their investments have been made in error.

We've been through this several times just in the last decade. Have we forgotten the multitude of dot-coms that went into extinction, as well as the uncompleted skyrises and neighborhoods that were erroneously built during the housing charade? You can still go down to Florida to see the results with your own eyes.

This time around, contrary to Weisenthal's claim, will be no different. Sadly, it'll be much worse, because the Fed has twisted the economy into an even bigger knot!

And as far as an "exit" is concerned for the Fed, I agree with Peter Schiff that the Fed doesn't have one. Peter stated recently:
"You know when the Fed tries to unload all these mortgages and U.S. Treasuries, there are no buyers. The Fed is the buyer, and the only reason other people are buying is because they think the Fed is going to keep doing it."
And a rise in rates will equal disaster for the government:
"The banking system can't handle a big increase in rates. The housing market can't handle an increase in mortgage rates. The U.S. government can't handle an increase in interest rates because it doesn't have the money to make the payments."
Well wouldn't you know - long-term rates have risen significantly over the last several weeks.

Krugman is (of course) spinning the recent rise:
Those rates are still at levels that would have seemed absurdly low not long ago — but they are up significantly from a few months ago.
Interesting that he's taking that approach, because last month, when gold began its very healthy correction, Krugman and Weisenthal were both giddy. I saw no mention of gold being significantly higher over the last decade and that this was just a minor correction. No sir! Instead it was called GOLDENFREUDE: "the pleasure of seeing gold fans lose money".

So the climb in long-term rates will be accompanied by plenty of spin. Expect lots of charts too.

Can the recent surge signal a beginning of end for the Fed's frankenstein economy? We'll have to wait and see, but in any case, rates will have to rise eventually and the malinvestments will be exposed.

To think that it will be a 'non-story' is equivalent to being a deer caught in headlights.

Reality is zooming towards the Fed and its idea junkies...And it's gonna be a massive story indeed.

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