Zero Coordination => Massive Incompatibilities

Domainers: you may like what you find at Stubborn Things, a new blog hosting multiple writers along the lines of Manhattan Institute’s “City Journal”.  It’s ably edited by Brad Nelson.

I’m also pleased to report that I’ve begun to have my essays accepted by American Thinker, a widely respected, well-edited publisher of conservative opinion.  I was introduced to the AT editors by Jon Hall through this interview “A Conversation with Cato The Eldest“, for which I owe Jon a very elaborate and expensive dinner.

I am pleased to have been accepted into both of these communities of contributors.


An open letter to Dano and Sandy especially, and to all Domain readers: the final post on the crippled Cato’s Domain.

The two of you have been the most encouraging in the continuation of the blog.  But the time spent blogging is now small compared to the time spent technically trying to keep the blog up.  You may have noticed the Domain was not accessible from noon Monday until late Tuesday afternoon.  This was because Google sent through an update, a revision, to one of its plug-ins that not only pulled down public access but locked me out administratively as well.  This tech reply (below) gives you some idea of what I’m dealing with now; the sort of intractable problems I have had for the last year.

I don’t know how to code a “mod_rewrite statement in my .htaccess file” (see bold font in the HostGator support reply below) to get back to the PHP standard and I’m not willing to learn.  If one searches the forums, not only for HostGator but for half a dozen other such hosts, one finds endless strings of bloggers with exactly the same issues; massive rolling incompatibilities.

The bitch of it is I use the most common theme (Weaver 2, the cosmetic appearance software, the look and feel of the blog) and the most widely used blogging software, WordPress 3.9, with no customization.  Total vanilla.

It’s not just third party plug-in updates that cause issues.  Last May, HostGator moved from PHP5.3 to PHP5.4 as the basis for their server system, and THAT blew me offline for three days.  They instructed me to cycle back, and through trial and error I landed finally on PHP5.3.xx.  All worked until this Google update issue, and now I’ve been cycled back to PHP5.2.17 … which is an obsolete system no longer supported.  So I’m essentially on my own from here.

And it comes from everywhere.  When WordPress upgraded from WP3.8 to WP3.9 recently, I lost a writing editor (a plug-in that gave me lots of options for font and color and formatting, in composition) used by millions of bloggers; just blew up.  The forums went wild at the loss.  It was a few weeks before the lone eagle plug-in creator could incorporate the fundamental changes in WP3.9 over WP3.8 and get his hugely popular editor up and running again.  You may have noticed that for a few weeks in May and June the Domain looked clunky and ill-formatted.  That was because I was stuck using the crappy default WP3.9 editor.

At base this is the problem driving me out of blogging: there is zero coordination among any of these resources, so that when any one of them changes the odds are an explosion just rips through the system.

I’ve spent hours over days across weeks trying to settle things down and as soon as I do another “update” rolls through from somewhere creating more explosions.

I’ve enjoyed blogging very much and I am deeply grateful to the Domain’s readers, and the two of you especially, who’ve rewarded this labor of love.  Time to say ‘enough’.



Hello and thank you for contacting HostGator Support.

The current default version on the server is 5.4 though you can toggle to 5.5 with the use of a mod_rewrite statement in your .htaccess file. I was not able to find any particular smoking gun per se after reviewing your domain again, though when I was working on this issue originally I had completed a strace, which basically tracks what a process is doing while it is running. From this strace we can see what the last actions of your WordPress were before it stopped trying to load and displayed the error message on your homepage.

From this strace we can see the last action taken by your WordPress was:

open(“/home4/mpb9153/public_html/wp-content/plugins/google-analytics-dashboard/gad-content-tag.php”, O_RDONLY) = 5 , which we can use to see that the last file read was “/home4/mpb9153/public_html/wp-content/plugins/google-analytics-dashboard/gad-content-tag.php” within the Google analytics plugin.

To get further information to try and discern what happened we would want to check your domain for PHP error logs, which will use the naming format of “error_log” . Searching for all php error logs and reading the most recent two lines from them gives us the following in the main error_log found at /home4/mpb9153/public_html/error_log:

[29-Jul-2014 15:44:06 America/Chicago] PHP Warning: PHP Startup: Unable to load dynamic library ‘/opt/php54/lib/php/extensions/no-debug-non-zts-20100525/’ – /opt/php54/lib/php/extensions/no-debug-non-zts-20100525/ undefined symbol: zend_new_interned_string in Unknown on line 0
[29-Jul-2014 15:44:07 America/Chicago] PHP Warning: PHP Startup: SourceGuardian: Unable to initialize module
Module compiled with module API=20100525
PHP compiled with module API=20090626
These options need to match in Unknown on line 0

This is generally a generic error when there are active php errors occuring but nothing speciifc enough to be reported properly in the error_log itself. However, with this information, plus confirmation that your plugin was the last thing running on the site before it crashed you would have a strong lead in the right direction. You will want to contact the plugin developer, who can be found here: to ensure that you are using the most recent known compatible version of the plugin with your version of WordPress which is 3.9. Anecdotally, four other users of the this plugin have self reported on the plugin’s page that it is broken with version 3.9.1 of WordPress. I apologize for any confusion this has caused you.

Let me know if you have any further questions or concerns.

Progressive’s Agony

A WSJ-Europe moan last Friday showed up in the US edition Monday.  A blurb from that tortured tortured_soul_in_darkness_by_oddscholar-d4pfuudprogressive cri de Coeur, bemoaning the lack of government spending on “investments” is below.  This is cause for optimism from my dogmatic, partisan point of view.

I see the world backwards.  Every $US/€Euro/¥Yen that is spent on “investments” by governments is another $US/€Euro/¥Yen that will NOT be spent by some private corporation somewhere.

We’ve been decrying the lack of private investment spending for years … to the point in the WSJ-US of noting that corporate capital investment less cash flow since 2009 has been negative, the reverse of 50 years of experience.  This is despite mountains of cash piling up on corporate balance sheets.  We’ve gnashed our teeth and wrung our hands, Right and Left alike … the Right proposing investment credits and the Left cash balance penalty taxes … but refused to see what’s painfully clear.  No rational CEO is going to invest seeking a profit where government spending is being directed at a loss, while governments siphon up taxes like a vacuum, print money by the bale, and borrow the state into bankruptcy.

So, lacking all but ideology and the instincts of an investor as a basis for judgment, I find this primal scream written by Matt Dalton over the horrid lack of government “investment” a wonderful bit of good news.  Matt of course is in agony; the rest of the article was not worth printing out.  Just more wailing.

Investigating further, BTW, I find France is spiraling ever farther toward recession even as government spending rises … see graphic in the WSJ blurb below … which is not at all odd if you metric things as I do.

PMI is a metric indicating whether business activity is rising (over 50) or falling (under 50).


Conversely (and perversely if you are mindlessly progressive) as government “investment” in Ireland has crashed … same graphic below … the Irish economy has recovered dramatically, to the point where it’s now the healthiest economy in Europe save only the UK’s.  Quelle surprise!!

To underline my point, note that Germany’s “investment” spending is also up.  It’s focused on energy issues since they stupidly shut down all their nuclear reactors and banned fracking at the same time.  No surprise, then, to find Germany’s economy has been weakening in 2014.  Another instance of the inherently brain-dead nature of “social” governmental decision making.

Then too, there’s another small WSJ article, not reprinted here, most likely ignored by most; tangential but related.  US labor hours per employee in a number of key industries, particularly manufacturing and construction, are at high levels, some at records.  Capital spending on productivity-creating equipment has been low.  GPDI/GDP is private investment relative to the total economy.  Six years after the Great Recession it has barely recovered even to the level of 70 year lows!


Ergo, either hiring is about to kick off dramatically and/or capital spending is finally about to grow significantly.  This will be true even if economic growth is spare, so stretched has the labor and capital base become.  I’m betting the latter given the lack of skills in this workforce, at least initially, with the follow-on of companies gearing up in-house training programs of the sort that used to be common, many of which were curtailed or dropped over the last couple decades, to create the employee skills not currently being delivered by the American education system.

Many of these newly offered jobs will not require a BA.  They will be technical jobs, running and caring for the newly purchased productivity-enhancing capital equipment.  In yet a third WSJ article, one learns that 8% of over 25 year olds in the US are dropouts, 30% hold a college degree, and the other 62% fall in between.

There’s a huge hole in technology-related labor demand versus skilled supply.  Texas Instruments for instance has hundreds of openings it can’t fill today for software and systems programmers and engineers and technicians, many of which do not require a BS.  Another great shortage is in basic industrial skills, and one of the most pressing of these is welding.  The need for post-high school, non college training is acute.  Jobs requiring these non-academic skills are going begging.


I’ve been pointing to a boom in the 2020s decade: a vast and deep rebirth of the economy and a stock market bull.  This is where it will come from: the training of the 62%.  For investors with vision and ice water in their veins this smells to me like a once-a-generation opportunity.  We still have to burn off the Federal Reserve’s corrosive, massive money printing, of course.  And we still have to rid ourselves of the progressive virus that’s infected our government and economy … see “Progressivism is Dying” … and both of those will take another few years and elections.  But once that’s done I’m all in.

Personal note to Dano, my best friend of a long lifetime, expert welder but currently one-armed from a severe neck injury: if you find you can’t weld materials anymore, why not teach?






EU Infrastructure Cutbacks Worry Economists

Experts Say Reduced Spending on Transportation, Education, Other Areas Could Harm Economic Growth

By Matthew Dalton                                                          July 20, 2014

NA-CC011_OUTLOO_NS_20140720183903Before the economic crisis hit in 2008, Ireland planned to boost investment in its education infrastructure by more than a fifth to over a billion euros annually. By 2011, a deep recession and international pressure to shrink its budget deficit pushed the government to cut its capital spending plans for education to roughly half that level.

School construction as a result is struggling to match Ireland’s rapidly growing population, while plans to put broadband Internet in every Irish classroom were scaled back.

And so it has gone for government investment across the European Union over the past four years. Against the advice of many economists and the recommendations of European officials, government austerity has come at the expense of public investment in transportation, housing, education and other areas.

Economists of different stripes call the trend a troubling consequence of the drive by European governments to cut budget deficits. Even in tight times, they argue, public investment is needed to protect the economy’s long-term growth prospects, ensuring companies have the infrastructure and well-trained employees to thrive.

European Union officials charged with enforcing the bloc’s budget rules say they are worried by the trend. They have pushed governments across the region to cut deficits, mainly by trimming public spending. But they have urged national policy makers to focus these reductions on budget lines such as public-employee salaries, while sparing investment as much as possible.

That lobbying has largely gone unheeded. When governments scoured their budgets for cutbacks and additional revenue, the path of least resistance often led to canceling a project that wasn’t completed or even started, rather than to reduce government salaries, pensions or administrative costs.


There Is No Spoon

sigpic19760_5 Spoon boy: Do not try and bend the spoon. That’s impossible. Instead … only try to realize the truth.

Neo: What truth?

Spoon boy: There is no spoon.                        

            … The Matrix, released in 1999

America’s most enduring myth, promulgated by every media outlet and politician, is that somewhere there is a vault full of money that Social Security (and Medicare) use to cover the difference between what they pay out each year in benefits, and what they take in each year in payroll taxes.

The story goes this way.  In 1984 Ronald Reagan appointed Alan Greenspan to head a commission.  Its goal was to reform Social Security because that program was about go bankrupt.  Greenspan succeeded by slowly cutting benefits over the next 25 years … so slowly no one realized they were receiving less than they had originally been promised … and by raising payroll taxes continuously forever.  You see the result of those ratcheting taxes every year when the amount of your income taxed for SS and MC rises, with occasional increases in the rate of taxation.

socialsecurity-ad411ca1d2c355eeb9f2789b4c2e28987922443b-s6-c30Social Security was saved in 1984.  So far so good.  One of the consequences of The Greenspan Commission’s work, however, was that SS was suddenly taking in more than it needed to pay current year benefits.  It was generating a surplus that needed to be invested.  This was not an accident; it was by design.

Greenspan looked ahead 30 years and foresaw the retirement of the Baby Boomers swamping Social Security.  He realized there could not be enough taxes collected in any given future year, after about 2012, to cover all the Boomer’s future benefits.  So he gradually slowed the growth of benefits and slowly increased tax collection slowly over that 30 years to create a surplus.

In essence, Boomer’s have prepaid much of their own Social Security benefits since 1984, in addition to funding those of their fathers and grandfathers.  Shocked?  Too bad.  It gets worse.  Read on.

Money not spent on current benefits in, say, 1989 or 1997 or 2002 would be accumulated and used to ‘fill the gap’ from 2012 on.  This is where the Social Security Trust Fund came from. Unfortunately, the surplus payroll tax money that was collected over 30 years was “loaned” to the US Treasury in exchange for special “bonds”.

The Treasury then spent the money to cover deficits created by other massive federal spending.  All the Social Security Administration has in its “vault” is reams of Treasury IOUs.  This is what the “vault” looks like.  No gold.  No cash.  Just IOUs. SocialSecurityTrustFunds Social Security’s Trust Fund, what Al Gore famously and stupidly called its “lockbox” (and Medicare’s Trust Fund works exactly the same way) are our entitlement ‘spoons’.

Me:  Do not try to spend the Social Security or Medicare Trust Funds.  That is impossible.  Instead … only try to realize the truth.

You: What truth?

Me: There are no trust funds.

“So what happens when benefit checks are written in 2014, or 2020, or 2030, Cato”, you ask incredulously, “and the total is more than has been collected in payroll taxes in each of those years?” Why, the Social Security Administration opens its “vault”, takes out an IOU and presents it to the US Treasury for cash, of course.  And this, Readers, is where the system self-destructs.

Thinking through the process and getting nervous about where this is leading you then might ask “So where does the Treasury get the cash … they have a savings account, right?”

Ahhh ….. no, I reply.  The US Treasury is a zero balance agency … meaning if they are doing their job perfectly every day, they end the day with exactly the same dollars incoming as outgoing.  Zero balance in the nation’s checking account.  So if they need extra cash for anything, including SS and MC, they just sell some more US Treasury bonds and notes and bills.

In other words, they increase the national debt to cover the deficits created by more payouts than receipts.  In other words again, every penny of “surplus” Social Security money collected over the last 30 years is nothing more than a “vault” full of deficits waiting to happen, and every dime the Social Security system is in deficit each year increases the national debt another 10¢.

Social Security ran a deficit of about $80 billion in 2013.  And that will mushroom in the next 15 years.


Medicare’s deficit was around $200 billion.  In short, the US Treasury added $280 billion to the national debt to generate the cash to cover both.


Do this, adding to total US government debt for the next 75 years, as the Congressional Budget Office does in calculating the health of the Social Security and Medicare systems, and you realize that the two systems will create nearly $100 trillion … that’s not a typo … trillion … in debt, over and above taxes paid, to meet all the promises made to date.

It’s not just that there is no spoon, Readers, and it’s not just that there are no Trust Funds.  The truth is both programs are bankrupt already and the only thing keeping them going is borrowed money.

Got it?  Now go one step more.  If you’ve been paying attention at all you know that government borrowing can’t go on forever.  So what do you suppose happens to Social Security and Medicare when the borrowing stops?


Negative Market Returns Out To 2024?

This graphic takes a bit of thought to fully grasp, and it’s worth the effort.  It showsjohn_hussman the correlation of broad equity market capitalization to average market returns over the subsequent 10 years.  It was produced by John Hussman in this post.  I’ve introduced Hussman recently, here, FYI.

Warren Buffett says market capitalization to GDP is the MTE5NTU2MzE2MTY4Njg1MDY3best long term market valuation and forecasting tool he knows, although being fair to Warren he would also quickly agree with the rest of us “market analysts” (in quotes to denote irony) that the future is intrinsically unknowable and that there is no completely reliable long term market valuation and forecasting tool.

Still, using that metric as a base, then comparing it to actual future investing returns, creates striking insights.  Note that this is not a trading tool.  Its value is strategic, not tactical.  That said …


… this graphic shows the track of “market cap to GDP” for the broad equity markets in blue; scale left.  The market track is upside down.  That is, the bull peaks are on the bottom … the 2000 and 2007 peaks are obvious … and the recession troughs on the top.

$21Trillion in market capitalization divided by $17Trillion in GDP would give us a ratio of about 1.2, which is where we are today.

The subsequent 10 year average returns are overlaid in red; scale right.  Given today’s 1.2 ratio, and assuming 10 year returns to 2024 continue to closely track that ratio, we’d expect 2014 to 2024 returns to be less than zero.  The incredibly low ratios of the early 1980s yielded huge returns, nearing 20% annually, in the decade that followed, which would be into the early 1990s. 

The message in this bottle is clear: high valuations of market cap to GDP forecast low average market returns over the decade that follows.  This is too strongly correlated to be ignored by any rationalbottlemessage long-term investor.

History does not ordain the future, however, and this correlation though very strong is not a law of nature.  This graphic can be and often is critiqued as being a very broad view of the equity markets … and it is true that all segments and industries within that marketplace do not act and react in unison.  ALL markets are investible markets, if your approach takes into account market reality in a clear-eyed, unemotional, mature fashion.

My expectations and investment approach is detailed in “2013-2017″, in “Phoenix World” and in “If I Were King”, all of which are located in “Series Library” at the top of this blog if you’re interested.  John Hussman and Warren Buffett can speak very well for themselves.


Progressivism Is Dying

jimmy_carter_quote_4In the mid-1970s James Earl Carter, a classic bleeding heart liberal if there ever was one, was elected POTUS.  He and the Democrats of Congress set out to finalize the welfare state that had begun with the Great Society initiatives of Lyndon Baines Johnson in the 1960s, programs that had been slowed or interrupted by Richard Milhous Nixon and Gerald Rudolph Ford.

Jimmy Carter was no progressive.  He believed in the Constitution.  He worked with and through Congress.  Carter was a classic liberal of the Franklin Delano Roosevelt school.  With the massive foreign policy and economic failures of the Carter presidency the liberal quest of the perfected welfare state began to die.  It crashed and burned.  It self-immolated.

Out of the ashes of the Carter welfare state agenda, programs reaching all the way back to FDR’s first term, arose Ronald Wilson Reagan.537002_417970358285201_347904510_n

Reagan was given two landslide election victories, in 1980 and 1984.  Only a stolen election by Democrats in Minnesota, Walter Frederick Mondale’s home state, to which Reagan turned a blind eye, prevented America from awarding Reagan a 50 state victory.  America reborn was Reagan’s Phoenix.

Classic liberalism was not totally dead, though.  Hillary Rodham Clinton’s attempt to resurrect the classic liberal welfare agenda in the early 1990s … in the form of “HillaryCare”, her version of universal healthcare … collapsed in ridicule, derided as folly, almost before it was fully written down.  William Jefferson Clinton spent the remainder of this two terms doing deals with Newt Gingrich and the Republicans.  Never again would FDR-era liberal welfare politics anchor a Democratic campaign.

Liberal welfare ideology was finally dead.  It remains so today.  The redistribution policies of progressives are cynical shadows, mere crude attempts at buying votes, compared to those bleeding hearts like Carter installed.  Democrats responded to Reagan’s routs by moving far left.

Liberalism was replaced with a progressive agenda built upon an authoritarian credo anchored in race baiting, gender politics, economic victimhood, fascistic abuse of anyone in opposition, and total disregard for written law.  Progressivism reviles American Exceptionalism, seeking to transfer all American influence into international bodies.  Progressives built and unionized a bureaucracy of autocrats out of which regulations and dictat flowed, divorced from the oversight of Congress.

imagesCAIPZDZ5Embedded in the presidency of Barack Hussein Obama this authoritarianism, hatred of American influence and power, determined abuse of regulatory bureaucracy and deep animus to individual freedom of speech and thought is now open and visible.  At the center of this Obama-led subversion of 225 years of American tradition is a visceral progressive contempt for the US Constitution and the separation of powers it demands.

With the presidency of Barack Obama progressivism has come out of the shadows.  Progressives don’t feel the need to lie about their goals, their intentions and their methods any longer.  They don’t feel they need to sugar coat their demands.  They are now blatantly open about abusing the IRS to silence political opponents, sneering at those of us demanding equal treatment; sticking a middle finger in our faces.  They are plain spoken in their desire to destroy the coal, natural gas and oil industries.  They are no longer circumspect about bypassing Congress to built a dictatorship of the regulatory state.  Every commission and agency has become its own little dictatorial kingdom.  The Department of Justice in particular is an Orwellian institution, run by a man, Eric Holder, who is infested with racial paranoia; seeming to be driven by a bitter hatred of all things White; totally politicized and severely biased in enforcement of laws; a American Black progressive version of a European Aryan fascist.

All of this is now obvious even to the most oblivious.  What is less obvious is that the progressive assault on America is beginning to lose its balance.  Like all jihads it is self-immolating.  The program is beginning to collapse in upon itself in a hundred small ways.  Cracks and fissures are showing upthis-is-true-261 everywhere.  The failure of one policy after another.  The pushback from the destruction of entire industries with losses of hundreds of thousands of jobs.  The abusive structure of ObamaCare … forcing millions out of their policies and to accept in its place inferior insurance at inflated prices.  All of this and much, much more is gradually killing progressivism.

Just as Carter killed the classic welfare state by fully implementing it, so Obama is killing the progressive totalitarian state by shoving it down American’s throats.  The old axiom “the best way to kill a bad law is to fully enforce it” was never more true than it is right now.

Americans are not an intellectual people.  We aren’t policy wonks.  We don’t think things through logically.  Americans are entrepreneurs and experimenters.  We learn by doing; by trial and error.  We try out ideas and we reject the ones that don’t work.  We’ve always been this way.  We tried Carter’s welfare state and we learned.  We are trying Obama’s progressive autocracy and we are learning.

26 states sued Obama in resistance to ObamaCare’s demands, to the cheers of vast majorities of Americans.  The suit won, 34 states have now refused to abide by ObamaCare’s strictures.  Democrats have lost control of the House of Representatives, 29 governorships and dozens of state Houses and Senates.  The US Senate should be lost to progressives this year and the presidency in 2016.  The resistance grows daily, as we learn.  And Obama’s presidency is falling apart.

I smile at the thought of what is to come once this learning experience is finally done, when Obama’s progressive jihad joins Carter’s liberal crusade on America’s scrap heap of failed and rejected politics.



Legal Purity, Fiscal Stupidity

This self-destructive ruling by the Illinois Supreme Court might not seem on first glance to be a bigrush_pension deal.  It’s huge.  When courts absolve themselves of any responsibility for economic reality … a judicial  mindset progressives celebrate, let it be noted … and simply enforce union contractual and political entitlement grants, no matter how economically absurd, it makes rational reorganization of bankrupt governments all but impossible.  This is because virtually the ONLY reason state and municipal governments go bankrupt is the over-promising of entitlements to public sector unions.

There is little chance these entirely local entitlement disputes … local meaning state specific … will find their way into federal court and ultimately to the SCOTUS.  Constitutionally, states have primacy in regard to their local conduct.  Also, states cannot by definition go bankrupt, no matter how bad e1f200_f0f846f8cc2fe9197e04308bc5006a14things get.  So the resolutions must come if they are to come at all at the state supreme court level.  Where progressives control the appointments to courts, or control the election machinery that elects judges and justices, courts will rule in the fashion the Illinois SC has ruled.

As noted, even the Republican Illinois SC justices are “on board”, understanding where their political bread is buttered, so to speak.  Call it the price of job security.

The last sentence of this op-ed summarizes well the outcome of this elevation of legal text and political design over fiscal reality.





Illinois Tax Mandamus

A disastrous court ruling on state retiree health benefits.

July 9, 2014

Alexander Hamilton described the judiciary as “the least dangerous” branch of government, but the Illinois Supreme Court may prove him wrong. Consider its decision last week that invents constitutional protections for retiree health-care subsidies, which amounts to a sealed writ for a tax increase.

Health care for state retirees ranks as Illinois’s biggest liability after pensions. Taxpayers are $56 billion in hock for this sweetener that few private employers offer. Over the next 30 years, the state’s annual retiree health bill is projected to grow to $6.6 billion from $1.4 billion. This is on top of the $7.5 billion the state is spending annually on pensions. An astonishing one of every four tax dollars pays for state worker retirement benefits.

In 2012 the legislature tried to rein in retiree health costs by giving a state agency plenary authority to raise premiums. Most workers who retired before 1998 didn’t have to pay a penny for benefits. Those who retired later were entitled to free health care after 20 years of service and a 50% premium subsidy after 10.

Rather than unilaterally setting premiums, Governor Pat Quinn collectively bargained with unions to require all retirees to contribute 1% to 2% of their pensions toward their premiums on top of whatever they had been paying. A 55-year-old retired teacher with a $50,000 pension and 20 years of service would have to pay an $83 monthly premium for a Cadillac plan while the state would cover the remaining $900.

No palliative goes unpunished by labor groups. Retirees and unions sued the state for violating the Illinois constitution’s provision that “membership in any pension or retirement system of the State shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

This was a Hail Mary since nowhere in the state constitution are retirement health benefits mentioned. Nor were they discussed at the state constitutional convention in 1970, which occurred one year before the legislature extended free health care to retirees.

Yet six of the state’s seven Supreme Court justices—including all three elected Republican judges—ruled that had the constitution’s drafters intended “to protect only core pension annuity benefits,” they could “have so specified.” As Justice Anne Burke mused in her dissent, the ruling “fundamentally changes” the meaning of the text in such a way that provides “constitutional protection to any statutory benefit—however unrelated to pensions—if the recipient of the benefit is a member of a pension system.” If the city of Springfield bestowed retirees with an honorary plaque, “the plaque, under the majority’s reasoning, would be a constitutionally protected contractual right.”

The ruling is a dreadful precedent for sensible pension reform. The court majority opined that the state constitution is “aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them” and “must be liberally construed in favor of the rights of the pensioner.” And unions have sued to block last year’s de minimis pension fixes that tweaked cost-of-living adjustments, raised the retirement age for younger workers and capped annuities for employees making six figures.

Courts sometimes allow for the impairment of contracts under extenuating circumstances. And the Illinois justices will have to wrestle with their own declaration that prospective changes to future retirees’ benefits, such as those the legislature made in 1998 to health care, are permissible. But if retirement benefits are held inviolable, lawmakers will have no choice but to raise taxes to the hilt and the judiciary will be a co-equal partner in the state’s collapse.


OnionShare And TOR: Sedition Makes Me Smile

Sharing large files person to person is next to impossible, and by design.  Copyright lawsuits have had the effect of locking out peer-to-peer technology; even Napster had to go though central server hubs to connect you and me.  Central hubs can be censored, edited and blocked.  This has stopped 313ce7hthe sharing of movies, videos and music outside of the paid access sites like iTunes (limit 5 computers) and Amazon.  But suppose an app came along that didn’t need a central hub to connect us.

Suppose I could send you a large file privately, by creating a virtual hub on my computer, then ginning up a temporary URL.  Both the hub and URL disappear permanently when the transfer is done, leaving no trace on my computer or yours nor on any commercial central hub.  Micah Lee has written that app.

Read this rant in “Wired” if you want a taste of this online sedition, where intellectual property’s exclusivity collides with the internet’s inherent open-source nature.

Wired: The Troubling Truth

The rant talks of a tiny app called OnionShare.  It is an app that allows the sharing of files of any size undetectably.  It can be found and downloaded here.

OnionShare is open source, so this link will take you to the current list of open-source upgrades and add-ons created by net denizens.

Github Open Source OnionShare

The only other app you need to make this work is a TOR browser.  That can be found and downloaded here.

The TOR Project

TOR is not universally loved.  Online anonymity is to some just digital ‘right of privacy’.  To others, however … many of whom would be comfortable working in the bureaucracy in Beijing … TOR is a threat.  This link will give you perspective on this powerful little browser.

7 Things You Should Know About TOR

Using OpenShare and TOR to share large files of any kind, peer-to-peer, going around the pay gates, is easy.  Instructions here.

Instructions for OnionShare

The internet has destroyed travel agents, made bank branches an anachronism, wiped out Blockbuster, rendering CDs as outmoded as 8-track tapes, and made book stores obsolete among many other disruptions.

This is just one more case of a tiny app breaking down massive castle gates.  I love it.


Doug Short’s Market Data

Doug Short runs one of the best market commentary sites you will find.  All points of view are represented from the most relentlessly bearish to the most breathlessly bullish.  Doug, like me, is data driven, by which I mean he does his best to put emotions aside and read what the numbers actually say.  All commentators are required to be anchored soundly in data as well.  For instance …


What does this 133 year term graphic linking inflation and the Price/Earnings Ratio (P/E10) say to you?  That the markets are priced at highs only exceeded during the Tech Bubble and late in the 1920s?  That market multiple valuations in the inflation ‘sweet spot’ tended to fall when inflation moved above 4% and below 1.4%, as it inevitably must?

This is clearly not a definitive approach, in the sense that it does not give hard and fast answers.  Doug’s reaching for deep strategic insight, not ephemeral day trading buy and sell points.  It can’t tell you when the next bear will kick in.  My last post “When The Bough Breaks” makes such a reach into the next bear market when it comes, and it always comes.  Refusing to contemplate the next bear, to include it in your portfolio design, is simply foolish.

Whether my efforts or Doug’s seem valid or valuable is, of course, up to you to decide.  All I can offer is that this approach has worked for me since I “discovered” it a lifetime ago.  It has allowed me a life, given my very blue collar family heritage, I had no right to expect.

Doug Short:  In the months following the Great Financial Crisis we have essentially been in “uncharted” territory. Never in history have we had 20+ P/E10 ratios with yields below 2.5%. However, as I type this, latest monthly average on the 10-year yield is at 3.00%, which is well above its all-time closing low of 1.43% average in July 2012. The closest we ever came to this in US history was a seven-month period from October 1936 to April 1937. During that timeframe the 10-year yield averaged 2.67%. How did the market fare? The S&P Composite hit an interim high (based on monthly averages of daily closes) in February 1937. The index plunged 44.9% over the next 15 months.


If we look to the Dow daily closes during that period, the index hit an interim high on March 3, 1937 and fell 49.1% to an interim trough on March 31, 1938 — 13 months later.

What can we conclude? As I said above, we have been in “uncharted” territory. Despite the tapering of QE, many analysts assume that Fed intervention through its Zero Interest Rate Policy (ZIRP) will keep yields in the basement for a prolonged period, thus continuing to promote a risk-on skew to investment strategies despite weak fundamentals.

On the other hand, we could see a negative market reaction to a growing sense that Fed intervention may have its downside, resulting in an aberrant bond market and increased inflation/deflation risk.

We are indeed living in interesting times.


When The Bough Breaks

Justion BohanThe bough always breaks.  Bear markets always come.  There is a limit to bull markets; no tree, as the old Wall Street adage sagely goes, grows to the sky.

The hot questions of the moment are, therefore, “when will the equity market advance reverse?”, “what will trigger the drop?”, and “how far down will it go?”.  There is obviously no decisive answer to any of these questions.  A look into the “those who don’t know history are doomed to repeat it” file, however, provides some valuable perspective.

When.  By any sophisticated, inflation-adjusted metric the broad equity markets are in territory reserved for the bull peaks of 1966, 1972, 1987, 2000 and 2007.  The best answer to when is sooner rather than later.

Those major bull peaks have been coming at shorter time intervals, so naively arguing that it’s too soon for another peak to form arises from ignorance of this shrinking interim.  The last bottom in March 2009, in market terms, was 100 years ago.  Markets are nothing more than a reflection of our fear and our greed; they mirror both our psychology and the pace of our lives.  The pace of life is accelerating and so, therefore, is the pace of the markets.

The triggers.  There are three general kinds of triggering events.  War and similar geopolitical breaks are the most dramatic, the most sudden.  The 1990 invasion of Iraq by Bush41 saw the market drop9-11  significantly.  9-11 cracked all markets globally.  The formation of OPEC in the 1970s and “war” in the form of oil embargos lead directly to the relentless, “Chinese water torture” bear market of 1973-74.  The taking of American hostages in Iran late that same decade contributed heavily to the worst bear market I have personally experienced, 1979-82.

The second triggering event is less obvious but still can be witnessed if one is attentive.  Inflation is the trigger, the core problem.  In the US inflation has always been a three step cha-cha.  First comes overspending by the federal government creating annual deficits.  Second comes funding to cover those deficits.  That funding can only come from taxation, borrowing or printing money.  There are no other alternatives.  Third comes an inflationary spiral as that newly printed money begins to circulate.  A non-virtuous cycle forms.  Excess money causes easy credit, then increased demand, which causes rising prices, which causes demands for increased pay.  “Cost push” inflation in its classic form.  The post-WW1 inflation and that of the late 1940s and the decade of the 1970s come easily to mind.

Quick sidebar.  Borrowing, in monetary terms, is either delayed taxation or delayed printing.  inflation_1811026bMoney that isn’t taxed or printed today is spent today, but the borrowings will have to be repaid from taxes or printed money at some point in the future.  So the three alternatives resolve to just two in reality: taxation and printing money, sooner or later.

Broad-based taxation is politically not very wise.  It gets politicians un-elected.  But if taxation is too narrowly focused on “the rich” it will not produce enough cash to cover systemic deficits. So sooner or later deficits always result in printing money.  And printing money always eventually leads to inflation.

This was so during WW2, leading to the inflationary blast from 1946 to about 1949.  It was true following the blowout 1960s spending by LBJ on “guns and butter” … on Viet Nam and in the War on Poverty, the massive spending built into LBJ’s Great Society.  LBJ’s domestic spending was redoubled by Carter, with his welfare program spending of the mid-1970s.  This spending, classically, was fed by a decade of maxed-out taxation and open-ended Federal Reserve money printing … called ‘monetizing the debt’ at that time … leading both to the destruction of the Bretton Woods international accord and to 14% inflation by end of the 1970s.

The third triggering event is civil unrest.  We haven’t experienced much of this in the US since the riots of the 1960s related to civil rights.  That does not mean we are immune from what ails so much of the rest of the world.  The governmental reply to civil unrest is always and everywhere the same. taabbodi20120815151606670 First, police suppression.  There is a reason local and state police forces have been armored and “militarized” in the last five years.  There is a reason why weapons and vehicles used only by our uniformed military have become standard equipment for your local patrol officers.  There is a reason why Homeland Security has amassed billions of bullets.  Second, money.  Drown the protesters in money.  Civil unrest always and everywhere leads to money printing, and quickly thereafter to inflation.

Finally, how far down.  The standard size of major market drops has been about 50%.  The standard period for those 50% declines has been 18-24 months.  This was true for all of the major bears of the last 40 years.  1973-74.  1979-1982, the double recession.  2001-2003.  2007-2009.  The smaller drops … 1987, 1990, 1994 … have lasted 6 to 8 months and been in the 20-25% range.  Short, sharp, over.  It startles people when they are told that despite the classic crash in 1987 the Dow Jones Industrial Average finished up for the year by a couple of percent.

Today’s market has, to my mind, domestic characteristics most similar to 1980, 1987 and 1994.  In all three of those cases the Federal Reserve was concluding a period of money printing and easy credit and was just beginning a process of restriction.  That is what faces us now.  QE is on the way out.  The debate is not whether but when and how fast the Fed will raise interest rates.  That suggests to me that the inherent, unavoidable depth of the next market drop will be 20-25% and the duration less than a year.  This is not a catastrophe.  It would result in a Dow of about 12,000, a Nasdaq of about 3300, and an S&P500 of roughly 1450.


I also expect to see inflation in the 5% range over the next few years (see “2013-2107″ in the title line above for details).  With inflation well under 2% for the last 6 years this sounds ridiculous, I know.  But we’re already over 60% of the way there based on the most recent report.  The run rate on Inflation was 3.3% in 1Q2014, as this report by the generally bullish Brian Wesbury details.

I’m looking for 5% because I expect the Janet Yellen Federal Reserve to be too hesitant, too WINButtonKeynesian in restriction decisions and therefore too slow to prevent an inflationary outburst.  This level of inflation was seen in 1972-1976, the historical era that I think most closely resembles today’s broader conditions.  Nixon’s and Ford’s attempts to stop the inflationary spiral … remember those stupid WIN buttons; ‘Whip Inflation Now’? … contributed to the 1973-74 bear.  The reflexive reaction of a startled Fed and panicked Congress to a spike in inflation to 5% would similarly contribute to the next bear.

So.  If the Fed is too slow to raise rates, and critically if they do not allow the massive QE portfolio of Treasury and mortgage bonds to contract, if the Fed replaces those bonds as they mature, then monetary expansion will be greater and for a longer period than it should be.  Inflation will therefore be higher and more persistent and the market drop when it comes will be larger and the duration longer.  My current working estimate … what I’m using for portfolio planning given this dovish Fed … is a market drop of 30-35% lasting 12-15 months.  Dow to 10,700.  Nasdaq to 2950.  S&P500 to 1340.


If that inflationary spiral were to be augmented by another triggering event of the 9-11 or Iran Hostage or Oil Embargo severity or by civil unrest of the sort we saw in the mid-1960s the multiple triggers will combine as they have before to produce a major equity market decline.  The combination of an inflationary spiral and civil disruption or a geopolitical break would give us another 50%, 18-24 month major bear market.  Do the math on the indexes yourself.  It’s not pretty.

So.  Make your judgments and manage your investments accordingly.  Personally, as noted, I’m prepared for Keynesian incompetence at the Fed on interest rates and the 5% inflation rate that will bring.  I’m also anticipating, given the mewling ineffectuality of the Obama foreign policy, the increasing possibility of another 9-11 class geopolitical event.  I don’t discount an end to the era of civil quiet, either, especially if conservatives take over the federal government in 2014 and 2016 and progressives take to the streets.  Tea Party rallies very rarely end in riots and tear gas.  Progressive protests too often do.


Absolute worst case, if a geopolitical or civil triggering event involves radiation all bets are off.  One of my working theories has for years been “if a nuclear device of any kind is set off in any city on the planet the world will be changed totally; utterly and unrecognizably; nothing politically, culturally and economically will ever be the same again.”  A nuclear device, whether dirty bomb or kiloton detonation, would end the expansion of globalization, close borders, kill trade, and curtail the spread of democracy.  These are the hallmarks of our world today, and they would all end as nations reacted in panic, securing themselves by installing marshal law and battening down hard.  In such an environment market losses would be incalculable and permanent.



A Cancerous Form of Ossified Embedded Ignorance

Genetic research into human evolutionary history is under attack.  The political Left finds this sort of research contradicts their “settled science” on the subject.  And yes, you should care a very great deal about this.

This is not a small deal.  This is a big deal.  If the “social science” quasi-religionists and politically-motivated academic authoritarians can suppress this sort of “incorrect” human genome research … if they can enforce their dogma and predisposition on this issue … then much more than merely academic freedom is lost.

Free speech is already under attack on many fronts from the Loud Left; this is just another of those fronts.  “What must not be said” quickly leads to “what must not be researched” then to “what must not be questioned” at risk of one’s career.

There is no such thing as “settled science”.  If science is not free to go where honest, scholarly research and inquiry leads … in the genome and on issues of climate, for instance … if all such areas of inquiry and research are “settled” and out of bounds … then the prospects of retaining the right of independent thought socially and culturally and politically fade dramatically as well.

Fixed, immutable, unchallengeable knowledge is just a cancerous form of ossified, embedded ignorance.

FYI, I commented briefly on a WSJ review of Nick Wade’s book “A Troublesome Inheritance” on this blog last week, sensing this was going to be a “Gettysburg” moment in the battle for basic freedom of thought.  I mentioned B. F. Skinner’s “Beyond Freedom and Dignity” in that post and would highly recommend you read it to acquire a bone-chilling understanding of how “education” can be warped and distorted for “social” purposes. 

To the ramparts, Lovers of Free and Independent Thought.  This isn’t just another minor skirmish with the forces of academic dogmatism and political repression.





Race Has a Biological Basis. Racism Does Not
Many academics are in the awkward position of rejecting Darwin’s theory of evolution in human populations.
by Nick Wade    June 22, 2014
From the day it was published in 1859, Darwin’s theory of evolution by natural selection has never ceased to discomfort people. Clerics in the 19th century repudiated his account of human origins. Today Darwin is implicitly rejected by the many social scientists and other academics who deny that there is a biological basis to race.
Most people who hate racism oppose it as a matter of moral principle, before which all other considerations are irrelevant. Not so social scientists. For many decades they have founded their opposition to racism on a specific scientific condition, namely that race has no biological basis and is solely a social construct.
This formulation is proclaimed on the websites of major social-science organizations. “Race is about culture, not biology,” states the American Anthropological Association. Too bad that it’s incorrect, but that’s not the worst of it. The social-science creed has permeated the thinking of most college campuses so deeply that race, in the genetic sense, has become a taboo word. This has serious consequences for the advance of knowledge.
It’s not that race in itself is of such great interest, although probably the more it is understood the less it will be feared. Rather, recent human evolution cannot be understood except in terms of its independent development on each continent.
There is not one story of recent human evolution but several, given that the five major continental populations or races—those of Africans, East Asians, Caucasians, Native Americans and Australasians—have been evolving largely independently since modern humans dispersed from Africa some 50,000 years ago.
It’s hard to explore these stories without acknowledging that race has a biological basis. Yet researchers who do so put their careers in peril if they offend the political leanings of the colleagues who must approve their grant applications or accept their papers for publication.
In a book published last month, “A Troublesome Inheritance,” I have tried to draw some of the tension from this fraught subject by showing that the understanding of genetic differences between human groups does not lead to racism. The human genome confirms what common sense would suggest, that there is clearly a biological basis to race.
The genome shows that the races are not separated by genes—everyone has the same set—nor even by alleles, the alternative forms of each gene that arise from mutations. Rather, there is a continuum of variation in which the races differ predominantly in the relative frequency of their alleles. It’s hard to see a master race in allele frequencies. The genome emphatically declares the unity of humankind.
The human genome records that natural selection has been regional, meaning that a largely different set of genes has changed under evolutionary pressure in each race. This is just what would be expected given that the populations on each continent have responded to different local challenges. Some of these selected genes are active in the brain, though with unknown function, confirming that the brain is no more exempt from evolution than is the body.
This raises the possibility that human social behavior has been shaped by evolution just as the body has been. Humans being a highly social species, social behavior is critical to a society’s survival and hence likely to be a prime target of natural selection.
For instance, the first settlements appear only 15,000 years ago; for the previous 185,000 years we existed as small, mobile bands of hunters and gatherers. Was the long delay in settling down because our ancestors couldn’t figure out the advantage of putting a roof over their heads? It seems more likely that a change in social behavior was required to live in large, settled groups, and that it took this long to evolve.
If the social transition from foraging to settlement was evolutionary, there may well have been other evolved shifts in social behavior, some of which would explain many otherwise puzzling features of today’s world. This is a theme I explore in my book, but such conjectures collide with another dogma of the social-science creed: All differences between human societies are exclusively cultural, not genetic.
Good scientists are scrupulous in distinguishing between what they know for a fact and what they surmise to be true. I followed this excellent practice by alerting the reader to a sharp distinction between the solid chapters, based on new genetic data from the genome, and the speculative chapters that inquire into the evolution of social behavior.
Most critics of my book have ignored its major genetic arguments, presumably finding no fault with them, but have lambasted the book for being speculative while invariably neglecting to mention its clear warning to the reader on precisely this point. There’s nothing wrong with speculation; what’s wrong is to pass speculation off as fact. If one cannot speculate about what might be in the genome, how can one know what to look for?
The social-science creed itself is founded on speculations, though ones that have been so long accepted as to have ossified into dogma. It is speculation to assume that all differences between societies are entirely cultural; a mix of genetics and culture in some proportion would seem at least as likely. It is speculation that the human brain has remained miraculously exempt from evolutionary change over the past 15,000 years. It is speculation that the mind is a blank slate, pure of any inherited instincts. It was always a speculation that race had no biological basis.
The human genome was first decoded a decade ago. Today there is a serious impasse between a social-science creed that effectively denies evolution any explanatory role in human affairs and the high goal of exploring what the human genome may say about human origins and evolution.
In the confrontation between religion and evolution in the 19th century, believers eventually perceived that they could not cast Darwin out with a pitchfork and didn’t need to. Faith, as long as it didn’t overreach, could coexist with science, and all but fundamentalists have accepted that arrangement. Social scientists too could safely agree to live with Darwin, once they accept that evolutionary differences between human groups can today be explored without the return of racism.
Mr. Wade is a freelance science writer who has worked for Nature, Science and the New York Times. He is the author of “A Troublesome Inheritance” (Penguin Press, 2014).