Iran has a lot of folks nervous, and I can understand why. A response seems appropriate – but what kind of response?
Off the top of my head there are four categories of response that we could do: Aggressive, Passive Aggressive, Binding, Endearing. We already do the Passive Aggressive thing – sanctions – and they don’t work. They injure the Iranian people, but not the Iranian government. Their gov’t has the Chinese and Russians to provide for them. Worst of all – the sanctions give legitimacy to the Iranian gov’t in the eyes of the Iranian people. I mean, it’s pretty intuitive for them to say, “Hey, the US is doing these sanctions to keep you poor, but don’t worry, we’ll get back at them for you.”
Aggressive response? That would be another Iraq. That’s worked out so well for us and the Iraqis. In the end, we’d just be hurting the Iranian people even more. Sure, we could eliminate that one regime, but several others would take its place. Worst of all – it is only temporary. Sooner or later they would rebuild. This should be the last option and we can’t initiate it. We can always do this option later if needed.
Endearing? Impossible for the US at the moment because of the Passive Aggressive technique.
The only sane proposal:
Binding Response – this would be where we remove the sanctions and allow our businesses to do business with the Iranian people. Specifically: remove tariffs on all goods shipped in from Iranian merchants. Become Iran’s biggest trade partner. They may not like us any more than they do now, but the entire populace would have a vested interest in not being enemies with us. Do you think their gov’t officials don’t have relatives that want to trade with us? You bet they do.
What about Israel?
Israelis are tough, smart and motivated. We should treat them like adults and let them do what they think they need to do. If they want us to park an aircraft carrier in a harbor and have a nuke missile sub nearby in case something happens to that carrier – sure. Nukes tend to hurt large areas and Israel is awfully small. The X-Rays from a nuke blast alone would almost certainly harm that ship – an act of war against us. If a country were to attack Israel, they’d have to use conventional weapons.
Why I like this proposal:
It does two things that I think are important:
- It treats the Iranians and Israelis like adults. This is a level of dignity we’ve denied both countries since WWII.
- It harms nobody and actually helps a developing country, while creating bonds that the developing country will be loath to break. This translates into security for us.
The markets have sure been on a wild ride – particularly since the end of September and early October. I like watching all those neat little charts. I work very long shifts overnights and so I get to watch Asia open up and close, then Europe open up and about the time I get home to go to bed the US opens. What I’ve noticed is that the markets – regardless of which markets – have all had a behavioral change.
How it was:
Asia follows the US. If the US goes up, they go up. They’re heavily manipulated, so sometimes they buck the trend, but generally they imitate the US. Europe imitates Asia for about 3 hours after opening, then they go up right before the US opens, and after that they follow the US until they close.
Always, there would be some industries doing well and some that weren’t – and this was influenced by economic reports and the health of large corporations in any given industry. It was very rare to have days where all the stocks in the major indexes were ALL up or ALL down. There could often be a majority, but not unanimity.
How it is now:
The pattern of who follows who still holds true, but a new thing has started – goosenecks. This is a description of a chart where the index is low or flat all day and then at the end it suddenly skyrockets, followed by a little dip before it closes. The result looks like a swan swimming from left to right. It used to be that these only happened when something splendiforously fantabulous happened economy-wise. They were very rare. Nowadays, they are common.
So what’s up?:
Central Bank interventions – that’s what’s up. So here’s how this works: Asia opens up (Australia first, then Japan, then Shanghai and Hong Kong. India is inbetween these and the EU) and their stocks imitate what the US did the previous day. If the previous day for the US was down, then their stocks will trend down by similar amounts until one of their central banks intervenes. Suddenly, and for no reason – ZOOM! Up go their stocks – led by banks. Then the EU opens up (3:30AM EST) and their indexes follow whatever Asia was doing right at the moment – so usually up, with banks leading. Then, they drop for a bit until about 11am GMT -1 and suddenly the ECB or IMF jumps in and ZOOM! Up go the EU indexes.
Unlike Asia, EU intervention ALWAYS comes with some sort of rosy sounding headline. Today’s is this:
Wrong. Last week there was an occurrence of this kind of BS and German 1yr bonds actually had a NEGATIVE yield. That means that the expected payoff for purchasing one was that you would LOSE money. Who invests in something that guarantees a loss? The ECB does.
So, then the US futures get excited because the EU markets are all excited and the US markets open with gains, but immediately start dropping off. Around 10:30 to 11:00 AM EST the Fed hops in and pumps some cash into banks and presto! Instant rally. Of course there are the appropriately rosy articles that come out about how everything is going to be fine in the EU and then some fluff story about our own debt and spending troubles getting in hand, etc, etc, blech.
The economy is a dead body and the central banks are propping it up.
What this means for regular Joe:
Don’t be in the stock market. Keep enough money in the bank to cover your expenses and keep the rest in cash or whatever you like, but don’t leave it in an institution that dabbles in that mess. All banks invest in the markets, and when the central banks finally get to the point they can’t prop them up any more these banks are going to implode. When that happens, you can forget about 401K plans, pensions, IRAs and any other savings you might have tucked away.
People like to talk about hyperinflation and whatnot – and that is a clear possibility given what the central banks are doing – but the first thing that will happen is that you won’t be able to get to your money. For this reason, have most of it on hand in cash. Don’t mess around with risking it in some bank’s hands.
When will trouble start?
I can’t say for sure, but consider this – if things really do turn around and economic indicators (particularly producer’s indicators) get better, unemployment gets back down to 5%, and wages start increasing while prices decrease – then put your money back in. Until that stuff happens (and I don’t think it will for the foreseeable future), don’t risk your money with somebody else.
Unemployment is still at just under 10%, or as some people reckon – 23%. New numbers are coming out weekly and I thought it might be fun to think of a new way of looking at employment figures.
Most of the figures, like the one above, are based on the notion of “how many people are looking for work, or are not working as much as they would like, or would work if they could but have given up?”. I think this is a good notion to have, but there is another I think we should consider once we have answered that one.
This notion should be “what is the ratio of people adding to the economy versus subtracting from the economy?” I would define jobs that add to the economy as any job that is for a private company that receives less than 30% of it’s receipts from any form of public money – i.e. money that comes from any sort of governmental entity. The reason for this is because government, in any form, is not a wealth maker. Everything that the government does, requires money to be taken from someone in order to do it, since government does not generate its own wealth.
So, look for super rosy jobs reports around 2012 and when they come out, ask yourself if those jobs are additive or subtractive. If 100,000 jobs are added, but 80% of them are subtractive and require tax dollars (or borrowed money in lieu of tax dollars) to fund them – that isn’t helping.
That’s actually worse.
I’ve had a few people ask me what they should put their money into so that they don’t lose it. Now, I don’t have those answers, but I do have a list of the common themes I find when I go looking for them, and I’ve recently seen some stuff that gave me a good idea as well. Here goes.
Liquidity – how quickly can you convert said item into cash?
Appreciation – how much will it increase in “value” between today and next month?
Risk – how likely is it that this will utterly tank and end up costing money?
Money Markets, CDs, Bonds and other “liquid savings” instruments:
- Highly Liquid (90 days at minimum, 1.5 years max wait time)
- Low Yield – Appreciates more slowly than inflation, which means a net loss in real value
- All but bonds are not risky. Junk Bonds are risky, others are less risky
Conclusion: better than a savings account, but only slightly – with the exception that bonds could lose all your money. If you think the economy will improve only a little bit, this is a safe place to put your money.
Stocks and IRAs:
- Uncertain appreciation and yield
- Quite risky, but this can be hedged by using an Index Fund
Conclusion: could be good, but this is a long term investment. Don’t expect to see this money again for a long time. This is a good place to put your money if you think the economy has “rounded the corner”.
- They do not appreciate, but their prices are determined by inflation; thus, as inflation goes up, their prices go up and a profit can be made that is hopefully worth more than the amount the money you are being paid has dropped
- Somewhat risky. Crops are prone to flooding. Animals are prone to the FDA and CDC deciding they don’t like pigs, cows or chickens and shutting down those industries
Conclusion: these seem like good investments to look into, but it is likely that if our economy tanks too hardcore that Obama will fully nationalize these industries. Most of these already operate at a loss, and full nationalization would make them worse. In the meantime – if you are cool with spending the time it takes to be a speculator, then you can probably make money here.
Non-consumable Commodities like Gold, Silver, Gems, etc:
- Highly illiquid
- Only appreciate at the rate of inflation
- Only risky if you think the economy will improve. Gold is purported to be in a bubble right now, but Silver is not. It is about where it should be, and it will be going into a bubble, or so I hear. Gems are extremely illiquid and their value depends on your bargaining skills.
Conclusion: this is the ultimate safe haven if you think the economy is doomed and our country is doomed. Keep in mind that if you have too much of this stuff, you make yourself a target road warrior!
Useful Stuff like cars, houses, tools, and parts
- Barring strong deflationary pressures (like houses have now), these will appreciate at a lower rate as inflation
- These are risky because these things depreciate in value with time, but if the economy tanks as hyperinflation takes root – these will sell for much more than you pay for them now and they are easier to get and sell than gold and silver.
Conclusion: these are good to get if you are very pessimistic about what will be coming in the next year. Instead, look at the next suggestion!
Your Skills Fool!!
- ALWAYS LIQUID – if you have a skill people want you can sell it PERIOD.
- Some skills appreciate, some depreciate – so you must hedge yourself by learning a wide array of them. If you are reading this, you have access to the internet – WikiHow to make some product everyone needs and LEARN HOW.
- This is the least risky thing of all. If you go pick up some crappy tools at a swap meet and learn how to do some stuff that people want, then even if you don’t get hired you’ll be more useful and you will get value in that respect.
Conclusion: this is a must for everyone. You need to know how to do more than drive in rush hour traffic, answer a phone and e-mail, and eat fast food. If our economy rebounds, then you have a new skill that will save you money later – even if you end up hiring someone to do the work for you. You will be able to pick out someone who knows what he/she is saying from someone who does not. If the economy tanks, you can now do something people will need on the informal or “Black” market. Either way – you make and/or save money.
I recently bought a house and I picked now to do it for a few reasons:
- Interest rates are low
- The Fed has just monetized $600 bn of US debt
One reason not to buy a house right now is:
- Housing is over a price sinkhole.
Now, reason #2 is a truly spectacular reason to invest in “real” property. This can be land, precious metals (especially silver), ammunition, seeds, etc – anything that you personally own that would be valuable to someone in a society where paper money is worthless. You have to actually have the commodity in your possession – not a voucher.
So why a house if they are over a sinkhole, and what do I mean when I say housing is over a price sinkhole? That’s two questions and I have two answers:
Why a house?
I bought a house because I can live in it and as money becomes worthless through massive inflation (due to monetizing the debt) I will be able to pay off the house very quickly with my worthless money. It is exactly for this reason that the government is taking the first steps to start hyper-inflation in this country to pay off its own debts. Also, inflation rates are set to rise all on their own. I do not believe the Fed will be able to lower them with any monetary tricks. This is because the bond market, which the Fed purchases US debt through, is going to hell when the US’s credit rating is lowered AGAIN (it was lowered earlier this year). In order to sell our crappy bonds, the incentives for someone to buy them will have to go up – that means higher interest rates. If nobody buys the bonds, then no money is raised. Therefore, the bond interest rates will go up and mortgage interest rates (which mortgages are a fairly large portion of what the bonds are based on apparently) will have to go up even more-so in order to cover. Right now the market for mortgages is very volatile.
What do I mean by “housing is over a price sinkhole”?
A marvelous combination of perverse incentives for banks brought to you by ridiculous regulation has caused a really spooky situation in the housing market. The prices appear to be stabilizing, but there are things afoot that will destroy them some more. I envision this like a house on top of a thin piece of crust over a sinkhole that is getting deeper and deeper. The people in the house don’t know it yet, but they will fall a long way when the crust finally breaks.
Here are the main ingredients:
Banks are insured for loans that default for the full remainder on the amount because the government has decided they are “too big to fail”. They don’t get this if they short sell or loan modify, so right now they face a situation where if a loan amount owed is for $200k and the property is now only worth $100k and they adjust to $100k or short sell for $100k they are out $100k. If, instead, they foreclose on it they get the full $200k and they can then resell it as a repo for $100k. They don’t want too many people to notice this – especially with new regulation committees that have sworn to give a shit watching – so they are letting people hang on and aren’t foreclosing as quickly as they could.
If they aren’t selling (and they aren’t much), and they aren’t modifying or foreclosing – the prices have pretty much slowed to a crawl on their downward trend. This lets the politicians say, “Look! Our bullshit Keynesian measures worked! Take that free market!” But in actuality, what they are doing is sending signals to homeowners that are underwater on their loans that it is ok to just stop paying their mortgages. This is a moral hazard because people are less afraid about being evicted than they should be. I say “should be” because what will happen is that the banks will foreclose on all of them at once, claim a massive loss, get bailed out by Congress again, collect their insurance payouts, and rake in massive profits while house prices plummet to new lows.
Now, you might ask, “Why don’t you wait until after that to buy a house? They’ll be cheaper then.” That’s true, but I don’t think they’ll drop more than $50k more and interest rates will have to massively increase for the bailout. So, I just borrowed $100k at 5% interest, but I could have waited and borrowed $75k (my guess) at 25 or 35% interest.
Another reason to buy a house is that money in the bank is useless now, and going to be even more useless in the next year or two when inflation explodes. A house has many uses that precious metals do not, and I’m sure I’ll find some sort of entrepreneurial use for it.
In Police Part 1: Goal Change I briefly touched on how there has been a push to promote “moral and outrage” laws. These are laws that are designed to force people to be more moral, or to address some outrage that the general populace had at some point. For example: smoking cigarettes is bad for you. Since people still insist on smoking them, many cities around the country have made it illegal to smoke indoors, because smokers are so immoral that they have to be forced by law to not smoke inside. An example of an outrage law would be speeding or red-light running. There is no victim, but there could have been, and because there have been some in the past and the outrage of the situation was such that new laws against the activity were passed.
The problem with laws like this is that they outlaw situations that CAN lead to bad outcomes, rather than just the outcomes; and they generally are the kinds of things that most of the population does regularly (like speeding – who doesn’t go at least 5mph over the speed limit on the freeway?). So, if you are speeding – even though there is no victim or property damage – you must be cited for creating conditions where that can occur. The department of transportation estimates you have a 1/200 chance of dying every time you drive – that’s 5%. If the most dangerous situation is in play – DUI – your chances increase by 30%… which is actually just 6.5% (30% of 5% is 1.5%). Sounds really scary though, huh!? Their budget depends on you being scared.
Back to the issue – these create a situation where the Police aren’t even solving a crime anymore. They simply have to proudly proclaim a crime was likely to occur and proceed to punish as if it had happened. This is head and shoulders better than chasing after a heavily armed drug runner or a murderer. They can nail honest law-abiding people that won’t cause them problems for crimes they might have committed.
Let me list some others they should be doing along the same vein:
- Arrest men who are served divorce papers because they are likely to do some violence on their wives (statistics show it happens a lot).
- Fine anyone who buys firewood because they are likely to burn it on “no burn” days (Arizona thing).
- Arbitrarily issue speeding tickets to people that drive sports cars, because they are certain to go over the speed limit at some point.
Another added benefit to laws like this is that it widens the scope of police to be the arbiters of moral behavior. Priests used to give penance out to sinners, now the Police give out penance in the form of fines and jail time in return for a salary, a pension, free/extremely cheap healthcare and the option to “double dip” the system. In the next section, I will talk about compensation and how that plays into this. Get ready!
As I mentioned in the intro: Police Part 0: How It Works the traditional goal of police is to respond to crimes, investigate what happened and then go catch the bad guy; thus, instilling a fear of the law in any would-be offenders into choosing not to offend lest they be caught and prosecuted.
However, things have changed. No longer are they expected to investigate crimes that happened – they are now expected to stop crimes as they are happening. Just stop and think about that for a minute. In order to do that, not only does the cop need to know that a crime is about to happen, but he also needs to know where and have time to get there before it occurs, or else be able to travel through time and space so that he can arrive at the perfect moment to save the victim.
This is, of course, impossible – and that makes it the most beautiful pay dirt any cop could hope for. They can always be “just too late” and then blame the fact that there aren’t enough police and they need to hire more officers. The Union is always quick to jump up and demand more officers, better training, more equipment, etc. (sound familiar?), by lobbying politicians and law makers (aka huge campaign donations); as if that’s going to magically fix the issue.
To aid in this endeavor, politicians have obliged the Police Unions by passing “moral and outrage” based laws like DUI laws, smoking bans, drug use and possession laws, and ever more stringent traffic laws that have been proven to not curb bad driving. I will explore these more in the next section, but the end result of all of these is that they punish “Maybe”, and that helps bump up cop “successfully investigated crimes” scores. It is through laws like these that the police try to show you year after year that you really need them without going after real and dangerous criminals.
Now, if you ask any police agency if they assign quotas to their officers, they will adamantly tell you ‘no’. But I challenge anyone reading this to pay attention to the last few weeks of any given fiscal quarter of the year (end of March, June, September, December) if you notice an increase in the number of police you see when you drive around. This is because each department DOES have a quota. If they don’t meet at least the same number of “crimes” as this time last year, then it might look like the crisis is averted and fewer cops are needed. The Unions will never stand for that, and so I believe they issue unofficial quotas to the departments.
The end result is that police departments no longer are focused on protecting the populace through investigation and apprehension of serious criminals, but rather they are focused on handing out as many citations as they can in order to ensure their continued funding. Unfortunately for the general populace – the easiest people to cite are normally law abiding citizens.
They used to watch over the people; now they’re just watching the people – Ministry