Archive for September 28th, 2012
Friday, September 28th, 2012
Negativity persists among investors, as evidenced by the ongoing stream of money leaving equity funds into bond funds. It’s challenging to pinpoint the origin of the pessimism because it comes from all over the globe. Daily polls finding Americans at an extreme political division, scenes of anti-austerity riots in Greece and Spain, and the Shanghai Composite Index falling to new lows are only three recent examples.
On one of my frequent visits to ted.com to seek different ways of thinking about very familiar subjects, I came across a presentation by Harvard University Professor Nicholas Christakis called, “How social networks predict epidemics.” I was fascinated by how he helped shed light on this unrelenting feeling of doom that has left so many people lacking confidence in equities.
Christakis showed how our world has an embedded social network fabric with various interconnections. Each person’s position in the social network varies, depending on his or her friends, families, coworkers, as well as genes. Where we are structurally located in this global network can impact our health, emotions and attitudes, he says. We all recognize how viruses spread through a network but don’t realize how a problem like obesity can also be contagious.
What does catching the flu or gaining weight have to do with negative sentiment? If you don’t think connections matter, consider the difference between a pencil and a diamond. Although these two common objects are both made of carbon, the atoms are arranged differently, causing the graphite to be soft and dark and diamonds to be hard and clear.
“So, similarly, the pattern of connections among people confers upon the groups of people different properties. It is the ties between people that makes the whole greater than the sum of its parts. And so it is not just what’s happening to these people—whether they’re losing weight or gaining weight, or becoming rich or becoming poor, or becoming happy or not becoming happy—that affects us; it’s also the actual architecture of the ties around us.
“Our experience of the world depends on the actual structure of the networks in which we’re residing and on all the kinds of things that ripple and flow through the network. Now, the reason, I think, that this is the case is that human beings assemble themselves and form a kind of superorganism. Now, a superorganism is a collection of individuals which show or evince behaviors or phenomena that are not reducible to the study of individuals and that must be understood by reference to, and by studying, the collective.”
Christakis suggests that if we understand how social networks form and operate, we can understand how major events such as crime and warfare happen, how economic events including bank runs and market crashes occur, and how investor pessimism can persist.
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Friday, September 28th, 2012
by Steven Visscher, Mawer Investment Management
Sometimes it feels like we live in a world that rewards fiscal irresponsibility. If a government spends too much, they can just borrow more and promise to pay later. If a business assumes too much risk and gets into trouble, we bail them out. Individuals who get too leveraged can just declare bankruptcy and start over again. It’s unfortunate we don’t have greater rewards for those who are fiscally responsible. This concept came to mind during a recent volunteer trip to Haiti where I met a young woman named Joelle. I was fascinated by her story, and believe it provides quite a contrast to the fiscal irresponsibility all around us.
Joelle is a single mother living in a small fishing village. She owned a small convenience store that provided a modest income. In January 2010, an earthquake devastated much of Haiti. Joelle survived, and her store was intact, but many of her neighbours perished. In the months following the earthquake, Joelle had few customers and shared many of the items in her store with her impoverished neighbours. Before long, her shelves were empty and her savings depleted. Aid organizations poured into Haiti to help rebuild homes and infrastructure, and gradually her community became functional again, but Joelle’s livelihood was over. When school resumed, she could no longer afford to send her child. They faced a grim future.
But thankfully, numerous micro-credit agencies had also arrived in Haiti to make small loans that traditional banks would not. Joelle qualified for a $100 loan to re-start her business. She also received some basic business training on how to manage this loan and guidance on what items may be most needed in her community. With that $100, Joelle travelled to the city to acquire inventory for her store and began to earn a modest income once again.
When I met Joelle she had already re-paid that $100 loan. In fact, she proudly showed me her simple ledger that indicated she had made each loan payment before it was due. I knew she still faced a difficult road ahead, so it was tempting to reach into my wallet and simply gift her another $100. But that solution could rob Joelle of her dignity and promote a cycle of dependence. She didn’t want a gift. She didn’t want a bailout. She was adamant about paying her own way.
Even after seeing her circumstances first-hand, it is still hard to fathom how difficult her life is. But I was both humbled and encouraged to see her tackle life’s challenges with more fiscal responsibility than many around us. Governments, businesses, and consumers alike could learn from Joelle.
Copyright © Mawer Investment Management
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Friday, September 28th, 2012
Here are this week’s reading diversions for your personal enlightenment. Have a splendid Fall weekend!
Depending on family traditions, Thanksgiving meals can take place on any of the weekend days, though Sunday appears to be the favourite, likely thanks to all the time families have to prepare (and of course, the day off work on Monday to recover).
As it turns out, myth — a big one. Yes, eating soybean-based products to replace fatty meats is a healthier option, but being a vegetarian isn’t always about opting out of animal products just to consume every piece of produce in sight.
A growing number of men are now suffering from the seductive promise that they can have it all: the comforts and rewards of a fulfilling family life, a job that brings satisfaction and a paycheck big enough to support the needs of the aforementioned family, and freedom from conflict between the demands of each.
Loading up on carbohydrates before running a race is a well-established practice. But carbo-loading before surgery?
When nothing else worked, she decided to try a raw food diet, even though several veterinarians discouraged it, saying it would expose her dogs to harmful bacteria. A holistic veterinarian encouraged her to start her dogs on a line of raw and freeze-dried chicken and beef foods made by Stella and Chewy’s, a Wisconsin-based pet food company.
I don’t really like to take medication, unless absolutely necessary. So when I’m suffering from a run-of-the-mill cold, there are a few home remedies I like to use:
The 693 women who reported reaching menopause, naturally or surgically, at 46 or younger had about twice the risk for stroke or heart disease compared with those who reached menopause at an older age, the researchers found.
Fewer people ended up in emergency rooms due to car crashes in Ontario after doctors were paid to report patients who shouldn’t drive for medical reasons, a new study finds.
Are swollen feet in an older adult normal or some kind of warning sign?
People with psychopathic traits — such as callousness, manipulation, sensation-seeking and antisocial behaviors — are not able to use their sense of smell as well as other people can, new research contends.
For example, you may want to look at retirement as the time of your life when you can choose to do whatever you want, whenever you want, however you want. You can catch up on all those things you said you always wanted to do, but never had the time to do.
After working for years, the idea of setting goals can seem counterintuitive. But goals can give life direction and have you looking forward to things in the future. Goals also motivate retirees to get up in the morning now that a commute to work isn’t part of the daily schedule.
Friday, September 28th, 2012
(Editor’s Note: Don Vialoux is scheduled to appear on BNN Television’s Market Call Tonight at 6:00 PM EDT)
The S&P 500 Index recorded surprising strength yesterday mainly on unconfirmed news that the Chinese central bank recently pumped up to $70 billion into the Chinese economy. The rumor has merit. Historically, the Chinese economy virtually “falls off a cliff” during China’s “Golden week”, a holiday similar to our Christmas season. China’s “Golden Week” is next week. Once again, the Chinese central bank moved in anticipation of “Golden Week”.
The other positive event yesterday was announcement of Spain’s budget. Equity markets responded initially to rumors that the budget was more austere than expected. However, equity markets retreated in late trading when a more rational analysis was made.
On the charts, the S&P 500 Index managed to recover to above its 20 day moving average. However, momentum indicators continue to trend down.
Natural gas prices have recorded an interesting breakout recently.
Updates on Seasonal Trades Recommended Since July
July 2: Accumulate the Software sector
Period of seasonal strength: early July to end of September
ETF: IGV at $62.18. Current price:$63.84
Comment: Selected technicals remain positive: Intermediate uptrend intact, bounced from near its 50 day moving average. Short term momentum indicators are trending down and strength relative to the S&P 500 turned negative last week. The period of seasonal strength is approaching an end. Preferred strategy is sell into strength.
July 6: Accumulate gold bullion
Period of seasonal strength: July12th to October 9th
Gold price: $1,578.90. Current price: $1,779.10
Comment: Technicals remain positive. Intermediate trend is up. Nice bounce from near its 20 day moving average. Strength relative to the S&P 500 Index remains positive. However, momentum indicators are peaking. Hold for now, but prepare to take profits (particularly on a break below $1,738.30. Possible stop is its 20 day moving average. Gold’s weakest month in the year is the month of October.
July 13: Accumulate Canadian gold equities
Period of seasonal strength: July 27th to September 25th
ETF: XGD at $18.01. Current price: $21.77
Comment: Great trade. Favourable seasonal period has ended. Short term momentum indicators have rolled over. Weakest month of the year for gold equities is the month of October. Take seasonal profits on strength.
July 13: Accumulate the Canadian Energy Sector
Period of seasonal strength: July 24th to October 3rd
ETF: XEG at $15.12. Current price: $16.37
Comment: Technicals have begun to deteriorate as the end of the period of seasonal strength approaches. Short term momentum indicators are trending down. Strength relative to the TSX Composite turned negative last week.
Comment: Take profits on strength.
July 27: Sell the Transportation Sector
Dow Jones Transportation Average at 5,126.65. Current price:4,941.20
ETF: IYT at $91.56. Current price: $87.90
Period of seasonal weakness: August 1st to October 9th
Comment: Technicals remain negative. Intermediate trend is down. Trades below its 20, 50 and 200 day moving averages. Short term momentum indicators are trending down. Strength relative to the S&P 500 Index remains negative. Continue to sell/avoid/hold short.
August 6th Sell the Airline sector
ETF: FAA at $28.66. Current price: $29.48.
Period of seasonal weakness: August 1st to October 9th
Comment: Technicals remain neutral/negative. Intermediate trend is neutral. Trades back and forth through its 20, 50 and 200 day moving averages. Short term momentum are trending down. Strength relative to the S&P 500 Index remains negative. Hold for now but liquidate on a break above resistance at $30.20.
August 28: Sell the Semiconductor sector
Philadelphia Semiconductor Index: 397.04. Current level: 385.46
Period of seasonal weakness: End of August to October 9th
Comment: Technicals remain weak despite yesterday’s gain. Intermediate trend is down. The Index fell below its 20, 50 and 200 day moving averages last week. Strength relative to the S&P 500 Index remains negative. Short term momentum indicators are oversold. Hold for now.
Thursday, September 27, 2012
If you would like to discuss your portfolio with us – Am I on the right track? Do I have too much risk? Do I have a reasonable game plan? – or receive the latest issue of our bi-monthly newsletter, CastleMoore Investment News, where we write on the big picture stuff, please register for the Investor Centre section of our website: http://www.castlemoore.com/investorcentre/signup.php.
TOP ASSET CLASSES AND SECTORS: HEAT MAPPING
There is still a push for “risk-on” assets as of the close of last Friday. This week’s close will undoubtedly show a slight uptick in strength for the “risk-off” or defensive assets such as bonds in the “Asset Class” table, telecom or healthcare in the TSX and S&P, and the US or Switzerland in the country rankings.
That said, we anticipate and are positioning for another upside move in the cyclicals before things get muddy later in the year.
For asset managers the most important thing to get right is the allocation between equities, bonds, bullion cash and currencies. (If you are a Broker or Advisor and would like to learn more about CMI Advisory Service please contact us by phone or e-mail. Robert 905.847.1125)
CHARTS of the WEEK
US Long Bonds
Long bonds, as presented here by the 20+yr ETF, show strong support above the cloud with indicators trying to bottom. We currently own 20% in CDN long bonds, but will look to raise overall bond allocation over the next while. Minimal upside for the Loonie will allow us to add US bond holdings.
Similarly the S&P shows strong support below, though the market is over extended at the moment. When comparing the two assets classes – US bonds to US stocks – a balanced approach is warranted by the evidence until further notice.
The TSX on the other hand appears to be now hitting resistance overhead on this weekly chart. A break above these levels would broaden the case that the TSX has only moved up from front-running the QEternity move by the US Fed. The case beyond has yet to be proven.
CDN Oil Stocks
The same pattern is reflected in CDN oil stocks. We own Husky as a conservative way to play the space – decent balance sheet (S&P quality ranking A-) and good yield (4.75% from our ACB)
CDN Gold Producers
Gold producers on the other hand have appeared to make the case, though a correction is in the works. When we look at our individual TSX company rankings on a weekly basis 7 of the top 11 are senior gold producers. Something is afoot; we’ll now gauge the persistence beyond what can just be a seasonal play.
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Buy, Hold…and Know When to Sell
This commentary is not to be considered as offering investment advice on any particular security or market. Please consult a professional or if you invest on your own do your homework and get a good plan, before risking any of your hard earned money. The information provided in CastleMoore Investment Commentary or News, a publication for clients and friends of CastleMoore Inc., is intended to provide a broad look at investing wisdom, and in particular, investment methodologies or techniques. We avoid recommending specific securities due to the inherent risk any one security poses to ones’ overall investment success. Our advice to our clients is based on their risk tolerance, investment objectives, previous market experience, net worth and current income. Please contact CastleMoore Inc. if you require further clarification on this disclaimer.
Eric Wheatley’s Listed Options Column
Good morning everyone,
Last week I looked at two options-related emails my Boss had received prior to his last appearance on BNN. There was a third which needs to be addressed here:
Peter in Mississauga asked “Many investors use the covered call strategy for downside protection but the risk is always there that the underlying could be called away. Recently Novartis (NOV) has had a good run up from $69 to $70.50 but the $70 covered call options expired. Can you discuss your recommended strategy to eliminate the damage? Is covering the current short and selling the covered call one month further out at approximately the same price point a consideration?”
“Eliminate” the “damage”.
For those of you who follow the NFL, you’ll sometimes hear of players who refuse to play because they consider themselves to be underpaid. The media will harp upon the fact that a running back is “only” making a million dollars for the season. What is ignored is that the player, upon signing his contract, received a fifteen million dollar signing bonus. This amount is paid up front and is the guaranteed portion of a contract. Yearly salaries aren’t guaranteed and an underperforming player can be cut from a team at any time without further compensation. Of course, the player who is making a fraction of his colleagues’ salaries feels disrespected, forgetting that he wilfully signed a contract which paid him quite handsomely ahead of time.
Peter in Mississauga is going through the same kind of cognitive dissonance NFL players who hold out do. He sold a call and received cash up front in exchange for giving up his stock’s upside beyond the call’s strike price. After the stock’s price had risen, Peter saw “damage” and wants to “eliminate” it. Of course, the damage is purely psychological and can’t be eliminated ex post facto. This is because, if Peter were to want to buy back his call, he would be paying the intrinsic value by which the stock has risen beyond the call’s strike price so he would still be owning the shares at the strike price on a net basis (on top of having paid a bid/ask spread and the fees for a trade).
As we’ve mentioned previously, covered call writers should WANT the stock’s price to rise. In this case, if NOV goes beyond $70, Peter makes his maximum profit. A proper, rational person doesn’t care whether the stock goes to $70.50 or $150, because the rational person made a good return on the call’s premium PLUS a little upside gain if the call was out-of-the-money when sold. Peter is prey to regret aversion, by which he will rue his writing of a call if the “worst-case” scenario happens. Similarly, people who are regret-averse find it very difficult to take profit on a stock which has risen, fearful that the stock may continue to rise and that they would miss out on further gains. Of course, if you never take profit, you’ll never make money.
As to people who are averse to getting assigned, I have a little story: I manage my mom’s money (I mention this only because my mom wouldn’t mind my exposing one of her holdings). Last week, she got assigned on her XIU October 17 calls when the stock was trading at roughly $17.60. Now, Peter would be pee-owed at this, but I was quite ecstatic. This is because I had gotten a very nice return on the premium – 41 cents per share when the stock was at $16.80 –for three months when I wrote them in July. As it turned out, I got an extra month for free, because the October call was assigned at the September expiry. I’m now able to write further calls right now instead of waiting until October’s expiry. This extra month is far from bad news; of course, Peter’d be looking at the sixty cents he’s forgoing and would sulk.
This week’s Twitter feed:
· Found a wonderful blog by a fellow Montrealer who is a big-shot economist. I’ve dedicated some very prime browser real-estate to him with a dedicated tab
· We are portfolio managers who manage money with a long-term view. Much of that view will be formed by China and its entry into the developed world. Or not. There are still a LOT of growing pains yet to come.
In this week’s French-language blog: my rules on life and investing, gleaned from my many screwups.
Éric Wheatley, MBA, CIM
Associate Portfolio Manager, J.C. Hood Investment Counsel Inc.
Blogue en français : gbsfinancier.blogspot.ca
Little known fact about John Charles Hood #45
John Charles Hood only has one hard and fast rule which he uses in various circumstances: “Don’t get any on you”.
Special Free Services available through www.equityclock.com
Equityclock.com is offering free access to a data base showing seasonal studies on individual stocks and sectors. The data base holds seasonality studies on over 1000 big and moderate cap securities and indices.
To login, simply go to http://www.equityclock.com/charts/
Following is an example:
Micron Technology, Inc. (NASDAQ:MU) Seasonal Chart
Disclaimer: Comments and opinions offered in this report at www.timingthemarket.ca are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.
Don and Jon Vialoux are research analysts for Horizons Investment Management Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons Investment Management Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management Inc
Horizons Seasonal Rotation ETF HAC September 27th 2012
Friday, September 28th, 2012
While most “developed world” people have heard of Hong Kong and Macau, far fewer have heard of China’s province of Guangdong, which is somewhat surprising. With over 100 million people, a GDP of nearly $1 trillion – the biggest of all Chinese provinces, this South China Sea adjacent territory is perhaps China’s most important economic dynamo. One of the key cities of Guangdong is Dongguan, which as the map below shows is a stone’s throw from Hong Kong, has a population of nearly 10 million, and has long been considered Guangdong’s boomtown and one of China’s richest cities.
One notable feature about Dongguan is that it is home to the New South China Mall, which is the world’s largest. It also happens to be mostly empty ever since it opened in 2005. Which perhaps is a good segue into this story. Because while for the most part the city of Dongguan has been a story of prosperity, a wrinkle has appeared. According to the South China Morning Post, which cites researchers at Sun Yat-sen University, this city is now on the brink of bankruptcy.
Make that a big wrinkle.
The irony, of course, is that as always happens, while everyone has been expecting the muni collapse to take place in the good old US of A, it may be about to strike with a great vengeance and furious anger none other than that credit black hole, in which nobody really knows who owes what to whom, China.
How is it possible that a city which as the SCMP describes was once a backwater farm town until the late 1980s, and then as China boomed was transformed into one of the most important hi-tech manufacturing centres in the world, and about which an IBM vice-president famously said a mere 15-minute jam on the expressway there would be enough to cause worldwide fluctuations in computer prices, could be facing bankruptcy?
The answer is an absolutely fascinating story, one which for the first time exposes what could be the most sordid underbelly of the broken Chinese shadow credit system, and which demonstrates very vividly just what the hard Chinese landing will look like. It also explains precisely what the real creditor-debtor relationships are like in a country in which the banks are the equivalent of government entities, and which do little if any retail crediting in a time when the government is set on contracting the money supply at the wholesale, if not at the bank level (recall the now daily reverse repos conducted by the PBOC).
Most importantly it reveals the monetary dynamic “on the ground” – one which is vastly different than the one in the “western world.”
The question is whether the story of Dongguan is an isolated one. Alas, just like there is never one cockroach, we are confident that many more such provinical centers are currently undergoing the same challenges, which if unresolved would lead to a tsunami of municipal, county and city level defaults, that would leave China in ashes.
Ironically, Meredith Whitney may have had the municipal default theme right. She was just envisioning the wrong continent…
Boom city Dongguan faces bankruptcy
Dongguan’s derelict factories and huge deficits send chilling warning to a China in slowdown
After three decades of spectacular growth, Guangdong’s boom town of Dongguan is on the brink of bankruptcy.
Up to 60 per cent of its villages are running up deficits and will soon need a bailout from the township, researchers at Sun Yat-sen University have discovered.
It is a dramatic turn of fortune for Dongguan – one of the richest cities in China – and could foreshadow a wider fiscal crisis as the country’s economy cools.
Local government debt hit 10.7 trillion yuan (HK$13.16 trillion) nationwide at the end of 2010, equivalent to about 27 per cent of gross domestic product. Credit rating service Moody’s estimates the actual figure could be about 14.2 trillion yuan.
Bai Jingming, a senior researcher at the Ministry of Finance, estimated in 2009 the total debt of village authorities could total 10 per cent of the country’s GDP, but there is no official data.
Bai said many village chiefs he interviewed had no idea how much debt they had. Yet their failings could bring serious political and financial instability at higher level government right down to the grass roots.
Experts have found Dongguan’s village debt woes stem from two factors: a tightly-bound landlord economy, plunged into crisis by failing factories in the global downturn, and political pressure on local village chiefs to pay generous “dividends” to voters under the immature rural election system.
“The financial problems of the villages are much more serious than expected,” said Shao Gongjun, the owner of a printing company who blogs on Dongguan’s economy. Shao attributed much of the crisis to the local authorities’ dependence on rental incomes.
A backwater farm town until the late 1980s, as China boomed Dongguan was transformed into one of the most important hi-tech manufacturing centres in the world.
An IBM vice-president famously said a mere 15-minute jam on the expressway there would be enough to cause worldwide fluctuations in computer prices.
As industry thrived, the population swelled from 1.8 million in the ’80s to more than eight million. Most of the peasants cashed in and built matchbox homes on their land, letting the flats to migrant workers. Village authorities leased community land to factories and collected rent as their main source of income.
This worked perfectly until the recent downturn. Shao said many factories had either closed or moved out over the past five years to inland provinces with lower costs.
The number of Hong Kong-backed factories has dropped by 15 per cent since 2007. As factories and migrant workers left Dongguan, rents nosedived.
“I’m so worried that before long I will lose my tenants and the flats would be left deserted,” said a 61-year-old woman surnamed Luo. She put together two million yuan from her life savings 10 years ago and with bank loans built a six-storey apartment building in Luowucun in Zhangmutou county. Her family occupied the first floor and let the rest out to migrant workers.
Luo used to collect about 15,000 yuan a month in rent – nearly 10 times what an average worker earned. But rents have dropped by a third since 2007.
The fall in rental values forced 60 per cent of the 584 villages in Dongguan into budget deficits, the study by Professor Lin Jiang of the finance and taxation department of Lingnan College at Sun Yat-Sen University found.
Lin’s estimate is based on a study of 30 villages in relatively well-off counties, such as Tangxia, Houjie and Humen, in May.
The figure may not reflect the whole picture, but it gives a good snapshot of the problems authorities face.
“They are in deficit because their incomes are shrinking while their expenses are going up,” Lin said.
This is an unexpected sideeffect of China’s fledgling grass-roots democracy.
While competitive elections are still absent at almost all levels of government, Beijing has started to let villages choose their leader through universal suffrage. These elections have been getting increasingly competitive, and candidates often promise to pay generous “dividends” to villagers to attract votes.
“In some rare cases, the leader-elect promised to give each household 10,000 yuan per month,” Lin said. The money would come from the village community “investment” – effectively, the rent they collected from factories.
Lately, village chiefs have found it difficult to fulfil such election pledges. But instead of reneging on their promises and sparking the anger of villagers, they turn to the rural credit co-operatives – the de facto local banks – for short-term loans at interest rates as high as 30 percentage points.
Banks are willing to lend, because they know that the township government would have to bail villages out if things go wrong.
“Some village leaders are now really worried that the bank may come to call in the loans,” Lin said. “If the villages default, the burden would be transferred to the county or the township government.”
The Dongguan government is in poor shape to handle a crisis. Its GDP growth slowed to 2.5 per cent in the first half of the year. The average growth in the past eight years was about 11 per cent.
Xu Jianghua, Dongguan’s party secretary, urged villages last month to stop raising money to pay dividends. Few took heed.
Village chiefs may argue paying dividends are not the sole cause of their debt. They also have to pay for local fire and police services – even though these are supposed to be the local government’s responsibility.
For years, the township government underinvested in such services, knowing they would be taken care of by the cashed-up village authorities.
Eddy Li, president of the Hong Kong Economic and Trade Association, said in some counties police would refuse to investigate a crime unless it involved more than 20,000 yuan.
Shao estimated Zhangmutou county authorities alone have accumulated a total of 1.6 billion yuan in debt. Annual revenue is only 600 million yuan.
Shao said the Dongguan government needs structural reform to end its reliance on rental income. He proposed the township give residency to migrant workers so they can contribute more to the local economy.
“Without a radical change in the social structure, the economic transformation will never succeed,” he said.
And some pictures from the city that may soon be the first cockroach observed once the light was truly shone:
A row of empty shops that have been idle for more than nine months – a common sight in what was once a hi-tech heartland. Photo: May Tse
Commercialism came storming into rustic residential areas. Photo: May Tse
Boarded up shops in the suburbs of Zhangmutou. Photo: May Tse
Many roads but few cars in the once desirable district of Zhangmutou, a favourite with expats and retirees. Photo: May Tse
Friday, September 28th, 2012
“This is the final abomination” is how David Stockman begins his epic rant on the Federal Reserve and crony capitalism in this clip. The “undiluted lunacy” of their actions prompted him to address the Fed’s decision to “print ourselves to death” by saying “this has gone too far, it’s street-fighting time” as he decides, instead of the erudite philosophical view of how capitalism is being destroyed by statist philosophies of one type or another, to launch into a full-strength tirade about The Fed. For starters, “The Fed is being run by the single most-dangerous man ever to hold high office in the history of the United States, “as he opines that Bernanke is more dangerous than Geithner, Greenspan, Summers, Hank Paulson all put together. Must watch…
“Bernanke is so bad that we should wish to return to the age of Marriner Eccles in 1935 – a fiscal Keynesian who believed that money-printing would fuel speculation and inflation; if the government were going to rob the people, it should do it the honest way – through taxes”
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Friday, September 28th, 2012
Submitted by James E. Miller of the Ludwig von Mises Institute of Canada,
In the midst of the Great Depression, Treasury Secretary Andrew Mellon famously advised President Hoover to “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate” instead of propping each industry up with tax dollars. This liquidation doctrine would “purge the rottenness out of the system” and make certain that “people will work harder” and “live a more moral life.” Contrary to popular belief, Hoover did not take Mellon’s advice and went forth with his own version of the New Deal that gave relief to farmers and supported wage rates in certain industries. These efforts, which were exacerbated under the presidency of Franklin Roosevelt, effectively prevented the market from clearing. The boom of the late 1920s that was driven by the Federal Reserve’s monetary inflation was not allowed to bust. Instead of liquidating the debt and allowing the economy to reach a sound footing, both the Hoover and Roosevelt administrations attempted to manage it back to health. The result was the longest period of unemployment ever recorded in American history.
Today, Mellon’s advice is still spurned by most of the economic profession. The media establishment, not to be outdone, is also on the side of intervention. Government is looked to as a savior while markets are seen as inadequate in providing for a satisfactory standard of living. With their incessant need to fix what isn’t broke, the political class is praised for their courage to take the reins of society and direct it toward a meaningful and just way of life. Liberty is seen as barbaric in comparison to state-sanctioned redistribution. Fighters of war are looked to as glorious warriors who make a great sacrifice to their countrymen. Public office itself is seen as an occupation of the righteous who give up the opportunity for profit. Most notably, spending is regarded as the necessary elixir of economic growth.
The old fashioned ideas of hard work and self-reliance are made out to be anachronistic. It is no longer a virtue to succeed. What is now honorable is men with guns and badges taking from some and giving to others.
In this context, it must be asked where did the ideas of virtue originally come from and what role do they play in humanity.
Virtue is typically defined as an attribute that is regarded as good in a moral sense. Donating one’s income to the less fortunate is normally seen as a virtue. A propensity to steal is usually looked upon as a ruinous vice rather than a worthy trait.
In the modern era, it would seem as if classic virtues (basic ideas of right and wrong) have lost their appeal. In their place has been a concentrated effort to promote those actions once thought of as deserving of moral condemnation. To this writer, such a course of action is socially destructive will end up severing the cooperative ties that mankind has established within itself. Market economies are based on the ideals of self-ownership and mutual effort. It is only through reciprocity that material progress can be made to lighten the burden on human existence. State interference creates distortions in favor of one party over another.
St. Thomas Aquinas famously defined the cardinal virtues of human life as being prudence, temperance, justice, and fortitude. These virtues are revealed in nature and make up the foundations of natural law. To Aquinas, humanity naturally strives to achieve ends through the use of reason. Because of innate imperfection, these qualities aren’t always adhered to but are necessary for facilitating a rising standard of living. Without temperance, the present is indulged to rather than the future. In the absence of justice the incentive to carry forward with life is handicapped through uncertainty over whether collaboration with others will be successful. And without fortitude to face certain obstacles, lofty goals will not be pursued. The guiding force for all actions is prudence which enables men the capacity to decide whether an action will result in ends being achieved. These virtues, it is held, stem from nature and are discoverable through reason alone; a spiritual authority is not needed for their confirmation.
Logically and practically, it is obvious that persistent rashness and thoughtlessness are not sustainable lifestyles in a world defined by scarcity. To achieve that which is desired, man must act in way to best ensure his demand can be met. Behaving discreetly and with respect toward others is often the best avenue for achieving happiness in the long run. Government, with its slew of welfare benefits, attempts to supersede this truth by creating dependency. In return for votes, politicians and bureaucrats instill a sense of infantilism while posing as givers of charity. Combined with economic regulation which aids politically-favored firms and stifles the free action of entrepreneurs, the state creates conflict amongst society since it operates solely on funds plundered from the greater public. As a monopoly of force, the state becomes a target for all those attempting to circumvent the laws of nature.
With central banking the concept of saving more than you consume is dismissed as a relic of the past and the era where planners didn’t have the economy in their firm grasp. Through Keynesian economic policies, short time preferences are rewarded while looking toward the future is punished. Retirees living on fixed income struggle to make ends meet in favor of debt accrual. The state invariably uses easy access to the printing press to fund its activities. Resources that could be used for productive efforts are siphoned off in favor of political interests. More egregious is that fact that central banking itself is a client of the banking system and guarantees an unlimited supply of dollars should bad investment decisions come to fruition. The rest of the public must pay with using depreciated currency. Because of the allowance of fractional reserve banking, credit is created out of thin air. In other words, titles of property are effectively created to a good which doesn’t necessary exist. Modern banking isn’t just a cartel that operates at the expense of everyone else; it enjoys a government privilege that would otherwise not exist under a free market. Yet many commentators have nothing but praise for central banking and its ability to manage the business cycle.
In the same vein, the conduct of war is applauded even as it extinguishes precious life from the planet. President Obama personally makes the call for the extrajudicial killing of people without any evidence of their wrongdoing. Women, children, and other innocents often meet the same fate just by being in the vicinity of a drone strike. In a new study from the Stanford Law School and New York University’s School of Law, it was revealed that the number of “high-level targets killed as a percentage of total causalities” from the drone program is only 2%. The study also accuses the administration of downplaying the number of civilians killed by strikes.
It’s unfathomable how someone could even begin to ponder over supporting a man who places the order for indiscriminate bombings that often result in the death of innocent bystanders. But Obama still remains fairly popular to the American electorate. He is seen as tough on terror while ordering for the assassination of targets in complete secrecy and from the comfort of another continent. His policies are painted as being admirable when they are cowardly. In the name of ensuring peace he creates chaos. The media stands all too ready to lap it up and parrot the message. These callous murders should bring despair to anyone who values their own life but seldom does. Death has unfortunately become all too routine.
In his personal memoirs, the great anti-state thinker Albert Jay Nock once opined
All I ever asked of life was the freedom to think and say exactly what I pleased, when I pleased, and as I pleased.
I agree whole heartedly with Nock’s sentiment. Not only do I seek the freedom to speak without the overarching menace of a faceless big brother but to do as I please as long as I bring no harm to others. The “live and let live” existence is the only type that falls closest in line with the natural virtues laid out by Aquinas centuries ago. Refraining from violence is not just an ethical choice, it allows for the productive capacity of men to blossom. And without hard work and the putting off of immediate gratification, less becomes available for the future.
In the age of state welfare pandering, corporate subsidization, and Orwellian monitoring, a longing for true liberty remains totally unconventional. To many, it is downright radical to take charge of one’s life and wish only to be left in peace. How we have reached this point is demonstrative of how pervasive the state has become.
There isn’t a shred of decency in how governments or central banks operate. Their functions run antithetical to the basic virtues of mankind. If we as a species are to use our reason and free will to better our live, the institutionalized violence the state embodies must be rejected.
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