Stulta and Puera

Frédéric Bastiat tells a tale of two cities, Stulta and Puera. This destroys the idea that because a foreign country puts tariffs on US goods, the US should retaliate and put tariffs on their goods.

There were, no matter where, two towns called Stulta and Puera. They completed at great cost a highway from the one town to the other. When this was done, Stulta said to herself, “See how Puera inundates us with her products; we must see to it.” In consequence, they created and paid a body of obstructives, so called because their business was to place obstacles in the way of traffic coming from Puera. Soon afterwards Puera did the same.
At the end of some centuries, knowledge having in the interim made great progress, the common sense of Puera enabled her to see that such reciprocal obstacles could only be reciprocally hurtful. She therefore sent an envoy to Stulta, who, laying aside official phraseology, spoke to this effect: “We have made a highway, and now we throw obstacles in the way of using it. This is absurd. It would have been better to have left things as they were. We should not, in that case, have had to pay for making the road in the first place, nor afterwards have incurred the expense of maintaining obstructives. In the name of Puera, I come to propose to you, not to give up opposing each other all at once — that would be to act upon a principle, and we despise principles as much as you do — but to lessen somewhat the present obstacles, taking care to estimate equitably the respective sacrifices we make for this purpose.” So spoke the envoy. Stulta asked for time to consider the proposal, and proceeded to consult, in succession, her manufacturers and agriculturists. At length, after the lapse of some years, she declared that the negotiations were broken off.
On receiving this intimation, the inhabitants of Puera held a meeting. An old gentleman (they always suspected he had been secretly bought by Stulta) rose and said, “The obstacles created by Stulta injure our sales, which is a misfortune. Those we have ourselves created injure our purchases, which is another misfortune. With reference to the first, we are powerless; but the second rests with ourselves. Let us, at least, get rid of one, since we cannot rid ourselves of both evils. Let us suppress our obstructives without requiring Stulta to do the same. Some day, no doubt, she will come to know her own interests better.”
A second counselor, a practical, matter-of-fact man, guiltless of any acquaintance with principles, and brought up in the ways of his forefathers, replied: “Don’t listen to that Utopian dreamer, that theorist, that innovator, that economist, that Stultomaniac. We shall all be undone if the stoppages of the road are not equalized, weighed, and balanced between Stulta and Puera. There would be greater difficulty in going than in coming, in exporting than in importing. We should find ourselves in the same condition of inferiority relatively to Stulta as Havre, Nantes, Bordeaux, Lisbon, London, Hamburg, and New Orleans are with relation to the towns situated at the sources of the Seine, the Loire, the Garonne, the Tagus, the Thames, the Elbe, and the Mississippi, for it is more difficult for a ship to ascend than to descend a river. (A Voice: Towns at the mouths of rivers prosper more than towns at their source.)
“This is impossible. (Same Voice: But it is so.) Well, if it be so, they have prospered contrary to rules.” Reasoning so conclusive convinced the assembly, and the orator followed up his victory by talking largely of national independence, national honor, national dignity, national labor, inundation of products, tributes, murderous competition. In short, he carried the vote in favor of the maintenance of obstacles; and if you are at all curious on the subject, I can point out to you countries where you will see with your own eyes road makers and obstructives working together on the most friendly terms possible, under the orders of the same legislative assembly, and at the expense of the same taxpayers, the one set endeavoring to clear the road, and the other set doing their utmost to render it impassable.

Feeder Cattle Making a Top

Feeder cattle appears to be making a multi-headed top.

I am not a mechanical trader. Even though this trade fits my plan, if I don’t “feel” it, I won’t trade it.
First, I don’t like trading this market. It has been known to gap up and down. Sometimes these gaps are significant. In the chart above, you see can see a few gaps.
Second, this market is known to limit up/down. I don’t like to be in markets that will trap me. Looking at the traders positions, the small traders (i.e. dumb money), have a net short. The large traders and commercial hedgers have a net long. This is very unusual. This adds to the possibility that it could limit up and move against my short position.
I have trouble sleeping at night. I don’t need to have one more thing on my mind.

San Francisco’s Housing Market

How crazy is the San Francisco’s housing market?

The median sale price of all homes is 1.3 million dollars. The median household income is about $80K. This puts the median sale price to median household income at a ratio above 16. I have never seen the ratio this high before. In 2006, these ratios were 10. I thought the housing market was a bubble than.
So how long are they sitting on the market before they sell?

Less than 60 days. This is called “selling high”.
I do not understand why people would move there. This can not last.

Bitcoin Mining Less Profitable

I posted a question a few months ago about bitcoin mining. If the price of bitcoin falls below cost of validation would owners pay others to validate the block chain? Now we have reports that bitcoin miners are becoming less profitable due to the falling price. This fundamental flaw in bitcoin has been overlooked by the fan boys. This problem will be the death blow to bitcoin.

Trading the Symmetrical Triangle

From the classic book, “Technical Analysis of the Futures Market” by John Murphy, he gives an example of a symmetrical triangle trade.

My plan dictates I can trade these. My experience is one of many failures. They usually do not go according to plan. After the break out they tend to linger around.
Let us look at the SP500. The moment it broke out it went right back to test the trend line.

Another case is the Dow.

The Dow more closely fits with classic charting since it has the 6 touches required. I don’t plan on trading this even though my plan dictates I can. What most likely will happen to the Dow is the same thing that happened to the SP500.
Symmetrical triangles usually do not break the trend line and go right to its target. Additionally, the further it goes into the apex the less likely it will wind up being a symmetrical triangle.
I prefer trading ascending and descending triangles.

Tariffs for Nationalism

The Trump administration passed the steel and aluminum tariffs under the guise they pose a risk to US national security. Sometimes facts get in the way of how people think.
Let’s start with steel. The US Geological Survey (USGS) estimates the US produced about 80 million metric tons of steel in 2017. The military uses less than 3% of that per year. This is despite the fact the US government is involved in endless wars around the world. In other words, US companies produce more than enough steel for the military-industrial complex.
Let’s us move on to aluminum.  In order to make aluminum you need bauxite. Of all the bauxite mined, about 95% is converted to alumina for the production of aluminum metal. The largest producers of bauxite are Australia (31.3%), China (24.6%), Brazil (13.2%), India (9.5%), Guinea (7.5%), and Jamaica (3.2%). You should take note that the US is not a top producer of bauxite. The US relies on imports for almost 100% of its consumption needs. Domestic ore provides less than 1% of the US requirement for bauxite. If aluminum really was an issue of national security, which it is not, than the US government would still be dependent on imports for bauxite to make aluminum.

Being Behind in Life

Ray Kroc was a milk shake mixer traveling salesman. He heard about the McDonald brothers after they bought eight of his mixer machines. Ray Kroc drove across the country to visit them in person. After the visit, he became convinced the business model the McDonald brothers had developed could spread across the country. He got the idea to franchise McDonald’s. What most people don’t know is how late in life he did this. He was in his fifties. He risked his home to open his first McDonald’s in Des Plaines, Illinois. He faced financial ruin if his McDonald’s failed. As people get older, their is a tendency to become more conservative with regards to taking risk like this. Seeing the opportunity is one thing. Acting takes a lot more courage. A lot more conviction in your idea.
Ray Kroc became the most successful businessman in the 20th century.
If you are feeling behind in life, watch one of the greatest upsets in Olympic history.

Got them in the last lap.

Another Down Leg Coming

Bitcoin has a failed head and shoulder bottom and a double top. This market is going to test the $6000 low made in February.

It has also decoupled from the general stock markets. The price action since February has looked suspicious to me. I suspect some big players are painting the tape.