Author: s4k

Davos Madness

Every year a bunch of fools get together to talk about things they have no idea about. They spend north of 100K to be part of this madness. From previous Davos meeting we have the highlights. I honestly don’t know what some of these comments are even supposed to mean.

A Trump Misstep

Trump apparently wants to sit down with Muller. Pat Buchanan has an excellent analysis on this:

As for Trump, he should not sit for any extended interview by FBI agents whose questions will be crafted by prosecutors to steer our disputatious president into challenging or contradicting the sworn testimony of other witnesses.
This a perjury trap.

Trump is a political novice. He surrounded himself by two types of people:
People who are also political novice.
People who probably voted for Hilary Clinton.
The people around him are probably telling him, “You have done nothing wrong. Do not worry. Just tell the truth.” Prisons are filled with people who have done nothing wrong. Besides, this is not about finding a criminal. This is about politics and power. As Lavrentiy Beria once said, “Show me the man, I’ll show you the crime.”
Trumps best bet is to just ignore it. Muller’s investigation is slowly loosing credibility in the mind of the public. No one even pays attention to it any more. Each week Trump should post the dollar cost of this investigation. Itemize every move they make. Post it on his twitter feed for the world to see.

Entrepreneurship and Being in the Minority

Airbnb sends along the following message to its users (my bold):

I am absurdly lucky even to be writing this email. Ten years ago we started Airbnb. Joe and I couldn’t pay rent, so we created the first AirBed & Breakfast and invited three people we’d never met to stay in our home. People said our idea would never work – “Strangers will never trust one another!” A decade later, people have checked into an Airbnb nearly 300 million times.

People told Mick Jagger that he couldn’t sing. He didn’t have the voice for rock and roll. Rodney Dangerfield was doing aluminum siding. He told people he was going to go back to comedy. “You are to old!” people told him. “Let it go”.
The times I made the most money in my life is when I was in the minority. When everyone told me how wrong I was or how this or that would not work. All traders should have a set of rules. One of my trading rules is this:
Being profitable usually means being in the minority.
People tend to reflect their failures in life onto others when they give advice. I don’t believe this is malicious in most cases, just the way most people work. There is nothing wrong with asking for advice. Just know who you are talking too. Always seek advice from successful people.

Conclusion
If you have an idea and everyone doesn’t laugh at you or tell you how wrong you are than you should reevaluate the idea.

The Fed Vice Chairman

On the short list for the next fed vice chairman are John Williams and Larry Lindsey. The next vice chairman could be influential in policy making since Jerome Powell is not an economist.
John Williams is your typical Keynesian inflationist. He thinks the fed 2% inflation target is too low. He has no problem with negative rates. He is definitely a “dove”.
Larry Lindsey is an odd pick. William McChesney Martin once said the job of the fed is, “to take away the punch bowl just as the party gets going.” Larry Lindsey subscribes to this view. In other words, he is a bubble popper. He is on record saying the fed is behind the curve in raising rates. His mentor is Marty Feldstein, arguable the sanest main stream economist. On a side note, I do enjoy Feldstein’s analysis.
Looking back at the FOMC transcripts from the 90’s, Larry Lindsey was one of the few voices of reason. Alan Greenspan’s ignorance in these transcripts is astonishing.
It is hard to believe Larry Lindsey will get the nomination giving his views. Additionally, Larry Lindsey is the most boring speaker alive.
CAUTION: DO NOT LISTEN TO HIM AND OPERATE HEAVY MACHINERY
I do not see how Lindsey will keep Trump’s attention or impress him. John Williams is a fast in your face talker. Since Trump is a wild card, to say the least, we really do not know. It will be interesting to see who Trump fills this spot and the other vacant spots on the fed board.
I also find it interesting the top picks have totally different views about what the fed should do from here. I am guessing the administration does not know what to do either. Why not hear out both views and decided on the fly?

The Infrastructure Plan and Broken Windows

A six page draft has been released of the white houses new infrastructure plan. Every administration has the same idea. I am inclined to believe David Stockman. It is all a lie.  Put aside the fact that all of these activities should be privatized. Government spending on infrastructure is the broken window fallacy in different garb. Frederic Bastiat wrote about it in the mid 1800’s. Henry Hazlitt used this one idea for his book, “Economics in One Lesson”. Among the economic illiterate, this one idea is a plague. It won’t go away.  The video below has just under 200K viewers. I hope one day it will have 200 million.

D.C. Chaos

The government has “shutdown”. Those in the media and DC inner circle think it is Armageddon. After all they need to justify there existence. CNN thinks a government shutdown could end all life on planet earth. Than, miraculously, the day after the government shuts down we all wake up and go to work. Nothing has changed. Of course, the government furloughs non-essential personnel. Why does the government  hire non-essential personnel in the first place? If they are non-essential why not furlough them indefinitely? These questions are never asked. There is chaos in Washington D.C., but not in rest of the country. My only hope is the government shuts down for real and stays that way for the next 100 plus years.

The Mania Phase

The mania phase is the last stage of a bull market.  It is when a particular market goes vertical. It should be the most profitable period for the bulls. It is not. Contrary to popular belief, bulls actually lose money in the mania phase. The bears make money. The bulls marry their investment. They think it should continue to go up. They don’t know when its time to jump ship.
There are three components to every market top.
1- It has gone parabolic.
2- Everyone is talking about it.
3- There is mass stupidity at the top.
If you ever invest in anything memorize these three points. Get a tattoo on your chest backwards if needed. Look in the mirror. Ask yourself the three points above in a question format.
Has it gone parabolic?
Is everyone talking about it?
Is there mass stupidity?
The best example today is bitcoin. I have wrote about it to the point of boredom so I will not digress. John McAfee actually said bitcoin can not go into a bubble. He wrote an idiotic op ed. He has given numerous interviews on the subject. He ignores 5,000 years of market history. He will be the poster boy of point 3-mass stupidity.

Conclusion
Never marry your investment. There is a time to sell. Always have an exit strategy. Read this book. Ask yourself this:
Am I the wolf or the sheep?

Presidents and Stock Markets

Partisan hacks are now claiming Donald Trump is responsible for a terrific economy. Novice investors are investing based on this idea. They believe the following:
A successful businessman is now running the country.
He will run the country like a profitable company.
Therefore, I should buy stocks.

Let us start with some facts. The economy has been booming since 2010. I present a few charts to convince you I am correct about this view.

Way before Donald Trump took office the economy was already taking off. We heard from partisan hacks on the right that there was no recovery when Obama was in office. In other words, seeing is not believing.
We heard from partisan hacks on the left that if Donald Trump was elected president, there would be a stock market crash.  An entire year has passed. There has been no stock market crash.
Let me dissect each one of these claims.

A successful businessman is now running the country.
A successful businessman is the President of the US (POTUS), but he is not running the country. Presidents are powerless. What did Barack Obama accomplish that anyone remembers? Obamacare. It is falling apart as I write. Health care prices go up, up and away since the promise of the affordable health care act. Congress and the president can not get any thing done. This is a good thing. Governments can not do anything without hurting some one first. Governments have no resources. They only have what they take from others. Governments can not help group A unless they first take from group B. The only thing good the POTUS can do is undo things. This is not happening. The CFR grows by leaps and bounds each year.

He will run the country like a profitable company.
Countries can not be ran like a business. In the business world there is something called profit and loss. A business man starts a company. If he operates at a profit he is making the consumer happy. The market tells him he is allocating resources correctly. If he incurs a loss he is not allocating resources effectively. The market tells him he must change his ways. If not, he will be faced with financial ruin. Governments do not operate on profit and loss. They have no idea if they are allocating resources effectively. If governments could allocate resources effectively, the Soviet Union would have been a wonderful place to live.

Therefore, I should buy stocks.
After making two false statements they now come to a conclusion. Not surprisingly, when your conclusion is based on two false statements you risk coming to a false conclusion. Lets assume Trump is going to win the next election for the sake of argument. Do you believe a recession is not going to happen between now and seven years? If your only indicator is “Donald Trump is president”, plan to suffer a loss in your investments.

Conclusion
Buying stocks based on who is president is not wise. As demonstrated above, the president does not have much power when it comes to the economy. The Federal Reserve has always been the driving force of booms and bust.