Weekly Musings 44 11-14-11
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For those who are new to the Musings: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights, and thank you for supporting the site.
The Pursuit of Value
Since a number of new subscribers and contributors have joined the Musings list recently, I want to mention my struggle with the ambiguity of value. Simply put, my goal is to provide meaningful value in the Musings that justifies your support and readership of the site.
So what is the value of what we read? Is it to help us make or preserve money in a fluctuating global economy? Is it to challenge our current thinking? Or is it to flesh out key insights into the next decade? Maybe it's to provide a kind of intellectual amusement, "playing" with new ideas.
I find value in each of these, and it is my hope you do, too. Since the Musings are a peek into my notebook, they change scope and tone constantly as what seems valuable fluctuates. In a systems view, fluctuation, dissent, volatility and the low-intensity instability of competition (in this case, between ideas) are the information and feedback that keep systems adaptable, vibrant and systemically stable.
"The Only Trade That Matters"
I recently noted that "the only trade that matters" is the US dollar against every other asset--the euro, yen, equities, commodities, and so on. A longtime reader recently asked me how he could benefit from a rising US dollar other than holding cash. I mentioned the etf (exchange traded fund) UUP, which tracks the DXY dollar index.
I have mentioned UUP before, along with its inverse, the FXE etf that tracks the euro. Many analysts see the DXY as a dinosaur basket of currencies that should be updated to reflect the rise of China, Brazil, et al. That would make sense, but for now what we have to trade is the DXY/UUP, which is weighted roughly 60% with the euro.
If the euro declines, the DXY rises. That keeps it simple. As always, I am not recommending taking any position here, I am only presenting an avenue to invest in the US dollar. Nobody knows the future, and any investment is always a wager at heart.
Can Systems Analysis Make Better Sense of Our World than Ideology?
Since 2008 I have been pursuing the basic idea that looking at our economy and society as a complex system akin to others in Nature offers more insight into future trends than the stale left-right ideological camps. I continue to see this idea as key to understanding the future.
Many readers are confused about whether I am "left" or "right" or "libertarian," as these are the three flavors which we are presented with. I am none of the above because I don't see ideological analyses as having much explanatory value.
Take for example the entire notion that what we might call "Central Planning" is the "solution" to our myriad problems. All the ideologies have implicit faith in Central Planning as the key "solution," and the debate centers around which Central Planning policy should be enforced.
Consider the housing market. One camp--the one currently holding the reins of power--fervently believes that the Central State sould "rescue housing" by propping up the mortgage market and the housing market with brute-force intervention.
To this end, the Savior State and the Federal Reserve have essentially socialized the entire mortgage market, guaranteeing 98% of all mortgages issued in the U.S.
They have also printed $1 trillion in the Federal Reserve balance sheet and bought $1 trillion of impaired mortgages in an attempt to clear the market of "bad debt" by buying that "bad debt" and absorbing all the losses. Since the Fed's balance sheet is purposefully opaque, it can keep the debt on its books at full value.
They have also goosed the housing market by lowering mortgage rates to historic lows and by making FHA the lender of last resort. The Central State has also issued subsidies and giveaways to keep housing values inflated and encourage demand (buying).
All of this massive, unprecendented Central Planning intervention has failed to "heal" the housing market. At best it has propped it up at unsustainable levels for the past three years, at the cost of trillions of dollars in losses being transferred to the Fed and U.S. Treasury.
Various other camps have other Central Planning programs they believe will "fix" the housing market, that is, prop up current values and restore housing as a speculative fantasy open to anyone with 3% down and an income.
If we look at the market from the point of view of systems, we immediately note a fatal flaw: risk has been transferred from those making and accepting loans onto parties which have no stake in potential gains. In other words, risk and reward have been separated.
Lenders have transferred the risk to the Federal agencies who guarantee the loans and to the taxpayers who backstop the "too big to fail" banks. The buyers are limited to a 3% loss while retaining full exposure to any gains. This separation of risk and return creates intrinsically unstable systems.
Stable systems require all participants to contribute value via work or capital, and to share the risk and return of their participation. Systems which transfer risk to someone else while retaining the gain have severed the essential feedback between risk and return.
Central Planning of any type is an intrinsically unstable system, as it is in effect a monoculture with limited feedback. Put another way: Central Planning is at heart a transferral of risk to others while the potential gain is concentrated into a few hands at the top.
I am currently consolidating these systemic-analysis ideas in a new book, tentatively entitled "Resistance, Revolution, Liberation: A Model for Positive Change." My goal is to keep this book to around 20,000 words, to make it as accessible as possible.
Once you start thinking systemically, all the ideological chatter becomes signal noise of the propaganda/marketing machine.
From Left Field
Is this the only accurate gauge of inflation? Measuring thousands of prices seems like a common-sense approach.
Carbo-Load America?
All males and females, all ages, daily intake:
Carbohydrate: 256 g. ( approx. 50% of calories)
Protein: 78.1 g. ( approx 15 % of calories)
Fat: 78.3 g. (approx 33% of calories)
Fannie Mae, Freddie Mac and the Federal Housing Administration now own about a third of the country’s nearly 800,000 foreclosed properties. With that inventory predicted to grow, they are looking for new ways to cope.
The economics of polarization: Excellent charts of property taxes, showing taxes have been rising even as values have cratered.
(via U. Doran)
Thanks for reading--
Charles
