To The Surprise of None, Janet Yellen Does Not See a Bubble in the Economy

Last night, Janet Yellen was accompanied by her three predecessors as Fed Chairmen, Ben Bernanke, Alan Greenspan and Paul Volcker at a forum in New York discussing various issues.

In the wake of Donald Trump declaring that the economy was a bubble, and that a large recession was on the cards, moderator Fareed Zakaria asked Yellen if we really were in a situation ‘as perilous as some on the campaign trail have been suggesting.’ This was Yellen’s response in full:

So I would say the US economy has made tremendous progress in recovering from the damage from the financial crisis. Slowly but surely the labor market is healing. For well over a year we’ve averaged about  225,000 jobs a month. The unemployment rate now stands at 5%. So, we’re coming close to our assigned congressional goal of maximum employment.

 

Inflation which, my colleagues here Paul and Allen, spent much of their time as chair, bringing inflation down from unacceptably high levels. For a number of years now inflation has been running under our 2% goal and we’re focused on moving it up to 2%.

 

But we think that it’s partly transitory influences, namely declining oil prices, and the strong dollar that are responsible for pulling inflation below the 2% level we think is most desirable. So, I think we’re making progress there as well, and this is an economy on a solid course, um, not a bubble economy.

 

We tried carefully to look at evidence of potential financial instability that might be brewing and some of the hallmarks of that, clearly overvalued asset prices, high leverage, rising leverage, and rapid credit growth. We certainly don’t see those imbalances. And so although interest rates are low, and that is something that could encourage reach for yield behavior, I wouldn’t describe this as a bubble economy.

More specifically, her reasoning as to why this can’t be described as a bubble economy:

We tried carefully to look at evidence of potential financial instability that might be brewing and some of the hallmarks of that,

such as

clearly overvalued asset prices,

MW-EB006_overva_20151210143625_ZH

(‘Now’ was December of 2015)

high leverage, rising leverage,

-1x11-1

-1x-1-1x-1NYSE-margin-debt-SPX-since-1995

and rapid credit growth.

fredgraph

 

We certainly don’t see those imbalances.

Ordinarily, one would suggest that she look a little harder, but in this case the suggestion would be futile. The famous Upton Sinclair quote about a man (or in this case woman) not being capable of understanding something when he or she is paid not to understand it is apropos.

Central bankers will never, ever see a bubble ahead of time because that would mean admitting some sort of fault. Central banks attempt to guide and steer the economy through the business cycle, and thus if a bubble arises, it is almost completely of their doing. Thus, they can never admit to it before the fact.

After it bursts, however, all sorts of gnashing of teeth occurs as to why the inevitable crisis was unforeseeable, thanks to some insidious development out of their control. The go-to excuse the last time around was a savings glut in Asia. Who knows what they’ll say this time.

On Tesla’s Model 3 Fanfare

Tesla is one of, if not the most polarizing companies out there, from an investment perspective. You are either a 100% believer in every word that Elon Musk says or you believe that the company is the ultimate hype job. There is usually little scope to be somewhere in the middle, but I am just there.

I do believe that Musk is potentially a transformational figure in the same vein as Henry Ford and Bill Gates. At the same time, Tesla’s ambitions are not backed by the marketplace. They have been at best marginally profitable, and have been trending towards markedly unprofitable in the last year, and rely on substantial government subsidies.

The unveiling of their new Model 3 last week was met with all sorts of fanfare. Bloomberg have even declared that the car has already lived up to the hype, despite the fact that it will not be available until late 2017. This morning, they’ve announced that over 325,000 people paid a $1000 deposit for the car.

In truth, that doesn’t mean very much, beyond the great press. The deposit can be recalled at any time, and as such it is basically a loan from the depositors to Tesla, who will use that money in the production process. The risk for Tesla is that between now and the eventual release date, problems may arise which lead to mass refunds of deposits, which put the company in an even more precarious financial position than it is in. Those problems may include things a simple as the $35,000 price point moving higher, or the release date being pushed further and further back. The Model 3 really has to be a home run for Tesla.

Personally, I hope that it is. But with regards to its stock, I cannot justify the stratospheric levels to which it has risen. Quite frankly, TSLA is a company with a great story but very little of substance to back it up (at this time). It could very well come through in the end, but such premises are not what good investments are made upon. A look at the history of the stock is below:

TSLA

TSLA has achieved its great heights mostly on the back of hedge fund driven momentum buying, a feature of the now 7 year bull market from 2009. Regardless of its financials, the hype of Tesla has been the impetus to new highs.

One investing in this stock would do well to wait until Tesla actually develops a track record of consistency in its sales, projections and deliveries on a lot of the promises Musk has made. In terms of the short term action, it is my belief that it will rally to new all time highs, besting the $291 mark it set in 2014. Naturally, $300 might be a magnet. But from there I do not see how there is much upside, especially given I believe we are in the early stages of a bear market generally. Or, at the very least we are in the beginning stages of a substantial (20-40%) correction in the general market.

Should that be the case, the momentum stocks like Tesla are going to be the hardest hit, and as such one should steer clear of them. That said, a massive decline in the stock would be welcome news for real investors. Looking ahead to late 2017, the potential confluence of a much lower stock price much in line with its current fundamentals, and a smooth Model 3 release, would be a fertile ground to plant the seeds of a good investment.

That time has not yet come, however. Playing in Tesla at this stage is a gamble, and participants should act accordingly.

Election Math: Was Ted Cruz’ Victory in Wisconsin A Turning Point?

Ted Cruz won the Wisconsin Primary last night, taking 40 of the 46 delegates. This leaves the delegate count looking like this:

Trump – 758

Cruz – 505

Kasich – 144

There are 769 delegates remaining.

I’m not going to discuss Kasich the rest of the way given he is irrelevant, and cannot obtain the magic number for the nomination which is 1237. He still trails Marco Rubio, who dropped out nearly a month ago.

In order for Trump to attain enough delegates to win the nomination outright, he will need at least 479 of the remaining 769, or roughly 62%. Cruz would have to win 732 of the remaining delegates, or 95%.

That is pretty much an impossibility, so for all intents and purposes, Donald Trump is the only candidate who can win the nomination on the first ballot at the convention.

Cruz will be mathematically knocked out of winning a majority if he does not win at least 58 delegates in New York on April 19th.

Continuing along those lines, here is a look at the next phase of the election, starting from New York up until West Virginia on May 10:

April 19th:

New York (95 Delegates)

April 26th:

Connecticut (26 Delegates)

Delaware (16 Delegates)Maryland

(38 Delegates)

Pennsylvania (17 Delegates bound, 54 more unbound)

Rhode Island (19 Delegates)

May 3:

Indiana (57 Delegates)

May 10:

Nebraska (36 Delegates)

West Virginia (34 Delegates)

Trump winning roughly 62% of the delegates through this stretch would leave him with about 1000 delegates. If he leaves this stretch with that figure or higher, he will be in good shape heading towards the western states. That means a haul of about 242 delegates, and his home state of NY will be a huge part of him attaining that figure. If Trump sweeps through the April 26th contests, he’ll be well on his way to attaining the figure he needs, with either Indiana or West Virginia putting him over the top. A lot will be determined over the next 21 days.

Turning Point?

Predictably, after the Wisconsin result, there has been much in the way of celebration from everyone but the Trump camp. Recall that the past two weeks have been an all out blitz from the #NeverTrump camp, from Wisconsin conservative talk radio, to GOP establishment figureheads like Scott Walker.

Trump made a few unforced errors as well, which didn’t help him, but at the end of the day the fact that Wisconsin is a different breed of conservative didn’t help him. The radio hosts told him as much the minute he landed in the state. Exit polling showed that Wisconsin Republican voters were less ‘angry’ at the system in comparison to other states. In short, the state of Wisconsin is fine with the status quo as it is. That never augured well for Trump.

This is not a turning point, however, despite what the media and Cruz camp are trying to say. What Wisconsin happened to be was the perfect storm. RNC chairman Reince Priebus, governor Scott Walker and Speaker of the House Paul Ryan are all Wisconsinites. Anti-Trump SuperPACs spent tens of millions in the state. Multiple talk show radio hosts, all with heavy influence on the electorate, are all anti-Trumpers. Charlie Sykes, one of those radio hosts, bluntly laid out the motivations for supporting Cruz on MSNBC yesterday:

I’ve said Ted Cruz is not my first choice, my second choice, or my third choice, but he’s the guy right now who is the only guy that can stop Donald Trump from getting 1,237 and the only candidate who can stop him in Wisconsin. He is the guy. So I am more anti-Trump than I am pro-Cruz, but Ted Cruz acceptable enough to Wisconsinites.

Cruz is acceptable enough to Wisconsinites, and indeed the GOP, for now. His only use to the GOPe is to stop Trump from getting a majority. Having done that, they’ll drop Cruz like a hot potato at the convention and go for someone else.

It baffles me that Cruz supporters are so blind as to think that they actually have a shot to win the nomination. The real feeling about Cruz among most of the GOPe is that he is terrible, but at least he is the devil we know. Whereas Trump is a total wild card.

In truth, the only reason Cruz has come this far is because the Trump phenomenon made room for Cruz as an ‘outsider.’ If Trump had never entered, there is no way Cruz could have made such an inroad. He would have had to be as brash as Trump was at the beginning, but given the way he has been treated in national politics and the media since his rise to the senate, he would have been discarded quickly. As I wrote a few weeks ago, Trump is probably the only man in America to actually make a real ‘outsider’ viable.

This is precisely why Cruz stayed silent when everyone and their mother denounced Trump in the summer and fall of 2015. Cruz was doing this because he recognized that the real fight was between the outsiders and the GOPe, and that by biding his time, allowing Trump to build up the ‘outsider’ side of the ledger, he could come in later and try and fight him for it. Had Cruz gone after Trump earlier, he would have aligned himself with the GOPe side and been blown out quickly.

At this stage of the game, now that all real establishment threats have gone to the wayside, the only thing that could benefit the GOPe is a fight between the ‘outsiders,’ Trump and Cruz, that could leave both unable to achieve a majority and thus put the GOPe back in control at the convention.

Of course, Cruz isn’t a real outsider, in the sense that he has been in the Washington system all of his career. He is a system man who nobody likes, not because he wants to change the system necessarily, but because he expedited his rise through the ranks by playing at being the outsider.

At the end of the day, he still has to make concessions to the system, which is the reason that those wanting real change should back Trump. Trump may not be the PRINCIPLED CONSERVATIVE everyone wants, but those principles have no place in the current political system outside of the fringes.

This is what #NeverTrump people don’t get, and it was evident in Wisconsin over the course of the last two weeks. If you want real PRINCIPLED CONSERVATISM in 2016, the current system has to look a lot different. In reality, the current culture has to look a lot different. You aren’t going to change it toiling in the doldrums of Politics As Usual. You have to burn the house down and start again. Which is what Trump represents.

Once a Trump-like candidate, warts and all, finishes his work, the likes of Ted Cruz, the Pauls, and whoever can actually impart their PRINCIPLED CONSERVATISM from a place of strength, rather than fighting against the machine. If last night was indeed a turning point, the machine will remain, and PRINCIPLED CONSERVATISM will achieve nothing more than token senate seats and marginal presidential primary runs.

Reality Doesn’t Care About Feelings: Volume 2 – Michelle Fields vs Corey Lewandowski

The press is to have an adversarial, yet civil approach to those in, or running, for elected office. Never in this line of work is it acceptable to respond to reasonable and legitimate questioning with use of physical force. The photographs, audio, videos, and witness accounts documenting the treatment of Michelle Fields by Corey Lewandowski, Donald Trump’s campaign manager, are inexcusable and unprofessional. Donald Trump should immediately remove Lewandowski from his campaign. However unlike the Trump campaign, we believe in making a statement on the record to clearly highlight the difference between right and wrong.

The above quote was from a press release signed by 16 conservative females in response to the developments surrounding an incident which took place between Corey Lewandowski, Donald Trump’s campaign manager, and Michelle Fields, a reporter. The full letter is below:

medialetter

By now this incident has been discussed to death, mostly because it is a Trump mishap. If you’ll notice, the vast majority, if not all of the signatories are anti Trump pundits, and as such, this sort of story is heaven sent. It seemingly allows them to further push the idea that Trump is a woman hating Neanderthal who is dangerous and bad. It also seemingly gives credence to the idea that there is a specter of violence surrounding the Trump campaign, which does not bode well for the country as a whole should he be elected president.

This allowed the other candidates to gain cheap points by pandering to women. Given the other candidates all have an interest in any anti-Trump talking point, they were all more than happy to pile on with the outrage. The story hasn’t completely died, because of the way Trump has responded.

Instead of immediately firing Lewandowski, who has been charged with battery over the incident, Trump went on the offensive and has defended his campaign manager at almost every turn. That continued last night on Sean Hannity’s show on Fox.

That appearance led to even more outrage from the anti-Trump crowd still pushing this story, and Fields in particular. In the following exchange with Hannity on Twitter, she accuses him of not having her back and letting Trump off scot-free:

Capture.PNG1

The Reality

Just in case you still haven’t seen the incident, and aren’t sure what I’m talking about, the following is security footage released by the Jupiter, Florida police department.

If you’re not sure what you’re looking at, at the start of the video Fields is in the cream colored top walking next to Trump, attempting to ask him a question. From about 0:03 to 0:08 in the video is where the alleged battery takes place.

Shortly after the conference had ended, Fields penned this piece for Breitbart, describing her version of events (emphasis mine):

On Tuesday night, I went to cover Donald Trump’s press conference at the Trump National Golf Club in Jupiter, Florida. I was looking to cover the event like I have covered many live political events for Breitbart News, including an uneventful Trump press conference in Palm Beach the week before. 

 

Addressing the gathered reporters and the nation at large, Trump was in an especially jovial mood Tuesday night. The networks just declared he had won the Mississippi Republican primary and, during his speech, that he won Michigan Republican primary as well.

 

 

I wasn’t called upon to ask a question during the televised press conference, but afterwards Trump wandered around, stopping at every reporter to take their questions. When he approached me, I asked him about his view on an aspect of affirmative action. 

 

Trump acknowledged the question, but before he could answer I was jolted backwards. Someone had grabbed me tightly by the arm and yanked me down. I almost fell to the ground, but was able to maintain my balance. Nonetheless, I was shaken.

 

 

The Washington Post’s Ben Terris immediately remarked that it was Trump’s campaign manager, Corey Lewandowski, who aggressively tried to pull me to the ground. I quickly turned around and saw Lewandowski and Trump exiting the building together. No apology. No explanation for why he did this.  


 

Even if Trump was done taking questions, Lewandowski would be out of line. Campaign managers aren’t supposed to try to forcefully throw reporters to the ground, no matter the circumstance. But what made this especially jarring is that there was no hint Trump was done taking questions. No one was pushing him to get away. He seemed to have been happily answering queries from my fellow reporters just a moment before.  

 

Many people have been asking me on Twitter and in emails what exactly happened Tuesday night. I hope this article answers those questions and I can get back to reporting the news, not being a part of it. 

Lewandowski responded via this tweet:

Capture.PNG2

This is what kicked everything off, as Lewandowski essentially called Fields a liar and claimed to have never touched Fields. At time, Trump responded to a question about the incident by saying that Fields may have made the whole thing up. Note that at the time of Fields’ account on Breitbart, and Lewandowski’s tweet, there was no video.

Once the video came out, the knives came out for Lewandowski and Trump for claiming the incident never happened, and in particular over their language intimating that Fields was a crazy lady making things up.

The position that the Trump team have been lying and smearing Fields is on weak grounds, however. This is because of the discrepancy between the video evidence, and what I have highlighted in Fields’ statement. Any rational human being can see in the video that Lewandowski did not try and forcefully throw Fields to the ground. She did not almost lose her balance, she did not seem shaken, there was not any element of violence from Lewandowski.

It was that accusation, specifically Fields’ insistence in Breitbart that she had been brutally assaulted Mortal Kombat style, which was so thoroughly denounced by Lewandowski and Trump. 

Yes, Lewandowski did literally touch Fields. However, he was responding to allegations that he had violently thrown a reporter to the ground. Imagine that, for example, you were walking in a crowd and bumped into a random person, but kept going without apologizing. Then, two days later, the police came to your house and said that you punched that person in the face, leaving that person hospitalized, and were now under arrest.

Most people would be totally incredulous, and claim that the accuser was deluded. Given that bumping into someone in a crowd is such an inconsequential thing that it wouldn’t register in one’s memory, it is easy to see how one would say they didn’t even touch the accuser, let alone landed a blow worthy of hospitalization.

To be sure, Lewandowski was completely guilty of being impolite, rude, and perhaps even unprofessional. However, anyone who has ever been in a crowded public space has been subject to that sort of behavior and worse from others. I’m sure this morning alone, hundreds if not thousands have undergone similar ‘assaults’ in the NYC subways on the way to work.

As such Lewandowski (and Trump) both suggesting that Fields was a bit deluded isn’t an egregious thing, because the truth is that she did grossly embellish what happened. The fact that we even have the video above is because Trump’s security reviewed it and gave to the police voluntarily, in order to absolve Lewandowski. The Trump team correctly came to the conclusion that the whole thing was much ado about nothing, and figured that the video would show that.

Instead, the response was the week long media storm that I previously alluded to. It has been driven by the #NeverTrump movement in conjunction with the usual suspects in the liberal and conservative establishment media. What is more interesting than that however, is the calls for Trump to fire Lewandowski, and his refusal to acquiesce. It is a microcosm of a larger issue that plagues our society.

We are now living in a society in which allegations and accusations are more or less equal to convictions. This is most prevalent in sexual assault cases, where the accused male is dragged through the mud for simply being accused. If the individual is high profile enough, he generally has to resign, endorsements are withdrawn, and so forth. Whether the accused is actually guilty or not is of little consequence.

In other words, the truth is of little consequence when it comes to the feelings of the Social Justice Warrior outrage mob. This episode is particularly interesting given the fact that the 16 signatories of the letter asking for Lewandowski’s dismissal are purportedly conservative, and have railed against some of the tactics of Social Justice Warriors in the past.

Yet, they are now happy to employ those same tactics when the subject is Donald Trump. That belies an inconsistency within the mainstream, establishment faction of the GOP which is at the very heart of its current demise, and simultaneous rise of Donald Trump.

This is exactly why the GOP establishment is out of touch with everyday Americans. They see a video like the one above, and see a man being extremely rude. Most people brush it off a few seconds later. So, when they see that police charges, and calls for being fired, all over the same incident, they scratch their heads. Not because they are wondering what they could have missed, but because they are wondering how one can be so disingenuous one can be in attacking a rival.

My advice to the #NeverTrump crowd is to let this one go. The more the public sees of this incident, the more they will come to the conclusion that the media is dishonest, and that Trump is right. Trying to convince people not to believe what their lying eyes tell them is only going to make them stop and think. They will wonder why everyone from all corners of politics, and the big interests are going to such lengths to denounce Trump, and they will come to the conclusion that the man who everyone is slinging mud at  is actually favorable to the mudslingers, when it is clear they are dishonest.

Market Update – Bears Last Stand?

The last five to six weeks have been quite painful for those who are bearish on equity markets, as they have been swept aside by a short squeeze which has been historic in nature. The US markets opened the year with its worst start on record in response to the rate hike of December 2015. This led many, including myself, to believe that a 2008 style year was on the cards.

My view is still that we are in a bear market, or at the very least in the midst of a real correction, the likes which haven’t been seen since 2012. This is based on the basic fact that the Federal Reserve, which has been the main driver of the now 7 year long bull market, has for at least 2 years taken its foot off the gas. The impetus for equity price appreciation has now gone, and it is still my base case that there will not be any new highs in the S&P 500 without the Federal Reserve going back on its current normalization path.

Janet Yellen may have already reversed course, given her extremely dovish speech at the Economic Club of New York last week. This reverse course has come in the shape of a reduction in the number of planned rate hikes for 2016, from four to two. It remains to be seen what actually happens, but if the Fed stays where it is, it is unlikely that prices much higher. Having said that, the rally from February 10 has been impressive. Below are two charts of the S&P 500 futures, over the last four years, and the last three months respectively:

ESWEEKLY ESFOURHOUR

The white moving average on all charts is a 55 period moving average. The top chart, a weekly chart spanning 4 years, shows that indeed the bull has at least come to a resting point over the last 18 months. Momentum, which is indicated at the bottom of the chart, has also stalled out and acted negatively over that time frame.

The main point of contentment for bulls is the failure of prices to break the 1800/1850 area, as indicated by the yellow band. Particularly impressive was the hold and sharp rebound in early February, which has been the genesis of the current rally. This rally is highlighted in the second chart above. It has been quite orderly, respecting the moving average as it slogs higher, further demoralizing bears. It is at a key area though. If the bears are to remain in control, price is going to have to stall out here and reverse lower. Should we see 2100 again, it will surely be the time to throw in the towel in terms of shorting the market. It wouldn’t necessarily be a time to open new long term positions, given the flirtation all time highs, but it would be a significant defeat for those looking for a significant correction to the long term bull. As a result, I believe that the next few weeks of price action will be Incredibly important.

 

Crude Oil Futures

 

The following is a chart of Crude Oil over the last 20 years or so:

CLWEEKLY

The devastating move lower since 2014 has been one of the major talking points in finance. On a technical basis, I believe that the easy money has already been made on the short side, and there is a limited downside to come from here, at least in terms of a nominal price decline. As you can see, I’ve drawn in levels at $25 and $17ish, which are roughly 30-60% away from current levels. That is no slouch in terms of profit potential.

My current view is that price ‘wants’ to see something in the low $20s, and perhaps even lower if there is a capitulation type of move. It would make sense technically as well, given the fact that $25 is a major bottom, as is the $17/18 area. $20 is a major psychological level as well.

CLDAILY

CLFOURHOUR

Having said that, there is a lot of talk about the bottom in Crude, which is why I suggested that the ‘easy’ money has been made already on the short side. There is constant talk of production freezes and reductions, which are meant to boost prices. I do think the simple fundamentals are going to prevent any material price increases for now, and the technicals support that as well. The top of the two charts show the action over the last 12 months, which is decidedly bearish.

The bottom chart shows the current upswing, which like the one in stocks began in early February. Price is currently at an extremely important level, $36ish. A break below would probably see prices quickly deteriorate, back towards $31. Holding at these levels and trending back towards the $40s may indicate that a legitimate respite from falling crude oil prices may in fact be on.

Gold

 

GOLD WEEKLY

The above weekly chart represents the last 4.5 years of action, all of it spent declining from the peak of 1923 in September of 2011. As you can see, it has respected the moving average up until the beginning of this year, when it spiked higher. A closer look at the move below:

GOLDDAILY

I’m inclined to believe that gold has made a secular bottom, and will now resume the uptrend that it began way back in 2001. In terms of a shorter term outlook, the move from 1050 to 1287 is in the process of being retraced. I’ve highlighted a band which should be instructive. Holding those levels and making a further high from here should confirm that the bull market is back on. Breaking back lower towards 1050 suggests it hasn’t begun just yet.

 

US Dollar

 

DOLLARWEEKLY

DOLLARDAILY

Another of the major talking points in finance over the last four years has been the performance of the US dollar. It has been a one way street for 4+ years, going higher, as is shown in the first chart. The second chart shows the churn prices have faced over the last 18 months or so.

Telling price action for me was the move to new highs in late 2015 followed by an abrupt reaction lower. This suggests to me that the next major move in the Dollar Index is lower, and price is seemingly in the process of travelling along that path. Early targets are the range lows at 92, and failing that, the area between 86 and 90 is one of great interest.

 

Until next week, happy trading.

Reality Doesn’t Care About Feelings, Volume 1 – Novak Djokovic

Novak Djokovic got himself in some hot water with the cultural intelligentsia this week for making some comments related to the subject of equal pay in tennis. He was asked to respond to the remarks made by Indian Wells tournament director and CEO Raymond Moore last Sunday about women’s tennis:

Moore said before the finals that the WTA ‘rides on the coattails’ of the men, and ‘If I was a lady player, I’d go down every night on my knees and thank God that Roger Federer and Rafa Nadal were born, because they have carried this sport. They really have.’

In response to a question about Moore, Djokovic engaged in the following exchange:

afaead

afaeadfad

 

Feelings

 

This led to a spate of outrage from the usual suspects over the fact Djokovic did not perfectly conform to the company line when it came to equal pay, and thus was branded a sexist by many outlets. Some of the juiciest cuts of cantankerous complaining were served by Kevin Mitchell of The Guardian, who lamented the fact that while Djokovic has an ‘all-embracing cosmopolitan awareness of issues beyond his own sport,’ he also ‘has a beast button.’

Mitchell struggles with his thoughts throughout the remainder of the piece, seemingly saddened that such a great tennis player could succumb to such ‘disturbing’ points of view. He then pivots to worrying about tennis, sport, and society as a whole, wondering how much sexism there still is in society.

This concern over the wider implication of Djokovic and Moore’s words was a constant in most of the write-ups around the internet. There was an underlying fear that a top player such as Djokovic could even be capable of having such backward thinking in 2016, and the surfacing of that fact potentially threatens the work that women in sport have done to achieve equality.

The bottom line: Women should be paid exactly the same as men without question. To think otherwise in 2016 is absolutely absurd.

 

The Reality

 

Out of all of the hot takes I read on the matter, only Tom Fordyce at the BBC even attempted to address the substance of Djokovic’s point, daring to look at the actual data instead of instantly dismissing Djokovic as some sort of cretin from the 1940s like everyone else did. Despite the evidence going against his prejudice, Fordyce to his credit posted it, although he tried hard to explain why the data doesn’t mean what it says on the surface.

tennis1

Fordyce doesn’t believe that the fact that the men drew nearly 600 million more viewers than the women did last year should mean that the men should automatically get paid more. He writes:

That, at best, is only a selective argument. Most tennis fans describe themselves as exactly that – lovers of the game, rather than one tour above the other, with the usual partiality for a particular player more likely to be based around their character and on-court style rather than gender.

It is also only selectively true. As Serena pointed out after her final in California: “Last year the women’s final at the US Open sold out well before the men.”

Most articles on the subject were quick to point out that US Open Women’s final from 2015, which sold out in hours, much faster than the men’s did.

This is explained easily, as the US Open final was likely going to be a historic match. Serena Williams had won the previous three grand slams of 2015, and was heavily favored to do so at the US Open, making her the first player to do so in 27 years. Given that she is also an American, her completing that feat on American soil, while also embroiled in a quest to be the most decorated grand slam player of all time, that final was set to be a once in a lifetime event. It’s no wonder that tickets sold out instantly.

To be sure, when Williams lost in the semifinal, ticket prices for the final on StubHub plummeted between 40% and 75% within minutes. The interest was in Williams creating history, not in women’s tennis in general.

That raises an interesting line of reasoning to traverse. Ultimately, the interest in tennis is what generates revenue, largely via television deals. Given the aforementioned increased viewership for men’s tennis versus women’s tennis, it should follow that the TV deals reflect that. Fordyce mentions this, writing:

Men’s tennis already earns far more from broadcasting rights than the women’s game. The latest WTA media deal is worth £365m over 10 years; Stuart Watts, CEO of ATP Media, is forecasting £904m revenues over same period.

The men’s tour draws more eyeballs, which in turn equates to more advertising, ticket and television revenue, which in turn means higher prize money for the men. There is nothing wrong with this.

tennis2

An important detail to point out is that there are mens-only and womens-only tournaments outside of the majors. It is here where the disparity in pay really shows itself. In the major events, pay is more or less equal as a rule, not based on the interest garnered.

Some have claimed this is understandable, given the two tours are mashed together in one setting. The biggest individual personalities, male or female, draw the biggest crowds. There are periods in tennis in which there are more star names on the men’s side than the women’s side and vice versa. There is an argument to be made, then, that in those years in which the women draw more viewers, and thus more revenue, they should command a higher prize pool to reflect that.

In fact, Djokovic was literally asked this in the original exchange, and clearly said that if female players attract more attention, they should be paid more than the men. Yet his unambiguous consistency in this regard, the complete opposite of sexism, was deemed disturbing and evidence of the ‘beast’ within.

When including all of the tournaments, men earn more in prize money because they entertain more eyeballs. Fordyce tries to explain this away, as many do, by saying that it is because of a bias in marketing, and a cultural preference for male sport:

It reflects too a historical cultural predisposition to male sport, the way sports broadcasting is frequently marketed at a predominantly male demographic, how the rest of the mainstream media devotes so much more coverage to men’s sport than women’s and so influences demand.

If only marketers were even-handed in their efforts, the argument goes, people would flock to women’s sports more. The simple truth is that the men offer the better product. That is, men are on the whole better at tennis than women.

In 1998, both Serena and Venus Williams were convinced that they could beat any male player outside of the top 200 in the men’s rankings. Note, already off the bat, they themselves estimate that their vastly superior, all-time great talent in the female game only translated to the equivalent of 200th at best in the men’s game.

They were given an opportunity in the shape of Karsten Braasch, who was ranked 203rd at the time. Preparing for the match with a round of golf and a few beers, he quickly dispatched of both sisters, beating them over two sets while only losing 3 games. The thorough beating led to the sisters calibrating their claims, to perhaps only being able to challenge men outside of the top 350.

This phenomenon has been seen in other sports as well. The US Women’s soccer team, another team who many have highlighted as being injusticed compared to the men despite generating less revenue, regularly lose friendly matches to teams made up of above average 15 and 16 year old boys. These boys are in no way elite on the global stage within their own age group, let alone amongst older players. Yet they have no issue besting the best female players in the world.

The reality is that people flock to the better of two products when both are on offer. The men’s game is better than the women’s, which fully explains the higher draws to the former. I’ve seen remarks in comment sections that this matter could be settled once and for all by not segregating men and women, just having one tournament which all professional tennis players can enter.

This would be disastrous for female players. The current set up for majors for example, is a men’s tournament of the top 32 players, and a women’s tournament of top 32 players. A combined event of the top 64 players would simply be the top 64 men, given the most dominant female player perhaps of all time can’t last with a marginal men’s player.

For the record, I enjoy watching the Williams sisters, Maria Sharapova, Victoria Azarenka and other top women, but the only reason they are afforded the opportunity to earn millions in prize money and endorsements is because of the very recognition of gender differences that some all of a sudden pretend is sexist when it comes to equal pay.

In other words, by segregating men’s and women’s professional tennis, the women are benefited by not being judged to the same exact standard as men are. And this is correct, because men and women are fundamentally different physically. This fundamental difference affects how each gender plays the game, and in turn how much they can draw in terms of revenue. Such realities will never be changed on the basis of baying about equality. Reality always comes out on top.

Speaking of Sharapova, Fordyce points out another inequity – the difference between Sharapova and Williams’ endorsements:

If there is an argument about who is paid what in tennis, it might more profitably be focused on the more jarring incongruities – how Maria Sharapova, who has won a grand total of one set in her past 14 matches against Serena, could nonetheless have yearly earnings that dwarf those of the 21-time Grand Slam singles winner.

In light of Sharapova’s impending drugs ban, those endorsements will surely diminish. However, the disparity in endorsements between Williams and Sharapova is painstakingly obvious to those who deal in reality, versus being caught up in feelings. Observe the following image:

176283

Sharapova endorses products such as Porsche, Avon, Tag Heuer, and Tiffany & Co. In other words, high end glamour products. Her body type, which is far more feminine than Serena’s, is more conducive to such advertisements, given they heavily rely on image and visual cues. There’s no other reason for it, and it is totally appropriate.

Serena’s unquestionably superior CV doesn’t matter a jot in this instance. You’re buying into an image with respect to these products, not a track record.

In the end, Fordyce points out that sport is one of the few industries which is a true meritocracy. He is right, and that is why at the end of the day, Djokovic is right as well. Whoever draws the biggest crowd should be paid according to that revenue which is garnered. His comments were not sexist, and his subsequent apology tour as a result is unnecessary.

That backtracking is telling, however. Djokovic likely still feels the way he felt in his original comments, but owing to the climate in which he works, standing by them might mean calls for a boycott, pressures on sponsors, and strained endorsement partnerships. His livelihood could be threatened by such overt deviations from the politically correct narrative.

This highlights the fact that the current outrage culture is more controlling and oppressive than anything that came from Djokovic’s mouth last Sunday. The fact that the direction of this oppression is towards the shunning of reality is what should cause worry, not the reality itself.

On Donald Trump’s Business Failures

One of the talking points Donald Trump has used thus far in his campaign is the fact that his stellar business acumen is exactly what the United States needs. In other words, whatever was in his brain that allowed him to earn a fortune of $10 billion will enable him to do great things for the country.

Naturally, his opponents have made claims to the contrary, and it’s easy to understand why. If they can show that Trump really isn’t as good of a business man as he claims, the rationale for electing him is greatly reduced. Unfortunately for those making the claims, they’ve only displayed their ignorance.

There have been many instances of this argument over the last few months, but I’d like to focus on two recent ones. First, from Gawker:

So to commemorate our country’s imminent President Trump-wrought downfall, we’ve compiled every major, non-real estate-related Trump business disaster out there (we think). Because while we aim for completeness, the man has failed—a lot. If you know of anything we missed, please do let us know down below. And Donald, good luck with that wall.

 

They then go on to channel Mitt Romney and name 15 initiatives that Trump tried which didn’t work out – Trump Steaks, GoTrump.com, Trump Airlines, Trump Vodka, Trump Mortgage, Trump: The Game, Trump Magazine, Trump University, Trump Ice, New Jersey Generals, Tour de Trump, Trump On The Ocean, The Trump Network, Trumped!, Trump New Media.

Sounds like a lot of failure, until you understand that there are, at least currently, 515 separate entities which Donald Trump, through his Trump Organization, either owns or is a major investor in. Many of those may end up in the scrap heap as well. There are probably many more businesses Trump has owned in the past which failed, or he took a loss on, as well as many others he sold for a profit.

The bottom line is that coming up with a list of 15-20 business failures does nothing but show that Trump has tried a lot of things. People who declare Trump a business failure on the back of that simply don’t understand business in general. Business is about anticipating the demand of the marketplace and attempting to supply that demand.

You might be right, or you might be wrong, but you won’t know for sure unless you attempt to meet that demand. If you’re wrong, you cut your losses and move on. Between 70% and 90% of new business ventures fail, depending on who you talk to. There is nothing wrong with this unless you fail to learn the specific lessons from each experience.

Furthermore, the math is firmly in Trump’s favor. 15 failures against 500+ profitable companies (perhaps), works out to a success rate of about 97%. That seems pretty strong to me. Business is a lot like baseball, in that a success rate of 3 out of 10 in baseball makes you a Hall of Fame player. In business you only have to succeed a handful of times to be a success, as long as those successes are larger than your failures. Indeed, Thomas Edison failed 10,000 times before getting the light bulb right once, and his name is forever etched in history.

The truth is that you only have to be a success one time to be a success in business, let alone several hundred times like Trump has. That line of argument is totally bankrupt.

****

So is this argument, most recently brought about by Senator Elizabeth Warren in a recent Twitter tirade. Here it is:

Biz2

I haven’t actually looked at the math, but I’ll take this argument at face value. Even if it is true, it falls apart very quickly on two levels. The first is that it requires Trump to have bought the market at the exact low point in 1974, and held on for 40 plus years without drawing one cent for food, clothes, lodging, and whatever extravagant lifestyle he might have wanted. On top of that, he would have had to sell out at exactly the right time at the 2015 high. Completely unrealistic.

The other way in which this argument fails is the simple fact that Trump went out and built things with his inheritance. The skyscrapers, hotels, golf courses and so forth created tens of thousands of jobs, and facilitated all sorts of economic activity that would not have existed if Trump had put that money in an index fund instead.

In fact, if every single business person in 1974 had put all of their money in an index fund, instead of putting it towards whatever tangible businesses that money was put towards, all that would have happened is that the stock market would have exploded higher and then crashed. The reason being, the very business activity which stock prices and index funds rest on would never have happened.

In other words, the only reason those index funds performed as well as they did from 1974 to the present is precisely because of people like Trump who built things and facilitated the economic growth those index funds are a derivative of.

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It’s incredibly ironic for a woman like Senator Warren to be trying to undermine Trump in this manner given her entire claim to fame has been her belief that Wall Street is the cause of all that ails us, from cancer to war, famine and pestilence. You would think that someone who thinks Wall Street collects money without doing anything to benefit society would not ridicule someone who actually did benefit society. Not only that, Warren ridiculed Trump for not just parking money in a derivative instrument and sitting there collecting the profits.

Such is politics, where blatant contradictions are the norm. Mitt Romney is also guilty of this, as he surely knows better. But he made a disingenuous point for political purposes. Despite Gawker’s attempt to drop the mic on Trump’s business acumen, he is a unquestionable business success. You simply don’t go from a few million to a few billion in net worth otherwise.

A Few Words On The Belgium Attacks

There is something going on…Go to Brussels. Go to Paris. Go to different places. There is something going on and it’s not good, where they want Shariah law, where they want this, where they want things that — you know, there has to be some assimilation. There is no assimilation. There is something bad going on.

You go to Brussels — I was in Brussels a long time ago, 20 years ago, so beautiful, everything is so beautiful — it’s like living in a hellhole right now

  • Donald J. Trump (26 Jan 2016)

 

I’m not going to beat around the bush here. What happened in Brussels was a direct consequence of the weak, appeasing doctrine that is multiculturalism, and its parent doctrine cultural Marxism. I’ve written about this doctrine multiple times on this blog, and at its core is a view that the West is full of unnecessary repression which must be removed so man can be truly free.

In the context of culture, Western civilization was erected on things like the rule of law, individual rights and personal freedoms. Whatever it is about Muslim culture, it doesn’t mesh very well with Western values. You can come up with whatever reasoning you like as to why, but the basic truth is that it is not compatible with Western ways.

This is not in any way racist or ‘Islamophobic.’  I have no issues with a multi-ethnic society. That is, a multi-ethnic society that retains the same Western values, specific to the nation involved. A multi-ethnic nation which speaks the same language, follows the same customs, respects the same traditions upon which that country was founded and made into an attractive place to live. This is all fine.

What is not fine is the importation of various world cultures into one nation and expecting the foreign cultures to have a say in the daily life of the host country. That is an invasion, an erosion of what made that country attractive in the first place.

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The cultural Marxist appeal to tolerance seeks to promote the views of the ‘oppressed’ at the expense of the ‘oppressors.’ In this context, the (nominally) Christian oppressors in the West must be held down in order to appease the oppressed Muslims. This is how you get nonsense like the following:

jt2cls

To be sure, the #stopislam trend on Twitter is not the most appropriate response in the world, but the idea that being offensive on the internet is worse than a terrorist attack in which over 30 are killed, hundreds more injured, infrastructure damaged and thousands of lives irreparably damaged is incredibly disturbing.

There were many tweets similar to the one posted above in response to the hashtag. In addition to that, there were countless voices who preemptively struck down the ‘right wing racist rhetoric’ that was sure to follow in the wake of the attacks.

To me that shows the level of indoctrination that is rampant in the West today. It has reached, dare I say, nearly the same levels that Nazi Germany reached, albeit not in the same way. The Nazis convinced their people that anyone who didn’t look like the ‘master race’ was basically subhuman and rife for Nazi control.

Cultural Marxism preaches something similar, except that anyone who does look like the master race, or is a member of the master gender, master sexual orientation or the master religion should not be tolerated. Cultural Marxism is on some level a reverse Nazism.

That’s the only way you can cultivate a mentality that places the ridicule of an ‘oppressed’ minority religion as a greater offense than the slaughter of nearly three dozen of your countrymen.

At some point, the average citizens will start to sour on the notion of multiculturalism, and the cultural Marxist viewpoint in general. The empty platitudes of Prime Ministers, candle light vigils, and lighting up of tourist attractions in the colors of affected countries will start to enrage people rather than sadden them.

The social media ‘activism’ which involves trendy hashtags and Facebook filters will also continue to ring hollow, given the same people participating in these ‘look-how-solemn-and-grave-I-am-for –remembering-the-dead-and-showing-solidarity’ exercises are the same people who declared that anyone who wanted to think twice about allowing hordes of Syrian refugees into the country no questions asked was a bigot.

The truth is that these ‘bigots’ were more interested in the preservation of their culture than submitting to politically correct concerns. That is the same choice the United States electorate will have in the fall. Piers Morgan wrote a strikingly accurate column today in the Daily Mail. Surprising, because I rarely agree with Piers Morgan. But I suggest you read the column in full. I’ll leave you with his closing comments:

Hate Donald Trump all you like, but at least he seems to recognise the magnitude of the threat and at least he has firm proposals for how to try to defeat it.

 

They may not win him the Politically Correct Pontificator of the Year award. But how many more scenes like this morning’s appalling images from Brussels are we going to tolerate before we try a non-PC option to beat these disgusting excuses for human beings?

 

At the end of our interview, I asked Donald Trump to send a message to the large majority of non-violent, decent Muslims who are as disgusted by these attacks as the rest of us.

 

‘I have great respect for Muslims,’ he said, ‘I have many friends that are Muslims. I’m just saying that there is something with a radicalized portion that is very, very bad and very dangerous. I would say this, to the Muslims, when they see trouble, they have to report it, they’re not reporting it, they’re absolutely not reporting it and that’s a big problem.’

 

Is he so wrong?

 

The Paradigm Shift

Elizabeth Warren is not a happy woman. The Massachusetts senator went on a Twitter tirade yesterday against Donald Trump, calling him a loser, a business failure, as well as putting forth the typical suite of tired claims that he’s a racist, sexist, and so forth.

Warren has made her name positioning herself as a staunch defender of the little guy against large interests, Wall Street in particular. Her comments are not so out of the ordinary in that sense. What is peculiar is the seemingly hysterical manner in which she made them. This was an 11 tweet stream of consciousness that seemed to be coming out of desperation. The desperation, in turn, stems from the fact that is that Donald Trump, and all that he represents, is clearly not going away, and even stands a good chance of becoming president. I’ll go through some of her tweets to understand what she, and by extension what has become of ‘polite society,’ are so fearful of in a Trump presidency.

American Values

Warren’s tirade was split into two parts. The first focused on Trump’s business and personal failings, decrying him as a loser. It then transitioned into why such a loser would be dangerous for the country. The above tweet is at the beginning of that phase of the rant, warning Americans Trump is prepared to tear down America’s values.

Her specific wording is telling. ‘An America that was built on values like decency, community, and concern for our neighbors,’ refers to America is at it stands now. However, that is not the original America. That America was built on values such as individualism, personal freedom and self-determination.

The replacement of the original America with the one of which Warren speaks was a gradual one, and it spanned across economic and cultural milieus. More specifically, the rise of the Cultural Marxist viewpoint has come to form the backbone of modern Western values.

I referenced Cultural Marxism extensively in my piece last week about the cultural importance of a potential Trump presidency. I briefly described the role of Cultural Marxism as it applies to the current culture of perpetual outrage and victimhood. I’ll now spend some time going into the academic history behind cultural Marxism.

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First, I must point out that leftists go to great lengths to try and pretend that the concept of Cultural Marxism doesn’t exist, and that those who use the term are merely right wing extremists who use the term as a dogwhistle to conceal their bigotry. This article from Jeremy Wilson of The Guardian is a good example of how far those lengths are. I mention it because in trying to discredit the concept, it also contains a quick and dirty summary of the origins of Cultural Marxism:

It begins in the 1910s and 1920s. When the socialist revolution failed to materialise beyond the Soviet Union, Marxist thinkers like Antonio Gramsci and Georg Lukacs tried to explain why. Their answer was that culture and religion blunted the proletariat’s desire to revolt, and the solution was that Marxists should carry out a “long march through the institutions” – universities and schools, government bureaucracies and the media – so that cultural values could be progressively changed from above.

 

Adapting this, later thinkers of the Frankfurt School decided that the key to destroying capitalism was to mix up Marx with a bit of Freud, since workers were not only economically oppressed, but made orderly by sexual repression and other social conventions. The problem was not only capitalism as an economic system, but the family, gender hierarchies, normal sexuality – in short, the whole suite of traditional western values.

 

The conspiracy theorists claim that these “cultural Marxists” began to use insidious forms of psychological manipulation to upend the west. Then, when Nazism forced the (mostly Jewish) members of the Frankfurt School to move to America, they had, the story goes, a chance to undermine the culture and values that had sustained the world’s most powerful capitalist nation.

 

The vogue for the ideas of theorists like Herbert Marcuse and Theodor Adorno in the 1960s counterculture culminated with their acolytes’ occupation of the commanding heights of the most important cultural institutions, from universities to Hollywood studios. There, the conspiracy says, they promoted and even enforced ideas which were intended to destroy traditional Christian values and overthrow free enterprise: feminism, multiculturalism, gay rights and atheism. And this, apparently, is where political correctness came from. I promise you: this is what they really think.

The biggest point of contention Wilson seems to have is that the Frankfurt School thinkers were actively trying to destroy Western Civilization. That may be conspiracy, or it may be factual, but what isn’t up for debate are the ideas which were put forth.

One of the major ideas of Marcuse’s seminal work, Eros and Civilization, was that people in modern civilization suffered from what he called ‘surplus repression,’ a phenomenon which was at odds with Eros, the life force:

The distinction between rational and irrational authority, between repression and surplus-repression, can be made and verified by the individuals themselves. That they cannot make this distinction now does not mean that they cannot learn to make it once they are given the opportunity to do so.

According to Marcuse, a certain level of basic repression was necessary in order to achieve the ends of basic survival in a world of scarcity. This is obviously true on many levels, as progress in general in large part requires delayed gratification.

Marcuse argues that once this basic level of survival is achieved, continuing on in the ways of repression is detrimental, and against the nature of man. It is very much an argument against phenomena like the consumerist culture of the West. He writes:

And the fact that the destruction of life (human and animal) has progressed with the progress of civilization, that cruelty and hatred and the scientific extermination of men have increased in relation to the real possibility of the elimination of oppression — this feature of late industrial civilization would have instinctual roots which perpetuate destructiveness beyond all rationality.

Here he bemoans the fact that while humans have advanced, the advancement has not brought with it the liberation from repression. Instead, humans have been become even more prone to the ‘repression’ that makes people beholden to a work-spend-consume cycle of living.

Marcuse advocates a releasing of the Eros beyond the repressive states of the industrialized world as it stands. He outlines a course for that as follows:

The notion of a non-repressive instinctual order must first be tested on the most “disorderly “of all instincts – namely, sexuality. Non-repressive order is possible only if the sex instincts can, by virtue of their own dynamic and under changed existential and societal conditions, generate lasting erotic relations among mature individuals. We have to ask whether the sex instincts, after the elimination of all surplus-repression, can develop a “libidinal rationality” which is not only compatible with but even promotes progress toward higher forms of civilized freedom…

 

…This change in the value and scope of libidinal relations would lead to a disintegration of the institutions in which the private interpersonal relations have been organized, particularly the monogamic and patriarchal family.

 

These prospects seem to confirm the expectation that instinctual liberation can lead only to a society of sex maniacs – that is, to no society. However, the process just outlined involves not simply a release but a transformation of the libido: from sexuality constrained under genital supremacy to erotization of the entire personality.

 

It is a spread rather than explosion of libido – a spread over private and societal relations which bridges the gap maintained between them by a repressive reality principle. This transformation of the libido would be the result of a societal transformation that released the free play of individual needs and faculties.

The takeaway here is that Marcuse wanted a society governed by the idea that if it felt good, it was good. He wanted the ‘pleasure principle’ to replace the ‘performance principle.’ Getting there required the dismantling of the old constructs. Monogamy and patriarchal families are specifically mentioned in this excerpt, but it also applies to concepts such as feminism, homosexuality, which Marcuse also deals with directly, and multiculturalism.

Furthermore, it is important to note that Marcuse, out of all of the Frankfurt school thinkers, was the one to gain the most currency in society as a whole, as the counterculture movements of the 1960s in both Europe and America were buttressed by his thinking on an intellectual level. Given that these same baby-boomers, now middle aged, are the ones who populate the cultural institutions from college administration to Hollywood, imposing their views on them, it is difficult to take Wilson’s claims that Cultural Marxism is a ‘conspiracy theory’ very seriously.

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To further push these ideals onto society as a whole first required tolerance of them. Marcuse writes of tolerance in a 1965 essay called Repressive Tolerance, in which he outlines his view that tolerance and free speech are wholly dependent on dominant points of view, and as such true tolerance would require the repression of the dominant, ‘oppressive’ view. The very first paragraph is instructive enough:

This essay examines the idea of tolerance in our advanced industrial society. The conclusion reached is that the realization of the objective of tolerance would call for intolerance toward prevailing policies, attitudes, opinions, and the extension of tolerance to policies, attitudes, and opinions which are outlawed or suppressed.

 

In other words, today tolerance appears again as what it was in its origins, at the beginning of the modem period — a partisan goal, a subversive liberating notion and practice. Conversely, what is proclaimed and practiced as tolerance today, is in many of its most effective manifestations serving the cause of oppression.

Of course, according to Marcuse, the right is responsible for the oppression, and thus “liberating tolerance, then, would mean intolerance against movements from the Right, and toleration of movements from the Left.”

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The moves we have made towards this type of tolerance in 21st century have been pretty clear. Being tolerant today means elevating the non-male, non-white, non-heterosexual, non-Christian, and non-affluent above the male, white, heterosexual, Christian and affluent at all costs, regardless of merit. It is the Marcusian worship of the Eros at play, the feel-good, or pleasure principle taking precedent over the performance principle. This is what is currently considered to be ‘decent,’ and forms the basis of political correctness.

Such values of ‘tolerance’ are what Senator Warren fears will go by the wayside in a Trump presidency. She intensifies the scorn here:

Racism

To the extent terms such as racism, sexism, Islamophobia and xenophobia have any weight, it is because they represent the specter of oppression that cultural Marxists rail against. The individual who is guilty of the charge is therefore an oppressor and guilty of a grave crime, because that individual ultimately stands in the way of freedom through the liberation of Eros, to put a Marcusian bent to the analysis.

These words are tossed out like candy by Leftists in order to instantly shut down the opposition, which, according to Marcuse, they have the right to do given that their position is one of liberation. The Right leaning person who is invariably guilty of the ‘-ism’ charge is oppressive. Authoritarian tactics are thus valid on such a barbarian. Speaking of authoritarians:

Authoritarian

Given support of Leftist ideals is not only fine, but the Marcusian definition of ‘tolerance’, the only reason Trump’s authoritarianism is to be feared is because it originates from the Right.

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The issue that those such as Warren are ultimately going to have to make peace with is that the Frankfurt School ideals are bankrupt and unsustainable with respect to societal and civilizational progress. Consider Marcuse’s explicit call for monogamous and patriarchal family units to be dismantled as a precursor to his ideal world.

The patriarchal family unit had been a target for the Frankfurt school for some time, right from its origins around the time of World War I. Later on, in 1950, Adorno increased the level of contempt by suggesting that those who are raised in such conditions are likely to become racists and fascists.

This, as mentioned before, is unacceptable in that racists and fascists prevent progress and foster oppression. In this manner, the Frankfurt School was essentially declaring patriarchal families as breeding grounds for the personality disorder of authoritarianism and the mental disease of racism.

Given that the patriarchal family is the basis of civilization, the move to dismantle it ultimately results in the erosion of civilization. Once eroded, the Eros that Marcuse so wanted to liberate would have to return to its box so that society can be rebuilt. That logical progression is what ultimately dooms cultural Marxists and why their opponents actually possess the winning hand.

In the 50 or 60 years since Marcuse’s work began to permeate the culture, society has become more and more progressive. It has also begun to crack in ways it never has before. Just in the realm of feminism, the ‘liberation’ of women and their encouragement en masse to enter the workforce has resulted in nothing but sky high divorce rates, a reduced birth rate to the point that many Western nations are not reproducing at an above replacement rate level, and higher rates of birth defects in the babies that are born because women are having children later in life. Consider the following results of a study of the happiness levels of white collar workers in America:

Are you a 40-something year old single professional woman making less than six figures a year? If you are, you must be incredibly unhappy. This according to a recent survey which revealed the profiles of unhappy workers.

 

Those who were the unhappiest were single females, aged 42, in “professional” jobs (think doctor or lawyer), making less than $100k a year. What about the “happiest” person, according to the survey?

 

Well, that lucky worker is a 39-year-old male who’s married with a wife who works part time. He also has a young child at home and works in a senior management position, raking in around $150k-200k a year.

The woman described is pretty much the composite of what feminists would have you believe is the ideal woman. Yet she is the unhappiest. This fact is buttressed by the fact that there are record amounts of women currently taking antidepressant medicine.

The truth is that the feminist prescription for improving society is not in league with reality. Real women, when subjected to the ‘freedom’ from patriarchal ‘oppression’ seemingly don’t take very well to it. That hasn’t stopped progressives from continuing to push it, but it is an important point to make.

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The ‘oppressive’ views of those like Trump, or indeed myself, are in line with reality. The differences between men and women are not socially constructed, but biologically constructed, and therefore are not open to adjustment.

Statements such as that are not controversial when viewed objectively, but in Marcusian terms, they are ‘repressive.’ However, if that repression results in societal advancement and harmony, there is nothing wrong with it. Liberation for liberation’s sake is pointless.

On a visceral level, Donald Trump represents something completely terrifying to the cultural Marxist view: an unapologetically confident man. He is the perfect embodiment of the aggression which Marcuse is critical of as it pertains to his ‘performance principle.’ Should Trump become president, he would be the most powerful individual in the world.

The mere presence of such a man totally antithetical to the cultural Marxist view in such a position could be enough to shift the tectonic plates of culture. The aggressively confident man represents oppression to the cultural Marxist, and thus Trump would stand in opposition to everything they have worked for over the last few generations.

The fear is that a Trump presidency might inspire others to follow in his footsteps, to strive to be better, and to accept nothing less. If in a generation this sort of man is the norm, as opposed to the limp wristed man who is the norm now, the liberation of society from cultural Marxist clutches will be likely, even certain.

 

 

 

 

Just Say No, to Monetary Drug Abuse

I like to say we injected cocaine and heroin into the system, and now we’re maintaining it on Ritalin.

  • Richard Fisher, Former FOMC voting member, 9 March 2016

Here is the solution to the American drug problem suggested a couple years back by the wife of our President: “Just say no.”

  • Kurt Vonnegut

 

Nancy Reagan died a little under two weeks ago, and one of the things she’ll be most remembered for is her campaign against drug use, and the famous slogan: ‘Just say no.’ Whether her efforts were effective are debatable. At the very least, they did ignite a national conversation about drug use that was useful.

In my personal opinion, drug addiction is closely related to a lack of hope, or a lack of appreciation for the future. If one doesn’t believe any sort of positive future is in the offing, it is more likely that drugs become appealing. Not only do they create an escape from that lack of future, they provide comfort in the present. Despite the destructive nature of drug abuse, it is understandable on some level.

Unfortunately, policy makers in the economic arena also share the drug addicts’ lack of hope when it comes to future prospects in recessions. When statistical metrics such as GDP, and projections such as the output gap begin to deviate from the plan, policy makers turn to the monetary drugs of interest rate cuts and asset purchases. They ultimately see no hope for economies in slowdowns, and must ease them away. As with the drug abuse, the high is only temporary, and it doesn’t change reality. To the extent the user continues, he or she only engages in self harm.

A few days after Nancy Reagan passed, the European Central Bank’s eschewed her pleas to ‘just say no,’ and chose to increase its version of Quantitative Easing, and to further reduce deposit rates. The full details of their monetary policy decision are below:

Monetary policy decisions

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

(1) The interest rate on the main refinancing operations of the Eurosystem will be decreased by 5 basis points to 0.00%, starting from the operation to be settled on 16 March 2016.

(2) The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25%, with effect from 16 March 2016.

(3) The interest rate on the deposit facility will be decreased by 10 basis points to -0.40%, with effect from 16 March 2016.

(4) The monthly purchases under the asset purchase programme will be expanded to €80 billion starting in April.

(5) Investment grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets that are eligible for regular purchases.

(6) A new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years, will be launched, starting in June 2016. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility.

As usual, the real fireworks came in the press conference after the decision was released, in which Draghi made his usual attempt to please everyone. The monetary doves who believe that the ECB hasn’t been loose enough with the monetary spigots got something to cheer in the announcement itself. The more hawkish who believe the ECB is being far too loose also got something when Draghi declared that this set of policy easing would be the last for the foreseeable future.

What interests me in all of this is the base attempt by yet another central banker to control an economic situation which is not going according to plan. Ever since the Great Recession, central bankers the world over have been engaged in a constant battle with the marketplace. The American version of this battle is as follows: the marketplace wanted to (and still wants to) effectively restructure the debts incurred during the go-go years of the housing bubble. Doing so would have resulted in a cascade of bank and corporate failures, asset price declines, layoffs, and defaults of various kinds. To be sure, a lot of that did happen, but it would have been a lot worse had central bankers not acted, as Draghi defiantly pointed out multiple times during his press conference.

This stance, that ‘the counterfactual’ would have been utterly devastating for Western Civilization as a whole stands as a blanket justification for mainstream economists, government officials, and commentators as to why the efforts of central bankers since 2008 were beneficial to the respective economies. The economy was a patient bleeding from a gunshot wound, the analogy goes, and the central bankers were the surgeons in the Emergency Room. Unfortunately, it relies on a bankrupt understanding of economics, which, as I will show, not only led us to pursue the wrong course of action in 2008, but will lead to the ultimate demise of the economy as we know it should it continue.

 

Economic Growth, and How Best to Attain It

 

Even though my contention is that the central bankers of the world have got it wrong, I will concede that at the very least, they have good intentions. They ostensibly want to achieve steady economic growth, and to do so with as little unemployment as possible. So where are they getting it wrong?

Let’s start from the beginning. Economic growth is a process by which the scarce resources on this planet are fashioned into goods and services which help to satisfy the many needs and wants of man. To the extent that these goods and services are better and/or more plentiful than before, the standard of living of those affected will rise. This process begins with a producer anticipating a future want or need, continues to the producer acquiring land, labor and capital, then producing the product or service, and delivering that product or service to the market. The last stage of the process is the consumption of the good or service. Reiterated for the more visual readers:

How Economic Growth Happens In A Market:

Identification/Anticipation of Unmet Want or Need

Gather Land, Labor and Capital

Production

Delivery to Marketplace

Consumption

At any given moment in time, resources are finite, thus how they are used becomes important. At the same time, there are many producers who are competing for those resources so they can attempt to satisfy the needs and wants of consumers which they have determined. The producers which get to realize their vision as opposed to those who don’t is largely determined by price. More specifically, the price of land, labor and capital, the price of the money which is borrowed to procure them, as well as the price at which those final goods can be sold.

As prices change in the market, the prospects for producers’ projects change with them. Policy makers understand this – which is why during recessions, they seek to stimulate investment by lowering the rate of interest. This lower cost of borrowing means that more of it can be done, which in theory leads to more investment and production. An unencumbered marketplace seeks to stimulate investment just the same. Its method is different from that of policymakers, in that it works via the reduction of prices and a rising rate of interest. When this occurs, the lower prices also bring costs down, which then means that the price a producer then has to command to clear a profit becomes easier to achieve.

A word here on the idea of a ‘deflationary spiral,’ the possibility of which was referenced by Draghi in his presser as ‘disastrous.’  The idea that ‘deflation,’ defined as falling prices in the mainstream, is to be avoided at all costs is a big part of Keynesian theory, some variant of which has been the dominant economic dogma for the last 80 years. This reticence among policymakers is because falling prices in recessions lead to falling profits, which lead to rising layoffs and liquidations, which lead to more falling prices, and profits, theoretically driving the economy into a ‘spiral’ like vortex. Therefore policy seeks to maintain a rising price level. This underscores the consistency among policymakers, and academics of all stripes in assigning a positive connotation to rising prices and a negative connotation for falling prices.

Taking the theory out and returning to the real world exposes this predilection for inflation for what it is – nonsense.  Central bankers the world over are declaring that if the prices of goods and services economy wide go up by a certain amount each year, the economy will be in great shape. If the prices for rent, food and gas went down, however? Chaos must be lurking.

Of course, the fear of falling prices neglects the fact that humans have never ending needs and wants, such that the price level will never ‘spiral’ to zero. At some level of prices, there will be demand for goods, which means there will be an interest for producers to supply that demand. Once that price level is found, the engine of economic growth can begin anew.

Some Methods of Stimulus Are Better Than Others

Invariably, recessions happen. The short explanation for them is that humans make mistakes. To be slightly more detailed, the economic growth machine can stall for various reasons. Producers may misinterpret the need or want for their goods. Too much of them may be produced. They may be produced inefficiently. Consumers may have changed their tastes. Whatever the reason, slowdowns in economic growth are always going to happen, the same way any path to success will have blips or setbacks along the way.

The true measure of success, without being too cliché, is not how many times one is felled, but the response to each fall, and how and if one gets up. With respect to economies, how the inevitability of recessions are responded to is of utmost importance.

The difference between a policymaker and freer market method of restoring investment during recessions ultimately boils down to the following: Policy makers prefer lowering interest rates, combined with other measures, with a goal of propping up the price level. The market, left alone, would be inclined to higher interest rates with a falling price level. From the perspective of the producer the lower interest rates/higher price combo means that ultimately a higher price is required for their final goods to achieve a profit. The higher interest rate combined with a price level left to find its true means a lower price for final goods is then necessary to make a profit.

Prior to the Federal Reserve, recessions more or less played out via the market raising interest rates, dropping prices, and allowing the chips to fall where they fell. A clear example of this is the ‘Long Depression,’ a description ascribed to the period from 1873-1879. My analysis of this period comes from the work done by Milton Friedman and Anna Schwartz in their book A Monetary History of the United States, 1867-1960. I’ll start with the conclusion first: it is questionable that this period (Friedman and Schwartz start with 1869 in their analysis) really constituted a depression on the whole, given the economy improved in virtually metric over the course of the period. The following chart illustrates this:

19thcenturygrowth

A more qualitative description of the time period is given by Friedman and Schwartz below:

There are many other signs of rapid economic growth. This was a period of great railroad expansion dramatized by the linking of the coasts by rail in 1869. The number of miles of track operated more than doubled from 1867 to 1879, a rate of expansion not matched subsequently.

 

In New York State, for which figures are readily available, the number of ton miles of freight carried on railroads nearly quintupled and, for the first time since the figures began, exceeded the number of ton miles carried on canals and rivers…. The number of farms rose by over 50 per cent from 1870 to 1880 for the U.S. as a whole. The average value per acre apparently increased despite the sharp decline in the price of farm products—clear evidence of a rise in economic productivity. The output of coal, pig iron, and copper all more than doubled and that of lead multiplied sixfold.

 

Manufacturing shared in the expansion. The Census reported 33 per cent more wage earners engaged in manufacturing in 1879 than in 1869, though 1879 was a year containing a cyclical trough and one following an unusually long contraction, while 1869 was a year containing a cyclical peak. An index of basic production compiled by Warren and Pearson nearly doubled from 1867 to 1879.

 

The rapid progress of the United States in manufacturing was clearly reflected in international trade statistics. Despite a decline in prices, exports of finished manufactures were nearly 2.5 times as large in gold values and 1.75 times as large in greenback values in 1879 as in 1867.

Based on the chart alone, it is clear that 1879 America was superior to 1869 America. There was a robust increase in the value of the national product, both in absolute terms and per capita. This is despite the population increasing by 25% in a 10 year period. The money velocity, which is used as a proxy for investment and spending, remained about the same, showing that money flowed around the economy with no problem.

The quoted passage from Friedman and Schwartz provides more detail, describing the manner in which vastly improved productivity led to more product at a lower price, which is the mechanism through which economic growth is passed to the masses on the whole.

The following chart is a more visual representation of what happened over that 10 year period, and is particularly instructive with respect to the overall point made about downturns and recoveries:

19thcenturygrowth2

The following description accompanies the chart:

Consider the velocity series on that chart. Velocity declines from 1869 to 1871, rises to 1873, and declines to 1875. So far, so good. June 1869 marked a cyclical peak, December 1870, a cyclical trough, and October 1873, a cyclical peak, so these movements conform to the cycle in the same direction as later movements. But then comes a serious discrepancy. Velocity rose some 17 per cent from 1875 to 1879, bringing the terminal velocity to a level 4 per cent higher than in 1869 and 8 per cent higher than in 1873, both cyclical peak years.

The relevant detail is the fact that while velocity fell in the initial portion of the depression, from 1873-1875, it quickly responded over the next four years to reach a high surpassing the prior peak years. This puts the lie to the deflationary spiral fears propagated by central banks and their ideological brethren, given that the price level declined during this period. Indeed, the lower price level induced spending and investment, which is evidenced by the increased national product in 1879 versus 10 years prior.

The only evidence that this period was some sort of devastating time in American history was the protracted decline in prices, which was a constant of the time. And it is only considered a negative because of contemporary misunderstanding of deflation and inflation. Even in Friedman and Schwartz’ writing, they describe the idea as money velocity responding positively to falling prices as ‘a serious discrepancy.’

The Keynesian influenced economic dogma suggests that as prices fall, humans are more inclined to hoard their money as opposed to spending it because of the anticipation that an even better deal awaits them. In reality, these decisions are governed by an individual time preference. We as humans ultimately desire goods and services, not money for its own sake. Thus a certain level of ‘natural demand’ exists, which is discovered as prices fall, shifting preferences to preferring goods versus money. It is the falling price that persuades the change of preference.

Friedman and Schwartz’ astonishment at their findings is captured in the following, emphasis mine:

…an unusually rapid rise in output converted an unusually slow rate of rise in the stock of money into a rapid decline in prices. We have dwelt on this result and sought to buttress it by a variety of evidence, because it runs directly counter both to qualitative comment on the period and to some of the most strongly held current views of economists about the relation between changes in prices and in economic activity.

 

…In the greenback episode, a deflation of 50 per cent took place over the course of the decade and a half after 1865. Not only did it not produce stagnation; on the contrary, it was accompanied and produced by a rapid rate of rise in real income. The chain of influence ran from expansion of output to price decline.

Modern recessions are different, in that central bankers believe that once the price level rises again, economic growth will follow. This hyper focus on the price level is backwards thinking, mainly because prices are the effects of real economic conditions, as opposed to the causes of them. Furthermore, the modern economy employs a debt based consumer spending model as its means to economic growth.

This method is particularly prone to stalling, because the impetus for spending (increasing levels of debt) cannot continue in perpetuity. At some point, markets can’t support prices at the high levels producers need to set, which in turn leads to prices falling, profits falling, trouble servicing debts, liquidations, and layoffs. Yet, the solution presented by mainstream economics is to guide prices higher again. Here’s Nobel Prize winning economist Paul Krugman, writing in reference to the recent machinations over the Federal Reserve raising interest rates:

So the Fed should not be eager to raise rates until inflation and wage growth are at least at, and preferably above, where they were before the bottom fell out.

Krugman, like most in the mainstream, do not fathom that the bottom fell out precisely because prices were already elevated beyond what the market could support in the first place.

 

A Rock and A Hard Place

 

The debt-driven, consumer spending method of achieving economic growth which has been employed in modern business cycles has ended up being wholly inadequate; this is proven by the fact that the result of it was the Great Recession. This model of economic growth ‘worked’ as long as debt continued to expand. As long as low interest rates enabled producers to borrow to increase output at elevated prices, and as long as consumers could borrow to pay further elevated prices for final goods, things ran smoothly. Asset prices rose on the back of all of this, which enabled further borrowing, as the rising valuations of assets provided more collateral.

This all came to a head when the debt machine came to a halt. As mentioned before, since incomes are finite at any given time, there is a limit to how much can be borrowed. Once that limit is hit, the impetus to spending, by consumers and producers alike, is no longer there. That removed impetus set in motion the slowdown leading to the Great Recession.

The Federal Reserve, the ECB, the Bank of Japan, Bank of England and the rest of the major central banks responded to the Great Recession in an unprecedented manner. In lowering the rate of interest to zero and creating trillions of dollars from nothing to buy trillions worth of bad debt and government bonds, the price level in major economies was prevented from falling further. The debt engine was restarted; assets stopped falling and summarily went higher – for a time.

The story differs depending on which constituency you are in, but the gist is that the central bankers have only been able to succeed in spurts. That is they are able to engineer prices higher, as evidenced by rising inflation, but as time goes on prices stop rising. They must then spring into action again in order to kick start inflation, or at the very least prevent deflation. This is behind the ECB’s decision on Thursday to further loosen its monetary policy.

It is a former central banker, Richard Fisher, who perhaps unintentionally, but entirely accurately, described the nature of the mission central bankers have undertaken. In speaking with CNBC last Wednesday, he described the actions of the Federal Reserve since the Great Recession as injecting cocaine and heroin into the system, which is now being maintained with Ritalin. Fisher went on to say the following:

It was a discussion about the cost-benefits of QE, and the major objective was to create a wealth effect. So we drove rates to zero, we actually drove rates to the lowest yields in 239 years of history. When you do that, what you do is you change the way you discount future yields and future earnings. The market took off the first week of March 2009 when we made it very clear, we had already doubled the size of our balance sheet, and we were gonna do more. And that was the trip wire, or at least the ignition of this great rally.

Even more instructive, towards the end of the exchange, CNBC anchor Simon Hobbes asked Fisher that, having created the wealth effect, was it imperative for the central bank to ‘protect the market,’ and to underwrite it so as to prevent the economy from suffering if and when financial markets decline. Fisher answered that it would be a ‘reckless thing to do.’

Unfortunately for central bankers, this sort of recklessness is the only option open to them. In holding deflation as an iron clad negative thing, central bankers have locked themselves into a position in which they are compelled to force prices higher no matter what. This involves printing money to expand its balance sheet as Fisher mentioned.

These printing exercises are not singular events. Prices naturally rise and fall, so if you have sworn to eliminate prices falling, you are always going to have to be on the job, because at some point down the road economic fundamentals necessitate a decline in prices. It is then you will have to print again, which in the short run boosts prices once more…until the next time.

The drug analogy brought up by Fisher is apt. In injecting large amounts of liquidity to the system, the Fed was effectively shooting up with cocaine and heroin. The ‘high’ of that drug took the form of increased asset prices, increased investment and consumption, and so forth.

Like drug use, the high doesn’t last forever. It dissipates, and whatever reality the drug user was trying to escape returns. Similarly, when the effect of one monetary loosening campaign wore off, the threats to the economy that originally plagued it resurface. The unsustainable debt burdens, rather than being cleared, remain. The inefficient companies which should have been liquidated also remain, and so forth.

The drug user can keep taking more hits of the drug, but eventually, the body will become acclimated to that dosage of the drug, and the desired high won’t be achieved. It takes larger and larger doses of the drug to achieve a high strong enough to escape reality. Since the drug is a poison, there is some amount of the drug which will prove too much for the body to handle, and it will succumb to an overdose.

The economic equivalent of this is the specter of hyperinflation. In order to maintain the ‘wealth effect,’ which entails ever rising levels of debt, rising asset prices, investment and production, central bankers will have to provide ever greater amounts of liquidity. This explains why there have been three Quantitative Easing programs in the United States, of increasing size and duration. Every time a QE program had been stopped, the economy subsequently threatened to roll back into a deep recession.

Maintaining the economy on Ritalin won’t work, it needs something much stronger. Yet, doing so will endanger the very viability of the dollar. No one knows exactly where the breaking point is, but it does exist. There is a point at which the US dollar will become worthless, as long as the Federal Reserve fashions to print its way out of recessions.

As such, the Fed is truly between a rock and a hard place. It cannot explicitly underwrite expansion of debt in perpetuity without destroying the dollar. On the other, it cannot stop the expansion of debt without destroying the impetus for appreciating prices, and therefore the recovery it engineered. The Fed, as well as all central banks, must choose between their (flawed) notions of engineering economic growth through debt based consumption, and the currency. Only one can survive.

 

Conclusion

 

Of course, central bankers can easily hop out of the box they’ve placed themselves in, but it requires them to change their thinking. It requires them to forget the notion that increases in asset prices can only be positive, regardless of the reason why the asset prices are rising. It is the same craving for an instant, better high which dooms the drug abuser. As drug users need not try to escape from the lows of life via the highs of drugs, central bankers need not attempt to escape the temporary blips in human progress – recessions – via the exuberance of stock market manias, tech booms and housing bubbles.

At the risk of sounding inhumane, the patient who ended up in the ER at the depths of the Great Recession wasn’t worth saving.  Having said that, a more accurate medical analogy one can use is a cancer diagnosis. The Great Recession was the emergence of a large tumor which was threatening our well-being. After being diagnosed, the doctor told us we had two options: Undergo severe chemotherapy and radiation that might leave us bedridden for up to 18 months to two years, followed by a few more months of physical therapy. After that, the cancer would be completely gone. The other option would be to take a daily cocktail of medication, mostly to numb the physical pain and other symptoms of the tumor. We could physically go about our day as normal, but the tumor would remain, slowly entrenching itself in the body.

The latter option was chosen, as QE, TARP, and other programs constituted the cocktail of medication which numbed the pain and restarted the engine of growth from the prior cycle. Asset prices rebounded, job growth returned, and the economy looked to be on solid footing again.

However, the tumor is still with us, and thriving even. The ‘medication’ given to us by the Federal Reserve has meant that all sectors of the economy, from household to business to government, are now more saturated with debt than ever before. From the perspective of such a levered lot, the mere interest rate increase of 0.25%, let alone a proper normalization, borders on usurious. The fundamental truth remains that an economy which must have constant price increases to grow is an economy that will be prone to sudden, severe crashes as the general consumer base does not increase its income and take on debt at a fast enough pace to sustain demand at higher price levels.