The System Worked: How the World Stopped Another Great Depression

Found this gem on Amazon that somehow eluded my attention until today, The System Worked: How the World Stopped Another Great Depression

In The System Worked, Drezner, a renowned political scientist and international relations expert, contends that despite the massive scale and reverberations of this latest crisis (larger, arguably, than those that precipitated the Great Depression), the global economy has bounced back remarkably well. Examining the major resuscitation efforts by the G-20 IMF, WTO, and other institutions, he shows that, thanks to the efforts of central bankers and other policymakers, the international response was sufficiently coordinated to prevent the crisis from becoming a full-fledged depression. Yet the narrative about the failure of multilateral economic institutions persists, both because the Great Recession affected powerful nations whose governments managed their own economies poorly, and because the most influential policy analysts who write the books and articles on the crisis hail from those nations. Nevertheless, Drezner argues, while it’s true that the global economy is still fragile, these institutions survived the “stress test” of the financial crisis, and may have even become more resilient and valuable in the process.

Agree. Despite all the whining from the left about moral hazard and printing money, economic policy during the 2008 financial problem – and after – has been a resounding success. And don’t think for a second that I’m giving Obama credit for it – this is still the Bush boom because his policies (along with Bernanke and Paulson), not Obama’s, saved the economy. But not only thank the ‘four musketeers‘, thank the cognitive elite who create innovative companies like Facebook, Tesla, Uber and Snaphap, as well as the spendthrift US consumer. The evidence of America’s economic comeback is overwhelming: stocks keep making new highs, profits & earnings, exports, and consumer spending – all at record highs. Given all these positives, in retrospect, TARP was a bargain and succeeded beyond anyone’s wildest expectations. The left, including Peter Schiff, Taleb, Roubini, and Shiller all got it wrong – there was no relapse of 2008, no double dip, no bear market, no hyperinflation, no dollar collapse, an no ‘Greece-like’ collapse of the system. Even Krugman was wrong in that the sequester and cutting entitlement spending didn’t lead to a double dip recession; the economy and stock market just laughed it off. Other libs, such as Joseph Stiglitz and the vertically challenged Robert Reich intimated, incorrectly, that widening wealth inequality would lead to a crisis – wrong again. What gets lost in the partisan finger pointing is that policy makers are better at solving economic problem’s than predicting them, and Drezner writes, whether it’s TARP, QE, or the maligned but necessary bailouts an austerity in Europe, they, the global central banks, did indeed rise to the occasion.

This review is better than my own:

“If you find yourself disagreeing with Drezner, you need to take a good hard look at yourself and what you are doing with your life… this detailed, knowledgeable and cogent book is required reading for everyone in the global governance field — and anyone who wants to know how, bad though things have been since the global financial crisis, they might have been a hell of a lot worse.” –Alan Beattie, Financial Times

Agree..instead of being a liberal who whines about things like too big to fail, the fed, wealth inequality and the debt being too high, you need to take as look at your own life an ask yourself, ‘Am I projecting my own personal failings, frustrations, and cognitive shortcomings on the otherwise strong economy?’ No one forced these losers to sell their stocks at the bottom in 2008 or buy a crappy overpriced home in the exurbs in 2006, nor is it the fault of Wall St. bankers, the Fed, and Washington that millions of Americans are simply not smart enough to participate in the strong economic recovery and the post-2008 wealth creation boom. If you have a room temperature IQ or you majored in ‘stupid shit’ in college and cannot find a job with your worthless degree, tough luck. There’s always going to be winners (cognitive elite) and losers (the left side of the Bell Curve); makers (the cognitive elite, the creative class) and takers (the growing underclass that Charles Murray writes about in Coming Apart and The Bell Curve).

The events of 2008 could have been worse, and the left wanted things to get worse to, first, get Obama elected and, second, destroy the wealth of the rich. That’s why you have the Schiff-tards allying with the Warren retards in attacking Wall St., web 2.0, and the fed. Their approach is different (the welfare left wants higher taxes and more regulation, the other left wants high interest rates and to somehow eliminate the national debt), but the end result is the same: the destruction of wealth that mainly hurts the 1%. If the fed were to come out and heed Schiff’s advice to raise rates to 4%, the stock and bond market would be annihilated, and although things would probably recover, there is no need raise rates when virtually every economic indicator is signaling low inflation. It’s just bad policy that would hurt millions of Americans who have equity in stock and real estate. Prematurely raising interest rates would also push the economy into a recession, hurting business owners and causing all sorts of problems. Despite being a proponent of Reaganomics, my only criticism is Volker’s unnecessary and economically deleterious crusade on inflation, which pushed the economy into a severe recession.

The Obama Boom? More Like the Bush Boom

From Slate Magazine: The Obama Boom

President Obama
Should Republicans congratulate President Obama on a job well done and leave it at that?

Photo by Brendan Smialowski/AFP/Getty Images

Having come of age in the late 1990s, when the American economy was the envy of the world, the past half-decade has been a dispiriting slog. So, while I’ve learned to temper my enthusiasm about even the best economic news, I’ll admit that even I’m getting a little pepped up.

I hate to be the bearer of good news, but America, for all its flaws and whining from the left, is still the envy of the world. Its fastest-growing, most innovative tech companies and its most prestigious institutions of higher learning, such as the Ivy League, Caltech and MIT, are inundated with applicants from foreigners. Foreigners also can’t get enough of America’s most expensive real estate, nor can they get enough of America’s low yielding debt. If we really were in a ‘post America’ era as the left insists we are, none of this would be happening.

The US economy has hardly been in a slog, especially compared to the rest of the world. The last quarter of GDP was revised to 5% – the fastest growth since 2003.

Exports, consumer spending, consumer credit, profits & earnings, and stock prices are all at historic highs. With the exemption of the low labor force participation and stagnant wages, it would hardly seem evident America is in a slog – more like a boom. GDP isn’t as important as low interest rates; it would actually be ideal for GPD to fall back to 2% and for unemployment to rise to 7% in order to delay any interest rate hikes.

While the Great Recession has technically been over since the summer of 2009, a weak labor market and stagnant wages for all but a few have meant that most Americans have barely noticed.

The ‘un-participatory‘ economic boom is the best one of all. When too many people feel optimistic, that’s when rates go up and the stock market typically plunges. It’s better to have prolonged public pessimism with steadily rising asset pries than public jubilation followed by a nasty bear market. Also blame the liberal media for spreading doom and gloom about things like Ebola and wealth inequality, in order to scare people from spending. It’s hard to feel good when the left is constantly saying that crisis is eminent.

Going forward, plummeting oil prices will benefit almost all Americans, with the possible exception of those who’ve poured a lot of effort and time into accessing shale oil deposits here at home. John H. Makin of the American Enterprise Institute estimates that if the fall in oil prices sticks—it’s down from an average of $110 a barrel to about $70 a barrel—the economic impact will be much like that of a $160 billion tax cut. Exports are also rising, despite the fact that the U.S. dollar remains strong. All in all, it’s looking like a fairly merry Christmas, at least by the dismal standards of recent years. And if we’re lucky, next year might be better still.

Our weak kneed, shortsighted President is hurting long-term relationships with Saudi Arabia and Russia in exchange for approval at home in the form of lower gas prices. Reagan and Bush helped build these diplomatic ties with OPEC, and Obama is trying to undermine this progress, which will have ill consequences down the road when oil does, in fact, rise to $100 again. With America’s alternative energy infrastructure damaged from low energy prices, the Saudis will have America over a barrel once prices go back up, and the damaged foreign relations will only makes things worse. I would rather have more expensive oil and gas than tarnished diplomacy and a stimulus that will prove fleeting.

Thank the tireless US consumer for consuming despite, according to the liberal media, being ‘maxed out’. The consumer, along with web 2.0 and the fed, are the heroes of this unending post-2008 economic boom, not the wealth spreader in chief.

So now, with my fingers crossed in the hope that I won’t jinx anything, I’ve started to wonder what a stronger economy might mean for American politics. Throughout the Obama years, Republicans have failed to offer a compelling economic agenda, choosing instead to point to the fact that the economy was not so hot, that unemployment levels were high, and that the federal deficit was eye-poppingly huge. It’s easy to see why the GOP decided to go this route. Americans, like the citizens of most market democracies, believe elected officials have magical powers when it comes to things like GDP growth, unemployment, and inflation. When things go wrong, the president gets the blame. When things go right, he gets the credit. This is despite the fact that the American economy is a complex beast that even our most sophisticated technocrats scarcely understand and the fact that Saudi sheikhs who decide to let the oil flow can have about as big an impact on how much U.S. households spend on Chinese-made tchotchkes this holiday season as a Congress that decides to slash payroll taxes. I’m exaggerating but only slightly.

It’s easy to see why the GOP decided to go this route…because it’s true, obviously. But as I wrote many times in 2011 & 2012, none of those things were a big deal economically, though, which is why stocks stocks kept rallying. The debt is big, but inflation is non-existent. High unemployment doesn’t seem to hurt consumer spending or web 2.0, and higher unemployment means interest rates stay lower longer.

Should Republicans congratulate President Obama on a job well done and leave it at that? Well, no. They need to do what they’ve failed to do for the past half-decade and explain why they can do a better job than the Democrats of steering the American economy.

The GOP should read the A road map for 2016: Restoring Optimism to the GOP. To win, the GOP must champion the same policies that worked wonders for getting Bush and Reagan elected: pro-growth policy of low rates, free markets, low taxes, and low regulation. In invoking Reagan, the GOP needs to emphasize that they, not the Democrats, are the party of optimism and hope.

Second, let’s hope there is a super-spike in unemployment before the election in order to doom the prospects for the dems. The stock market would actually surge under such circumstances because the economic benefits (lower taxes, free trade, raising the H-1B visa cap, no more debt ceiling standoffs, deregulation) of having Jeb Bush or Romney as president would exceed the negatives of higher unemployment.

But getting to this point will be very difficult. To state the obvious, the fact that the United States experienced the worst financial crisis in the living memory of all but a handful of nonagenarians while George W. Bush was in the White House has been hard for Republicans to overcome. One of Mitt Romney’s greatest failures in his 2012 campaign was his almost shocking inability to explain how he’d govern differently from Bush and why Republican economic policies wouldn’t lead to disaster. Romney, like most Republicans in the Obama era, fixated on shrinking the budget deficit. While he talked a big game about reviving economic growth, he did an awful job of explaining why growth was so sluggish and what he intended to do about it in the near term, tax cuts and deregulation aside.

Wrong again. Romney was a great candidate who invigorated the base and had a lot of good ideas such as raising the H-1B visa cap for skilled tech workers. Romney mentioned the deficit because it was an easy entry of attack. Similar to Dole in 1996, with enough people still brainwashed by Obama there was really nothing Romney could have done to win. With the left losing the culture wars, and with the smartest generation beginning to seriously question welfare liberalism, a GOP candidate that articulates a pro-growth economic agenda stands a good shot a winning.

What might Republicans have done differently? According to Texas State University economist David Beckworth and National Review’s Ramesh Ponnuru, the chief problem with the Republican worldview in the post-crisis years is that it has coupled calls for rapidly shrinking the federal deficit with fervent opposition to monetary stimulus, which the GOP has warned will lead to an inflationary spiral. Instead, Beckworth and Ponnuru insist that the Federal Reserve ought to have done more. They argue that the Fed ought to have announced that it would buy assets until nominal spending, or NGDP, reached a target level and that it intended to keep nominal spending growth on a predictable path. Had the Fed charted such a course, Beckworth and Ponnuru believe, the goal of fiscal consolidation would have been much easier to achieve, as higher nominal incomes would have kept more workers employed and more homeowners afloat, thus reducing the pressure to increase transfers. Many argue that NGDP targeting of the kind championed by Beckworth and Ponnuru is much easier said than done and that it is no panacea. That might be true. What is also true is that successful fiscal retrenchment efforts in countries like Canada and Sweden were accompanied by the same kind of accommodative monetary policy that American conservatives tend to oppose.

The fed, along with the free market and the consumer, saved the economy. This is still the Bush economic boom; Obama deserves no credit for it. Looking at the data, supply side economics, along with monetarism, has triumphed over Keynesian and is the reason for America’s strong stock market and economy, specially compared to the rest of the world. TARP was a success; the Obama stimulus was a failure. The left predicted, incorrectly, that the sequester and other entitlement spending cuts would push the economy into a recession.

Liberals think they can grow an economy by spreading the wealth from the most productive/useful members of society to the least. The sciences, including economics, tends to be a bastion of sanity against welfare liberalism.

Republican economic prescriptions have often seemed timeless in the Obama era, in a bad way. By emphasizing tax cuts, deregulation, and balanced budgets—the same policies they favored in better times—the GOP ignored the particularities that made deficit spending a less pressing problem than mass unemployment, and they allowed chimerical fears of hyperinflation to outweigh the very real threat of deflation. Embracing monetary stimulus would have given the right a coherent way to favor fiscal consolidation while also acknowledging that the weakness of the post-crisis economy demanded a response. Calling for monetary expansion and, say, a much deeper temporary payroll tax cut, like the one proposed by Stanford University economist Michael Boskin, would have put the GOP in a much better position both substantively and politically. Instead, Republicans struggled to connect with the voters most directly affected by the dismal state of the labor market.

Tax cuts and deregulation win elections and is good economic policy. Supply-side economics is not about trying to directly reduce unemployment with costly, useless stimulus spending, but by creating economic conditions conducive to the creation of wealth so that the best and the brightest can thrive in a meritocracy. The post-2008 Silicon Valley/Web 2.0 boom is a supply-side success story.

What should Republicans do now? They could do worse than to build on the work of Utah Sen. Mike Lee, Florida Sen. Marco Rubio, and Wisconsin Rep. Paul Ryan, all of whom have been thinking hard about the barriers to upward mobility in modern America. Good economic news today won’t change the fact that one in six American adults lacks the basic skills of literacy and numeracy, or that high-quality educational opportunities are beyond the reach of most American kids raised in low- and middle-income families. Nor will it change the fact that while Obamacare has expanded access to subsidized medical care, our health system remains a dysfunctional mess that limits our economic potential. Even though the worst of the housing bust is behind us, rigid regulations have made some of our most productive cities unaffordable, which in turn has driven millions of Americans to regions with cheap homes but also low wages.

The main problems with healthcare is costly end-of-life-care and the uninsured, both of which suck considerable resources. We need some form of refusal of healthcare for the uninsured. 1/6 Americans score less than 85 on an IQ test, which explains why full literacy will never be possible. Many of society’s most intractable social problems (poverty, crime, illiteracy) have biological etiologies that no amount of wasteful government spending and ‘feel good’ homilies will ever be able to ameliorate. Low wages are not the problem, because many low wage jobs create economic value, and higher wages leads to inflation. The problem is, once again, liberalism.

Overall, this is still the Bush economic boom, with the help of Bernanke, Paulson, and even Geithner. Had Bush gotten two extra terms the Dow would be higher, especially without the economic draining policies and partisan strife characteristic of the Obama administration, such as the debt-ceiling standoffs, Obamacare, Dodd-Frank, defense cuts, and the 2013 tax hike. A GOP presidency, along with a super-majority in the house & senate, would eliminate those problems. The GOP should not let the libs take credit for the economic boom that the Bush administration, along with the US consumer, created.

2014 Year in Review – Much like 2013

2014 was a year you could have sleptwalked through without really missing anything. It was a year of minutia amplified by the megaphones of media manufactured outrage and fear. Putin invading Crimea was supposed to be World War 3. Ebola was supposoed to the next next Black Death. Wealth ineuality was supposed to doom the economy. College rape was supposed to affect one in five women, a figure later downgraded to the less outrage-worthy three in five hundred. It was year of anomie by those on the sidelines of the Great National Debate.

But overall, 2014 was much in many ways a continuation of 2013. Due to the waning enthusiasm attributable to the sluggish news cycle, a lot of bloggers – starved for crisis or any big click-worthy event – have stopped updating as frequently or are writing smaller passages. You go to Drudge or any of the major news sites and the big story is, Obama says something prosaic and scripted…blah blah. Russia and North Korea is Cold War 2.0. It’s like online media is desperate for crisis, outrage and sandal, however small it may be, to get page views up.

Like 2013, 2014 was a year that heavily rewarded merit and IQ as evidenced by how the cognitive and tech elite had another banner year as stocks continued their relentless climb higher, with the S&P 500 ending the year at 2100 – a gain of 12%. Same for those web 2.0 valuations, which keep going up. As congress dithers and middle class America feels glum over stagnant economic prospects, champagne bottles were popping in Silicon Valley as Snapchat and Uber valuations crossed $10 billion and $20 billion, respectively. In 2014, much like 2013, America continued to solidify its global economic dominance and exceptionalism, with the S&P 500 posting the biggest year-over-year gains of any developed country, second only to China. The US dollar also gained ahead of all currencies, and real US GDP growth of 3% outpaced all peers. We have GDP and profits & earnings growth that rivals that of the 80’s and 90’s, but without any of the interest rate hikes and inflation to go along with it. Adjusted for inflation, the USA has more growth than the emerging markets. Dow 20,000 soon and interest rates never going up again. MIT and Caltech continue to churn out the business and technology leaders of tomorrow, admitting based on IQ and talent over quotas. The ‘post-America era’ that the left sought sure as hell didn’t happen in 2014, and in 2015 we expect America to continue to run circles around the rest of the world. America’s most valuable and innovative tech companies, most prestigious institutions of higher learning, and high-end real estate will continue to be magnets for cognitive and financial capital the world over. America today has a growing advantage in the four big C’s: code, capitalism, cognitive capacity and capital.

To quote Andrew Sullivan

. It’s a huge challenge for a liberal technocratic society that the skills it increasingly rewards are unevenly distributed across racial groups. It’s equally a huge challenge for our society that the kind of intelligence IQ measures is so strongly correlated with economic success, regardless of race, and that the rewards to the most gifted in these areas are growing, not shrinking. The Bell Curve was one of the great prophetic books of our current crisis of inequality. It raised very troubling questions about this country’s ability to advance economically and not stratify into two, increasingly separate and mutually uncomprehending nations. And yet the important thing to say about it, according to so many who have never read it, is that it should never have been published and no one should have responded to it.

Biological determinism was hugely relevant in 2013 & 2014 and will be even more so in 2015 and beyond. I disagree that this split is troubling, but it’s inevitable the gap between the cognitive elite and everyone else will keep widening, and there’s really nothing anyone can or should do about it. This gap is a byproduct of America’s economic and technological exceptionalism, and the pursuit of equality is futile – especially in the post-2008 era. You look at the wealth that has been created in the Silicon Valley, especially in the past six years alone, as lending credence to the meritocracy over the alternatives.

From sexism in the video game industry to rape, the culture wars dominated in 2014. In the wake of the deaths of two belligerent thugs, police brutality dominated as well – splitting the left side of the Bell Curve into two factions: I Can’t Breathe and Hands Up Don’t Shoot. With any luck they will turn on each other like the Bloods and the Crips, destroying themselves in the process. Culture wars tend to take precedent during periods of geopolitical and economic stability, and like the media hype over the Lewinsky sandal 2014 wasn’t much different. I guess we should be thankful that we have stories of imagined sexism and a non-existent rape epidemic over more grave matters like domestic terrorism and economic collapse.

Why There is No College Bubble

Finally someone tells these college bubble heads to put up or shut up: I’d like to take this opportunity to triple-dog-dare Peter Thiel

For years, the left has insisted that college, like the stock market and housing, is a giant bubble that is on the verge of popping. Like many predictions of doom and collapse, the left’s track record on these matters is awful as evidenced by this Google search of failed predictions from 2005-2007 of a ‘college bubble’. This is no different than the leftist hysteria over global warming; when the said warming fails to materialize, they shift the date to the right. Going by 1970′s predictions, NYC should already be flooded; so much for that. These gloomers fail to understand or ignore the economics that are driving higher prices, such as the surging post-2008 college wage premium. From the New York Times:

The Pew report found that the wage premium for having a college degree was at a record high. The median annual wage for young college-educated workers now is $45,500, compared to $28,000 for high school graduates — a gap of $17,500. In 1965, the gap was much smaller: $7,400. (All the figures are in 2012 dollars.)

This is not surprising. In the hyper-competitive post-2008 economy, for virtually all industries the supply of labor vastly exceeds demand, especially as shown by the record low labor force participation rate. This gives employers the luxury of being very selective when hiring, by only hiring the best and the brightest from a huge applicant pool – even for very mundane jobs. You need to have the credentials that 40 years ago would have gotten you a job at NASA just to file paperwork or wait tables. The premium for prestigious schools in STEM majors is even greater. I agree with the washingtonpost.com article that there will be no bursting of any alleged ‘bubble’ and prices will just keep rising.

Instead of looking at the facts, the left is blind by pure irrational loathing of the ‘elite’ and a fear of rich people. Thee left wishes college were a bubble so that the college wage premium vanishes and college educated people see their wages shrink. In the left’s war on success and free markets, they want employers to resume hiring less-competent employees instead of only screening for the best and the brightest. This would hurt profits, and ultimately the US economy and stock market.

Whenever you have some lib calling something a bubble (stocks, housing, college) or saying something is a crisis (wealth inequality, unemployment, global warming, police brutality), you can be sure they will be wrong, just like they have been wrong so many times in the past.

But on the other hand, there are liberals who insist everyone should go to college. We argue that while college does have many benefits such as higher wages, and having a degree does signal competence to employers, it’s only suitable for those who are smart enough to get good marks and major in a high-paying field. The best solution would be to replace credentialism with IQ-type tests. That’s the whole reasoning behind the SAT, originally championed by classical liberals as a way to create opportunities for lower/middle income students, and now the left wants to do away with it because apparently the wrong students are scoring high.

Countering Bearish Arguments

As anyone who reads this blog knows, I’m emphatically bullish about America, its economy, and the stock market. To bet against America means betting against the best and brightest individuals that comprise it. It means betting against Web 2.0, high-IQ people, MIT & Caltech, competent policy makers, the tireless consumer, exports, favorable demographic shifts, and a hyper-meritocracy that rewards the best and the brightest. Dow 20,000 coming up.

A few days ago I came across a list of reasons to be bearish in 2015, which I easily countered:

he writes:

  • junk bond spreads widening while treasury spreads tighten
  • small cap stocks underperforming mid caps, which underperform large caps, which underperform mega caps
  • market breadth (NYSE) getting thinner, with fewer new highs when the market as a whole makes new highs
  • emerging market stocks selling off
  • Utilities and consumer staples outperforming consumer discretionary and energy
  • commodities doing poorly, mainly commodities used in manufacturing
  • Volatility increasing and becoming more frequent; big stock moves up and down, one after another
  • Yield curve flattening

These are easy to counter:

  1. Junk bonds are weak because of falling oil prices. A lot of small, speculative energy companies issued junk bonds when oil was >$80. Yield hungry speculators bid up those bonds. This is really a symptom of sector-specific poor management and speculation than overall economic weakness.

  2. Small caps may not offer a good risk/reward ratio. People see large caps as having better growth relative to risk than small caps. Small caps are too volatile. Then you have the whole issue of false positives in that most of the time when small caps lag there isn’t a subsequent bear market. Either they catch up later or the bull market continues without the help of small caps.

  3. This tends to be cyclical, with lots of false positives. 95% of time when breadth is weak, there isn’t a subsequent bear market.

  4. Emerging market have been weak since 2011. Emerging markets actually have worse inflation adjusted growth than the US, which makes them a worse value. Then you have all the political instability and other risks.

  5. This is not bearish and there are indexes that he didn’t mention that are making new highs. QQQ, a technology ETF, is at record highs. Same for the retail etf, XRT. Same for the biotech and healthcare ETF, XLV & IBB. Keep in mind that at any give time, in bull or bear markets, there will always be at least one or two sectors that will lag.

  6. Commodities did poorly in the 80′s and 90′s too. That didn’t stop those bull markets. The price of commodities has less to do with demand and more to do with supply. When prices go up more supply is added and prices fall again, regardless of consumption. There is some element of speculation that goes into rising commodity prices

  7. VIX index is quite low actually

  8. Actually, the yield curve is steep. Short term yields are close to zero and long term ones are around 3-4%. A flat yield curve is when short term is the same as long term. The curve was flat through large parts 90′s bull market as well.

Why the US Economy is Doing Great or Bad (depending on how you look at it)

Why the US economy is doing great:

GDP growth back to 90′s and 00′s rate
record high exports
record high consumer spending
record consumer credit
record profits and earnings
stringent lending standards and less borrowing for home ownership:

fed never raising interest rates again (or at least not for a loooong time)

flat wage growth = less inflation = lower interest rates

Like a vampire, the economy – as measured by GDP and profits & earnings – gains vitality by sucking the middle, to put it cynically. Other measures such as wages and labor force participation are still weak – and will likely remain so forever, or at least a looong time. Hence, the economy an be both strong or weak depending on how you look it. But fortunately, it’s weak in the areas that influence fed policy (labor force participation, home formation, wages).

Stocks are surging not only because the economy is fundamentally sound, but also in anticipation of a republican control of all three branches, with a super-majority in the house and senate. The deeper of a hole Obama digs himself into, the higher stocks will rise. Dow 20,000 soon. Thank the fed, the consumer, free markets, tech entrepreneurs in Silicon Valley, defense spending, Caltech/MIT, and the Ivy League for America being exceptional – as much as the libs, in their war on success, want America and its great economy to regress and ultimately fail.

Stocks Rocket Higher; Biological Determinism Bull Market Can’t Be Stopped

In the span of just two days, the S&P 500 has gained a staggering 4% – the largest 2-day gain since 2011. Regarding the fundamentals of the US economy, between 2009 and now nothing has changed except higher stock prices and fatter earnings: interest rates still never going up again and consumer spending can’t be stopped, along with globalism, blowout profits & earnings, spendism, smartism, and hyper-capitalism. The impregnable US economy has withstood everything thrown at it thanks to smart people, the indefatigable consumer, free markets and ceaseless innovation – the four things virtually all countries with the exception of America lack in entirety, for America and, more specifically, the Silicon Valley, MIT, Caltech, the Ivy Leagues and Manhattan has become the center of the universe. Russia is teetering on default and recession. Europe and Japan are plagued by unending economic malaise.

Part of what makes the post-2009 economic boom so enduring is that so few seem to be able to participate in it. In the 90′s everyone seemed to be on board; wages were rising, unemployment was very low, and people generally felt optimistic – but nowadays you have stagnant wages, good-paying jobs being replaced with lower-paying service sector jobs, stagnant home prices in many regions, historically low labor force participation, and a general pessimism and unease that that afflicted millions of Americans. Nowadays, with stocks making new highs every month and quarter after quarter of blowout profits & earnings, at least half the population still seems to be in a permanent rut with no possibility of a silver lining on the horizon. You could take the headlines from 2009 about economic pessimism and public angst at Washington and and they would be pretty much the same as today, albeit with much higher stock prices. Like in the 90′s, if everyone was on board the recovery and wage growth was too high, the fed would be forced to raise rates too soon and stocks would fall. Rising wages would not only cause inflation, but hurt profits. A combination of high interest rates, weak corporate profits, and high valuations caused the 2000 recession and the 2000-2003 bear market.

As shown above, profit margins relative to GDP were extremely low in 2000. The good news is automation, globalization, stagnant wages and super-accomodative fed polity has resulted in the highest profits margins ever. We have growth in GDP, the stock market, and profits & earnings that rivals that of 80′s and 90′s, but without any of the inflation to go along with it – a Goldilocks economy, meritocracy, and wealth creation boom in overdrive. That’s why reached permanent plateau of prosperity and technological innovation that began in 2009 and for all intent and purposes will continue indefinitely.

Biological determinism means those endowed with high-IQs – the cognitive elite – are running circles around everyone else in our new era of social Darwinism, becoming obscenely wealthy in a short period of time with stocks, real estate, speculation, and web 2.0. They, the smarties, are crushing the market when the left says it can’t be done, are creating web 2.0 and other tech start-ups that are being valued at hundreds of millions or billions within just months or years of conception when the left says it’s a bubble, and are seeing their stocks and home prices rise 30% every year, which the left also calls a bubble. The left wishes this was a bubble – that it would all come crashing down and the world would reset to a more egalitarian state like what happened in 2008 and 1929, but that will never happen again (or at least not in our lifetimes. Keep in mind that for all the hype surrounding financial crisis, there have only been two major financial crisis in the span of eighty years – 1829 and 2008. That should give you an idea of how rare these events really are.)

With The Long Peace, The Greater Moderation, and the greatest economic and wealth creation boom in the history of human civilization comes The Great Monotony. We’ve reached the point, especially in the past 2 years alone, where everything is perfectly predictable and rectifiable up until the moment it happens, and beyond. It won’t be long before people defenestrate themselves due to the quotidian boredom of a perfectly deterministic world. As an alternative to suicide, we predict people – especially the upper class who can afford it – will voluntarily undergo suspended animation for decades at a time – to emerge much richer from their stock and real estate investments and to see if anything interesting has happened while they were indisposed. If not, the process is repeated. With advances in life extension technologies and by arresting the aging process, people can hypothetically ‘time travel’ for centuries, choosing what they want experience (like going to vacation on Mars) in their living human form and sleeping through the rest.

What the Mohammad Islam Hoax Says About Trading and Liberalism

One of the big stories making the rounds is that ‘trading prodigy’ Mohammad Islam is merely a paper trader and not a multi-millionaire. I concede to falling for the story because the alleged returns as purported by Mohammad, while highly improbable, are not – based on my knowledge of the market and trading – impossible. The bigger problem with the story is not that Mohammad lied, it’s the knee-jerk reaction by the media and the public and what is says about the state of liberalism in America today. It’s weird, but not surprising, that in America, the most successful nation in the world, so many people – none of whom have any personal ties to this kid or in anyway were victimized by him – derived so much pleasure and self-riotousness from the revelation that he wasn’t, in fact, a millionaire, and the loathing on the internet leveled against him seemed more appropriate for rapists and murderers – not a prankster that may have gotten in over his head. The overwhelming skepticism, especially by the liberals, was not surprising because, the left, they have scant knowledge of finance. They just assume the stock market is rigged and or you can only buy shares, not futures or options. Second, the left revels in the failure of successful individuals and institutions, as we’ve explained before.

Using highly leveraged financial instruments such as futures and options, it is possible to turn thousands of dollars into millions in a short period of time. There are thousands of professional traders and fund managers who have achieved consistent, market-crushing returns, although they don’t go around bragging about it. The most famous examples are Warren Buffet and Jesse L. Livermore. Another is Richard Dennis, who in just ten years turned $1,600 into $200 million. Although the methods Dennis employed stopped working in the 80′s and 90′s, he was smart and savvy enough to find and exploit inefficiencies in the market to make an enormous windfall. There are many other stories like this 20-something penny stock trader. Although he cost his firm over $100,000 in a single day due to a botched trade, he turned his personal account of just thousands of dollars into hundreds of thousands of dollars in the span of six or so years. Jim Simons’ quant Renaissance Medallion fund has annual compounded returns of over 35% – turning an initial seed investment of a couple million into over $25 billion in just under three decades. Timothy Sykes, a well-known daytrader, turned his $12,415 Bar Mitzvah gift into $2 million. All of these examples show that, yes, you can get rich quickly trading. Mohammad’s returns were not impossible, as many immediately assumed.

Such great fortunes are amassed not by statistical chance, but by innate skills and talent in much the same way some people, by virtue of genetics, excel at math, athleticism, or any other ability. This demonstration of individual cognitive exceptionalism by Mohammad in order to make his illusory fortune is why the left was so eager to trash this kid because they hate it when someone succeeds without the government’s help, and they also hate elite schools like Stuyvesant that admit based on raw brain power over ethnic diversity and whose students often become very successful as adults. Hence, we see the ‘outrage porn’ is mostly motivated by leftist class envy and the liberal enjoyment of seeing successful people fail. Some non-neo republicans joined in, but this mostly seemed like a leftist feeding frenzy.

Peter Boockvar Writes the Stupidest Article Ever?

This plea to the fed to end QE is so stupid it necessitates a response: Peter Boockvar: Dear Federal Reserve

He writes:

The path ahead will be disruptive but that can no longer be avoided as 6 years of ZIRP and a 5 fold increase in your balance sheet has already way overstayed its welcome. The longer you wait, the worse the consequences will be when you do. Again, happy holidays and happy 2015.

If market participants were really concerned about the fed balance sheet, such concerns would be manifested in the bond market in real-time in the form of rising yields. And with QE over, the left can’t blame the fed on depressing yields. Instead, yields for 10-year treasuries are at historic lows. So the fed has no pressing need whatsoever to unwind the balance sheet.

Thanks to those two sayings, the US economy has become the US ‘boom and bust’ economy.

Wahh wahh cry me a river. Since 2000, the US has had the strongest inflation adjusted growth of most developed countries. That includes Britain, Canada, Germany, an Japan. Boom and busts are a small price to pay for such steady and robust growth. And no one is putting a gun to anyone’s head forcing them to invest in whatever sector is booming. That’s the whole reason people use index funds – to help mitigate the risks of sector-specific boom and bust cycles. Boom cycles bring cool technologies like the modern web browser, the personal computer, Facebook, Uber, etc. And bust cycles prune away the losers.

Cheap money that you created fueled a drilling boom that oversupplied a market that now has shrinking demand. Now with lower oil prices, headline inflation and inflation expectations as a result, you may actually use low inflation as an excuse to keep rates low for longer…

Correlation does not equal causation, pert. As shown below, historically there have been instances of oil prices rising during periods of monetary tightening, such as in the 2000′s. Oil is very volatile and is influenced by many factors, with monetary policy just one of them.

Second, at any given time there will always be at least one sector that is struggling. In 2007-09 it was the financial sector. Between 2000-03 it was tech. Now it’s energy’s turn. A lot of these speculative hydraulic fracturing companies issued tons of junk bonds, and the companies themselves were dependent upon oil staying above a a high threshold in order to be profitable. That just sounds like a recipe for disaster, and the blame falls on company management instead the fed. One could argue that ZIRP cased investors, in search of yield, to flock to these risky asset classes, but even if that is true it’s ultimately the responsibility of the investor to understand that with great yield comes great potential risk. Like the 2008 financial problem, everyone was looking for someone else to blame for losing money – the rich, the fed, Washington, bankers – never themselves. The concept of ‘mal investment’ is ambiguous in that it’t impossible to access if an investment was a waste until a long time has passed.

In Defense of the 2008 Bank Bailouts, Again

Believe it or not, one need not be a liberal to be a supporter the unpopular but necessary bailouts. Republicans voted 133–65 in favor of the bailouts, although no one wants anything to to with it anymore due to the overwhelming unpopularity of the program despite its great success.

The problem has always been liberalism and entitlement spending – not Wall St., bank bailouts, or corporate welfare. The 2008 bailout was a success and a necessity, by stemming the bleeding in the financial sector and allowing the healthier sectors of the economy to thrive instead of being dragged down. By early 2008, interest rates were close to zero, making the bailout essentially free, and it indirectly paid for itself multiple times over in the form of the huge post-2009 stock market rally and economic boom. Unlike Greece and other economic weaklings, when a country with reserve currency status such as the USA has a crisis it causes government bond yields to plunge due to the flight to safety; this made the bailout nearly free. Furthermore, the treasury reported a profit from TARP just two and a half years later, and all of the banks have long re-payed the money.

Perhaps too big to fail sucks, but there’s nothing we can do about it given how interwoven and interconnected everything has become. The people I talk to are happy that their home and retirement accounts have recovered so strongly since 2009. Many wanted the financial system to fail to get Obama elected. Others wanted it fail to stick it to the rich. We shouldn’t view bailouts as necessarily a partisan issue, but a matter of necessity during national crisis such as 911 and the bombing of Pearl Harbor.

Furthermore, none of the much-feared ‘worst case scenarios’ ever materialized. There was no hyperinflation, no dollar collapse, and taxes didn’t need to go up to pay for it. In fact, the exact opposite happened: the dollar and treasuries have surged and inflation is still rock bottom. Six years later, still no hints of relapse.

Perhaps Bush was right in temporarily suspending the free market to save the free market. Letting politics and semantics get in the way of good policy can have disastrous consequences; after the dust settles we can debate if the bailouts were compatible with free markets or not. There is no such thing as a free market purist. Greenspan for example, was Ayn Rand’s greatest disciple. What proponents of monetarism and supply-side understand is that rather than aim for the impossibly high standards of market purism, it’s more effective to create – through occasional interventionism, low taxes, and deregulation – optimal macro economic environments for the free market to thrive. So while you do have the occasional bailout, you also get free market success stories like Tesla, Snapchat, Tinder, Uber, and Facebook.

From National Review’s Kevin Williamson:

Bailout politics is still very much with us: People resent — rightly — what was done and how it was done.

What exactly was done to whom? What about the GOP message of personal responsibility? No one forced these homeowners to take out a zero-down 30 year adjustable mortgage. No one forced these home builders to keep building when supply was obviously vastly exceeding demand. No one forced these liberal crybabies to sell their stocks at the bottom in 2008, or buy a home at the peak in 2006.