Posted by on October 14, 2017

I have been in a funk lately, which is probably the natural state of anyone who follows the news these days.  Hence, the lack of blog production.  This is also my apology in advance for what I have to admit is a pretty uninspiring offering today.  But I have to get back on the bicycle.

Predictions

I am sure that many of you have read Philip Tetlock’s book Superforecasting: The Art and Science of Predictions.  One of the things that Tetlock laments is how infrequently the predictions of pundits are reviewed.   Since this blog engages in this dark art, a partial accounting is past due.

I cannot claim to have predicted Brexit.  I don’t remember expressing a strong belief, but if anything, I thought the vote would go the other way on the theory that if the polls are close in a matter of radical change, then the devil you know would carry the day.

However, I have been dead right on the path that negotiations have taken.  The English have been hamstrung by the fact that the Brexiters consist of an uneasy and mutually inconsistent alliance between a thin layer of “Singapore-on-the–Thames” globalists and the voting heft of “Little Englanders” who just want to get the foreigners out so they can go back to enjoying their warm beer and overcooked roasts.  The massive overpromising of the Brexiters has also been a problem.  On the EU side, as predicted, they have been obliged to tuer de temps en temps un amiral pour encourager les autres.[1]

Theresa May, the Prime Minister, is holding onto office by the skin of her teeth.  She was dealt a very poor hand but has managed to play it even more badly.  The only things saving her are the absence of alternatives – I think that the opportunistic buffoon, Boris Johnson, has shot his bolt – and the fear of a leadership crisis playing into the hands of a surging Jeremy Corbyn.  The ticking clock of Brexit also leaves no time for a fratricidal battle.

Meanwhile, Corbyn, whose deafening silence prior to the vote[2] was a contributing factor to its outcome, has recently said that he would vote to Remain in any second referendum.[3]  The cynic in me has to wonder if this has something to do with the fact that young voters have swung decisively into the Labour camp, and they voted overwhelmingly against Brexit.

To sum up: on Brexit, I give myself 5/10.

I have long predicted that the public pensions will become a huge financial crisis.

The crisis is the product of several factors.  The first is the corrupt trading of future benefits for current political support between (overwhelmingly Democratic) politicians and their backers in public sector unions.  The second is the spurious accounting that politicians, but not private companies, are allowed to use.  Finally, central banks have thrown a catalyst into this toxic mix: the financial repression they have practiced since 2008 have made the investment returns necessary to balance the books impossible.

The Economist reports that the chickens are coming home to roost faster than expected.  The title of the article says it all: “American public pensions suffer from a gaping hole: Providing for workers’ retirement is crowding out other spending.”  This points out that local governments can become functionally bankrupt before they become officially so, as taxpayers and companies vote with their feet against rising taxes and diminishing services.  This is a death spriral.  Ask Illinois.  Or Connecticut.  Or Puerto Rico.

On this one, I give myself an 11/10, since reality comes at ya’ faster than I predicted.

Next.  China.

What can I say?  I stick with my prediction that China is a debt-driven time bomb that will eventually detonate, but until present, I have to give myself a 0/10 on a mark-to-market basis, although an incomplete on the ultimate outcome.  The Chinese government has proven much more adept at bubble maintenance than I thought possible.

Here’s the latest scam.  The central housing ministry has ordered local governments to buy up, with borrowed money, the glut of houses in 200 regional cities, spending over $100 billion last year but feeding a sector that accounts for one-third of China’s growth.  Here’s how the WSJ describes it:

Underpinning the strategy is a cycle of debt. Cities borrow from state banks for purchases and subsidies, then sell more land to developers to repay the loans. As developers build more housing, they, too, accrue more debt, setting up the state to bail them out again. The burden on the state rises, as does the risk of collapse.

I ask you, what could possibly go wrong?

And now for a big one.  Tesla.

Its share price was about $207 when I wrote this post claiming that a short position in Tesla was a “great opportunity to take some money off the politically correct (“PC”) crowd precisely because of their cognitive deficiencies.”  The current share price is about $355.  So, I should be hanging my head in shame and running for financial cover, right?

Nope.

In retrospect, I gave Tesla far too much credit.  It thought it was a good product but a bad investment.  In reality, both are crap.  I thought that Tesladammerung would take the form of competition, but the company is so grossly incompetent and its performance is so fraudulently over-promised that I now believe that it would implode even in a competitive void.

The greatest mystery is why Tesla, and its fool or scoundrel of a CEO (Elon Musk), is not in the SEC docket for securities fraud.  The company has never met a single financial or operational forecast, including a recent 85% shortfall for Model 3 cars for the third quarter, even though it had reiterated guidance two-thirds of the way through the period.  The private sector, as it always must, is picking up the slack for our guardians in Washington.  The WSJ reports that three separate lawsuits were launched against Tesla after this latest assault on the truth.

The launch of the Model 3 – Tesla’s “make or break” mass-market car – has been nothing short of farcical.  The WSJ, which is the only news outlet smart and courageous enough to recognize a fraud when it sees it, has pointed out that, despite having announced the commencement of production in line with a repeatedly delayed deadline, Tesla is still substantially hand-producing cars in a cordoned off area of the factory nicknamed “Area 51.”  When produced, these cars get delivered to the human guinea pigs which Tesla calls “customers” and real companies call “professional test drivers,” whose skill it is to spend 12 months ferreting out problems under all conditions before unleashing a car on the public.

The WSJ made the accusation of fraud as explicitly as possible in a newspaper subject to spurious but costly defamation suits in a recent article entitled “The Truth Is Catching Up With Tesla.”  These are the same people who blew the cover on Theranos and 1MDB when the rest of their English-major colleagues in financial journalism were mumbling “nothing to see here, move along.”

Tesla’s response has been, in one of many parallels between Musk and Trump, to accuse the WSJ of “fake news” and to post enormously deceptive videos on Twitter which show individual robots at work, but which in no way refute the obvious fact that a production line only advance as quickly as its slowest process.

The response of the Tesla bulls is to repeat “the price, the price,” in a direct quote from almost any 17th century Dutch dealer of tulip bulbs.

On a mark-to-market basis, I give myself a -99/10.  But the good news is that I can remain solvent much longer than the market can remain irrational, and I think that my time is coming.

Lightning Round

Jones Act

This is the act which requires that goods between US ports must be transported on ships which are constructed, owned and crewed by US citizens.  The act was originally passed in 1920 on the justification that it was necessary to maintain a merchant fleet in the face of threats such as German U-boats.  It roughly doubles the cost of transport to places like Puerto Rico, Hawaii and Alaska, but has done virtually nothing to save the jobs of US sailor boys.

It was suspended for 10 days for Puerto Rico to help with the recovery from Hurricane Maria.  The suspension has lapsed.  The law should be repealed.  Period.  This is not complicated.

Senator Bob Corker

Corker is an advertisement for term limits for Congress, a cause near and dear to the hearts of many libertarians.  Now that he is free of re-election concerns, he is flailing away at Donny, most recently suggesting that the White House has become an adult day-care center[4] where someone has missed a shift.

Steve Bannon, the great scholar of American history and Western civilization, has suggested that Corker should resign if he cannot support Trump.  Instead of just dismissing this absurd suggestion outright, the White House, in the grating form of Sarah Huckabee Sanders, stated that this was up to the Senator and the voters of Tennessee.

Have these people never read the Constitution?  What makes them think that Senators serve at the pleasure of Presidents?  Do they not realize that, if anything, Congress is the dominant branch of government, with the President’s job being merely to carry out its will?  The hint is in the name, people.  It’s not called the “Executive Branch” for nothing.

Immigration and Public Services

When people complain about immigrants straining the availability of goods and services, they almost always refer to things that are either provided by the government (schools, roads or, the perennial favorite in the UK, the National Health Service[5]) or constrained by it (housing).  They never worry about the local McDonald’s or grocery store being unable to handle the surge in demand.

Here’s a recent example from a Land Down Under, where 28% of the population was born elsewhere, more than any other big Western country.[6]

It makes you wonder whether the problem isn’t immigration but rather the government.

Roy Moore

The Republican Party’s nominee for the Senate seat vacated by Jeff Sessions in Alabama is clearly an imbecile.  A Neanderthal.  A cartoon character.  And also apparently a pretty shitty father.

The GOP should be ashamed, but I have to say that I find the liberal reaction to be nauseating.  The Democrat Party contains plenty of politicians who are, in their own way, equally idiotic.  Elizabeth Warren, Bernie Sanders, Bill de Blasio, Kamala Harris, Al Franken, Maxine Waters.  I could go on.

The hypocrisy is even greater when you consider that the GOP establishment spent millions trying to defeat Roy Moore in the primary, and even trotted out is Dotard-In-Chief to unenthusiastically endorse his opponent, whereas the Democrats listed above swim in the mainstream of their party.

One more thought: To repeat myself, why is no one questioning our primary system?   The one that took over a year and hundreds of millions to give us the Sophie’s choice between Trump and Clinton?  And that has now given us Roy Moore after a turnout of 14% of eligible voters?  The 14% who represented the motivated loonies in a state where the school system consistently ranks near the bottom in the country?  And we do this in the name of democracy?

Guns After Las Vegas

After the mass murder in Las Vegas, gun control is back at the top of the policy agenda.   But if anyone thinks this is simple, they’re wrong.  I recommend this podcast or this article from a former gun control advocate who actually looked at the numbers.

People are trotting out the example of Australia, which banned certain types of firearms following a mass murder in 1996.  Notwithstanding that this is still one of the funniest videos going, its central premise – that the Australian experience proves the efficacy of bans  – is almost certainly wrong.  The ban has not inflected a pre-existing downward trend in gun homicides and although there have not been any mass murders since it was enacted, these are so infrequent that it is impossible to draw any statistical conclusions.  And New Zealand, which did not change its law, exhibits the same pattern as Australia.

Another word of caution.  The lawyers like to say “hard cases make bad law.”  So do actions taken in the immediate aftermath of a tragedy.

Taking a Knee

This is Trump at his most disgusting.  An entirely manufactured skirmish in the culture wars from a bumbler who is trying to obscure his paper-thin record of real accomplishment.  Trump has taken the Wag the Dog theory, that failing politicians start shooting wars, and updated it for the era of social media: his wars are cultural.

Remember what Mark Twain said: “Patriotism is the last refuge of a scoundrel?”  Trump embodies this.

Since a backlash has predictably ensued, Trump is now going after the tax breaks enjoyed by the NFL, proving once again that the only guiding star of his policy views is vindictiveness.  These benefits are crony capitalism at their worst.  Unfortunately, our Hypocrite-In-Chief is, as always, the least suitable champion of this position since he[7] spent much of his professional career sucking at similar government teets.

Harvey Weinstein and Tim Murphy

Harvey Weinstein has the entire Democratic Party establishment – with the Clintons fulfilling their appointed leadership role in all acts of total hypocrisy – doing its imitation of Captain Louis Renault from Casablanca.  They are joined by their lackeys in the media, with the notable exception – yet again – of the WSJ.   Holman Jenkins is his usual eloquent and perceptive self on the topic.  Peggy Noonan wrote a number of years ago on what Weinstein should do if he truly wants to redeem himself.  I wouldn’t hold my breath.

Not to be left behind, the Republicans have given us Tim Murphy, the eight-term Representative and staunch pro-lifer who has just been caught advocating an abortion for his mistress.

I ask again: How dare these people claim the moral or intellectual authority to govern us?

 

Roger Barris

Weybridge, United Kingdom

 

[1] A line from Candide: “to kill an admiral from time to time to encourage the others.”  In this case, the UK is the admiral and any EU members thinking of departing are the others.

[2] Among other things, he took a hiking trip in the middle of the campaign.

[3] I put a 10%-20% probability on some form of reconsideration, either in a second referendum or a general election on this issue, after the terms of the deal are known.  The first referendum was a pig in a poke.

[4] These usually specialize in dementia patients.

[5] The strain on the NHS is a particularly ignorant fear.  Without immigrant doctors and nurses, the relationship between the supply and demand would be even worse.

[6] And where they haven’t had a recession in over 25 years, during which time unemployment has stayed pretty low despite the large inflow and a less-than-stellar homegrown work ethic.

[7] Along with family members, such as the use by Jared Kushner’s family business of the EB-5 visa program.

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Posted in: Finance, Policy, Politics

Comments

  1. Fraser Currah
    October 17, 2017

    Leave a Reply

    Love it when your in “funk” Roger as this is one of your best blogs. Thank you.

    • Roger
      October 18, 2017

      Leave a Reply

      Thanks, Fraser. Hopefully I can retain the good form when I emerge.

  2. Anonymous
    October 29, 2017

    Leave a Reply

    I take your point about the Democrats with regard to Weinstein but please let’s not forget the UK, that farce of a country, that knighted (!?) Weinstein CBE, Jimmy (Sir James!) Saville, Jeffrey Archer etc etc etc.

    CBE : Commander of the Most Excellent Order of the British Empire. The Most Excellent Order of the British Empire is a British order of chivalry. It was established on 4 June 1917 by King George V, and comprises five classes across both civil and military divisions, the most senior two of which make the recipient either a knight if male or dame if female.

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