Fall of the Republic

I will have more to say about Alex Jones. In the meantime, his new propaganda film, Fall of the Republic, is worth watching.

C-SPAN Funding

Given the lack of commercials or NPR style begathon fund-raising and the intended lack of political bias of C-SPAN, it is surprising to learn from their recent public service announcements that they do not receive public ie government money. They are in fact sponsored as a public service by the US Cable Television companies.

We all owe these companies a debt of gratitude for documenting and archiving governmental proceedings, bringing more openness to government, and making it widely and freely available without a hint of commercialism or political favouratism. This is a task which should have been the responsibility of the National Archives in a well run government, yet corporate charity has come through to do the job better and cheaper than a Government run programme ever could.

Digital Currency Trading Declared Illegal in China

Virtual Currencies threaten the power of governments by weakening their grip over the medium of exchange - ie Fiat Currency. In that sense, it is not surprising to see one of the more Authoritarian States definitively cracking down on Virtual Currency exchange. In practise, this will lessen the booming virtual currencies business and put many Chinese "gold farmers" out of work, but generally drive the digital currency market to ever higher levels of sophistication and security.

We have touched on this issue before.

An exposition on the topic of secure digital currencies can be found in David Friedman's Future Imperfect.

We suspect that the collapse of the value of the private US Federal Reserve Dollar will spark a real push for legalisation of competing Commodity backed digital currencies.

The Trade

Go long Gold with stocks like GLD or more securely with a VIA MAT vault and private, tradable, liquid market through BullionVault. Higher priced GoldMoney is an alternative. With BullionVaut you can buy and sell gold in London, Zurich and New York.

Go long other precious/industrial metals: Silver (SLV, Goldmoney, and soon BullionVault), Platinum (PHPT), Palladium (PHPD), Copper (COPA), Steel

Go long the mineral slime Crude Oil (CRUD) and oil services companies particularly non-American companies. American Oil companies make huge profits and will make even more in the near future, but they could easily become subject to Windfall Profits Taxes under an Obama Administration. PetroChina (PTR) Petrobras (PZE) etc.

Go long Agricultural Commodities: Wheat (WEAT), corn, rice, cotton etc.

Go long Dividend Paying Value stocks in non-American companies, especially in the Developing World, that have strong balance sheets and are essential for civilisation. This includes mining companies, utility companies, etc. Later I will provide some specific recommendations.

America is a sinking ship. The Titanic really was struck on September 11, 2001 when the wars began, and the Federal Reserve began lowering interest rates, effectively rolling the Dot Com bubble into the Financial and Housing Bubbles which have just collapsed. Perversely we are now in the strange situation where investors are investing more in the unsinkable Titanic empire because they think it is more stable than any alternatives. As a result, the final bubble which has yet to burst is the United States Dollar bubble. The profligate borrowing, consumption, and deficit spending by the American Government and American Consumer has limits. When those limits are finally reached and the World decides to stop throwing good money after bad in lending to the United States, there will likely be a hyper-inflationary spiral, exchange controls, potential rationing of goods, and socialisation of most remaining wealth in the United States through taxation and inflation. No indication from the political leaders entering power suggests otherwise.

Now is a phase of the financial market in which traditionally safe strategies such as going long AAA bonds, going long Blue Chip companies, holding cash in a bank, or holding cash in a mattress do not make sense as a means to preserve let alone appreciate wealth. Given the artificially low interest rates, and regular "liquidity injections" on the order on trillions of dollars, there is naught but destruction of the value of the dollar in the post. In this scenario, if one has good credit and can borrow at a low interest rate - borrowing to invest in commodities and non-US assets could be a brilliant leveraged play for those with some risk tolerance. It is in effect a short sale of the US Dollar.

Currencies such as the Yen and CHF are probably safer plays than most others, but they are still fiat currencies exposed to political risk of inflation and devaluation.

Lastly, listen to Peter Schiff (Video, Radio Show) and Jim Rodgers (Video) and make up your own mind. Also read through the many pieces I have shared through Google Reader on the topics of the Federal Reserve Bank and the Financial Markets.

Warning: All trading and "investing" is gambling and involves exposure to losses in real wealth.

Kx

K and the more comprehensible Q are languages created by Artur Whitney based on APL. Kdb+ is the database system and interpreter for these languages. Kdb+ allows extremely efficient analysis of high-volume real-time and historic data simultaneously in a column based database. At $100,000 per Dual-Core Processor license, K is absurdly priced and only affordable for large financial institutions and the United States military. K is a vector based language with analogies to mathematics and human language. Nearly every character represents either a noun, verb, or adverb allowing extremely terse and efficient development and processing for those who are able to wrap their heads around the syntax.

K is powerful enough that an experienced quantitative analyst with the full range of tools could go from an idea, to a full tick-level back-test, to a fully deployed trading system in under an hour.

While this product is unfordable to nearly everyone in its full form, Kx Systems has released a limited version of the software free of charge. I highly recommend anyone interested in computer languages, analysis, finance, etc. to download and explore this amazing software which takes less than 200 KB on disk including the interpreter, an http server, and socket connectivity!

As a final note for those with a particular interest in providing programming services, it is our understanding that a capable K programmer averages about $250,000 per year working for a large investment institution.

Petroleum and Obeisity

In the United States, a morbidly obese country, rising fuel prices will have a very positive effect on public health. Sustained high energy prices should accelerate the effect owing to increased investment in public transit and more rationally designed cities.

Film Review: Sicko

The propagandist Michael Moore, perhaps partly responsible for the Bush reelection, has produced a new film. Google's ratings suggest it is being received extremely well. Like all of his work, Sicko appeals much more to emotion than to reason. In seducing the American populace with the conveniences of socialism, he completely whitewashes the costs paid in high taxation, lower economic growth, high unemployment, and reduced technological advancement. Perhaps this is why country after country in Europe has been electing conservative governments; they have learnt the lessons of socialism the hard way. I agree that for poor, unproductive, and unambitious people such as those featured in Sicko, socialism is an absolutely fantastic deal. Goods and services are provided at someone else's expense. Michael Moore would lead one to believe that it is the greed of megacorporations who are responsible for all human suffering in the United States. The problem of unaffordable health care in the United States does not come from competing insurance companies. It is a problem of monopoly.

The American Medical Association, the State union of doctors, maintains medical school quotas and strictly suppresses the licencing of foreign trained doctors. This medical monopoly also maintains the sole ability to prescribe medication. Prescription fraud such as trying to fill a prescription in a higher amount than ordered by a doctor, is a felony punishable by prison sentencing. Doctors tend to prescribe medicines in artificially low quantity so as to encourage more overpriced visits for a refill. On top of this the medicine which is prescribed is sold at a large premium because of the lack of regulation in drug pricing as well as the overprotective intellectual property inherent in the American patent system.

Medical expenses are further inflated by the inordinate costs of doing business. Malpractice insurance is extremely expensive. There is no upper limit to the damages in a medical malpractice suit. Merck was famously ordered to pay USD 253 million for the death of one marathon runner. With 33% cuts, over-educated and overpaid lawyers are all too happy to help recover alleged damages. Lawyers such as John Edwards make fortunes preying upon the misfortunes of others.

There are of course some delightfully positive aspects of the US system. With the supply of doctors kept artificially small, the competition to be one of those doctors is increased so that American doctors, after they have been paid, are some of the best in the world. Maltreated patients do have the recourse to sue. Overprotected intellectual property drives innovation in medicine saving countless lives and improving quality of life in the long term. With drug price regulation in most other countries, America effectively subsidises medicine for the rest of the World.

Unfortunately, Michael Moore does not address any of these real issues. He is long on sob stories and short on understanding. American medicine is no doubt expensive and long overdue for anti-trust and tort reform, but calls for a medical socialist revolution are entirely inappropriate.

Privatised Currency

Introductory Economics teaches that there are 3 fundamental properties of money: divisibility, transferability, and storing of value. Traditionally, various commodities which were rare, small, and relatively indestructible such as precious metals were the dominant currency or at least backed the value of dominant currencies. As governments became more stable and dominant in people's lives in the last two centuries, they were able to abandon all commodity backing of their treasury notes whilst letting currencies stand on their own merit as stores of value. This served to further governments grip over its populace by permitting enormous macroscopic control over wealth, interest rates, and inflation in the economy for good or ill.

We are now entering the information age where anyone may be able to create their own effective "virtual" currencies through modern technology. This soon will allow encrypted and anonymous transactions which will effectively transfer value beneath the radar of government. Governments will try to suppress this activity, but ultimately currency simply represents information and the preservation of information is a law of physics. With satellite internet available in a wristwatch, who will possibly be able to destroy the flow of information? Currency is an important example of the gradual inevitable decline in power and authority of governments and the rise of the multinational corporations as the dominant world powers of the future. After all, the modern system of Nation-States is an idea less than 200 years old, having been created at the Congress of Vienna. It will pass, like all previous forms of rule and diplomacy, into mere history texts.

The currencies of the near future will be varied, exchangeable, customised to individual financial needs and desires, and backed by a tradable basket of securities. To buy a haircut, you could be paying with shares of IBM and GOOG whilst the barber is receiving credit towards his new telescreen and futures contracts on organic wheat. I must thank David Friedman for first sharing this revelation with me in his book 'The Machinery of Freedom.'

This post was prompted by this WSJ article describing the current "virtual" currency, QQ, now being suppressed in Zhong Guo for doing just what I have described, undermining the legitimacy of the Yuan. As with other forms of information oppression, Zhong Guo is doomed to fail.