Wednesday, August 31, 2011

The Impediment

I have a new name for the apparatus we so affectionately refer to as the government: the impediment.  I feel this new term more accurately describes not only the main attributes of the outfit, but also the goals of this out-of-control monster.  At every turn, it seems, The Impediment magically appears to erect barriers for business, impose stumbling blocks to innovators, and confiscate the fruits of our labor.

So, from here on out, it’s The Impediment.  Got it?!

Wednesday, August 24, 2011

Capitalism v. Dictatorship

The Korean War ended in an armistice in 1953.  The two Koreas, split by the 38th parallel, followed completely different paths over the following 60 years.  The South embraced a free-market capitalistic society while the North fell under the rule of a terrible dictator, Kim II-sung. 

I’m not sure why Google Maps doesn’t list any roads or cities except for the capital city of Pyongyang.  Surely there are major freeways linking the different parts of the country, and other cities large enough to warrant placement on a map.  But then again, maybe not.  

I prefer capitalism.

Tuesday, August 23, 2011

Equity Strategies for Inflationary Periods

I'm not going to speculate on which way inflation is going. These days it's very difficult to forecast anything. But if you think we are in for some high inflation, then I want to offer some strategies for protecting your wealth. I've been studying up on inflation hedges and I have found that, over the long-run, stocks offer about the best protection there is. But not all stocks are equally good hedges, and they also are not a good short-term strategy. Probably gold, silver, and commodities are better short-term strategies.But for investors, here are some tips.

1) Think long-run. Not a month, a quarter or a year. More like 5-year horizons. You might find that on the next CPI announcement day, if it is unexpectedly high, your stocks will move down. Fight the urge to sell! You will make it up over time. It's not a one-to-one hedge, though. For every 1% increase in inflation, you get about 0.5% more returns on your stocks over a 5-year window.

2) Allocate assets to non-cyclical companies. Hold more of your wealth in consumer stables. Industries like Apparel and Food and Beverage hold up better against inflation than producer goods industries.

3) Hold lower-beta stocks. No sense in doubling up on risk. If you are worried about maintaining your wealth in inflationary periods, you are better off holding less volatile stocks.

4) Diversify internationally. In the U.S. the equities don't have as much inflation hedge as in countries where people are accustomed to high inflation. Holdings in Israel can be particularly advantageous since everything there is in real terms, so by definition you keep up to inflation. Emerging markets also appear to cover for inflation spillover from the U.S., so you get a double-hedge.

5) Hold net debtors. In periods of unexpected inflation, the real value of debt goes down, leaving more of the firm for the equity holders. This isn't that big of a deal, though.

Do all of these things and you'll have a better chance to maintain your wealth in inflationary times. Above all, though, do not settle for risk-free returns that are below inflation. Then your real returns are negative, and that's bad news all 'round.

Saturday, August 20, 2011

Letter to Texas' Senators

I am extremely worried (outraged!) about the EPA’s new Cross-State rules (CSAPR).  These new rules, hastily arranged and issued this past July, seek to reduce certain amounts of airborne pollutants emanating from coal burning power plants.  The EPA claims these rules will both save lives and reduce healthcare costs – both of which are counterfactual and can never be proven.  What can be proven, however, are the economic costs these rules will impose on industry and consumers.

Already, power company Luminant has warned it cannot meet the unreasonable deadline of January 2012 and will have to shutter plants in order to comply.  As you know, Texas experienced a cold winter this year, which lead to rolling black outs for residents of San Antonio.  This summer has also proven taxing to the electric grid, with Texans barely avoiding another rolling black out due to record high demand.  If power plants are mothballed to comply with EPA’s new rule, Texans can expect more frequent disruptions in the future.

This new pie-in-the-sky rule promulgated by unelected bureaucrats affects 27 states and threatens millions of American’s access to reliable electricity.  It is shameful that Congress has allowed this run-away agency to saddle hard working Americans with higher energy bills, reduced employment, and unreliable energy, all while doing little to improve air quality.  It is high time Congress rein in these alphabet soup federal agencies and their merry band of regulators who seek to destroy our economy under the guise of “protecting Americans.”
The Senate wisely failed to adopt “cap and trade,” and this new rule is nothing more than President Obama’s war on coal.  Of course, we shouldn’t be too surprised, as Obama is simply living up to a campaign promise to lay waste to our national coal industry.  Nearly one-half of Americans get electricity from coal, and Obama’s EPA will significantly increase energy costs for just about all of them.  This is unconscionable, and it’s time for Congress to act. 
I want to know what action you plan to take to ensure all Texans have access to reliable and affordable energy.

Brad Dunnagan

Thursday, August 18, 2011

Cato Institute on the 11th Circuit's Smackdown of Obamacare

Cato provides more analysis of why Obamacare is unconstitutional and should be thrown out.

Read it here.

Sunday, August 14, 2011

Clinton appointee on 11th Circuit agrees Obamacare is Congressional overreach

As you probably know, Obamacare is being litigated in our federal court system.  I’ve lost count, but judges of different political flavors have all ruled differently, usually along political lines.  Democratic judges have generally been indifferent to the law, while “conservative” judges have opposed it.  We’ve now had two appellate rulings, one for and one against.  The one against was bipartisan – written by two judges who cast party aside and put liberty first.  That’s refreshing. 

Here’s a sampling of the opinion: “The federal government’s assertion of power, under the Commerce Clause, to issue an economic mandate for Americans to purchase insurance from a private company for the entire duration of their lives is unprecedented, lacks cognizable limits, and imperils our federalist structure.”

Most think the Supreme Court will take the case in the next term.  This would ensure a ruling prior to the 2012 presidential election.  And let me predict that should the Court declare the law unconstitutional, the current White House occupant will not return for another disastrous term.  However, should the Court bless the law, Congressional power will have been declared virtually unlimited, able to coerce the citizenry into any transaction deemed necessary to further the social good.  Let us pray, then, for lady liberty and for the justices who will decide whether or not the Constitution really guarantees limited power.

Here’s Heritage’s take on the ruling (which is over 200 pages!)