Saturday, April 11, 2015

Immelt, Welch, GE Escape to Anarchy

The word "general" in the early 1900s referred commonly to the Federal Government.  J Edgar Hoover referred to the federal government as the "general government", and the DC offices as the general headquarters The capitalists at the time were all-in on the emerging fascism, and thus named their companies General Electric, General Tire, General Insurance, General Foods, General Motors, etc...

These companies benefitted most in times of inflation, even opening their own banks to ever get closer to the advantage of first receivers of "new credit" and indeed begin creating their own.

So when General Electric decides to sell off its finance side (to Wells Fargo, desperate to get way too big to fail...) this is news and a recognition that deflation is here.
Chief executive Jeff Immelt intends to sell the bulk of GE Capital, the company’s finance arm, over the next two years in the most radical shake-up of the company in at least a decade.
And more like 50 years. In fact, it is one huge destruction of credit capacity, meaning it serves to accelerate deflation.  Even the welfare queens know it is time to get back to work.

Ever heard of this?
However, he warned that the impact was likely to be felt in the longer term, because the plan hinged on regulatory approvals and GE Capital losing its designation by US regulators as a Systemically Important Financial Institution.
GE had been selected as too big to fail.  "Systemically important financial institution" is government bullshit for "too big to fail."  What system?  Whose system? How do you define "important?" In what way is it financial, and not force and fraud? They have already set out who is to be bailed out.  And says Jack Welch:
Former GE chief executive Jack Welch, who has at times been critical of his successor, was quite positive on the move. He wrote to CNBC “I like the package. It looks like a smart move and right for the changing financial landscape.”
This means some of the most connected, experienced smart people out there know that what the government has to offer in the coming decade in way of "help" will actually be quite harmful.  Anyone who will rely on that will end up badly.  The FEDS do not have the tools necessary, can only effect what is good by going away, and what they will do will be disastrous for many.

These guys are simply saying "No thanks, we'll take an+archy, no+king, and do much better on our own than with your offers and capabilities."

Expect GE to no longer have a usury-based, asset-less back credit arm, but begin again to offer asset-backed, interest-free vendor financing.

1. The longer it takes to get paid, the harder the "money" is which you receive.

2. They cannot tax money you have not received. This move will keep GE from the tax collector, and GE will manage receivables to that end.

Accounting will go through a sea-change too.

They are welfare queens, but they extremely smart ones.  Watch them, for they point out the way.  These guys know what is what and make their moves regardless of government.  Recall when Boeing knew perfectly well there was nothing else in the State's welfare purse for Boeing, Boeing simply moved to Chicago:

Seattle's mayor, Paul Schell, said he was ''totally blindsided.''
The state's governor, Gary Locke, describing himself as ''surprised and deeply sorry,'' said loss of the headquarters ''leaves a void in our economic and cultural life.''
Both pleaded with Boeing to reconsider.

Pled to no avail.  Why would Boeing bother to inform anyone in government? Government is theatre, and when it can no longer provide bread and circuses, and chaos sets in, the smart escape to anarchy.

Feel free to forward this by email to three of your friends.


How To Manage Unexpected Demand in Specialty

You have two options at the specialty level to manage unexpected demand:

1. Raise prices.

2. Put delivery out further.

Apple has chosen #2 for its smartWatches.
Apple Watch pre-orders cause backlog until summerApple Inc started accepting pre-orders online for its new smartwatches on Friday and demand was so high that the orders were backlogged until the summer.
No, Apple's decisions caused the backlog, not the pre-orders.  Apple might have raised prices to the point demand dropped sufficiently to match production.
The Apple Watch is Tim Cook's first new major product, and the company's first foray into the personal luxury goods market. It's also Apple's first new product line in five years, and its first since the death of co-founder Steve Jobs, who helped create many of Apple's most iconic products, including the iMac computer, iPod media player, iPhone smartphone and iPad tablet. Investors are expected to be looking to how well the Apple Watch does as a sign of whether Cook and his team are still as innovative without Jobs' influence over product design.
No, Tim Cook is making Apple small, as in pusillanimous.  It shows in his product.
 Prices then go up to $1,049 and $1,099. The high-end version, called the Apple Watch Edition and made from 18-karat solid gold, will range in price from $10,000 to $17,000
No, 18 karat is 75% gold, not solid gold.  100% is unusable in everyday products.  Personally, I like 75% gold, 22.5%, copper, 2.5% silver, AKA rose gold.

But back to the point.  In specialty, you never expand production much.  If 1 and 2 above do not do the trick, then kill the item, and do a version of the original.  This is how Ty Warner made a billion selling Beanie Babies.

Feel free to forward this by email to three of your friends.


Whup Dem Slaves!

Goonish!

After destabilizing the world with a criminal policy of lending asset-less backed credit at usury, the program meant to enslave the rest of the world has not worked out, for there is a God in heaven.  Since Russia and other adult-supervised nations have refused to be enslaved, we now turn on the few friends we have and begin to bully them.
The US Treasury has stepped up calls for big economies, including the euro area and Japan, to boost demand as it warned the global economy was becoming “increasingly unbalanced”.
In a semi-annual report to Congress, the Treasury urged euro area governments and Tokyo not to rely solely on monetary policy to lift growth, while pressing South Korea to reduce interventions in currency markets and let the won rise.
Increase demand?  Force feed your sheep more?  Never mind what people want, give 'em what USA says so, good and hard?  This does not make friends.

We can unilaterally recover free markets, and begin to promote peace, justice and prosperity.

Apres deluge, we must go for strict separation of economy and state.

Feel free to forward this by email to three of your friends.


How Often is Deflation?

Kevin offers this outline of econ crises in USA, of which there have been a dozen of so deflationary ones...  none like the present one those...

http://www.preceden.com/timelines/76011-major-u-s--economic-recessions

Feel free to forward this by email to three of your friends.


Friday, April 10, 2015

Your Swiss Negative Ten Year Bonds

I wonder at it, how come Mish and Tyler Durden, of all people find negative interest rate bonds stupid or controversial?  Mish:
In January, Switzerland’s central bank, worried about the consequences of buying huge volumes of euros to keep the franc suppressed, scrapped its upper limit on the franc and cut deposit rates to minus 0.75%. Foreign-exchange markets were thrown into turmoil. Given that putting cash on deposit costs money, the very modestly negative yield of the new 10-year bond is marginally attractive. A similar story is playing out in the eurozone, where the ECB has set its deposit rate at minus 0.2% and aggressively bought bonds. 

Durden:
Debating a future of inflation vs. deflation is radically new territory for investors. The chaotic nature of the choice facing societies is whipsawing equity markets and dominating bottom-up factors.
(the whole thing is a great read, by the way).

Again Mish:

Such idiocy has led to yet another asset bubble of enormous magnitude, in part fueled by corporations borrowing money at low rates to buy back their own shares at ridiculous prices.

Not sure what mish is calling stupid, but negative bonds make perfect sense.  Controlling the loss of your money is a good idea.  The Swiss are simply recognizing that we are in deflation, and to offer a Soverign Bond that guranteees the rate of loss is a good idea.  If you know the stock market and real estate markets will drop 40% certainly over the next ten years, isn't locking in a mere 2% loss a good idea?    Why not just hedge your holdings?  Because regulators outlaw shorts as they did in 2008, wiping out your hedge.  And money hiding in bonds is not taxed, since, in essence, the tax man is holding it (why would he reduce what he has?)

Maybe he just means how we got here is stupid.  If so, true, true.  But next comes the fix, and if you read these smart people, they all seem to be saying that the hegemon has no power in these circumstances.  Putin knows what to do, turn to freedom, but we appear to have lost our sense of that.

If not, why are people turning over their money to otherise lose it?




Feel free to forward this by email to three of your friends.


Russia Rebounds as USA Sinks

Last August I suggested the sanctions on Russian may turn out to be very good for Russia.  Today Mish is citing a fellow who is now saying the same thing.
But here is something nobody expected. In the first quarter of this year, Russia was doing a bit better than anyone could have forecast. We learned last week that the economy managed to grow by 0.4% in the latest quarter, compared to the zero growth or the outright recession that most economists had penciled in. The ruble is the best-performing currency of the last three months. Even the Moscow stock index has started to recover.
Well, not nobody.  In my teens I would check the arrivals notices of Soviet freighters to Seattle and head down to the docks to visit the sailors on board.  I was studying Russian in High School, so it was a chance to practice my non-skills (the mostly spoke English among the crew we met) and it was a rater enjoyable set or meetings.  learned a lot.

Circa 2004 I spent a couple of weeks in Moscow, with a sister who had been there about five years before.  She described the changes.  So I had a little inkling of how bad it had been and how good it had gotten.  You could see the problems and disparities, but things were improving.  Before and after ten I had blogged on Russia and changes.

If you read the article, it notes the stats on Russia, looking good.  One big reason is Putin and cutting taxes, etc.  Faced with sanction, Putin made the economy even freer as noted in the article.  These economies are improving being who we pretend to be.

Summarizes Mish:
I bought into Russia near the peak of the panic, but not enough. I have plans to add more.
 Feel free to forward this by email to three of your friends.


Thursday, April 9, 2015

Salinas-Price: A Billionaire With The Right Ideas

A Mexican billionaire and ex-presidente, Hugo Salinas Price is putting his time into restoring a sound economy...  he keeps definitions straight...
The argument that “banks make loans and thus create money, but do not create the money to pay the interest on the loan” is a specious and confusing argument because, on the one hand the power which modern banking systems have to create money out of nothing by granting credit is an anti-social power based on fraud, since real money can only be gold and silver and these cannot be created out of nothing.
But this article is an indication where recovery may happen after the coming crash...
In the 1950's the city was the national center of a bustling shoe-manufacturing industry. Back then, the Mexican market for shoes was protected from foreign competition, and Mexico with a population of some 35 million obtained its shoes from Leon manufacturers.
The industrial activity in the production of shoes was intense, and Capital was always scarce. Money to finance the operations of a multitude of manufacturers of shoes and related industrial activities was very scarce and all business faced a constant struggle for liquidity to keep operations going.
Bank credit was extremely scarce; the productive enterprises related to the manufacture of shoes could not obtain any significant amount of bank credit; their discipline in accounting and elaborating financial statements was minimal - to produce, sell and collect was the immediate necessity - and could not meet the bureaucratic requirements of the banks.
The struggle to stay in business was an unrelenting ordeal.
The scarcity of money in the productive system led to entrepreneurial invention to cope with the problem; the entrepreneurs resorted to issuing post-dated checks, in lieu of money, which they did not have.
So with a non-functioning lock-down by government, relatively free markets evolved.  Not the ideal, but workable.  Note when it ended...
I have described the improvisation to which the entrepreneurs of Leon resorted to keep their production of shoes flowing. Necessity forced them, entirely spontaneously and illegally, to invent a cash-substitute; the system continued to operate up until the 1980's, when new banking regulations forced the system to close down; it was a system based principally on confidence that the debtor would fulfill his promise to have the funds in the bank, against which the post-dated check could be cashed.
It ended when the USA bankers flood of EZ Credit wiped out the indigenous finance systems.  The Mexican system was not ideal, but not as bad as what Uncle Sam exported into Mexico.

Salinas-Price makes a recommendation which was not the Mexican compromise nor the Gringo imperialism...
The Manufacturer of shoes sold his shoes to the Retailer. The manufacturer presented his Bill, payable in 90 days. The retailer "accepted" the Bill and signed his name to it. This Bill was the next best thing to gold (which was used as money at that time) because according to the Scottish legal system, a Bill not paid within 24 hours of its presentation for payment placed the whole business and personal wealth of the Accepter - in this case, the Retailer - up for sale at auction; the proceeds to be used to pay the Bill which the Retailer had not been able to liquidate on time.
Now, truly that system is an improvement over either of the preceding.    It is natural, organic, just, but there are two flaws...

1. Usury

2. State-enforced.

The state enforcement was unnecessary... for as Salinas price notes:
However, the penalty of defaulting on a Bill presented for collection was not the only factor guaranteeing payment, because the default forever tarnished the reputation of the Acceptor of the Bill. Enterprises in England and Scotland proudly put the date of their foundation after their corporate names, to indicate that they had never once defaulted upon a Bill presented for collection.
Now ask how come the Scottish experiment ended?  I'd say for the usury, the interest payments, which was utterly unnecessary to make the system work.  In the previous essay noted, Salinas-Price notes the right action of no usury in islamic finance, a fundamental in Christian finance too, for usury (any interest at any rate for any time period) is also strictly forbidden.

And inherently unjust system will not last.  I hope Salinas-Price will formalize his views to embrace free market vendor finance while eschewing state-backed violence and usury.

Feel free to forward this by email to three of your friends.


Get Big or Get Out/Food as a Weapon

United States Government agricultural policy, effected by the USDA and the FDA, has been for the last 45 years at least "get big or get out" and "food as a weapon." it has been extremely effective not only in the USA, but all over the world.  Now that the fruits of that policy are crashing down as surely as those of the Soviet Union once did, there is immense work to be done to rectify the harm done in the last 45 years.

One glaring problem is the bee destruction.  So much work to do, so little help, it would seem, if one were to expect help from the Hegemon.  In the free market, the Hegemon has no role, for it is irrelevant.

Here is an Indiegogo campaign raising money for an invention that will help revive beekeeping in USA and around the world.  They needed $70,000.  So far the have $8.5 million, with a month to go.

Get rid of the FDA, USDA, cut taxes concomitantly, let the market assure quality and authentic (unregulated) insurance re-emerge, and watch peace, prosperity and justice emerge.  Billions into "get big or get out" and "food as a weapon" were inevitable when the work is turned over the the Hegemon.  The savings may not be that much, but ending the billions poured into doing harm will be the big improvement.

Feel free to forward this by email to three of your friends.


Stockman for FED Chairman

David Stockman should be appointed by the next president to be the last FED Chairman, with the task of shutting it down.  He has his facts exactly right:
But, no, this wasn’t a case of Adam Smith’s division of labor and miracle of free trade. Nor was it a financial free lunch. Instead, this was classic vendor finance——but on an epic scale.
Now the irony is vendor finance is exactly what we need to get out of this mess.... restore the asset-backed private credit that was once the lions share of commerce in the USA.  Then we'd get free trade natural economay and division of labor, which we have lost.

By introducing banks lending credit, government got huge and false economy bloated USA into an empty bag.  We exported inflation and now it has gone too far (unto the 3rd and 4th generation) and the damage is done.  They had control of credit inflation, but there is no controlling credit deflation.

The Hegemon can have absolutely no part in the recovery, they must deregulate everything and anything they have regulated.  The big banks, big pharmacy, big Ag will disappear, and the good will re-emerge.

Feel free to forward this by email to three of your friends.


Wednesday, April 8, 2015

Your Small Business and SBA/ ExImBank Loans

You know, you take the big leap into the unknown, put all of your time, talent, treasure, blood, sweat and tears into a startup... and then fall in with the wrong crowd.  Sure..  it looked good at first.. Here is another ImExBank "success" story:
The brewery recently partnered with a Swedish company, Spendrups Bryggeri AB and is moving beer to Europe. Spendrups orders 1800 cases of Hilliard’s Amber per shipment. Spendrups moves about one-third of the US craft beer in Europe. Hilliard said that in 2015 they hope to ship to Sweden the same volume of beer they sold in the US last year.
Sounds great, right, for a four year old Seattle craft brew start-up?
Hilliard’s Beers started up with Spendrups through the Brewers Association Export Development Program. The EDP was started in 2004 through a grant from the Department of Agriculture’s Market Access Program. Their aim is to inform international markets of the beer brewed in the US to increase distribution.
OK, keep following this, in essence Uncle Sam will find you customers, of a sort.  Next Uncle Sam will finance your exports:
Many US small businesses trading internationally work with the Ex-Im Bank, which is the official US credit agency that provides working capital, export credit insurance, loan guarantees and direct loans for companies. The agency reports that no transaction is too large or too small. Basically Ex-Im takes the financial risk from US small businesses by backing transactions that private banks wont touch. The bank reports 85 percent of their transactions directly benefit small businesses in the US. The Ex-Im Bank works closely with the US Small Business Association to determine which small businesses get federal funding.
Now the above is copy and paste journalism, straight from the EXIMBank press releases, mendacious where not a lie. Zero fact checking there. Almost zero USA small businesses trading internationally have ever even heard of the ExImbank let alone work with them.  Why use the word official, (in the sense of "licit means") as though any of those services need be government provisioned?  The ExImBank gives credit to private companies overseas to buy USA products. (The ExImBank funds deals banks won't touch, guess why?) The USA banks lend the USA small businesses credit to make the deal happen on this side, so the USA banks make the same profits with zero risk to themselves, the profits are privatized while the risk is socialized upon the taxpayers.  The 85% figure cannot be verified, and where it can, it ends up being divisions of Warren Buffet investments.  And these deals that would not be in a free market steal from those who can sell to solid customers overseas by financing deals that should not happen. At any rate 85% of near zero is still nothing worth mentioning. And I would not mention it, except, it is collectively billions down the drain, and billion here, and billions there.... it all adds up.  Utterly unnecessary. But far more important, users end up losers.  So far we have Uncle Sam finds customers, of a sort, and Uncle Sam finances...  and next...
Incidentally, the same day Murray visited the brewery, Hilliard opened a letter from his bank that said he would not be authorize for the Ex-Im working capital he needs to grow his business. Why? The letter said that Hilliard does not have a record of capital that qualifies the business for the loan.
What does that mean?  Let's not be naive...  Taking criticism for being the Patty Murray, D, Boeing; or Patty Murray, D, War.  (Which is sad since she was one Dem to vote against the stupid war a dozen years ago...) and then here.  Gotta look like she is supported by small folks...  Get it yet?

And no one needs bank financing to expand a business.  You need customers.  If you have customers, you need no bank financing.  You can get customers without bank financing, and it is often the case that bank financing does nothing to get you customers.
The political limbo worries Hilliard. He said he has invested a lot just to make the beer for the contract with Spendrup, and is disappointed in how things are moving with the SBA. He hopes that speaking with Murray about the problems will help. Murray shared a similar sentiment.
I bet she did!  And there is the thing.  You get this "big order" all dependent on "government help" and then when it goes "poof" you are in debt for an infrastructure for a business that is not there.  You end up like the guy who goes into business with Pauly in Goodfellas.  Now you know how Guatemala feels.

In my seminars I show how to find food and beverage business overseas in a few weeks organically, all prepaid, for less than $100 max.  No government programs, no paperwork to fill out, no bankers nor compliance, just what the vast majority of small businesses do to get business overseas. If there is real business to be had, it can be just as easy and every bit as profitable as a domestic sale, with no more effort.  I've got the happy past participants in my seminars to prove it.

Here is that scene from Goodfellas, NB bad language, first the help...



then when they gotcha...



Feel free to forward this by email to three of your friends.


Asset Category Specific Inflation/Deflation

Hugo Salinas Price has some great ideas for Mexico to escape the USA Hegemon, and Price is a devotee of Antal Fekete, whom Mish reviews:
Antal Fekete: Certainly, with some reservations. It does not assign a very high IQ to businessmen in the field. Why don't they learn from experience and factor into their calculations the distortion in the rate of interest due to monetary policy? I improve on the business cycle of Mises, pointing an accusing finger to bond speculation motivated by risk free profits. Businessmen are the brightest people we have. They are being victimized through the insane monetary policy of the Fed.
Mish has a tool many miss, the credit inflation/deflation dynamic.  Yes, the bond speculators (speculators, or just picked insiders?) rock this credit aspect at usury to lay waste the middle class.  Sometimes you must accept the results reveal the intentions.

Mush seems to be missing that inflation and deflation can appear in specific asset categories, as igs vaguely recognized in the principle no asset class booms serially.  Says Mish...
I expect another round of deflation when various asset bubbles pop. Meanwhile, and as long as asset bubbles are expanding, I do not believe deflation is the best word to describe current events. However, I would describe the current setup as highly deflationary looking ahead.
Well, we are in deflation in some categories, like credit...  which Mish should see, but I don't think he sees deflation like inflation can be asset-category specific.

Feel free to forward this by email to three of your friends.


Is There a New M&A Rationale?

In this deflation era, will there be a new rationale for mergers and acquisition?  Fedex pulled off a move UPS could not?  How come?
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights.
FedEx struck a €4.4bn deal for struggling rival TNT Express in a bet that it can expand its presence in Europe and avoid the regulatory concerns that prevented its rival UPS from pulling off the same deal.
For the last 45 years the deal was to take massive asset-less backed credit and outbid competitors by overpaying.  Who cares?  Like a house, prices always rose.  That is no longer the case.  Is this a credit deal?
Fred Smith, FedEx’s chairman and chief executive, said the timing of the deal was influenced by the strength of the US dollar as well as signs that lower oil prices and the European Central Bank’s monetary stimulus were delivering a boost to Europe’s economy.
Fred Smith is Skull & Bones, so maybe it has to do with USA control over routes, or unloading dollars overseas, and the reference to EU QE clearly suggests it is an EZ credit-rationale deal.
As part of the deal, the two companies would need to sell TNT’s airline operations. FedEx, which has more than 660 aircraft in its global fleet, said that TNT’s European road network — which connects more than 40 countries through 19 road hubs and over 550 delivery depots — would be “highly complementary”.
Yes, that last mile is critical when competing on price.  The road network is the thing. TNT has 32 aircraft, mostly leased or old, so they are easy to deal with, but to whom would they sell the operations?    The part they are getting rid of is the part no one wants.  And TNT is only 15 years old, it was a boom time phenomena. Last in first out?

Now this is just weird:
The deal comes with international couriers struggling to adapt to the rise of e-commerce, which has put pressure on their delivery systems. These are more geared to serving high-density areas.
How does increased demand cause one to struggle?  usually you have two options, one is raise prices, the other is delay delivery.  The latter is not an option in delivery services, so the struggle must be in the pricing.  When Amazon.com can live off EZ ZIRP credit to take a loss on delivery, they push a hard bargain on what they will pay.  When Amazon can match up with Fedex on this EZ ZIRP credit to in essence get taxpayer subsidy on freight, ouch to the little guy.

If debt is behind this, then the nominal amount owed to the banks will get relatively more expensive over time, at which point Fedex will have to be bailed out, assuming they are deemed too big to fail.  Will the Europeans be so willing to support the hegemon, or let 100 new competitors emerge?  Or sell it off to the Chinese?  My guess is things will start to turn out contrary to expectations.

As an aside, there seems to be a nasty short squeeze here.  From the article we learn that the company value before the bid was about 3.4 billion euros, and about 10% of that was loaned out on shorts, or 340 million euros.  A 33% jump in price (28% so far) would hammer (in the form of margin calls) people leveraged 10-1 in shorts...  with .60 euro investment, they now have to fork over 1.40 euros more to get out of the trade.  If someone has 1000 shares, or EU6000 in, they now have to cough up EU14,000... NOW!  The people on the other side of the short trade pick up an easy 25 million euros, if they new the details of the offer (and if it goes through, and if I have the calculation right.)

Feel free to forward this by email to three of your friends.


Tuesday, April 7, 2015

Krugman Rediscovers Small Business International Trade!

I didn't realize I was reading Krugman until I copied the link...  At first, good observation:
My experience in these debates is very much in line with what he says. Younger macroeconomists — and by younger I mean in their 40s or even 50s — don’t know anything about the intellectual history of how the field got to where it is. Worse yet, if they’re trained in freshwater macro they have absorbed a fake history, in which the rise of their style was an inevitable consequence of superiority on all fronts, rather than a questionable methodological choice that involved disregarding a lot of empirical evidence; until 2009 they were generally unaware that there even were other approaches still in use by smart people.
Very true. So here is the state of the art, according to Krugman...
In case you don’t know, New Trade Theory — or, as some people now call it, “the old new trade theory” — was about increasing returns as a driver of international trade and specialization. We know that a lot of trade is driven by things like resources and climate: there are fundamental reasons why Canada exports wheat and Brazil exports coffee. 
No $#*+?  Due to geography and weather, Canada - wheat, Brazil - coffee. Imagine that. And from this profound observation, we go on to:
But a lot of trade, especially among similar countries, arguably reflects the advantages of large-scale production, which creates an incentive even for similar countries to concentrate on producing different things.
Well, with policy laundering, rent-seekers try to copy the moves of their counterparts in other countries.  But in the real world, the only incentive is customers, and only by offering them a solid value does a real economy emerge. What happened in the last forty years is lending EZ credit instead of money at fractional reserve. That gave one country an advantage over another at the large scale.  Sure McD and Starbucks used it to crowd out the small businesses, but that is over.  Krugman may not know what happened the last forty years, but he does know it is over, and he is sensing there may be an alternative he missed.
What the modeling suggested, however, was a very different picture — one in which the broad outlines of world trade were shaped by conventional comparative advantage, but with an overlay of additional, quite possibly random specialization driven by increasing returns. Furthermore, this additional specialization would normally produce gains for everyone, not just the countries producing the increasing-returns goods, because the gains from larger scale would be passed on in lower prices. As you can see, I can now tell this story in fairly plain English — but let me assure you, this story was simply not out there in 1980.
Well, maybe not in academia in 1980, but competing on design, not price, has been universally known in business since Jacob requested the blemished lambs.  Not only is it "specialization", the category has always been known as "specialty."    It surprises no one in business that Krugman and other policy-wonks could not see it clearly, let alone articulate it.  Also, there is no such thing as "comparative advantage" outside of academic theory, because all trade is ultimately impacted by beggar-thy-neighbor Hegemon policies.  It is only a matter of more or less when it comes to peace and prosperity.  The theory helps fill up that empty space professors find in the E-MBA programs.
Finally, the little models suggested possibilities few had noticed before. My most influential early paper in this area laid out the case for scale-driven specialization, then turned to the possibility of a “home market effect”, in which large domestic demand encouraged exports — something that, to the extent people had suggested it before, was a very confused notion at best.
Chuzpah!  This guy discovered the wheel in 1980, no one having ever seen one before 1980. Well, number one rule in exporting is to have a domestic market first.  I think the Phoenicians first mentioned that.  So he means no one in academia or government had noticed before.  (Actually, I cited in my book where a low level official casually mentioned it to me, so it must be a terribly discouraging thing to see complete idiots win nobel prizes and pull down millions writing sheer crock.)

The hegemon wants only bad ideas (from the point of view of free marketers), the ones that supports its powers.  Krugman is backtracking fast, to 1980, to find something he can sell.  He knows all he has written for the last 30 years is going to become rather stale. At the same time he is badmouthing the "younger economists" and their new ideas, before someone decides to give Krugman the boot for some new thinking.

It's getting ugly up there at the top,  the end is near.

Feel free to forward this by email to three of your friends.


Do You Have Paycheck, Portfolio, Pension or Property?

Learning from the 2008 crash, and the panic mode of the regulators in extending bailouts, the regulators have begun the bailouts before the current crash is official.  By allowing people who cannot afford cars the opportunity to do so Detroit is being bailed out yet again.

If the economy was in recovery they would not be doing this.

Now as Tyler Durden notes:
We’ll close with this, because nothing spells trouble like the idea that if you have the cash, you should take out a loan with a rapidly amoritizing asset as collateral in order to invest in stocks or, in other words, it’s a good idea to pledge a devaluing asset to buy an overvalued asset..
Well, that was exactly the right move for the previous 45 years, and it is a disastrous move from here on out for the next 45 years?  Durden says so.

And think of the "stock buyback" programs that are making the market rise astronomically.  The banks lend credit (nothing) to corporations who buy their stock back with the credit, juicing the stock price as your pension piles into to bid up the price of what shares have not been bought back.  Insiders clean up both in the corp and the banks.  Who cares what happens tomorrow, fees and bonuses are booked today.

When the next crash comes, your pension money is gone, and the bank that lent literally no thing, no property, nothing, to the corporation, is "owed" the millions it can no longer pay back, the credit borrowed to buy back the stock.  So as an investor of your hard earned cash into that corporation you get nothing, as a lender of absolutely nothing the bank now owns the corporation to which it lent literally nothing.  This is capitalism, something young men are sent off to die for.

Are you depending on paycheck, portfolio, pension or property to get you through in the coming years? Then you are toast.

On the other hand, there is no end to the opportunity to get a business going.  Hedge your bets.  Get a business going.

Feel free to forward this by email to three of your friends.


An Excellent Trade Expansion Tactic

Sitting at a table, circa 1977, in China, next to a 3M Corp executive, I was introduced to the import ot export tactic.  3M ws building a relationship in China by importing from China first, set up a flow of goods, and then use that path from powers that be to USA to reverse the flow from USA to powers that be in China.

It's an excellent tactic, and I've advised USA beverage companies for years to use it.  Sadly, in the case of wine, the business rationale is the tax write-off and subsidy in USA, not to build viable markets.

The Japanese are using it to break into the USA Whisky market:
Since then, Suntory has shipped more bourbons — including Jim Beam and Maker’s Mark — into Japan, while also planning to bring Japanese beverages, such as Hibiki Japanese Harmony, to the U.S. later this year. The import-export strategy hinges on introducing the Japanese to American bourbons, while also convincing Americans to think of Japanese whisky as more than just the inspiration behind a humorous scene in a Coppola film.
If there were a true economy wine company in USA, they out to use the tactic to break into the China market.  As far as I know, no one is yet employing it.  I have a .pdf from my class if anyone wants to learn about that.

Feel free to forward this by email to three of your friends.


Monday, April 6, 2015

So What Are You Going to Do?

The top advisors see it is over -

But I can think of no event since Bretton Woods comparable to the combination of China's effort to establish a major new institution and the failure of the United States to persuade dozens of its traditional allies, starting with Britain, to stay out.
And

The US spends three times more than China on “defense.” Advantage: Pentagon. But as the Persians discovered in their wars with the Greeks, having the biggest, best-funded army does not necessarily give you an edge. Instead, it can invite sluggishness, complacency and overreaching.
The US military is the fattest, most zombie-infested bureaucracy in the world. It suffers from an overabundance of resources. It supports troops (at a cost of $1 million per soldier per year) all over the globe.
It builds weapons systems that are often obsolete before they are put into service. It coddles armies of lobbyists, contractors, consultants, retirees, hangers-on and malingerers.
Like all bureaucracies, it looks out first and foremost for itself. Looking out for the security of the nation is a distant second.

And having humiliated the USA hegemon over the AIIB, the Chinese are taking a victory lap and inviting the USA in as a junior partner in Asia.

Washington's new attitude, though far from enough, is a good beginning. As the world's sole superpower, it too shoulders its own responsibility to usher in a better global lending system as well as a better world through cooperation with others.
Washington's blocking of the AIIB has proven of little avail so far. The sensible next step would be to continue bridging the gap with China and find itself an appropriate role in the new initiative.

Further, whereas in capitalism big business writes the rules that advance the program of "get big or get out", China is forbidding the kickbacks, bribes, graft etc that is legal in the USA system for big business.

China does not pursue protectionism and it will continue encouraging the inflow of foreign investment. The establishment of the China (Shanghai) Pilot Free Trade Zone, the decision to set up free trade zones in Guangdong, Tianjin and Fujian, and ongoing efforts to push forward the Silk Road Economic Belt and the 21st Century Maritime Silk Road all mean that China is opening wider to the outside world.
Yet that does not mean indiscriminate acceptance of foreign investments. China welcomes investments that can benefit its green, healthy, sustainable development while keeping those that do the opposite. The anti-monopoly campaign is aimed at creating a healthier environment for foreign investments, not to discourage them.

China has massive problems.  But a small, viable drug company has a better chance in this world in China then USA.  Yes, so does a snake-oil company, but the Chinese will weed out the bad ones eventually.

Two fellows are hiking in the woods, when they see a bear cub on the path ahead of them.  Uh-oh.  Where is the she-bear?  Bad news, behind them, they are between the she-bear and her cubs.  One hiker drops down, pulls off his hiking boots, and proceeds to put on his Nikes.  The other says, "Are you kidding, you cannot outrun a she-bear in the woods..."  The fellow putting on the Nikes replies, "I know, but I only have to outrun you."

The Chinese need only be a little bit more attractive than USA, and right now, they are way more attractive, according to the last world vote.

Bonner has it right (above) the problem is our military and our bureaucracy.  We cannot support them and rebuild our economy.  What needs to be done is really quite simple, freedom, but what we choose to do is massive "urban suppression" exercises on how to crack down on dissent.

We have what it takes to win, the right ideas, but people in power never want the right ideas, they want the self-serving ideas.

And sheriff's deputies told the Houston Chronicle they would ensure residents living near where aircraft were slated to create disturbances and drop soldiers, civilian and military vehicles will barrel through and where blank rounds would be fired.Jim Stewart with the Brazos County, Texas Sheriff's Office told the Chronicle that such exercises are far from anything new. 'Special ops for years have trained off-post for years, where they go out and have folks that are role players out on the economy,' said the Army intelligence veteran. 'They'll have a scenario they'll be following and they'll interact with these role players as if they're in another country.'

Oh.  Training soldiers to interfere in the economy and act as though they are in a foreign country.  How about end the banking regulations that destroy small business, or end Big Pharm monopoly, or separate state and education...  so many things would revive USA as powerfully as the internet revolution that came from telephone deregulation, but no.  What we will do is play theatre with military practicing special ops in USA.

Start your own business, it is the only life raft left.  If you have paycheck, property, portfolio or pension, you are a sitting duck.  Those soldiers need to be paid, and sitting ducks will pay them.

Feel free to forward this by email to three of your friends.


Small Business Loans

Usury, that is taking or paying interest at any rate for any amount of money at any duration is strictly forbidden in Catholic teaching.  There are many who attempt to contradict this fact, but they fail to do so.  That 99% of Catholics violate the teaching merely highlights being Catholic is voluntary, as all human institutions need be.

In 2009 Pope Benedict reiterated the condemnation, and suggested some areas in which study might advance a usury-free economy:
Furthermore, the experience of micro-finance, which has its roots in the thinking and activity of the civil humanists — I am thinking especially of the birth of pawnbroking — should be strengthened and fine-tuned. This is all the more necessary in these days when financial difficulties can become severe for many of the more vulnerable sectors of the population, who should be protected from the risk of usury and from despair. The weakest members of society should be helped to defend themselves against usury, just as poor peoples should be helped to derive real benefit from micro-credit, in order to discourage the exploitation that is possible in these two areas. Since rich countries are also experiencing new forms of poverty, micro-finance can give practical assistance by launching new initiatives and opening up new sectors for the benefit of the weaker elements in society, even at a time of general economic downturn.
Yes, the protection is in the provision of alternatives.  When the state outlaws, or makes the provision thereof onerous, of alternatives to usury, then there is a problem.  The solutions are emerging...

https://zip.kiva.org/

https://www.communitysourcedcapital.com/

And what is needed is a USA WIR, for people to get oout of the dollar and have a free economy within the hegemon's territory.

Micro-credit that is usury-based is to be cndemned, for it just replaces what was once usury free micro loans with usury-based microloans, introducing injustice where there was none before.

Feel free to forward this by email to three of your friends.


Good Food Demand Growing

McDonald's cannot revive because the infrastructure to deliver their product is product specific.  Thought experiment: if McDonalds went out of business in a location, could Chipotle move in and open up one of their shops cheaper than building out their own.

No, wrong percent of reefers to freezers, dry to wet stockroom, drink mix, worker to customer area, etc. And the whole place in is the wrong location.  McD cannot trade up to Chipotle, Chipotle cannot rrade down to McD.

Chipotle is designed to deliver fresh, organic, so it cannot be competed against.  McD will become like Dunkin Donuts, always a residual but never again a grower.

The demand for "organic' is growing, and the WSJ reports that sia  problem, what with land prices so high.
Two years ago, Chipotle, which said it seeks to purchase as many organic ingredients as practical, began providing financial incentives to help farmers of black beans in Oregon and Washington transition from conventional to organic production. In 2014, the fast-casual chain paid higher-than-conventional prices for about 500,000 pounds of beans grown on farmland shifting to organic—equal to more than 10% of its organic black-bean purchases—even though it wasn’t able to market those to consumers as organic, a spokesman said. In January, the company said it would suspend sales of pork in about a third of its stores after it discovered a supplier wasn’t complying with its animal-welfare standards.
Well, land prices will drop like a rock in the next few years.  Which will not help the big guys, since they locked in their mortgages at high rates, and they will be forced to sell off at low prices.

Feel free to forward this by email to three of your friends.  


Sunday, April 5, 2015

Nothing has Changed in World Trade in 45 years

I cannot be contradicted since there are few others who have been in international trade for the last 45 years, but I'll say it again, nothing has changed.  The last big change was containerization, and that started 60 years ago.  That sharpened the distinction between large and small business international trade.

The rise of China changed nothing.  Just more of the same, more people involved.

The introduction of the internet changed nothing, it just collected the catalog, the phone book, the phone, the mail, the telex all into one device.  This has speeded things up, but it has not improved anything qualitatively.  The grand delusion is the internet sells.  Simply not true.  Salespeople still sell, or not.

9-11 changed nothing, except adding unwarranted costs, but that is nothing new.

About 45 years ago there was a huge change, and that was USA going off the gold-standard-lite.  After that, lending asset-less backed credit at fractional reserve affected the flow of goods and services worldwide, what goods and services would present themselves, where wars would be, and how to make exceptional personal accumulation front-running the inevitable.  Call it Credit Inflation.

Now we are at another change.  It too will last approximately 40 years.  Whereas credit inflation was well known as a phenomenon and could be managed, today's credit deflation cannot be controlled.  Whereas the last 45 years was "advantage big business" the next belongs to small business.

Sentiment is everything, and over time the internet will be seen as a net deficit.  Extricate yourself now, and build up where the future is: brick and mortar.  Don't worry, you have time...  but everything follows the mind...  get your head right, and then head in the right direction.

Things have changed, for the first time, in the last 45 years.

Feel free to forward this by email to three of your friends.


What's New in Chinese Press

The tone of this article surprises me, downright triumphal, very unlike the Chicom press.  The Chinese effort to sidestep the USA Hegemon has turned out spectacularly successful...

China checkmates US on Asia bankThe China-led Asia Infrastructure Investment Bank has 47 countries that have joined or applied to be part of it, as US allies reject Washington's concerns, Zhao Yinan reports from Beijing.
Et tu, Japan?

If Japan does join, it means the US will be the only G8 nation not clear about its attitude towards the bank project, set to be launched by the end of this year with initial capital of $50 billion.
Kyrgyzstan and Sweden applied on Tuesday and Israel announced on Wednesday it had applied, bringing the total number of would-be founding members to 47 across five continents.
Even before the announcement of when it will launch, the AIIB has dominated headlines, resulting in clashes of opinions on whether the bank can succeed in making money through infrastructure construction - as well as establishing a new financial system to reduce the US dollar's influence on the global economy.

In one sense the schadenfreude is understandable, the USA was quick insulting and threatening as the idea moved forward, cautioning, of all things, that China start at the USA's high standards, implying 1. The USA standards are high (bailouts, much?) 2. The Chinese standards are low.  The world has voted.

Read the article, USA charges too much to demand too much.  People prefer Chinese management to USA management.

Feel free to forward this by email to three of your friends.


Anarchy In Action

Sadly when I first went to Hong Kong, I believed the stories about the most dangerous place on earth, the Kowloon Walled City.  This was before I was a working anarchist, so I did not visit it.  Plenty have, and contradict the official line.  The Kowloon was a working anarchist city, no government, but self-governed.  The freest place within the freest place on earth.

I would not say it is an example the epitome of anarchistic free market, but since most of the residents where plying some otherwise non-sanctioned trade or just hiding out, it might be likened to a anarchy prison, in which the inmates are free to come and go, and ply their trade.  I am sure most, in spite of their fond memories, would prefer the relative luxury of Hong Kong proper.

Well, they got their chance.  The place was levelled and turned into a park, which I have visited, quite nice, not far from where I like to stay in Hong Kong.

Here is one report on the place:



Feel free to forward this by email to three of your friends.