2017 Year In Review (Part 2)
2017 Year In Review (Part 2)
- My Personal Year in Review
- Broken Markets
- Market Valuations
- Market Sentiment
- Stock Buybacks
- Indexing and Exchange-Traded Funds
- Miscellaneous Market Absurdities
- Long-Term Real Returns and Risk Premia
- Housing and Real Estate
- Inflation versus Deflation
- Corporate Scandals
- The Fed
- North Korea
- Middle East
- Links in Part 1
- Natural Disasters
- Price Gouging
- The Biosphere and Price Gouging
- Civil Liberties
- Harvey Weinstein and Hollywood
- Political Correctness–Adult Division
- Political Correctness–Youth Division
- Campus Politics
- Unionization: Collum versus the American Federation of Teachers
- Political Scandals
- Las Vegas
- Links in Part 2
A warning for those who proceed
Part Two is contentious indeed
The "P***y Generation”
May feel agitation
From all of the truth that they read
“God always forgives. Man often forgives. Mother Nature never forgives.”
It’s easy to overlook how much Mother Nature batters the world, but this year she tore a new one through North America.313 Wildfires and extraordinary temperatures are scorching California. Los Angeles witnessed 104°F on October 4th (seems high).314 San Francisco had back-to-back triple-digit days for only the third time since 1870, reaching 115°F south of the city.315 Record-breaking wildfires are destroying neighborhoods, vineyards, and forests throughout northern and southern California.316 The risk of floods after forest fires is enormous.317 Rains earlier in the year took out the spillway of the Oroville Dam in the Sacramento Valley, threatening a Biblical flood for those downstream.318
"Yellowstone super volcano may blow sooner than thought—and could wipe out life on the planet."
~USA Today headline
Earthquakes and volcanoes have been capturing imaginations of late. A devastating earthquake in Mexico went underreported because of bandwidth-sucking hurricanes (see below).319 For decades, Oklahoma has averaged only two earthquakes a year above a magnitude of 2.7. That number has crept up to 4,000 per year, all attributed to fracking.320 The big one, however, is the Yellowstone Caldera. Six hundred thousand years ago, an eruption created the 40-mile-wide caldera that is now rising more than an inch per year and is accompanied by unusual “swarms” of earthquakes.321 NASA suggests drilling into the super volcano to dissipate the heat with water.322 And you guys call yourselves rocket scientists? Please do not touch it. The prospects of generating electricity may explain the plan: there is money to be made.
“Irma, you just became the strongest storm, what are you going to do next?
I’m going to Disney World!”
Of course the big story was Harvey and his friends. Not Steve Harvey, who crowned the wrong Miss America, or Harvey Weinstein, who probably assaulted her, but rather Hurricane Harvey along with Irma, Jose, Maria, and the rest of the near-record-breaking alphabet. Irma was showing up on seismometers.323 The Caribbean Islands got totally weedwacked; it is difficult to imagine how those areas will ever recover. Mother Nature seems to be trying to take back the Everglades; it was never really meant for human habitation in the first place.
The aftermath of the hurricanes is what interests me. Economists grope to find silver linings in the destructive forces of storms. Auto industry analysts, for example, claimed that the 2017 hurricanes solved the industry’s massive inventory problem.324 Indeed, it is a new-era cash-for-clunkers program, but somebody has to pay that tab. Then there is the wholly misguided notion that a post-disaster, debt-fueled spike in GDP owing to rebuilding is good for the economy. Such idiotic thinking—so-called Bastiat’s broken window fallacy—has been fully debunked in entry-level economics textbooks.325 Once in a while, however, some unsuspecting Bieber-bright boob can’t resist:
“The long-run effect of these disasters unfortunately is it actually lifts economic activity because you have to rebuild all the things that have been damaged by the storms.”
Embedded in such buffoonery is also the message that the Fed views fueling economic growth as “unfortunate,” which is oddly consistent with its actions. Moving along, let me digress by looking at some disasters from the past. I have a point to make.
1835: A massive fire destroyed much of Georgetown, VA. The fledgling federal government created one of its first social programs by giving the hapless victims money. As the story goes, a farmer told Congressman Davy Crockett that he would not vote for him again because of Crockett’s support for the relief: “What protects me from Congress giving even more money next time or money for a lesser cause?” the farmer queried. Crockett had his come-to-Jesus moment and purportedly gave a famous tongue-lashing to Congress saying, “It is not yours to give.”326
1889: As described in David McCullough’s The Johnstown Flood, an earthen dam in Johnstown, PA, washed out, killing 2,300 residents. Industrialists from Pittsburgh sent trainloads of goods immediately. Government troops showed up two weeks later to help with law and order.
2001: Planes hit the Twin Towers. Boats spontaneously converged at the southern tip of Manhattan. The Coast Guard, recognizing the problem, put out a call for all boats to come. Without organization or planning, 800,000 people were evacuated—more than were evacuated from Dunkirk, France, during WWII—in 14 hours. You must watch “BOATLIFT: A Tale of 9/11 Resilience.”327 Try not to tear up.
2005: Katrina hit New Orleans, and the levees failed. Walmart sent a fleet of trucks with essential goods but were turned back by FEMA, which was doing a “heckuva job.”328 The nation watched in horror as 1,800 people died.329 The display of “bystander bias”—inaction caused by the belief that somebody else (FEMA) will act330—may be the most horrific in U.S. history.
2011: Hurricane Irene veered away from New York City, where journalists waited with great anticipation. It thwacked northern New York and Vermont instead, causing rivers to rise almost 30 feet.331 My wife became a volunteer relief coordinator while on vacation. FEMA showed up two weeks later, applied one Band-Aid, put up a banner for photos, and left. Soon thereafter, I joined my wife to find new temporary bridges, hundreds of miles of new roads, and recovery in progress.
2017: Hurricanes hit Puerto Rico and Houston particularly hard. The now-famous Cajun Navy, still smarting from Katrina, spontaneously headed to Houston with boats in tow (Figure 38).332 The navy was staffed by folks of marginal means and of the type the progressive left is quick to call white supremacists. The Antifa Army, by contrast, was nowhere to be seen. J. J. Watt of the Houston Texans raised $35 million from 200,000 donors for hurricane relief. Contrast this response with that in Puerto Rico.333 U.S. air carriers tried to get to San Juan before the storm; a heroic Delta Airlines crew made it.334 Post-storm relief stalled for weeks as political battles and government graft prevented the distribution of goods and services.335 Where was the Clinton Foundation? Still screwing up Haiti?336 William Dudley arranged to have a jet loaded with pallets of cash sent to the stricken island.337 Nice gesture, Bill, but they needed food and medicine. I wonder who got the money.
Figure 38. Cajun Navy and Antifa Army.
Here’s my point. Government response often sucks. By contrast, citizens will step up to the plate if they are unimpeded by government and bystander bias. I submit that far fewer would have died in New Orleans if FEMA didn’t exist. Knowing that it was us or nobody, We the People would have saved We the People.
“Anyone who chooses to not heed this directive cannot expect to be rescued and should write their social security numbers in permanent marker on their arm so their bodies can be identified. The loss of life and property is certain. Get out or die.”
~Official message from a judge to one Texas county during Harvey
There is also another important message: preparation for disaster is key. Figure 39 shows possible responses when disaster looms. My worldview changed with Y2K. I detected risk and mitigated it by preparing accordingly. Others did nothing. Who was right? I knew you’d get that wrong: I was right. The ant was right, not the grasshopper, as was the third little pig—not because of what happened but because of what could have happened. If you are in Miami and trying to buy water, food, gas, or transportation with a storm looming, you are not preparing: you are responding. An iconic photo of a woman being given the last generator after Hurricane Irma to save her potentially dying father shows the generosity of the human spirit but begs the critical question:338 Why didn’t she already own a generator?
Figure 39. When hurricane winds, fires, tornadoes, and floods threaten.
Half of Houstonians had no flood insurance.339 Half of all Americans have no emergency supplies in their homes.340 Even fewer have fire extinguishers. Which of the following items would be really nice to have in the aftermath of a hurricane?
Plywood Generators Food
Bottled Water Chain Saws Tank of Gas
Ice Flood Insurance Duct tape
How much does it cost to have a chain saw, 100 pounds of rice and beans, some tarps, flashlights and batteries, and bottled water before the crisis? $400 or $500? Are these items more valuable as you stare into the teeth of a hurricane? Certainly. Without them, you may join the ranks of undocumented shoppers (looters). A viral photo of a nun with a chain saw (Figure 40) reminds you how fortunate it is to have a chain saw (and makes you wonder how long before it catches her flowing habit and takes her to the pearly gates). The Northmen hit by Hurricane Irene recovered quickly because they all have tools, skills, and a work ethic that would knock your socks off. They’re always prepared. What do we do about the poor in Houston or Puerto Rico? I don’t have an answer; they always get screwed. If the rest of us are prepared, however, FEMA can focus on them. Like I said, they always get screwed.
Figure 40. Nun with a chain saw.
Other disasters are harder to anticipate. I was shocked at how fast the California fires moved. I was in a fire in high school. Contrary to TV dramas, you have seconds to get the hell out. (Try doing so buck naked from a second-story window with temperatures at –2°F.) I have no idea how to prepare for earthquakes except to stay out of California. For the Yellowstone Caldera? Finish that bucket list.
“Price gouging . . . a pejorative term . . . a seller spikes the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair.”
Which government agency is in charge of determining what is “reasonable or fair”? Most find charging people more when they really need something ethically repugnant. Let’s ponder a few examples. Utility linemen are paid handsomely to leave their families and help hurricane recovery. That seems fair. Nobody bitches that the insurance companies pull in their shingles when the hurricane is imminent; it’s just business. My dog kennel raises fees during the holiday season. Those bastards! The captive audience at the movie theater gets totally gouged for that bucket of stale popcorn slathered with WD-40, but you don’t have to buy it. (Would butter really cut into your profits that much?) The business model of Uber causes prices to spike when demand exceeds supply, which has the effect of pulling drivers out of their houses and, in turn, driving prices back down (pun intended). What a curious concept: high prices generate supply. I smell a Nobel Prize. The price of bottled water seemed to soar at Best Buy before one of the hurricanes (Figure 41).341 Now we’re talkin’! An unvarnished example of price gouging. You know it when you see it, but are you sure?
Figure 41. Price gouging at Best Buy.
When the hurricanes arrive, the battle against price gougers commences. Hotlines are set up to report evildoers. The South Carolina Homeland Security Act of 2002 imposed penalties of up to $1,000 and as many as 30 days in prison for charging “an unconscionable price” for 30 days after the declaration of an emergency by the president or governor.342 The Florida attorney general got ahead of the problem this year (Figure 42):
Figure 42. War on price gougers.
Here’s a few questions: Aren’t the supplies needed for hurricanes more valuable during hurricane season than during the months on either side? Wouldn’t it behoove people to do their shopping during quiet periods? Do you think that woman in Figure 43 would be so slovenly greedy if the price of bottled water rose with demand? Maybe the woman behind her wouldn’t be forced to say, “Hey bitch. How about sharing?” I know: let’s add anti-hoarding laws! Let's create a Bottled Water Authority (BWA) to determine what is reasonable and fair. The free marketeers have a simpler solution: Let prices move freely, and a few hurricanes with spiking prices would reinforce the merits of planning. I bet $4 per bottle might help quench that seemingly insatiable thirst of our intrepid hoarder.
Figure 43. Hoarding and shortages.
And since you forgot to ask, who are these price gougers? Local businesses would be committing professional suicide if they price gouged their neighbors. Big chains like Walmart would suffer huge reputational damage. Best Buy certainly did for those bottled water prices, but look carefully at Figure 41: you can see through those laser-printed signs. The picture is photoshopped. Best Buy couldn’t take the time to prove its innocence and began apologizing for its rogue employee.343
The only so-called price gougers are entrepreneurial folks who take time away from family and job, fill trucks with needed goods, and at great personal and financial risk, enter the disaster zone hoping to make a buck. If you add additional legal risks to the ample risks already present, they will not come. “But…but…I need stuff and will be happy to pay!” Tough luck, dude. It’s not fair to the disadvantaged.
In short, price gouging laws impede the arrival of needed goods and services. No matter how ethically itchy—no matter how much it triggers you—the free market will find the price that is fair and reasonable. The prospects of making huge profits will generate more supply, arbitraging the price back to “fair and reasonable.” If you feel the need to help the poor, as members of a civilized society are often wont to do, add credit to some food stamp cards. Entrepreneurs will bring handheld, battery-powered card swipe devices. Send Bill Dudley down with pallets of money. What’s good enough for Puerto Rico and even Afghan warlords may be good enough for us. Of course, Davy Crockett might disagree, but he’s dead.
The carnage of natural disasters is mitigated by preparation, good Samaritans, the force of free market capitalism, and in total desperation, even pathetically inept federal assistance programs. Price gouging laws inhibit the natural flow of goods and services. Some will not see the merits of my case and be offended. Have a ball.
“Bring out your dead.”
Mother Nature took a whack at the world’s health through the biosphere. Epidemics are beginning to reappear owing to the drop in the vaccination rate. (Sorry anti-vaxxers: I think the scientists have this one right.) A dozen teenagers contracted rabies from having carnal relations with a donkey.344 In a no-questions-asked announcement, authorities sought anyone who had “approached” and “admired” the animal closely. You guys haven’t heard of condoms? There is a bubonic plague emanating from Madagascar (east of Africa in the game Risk.)345 Plague cases are common in the Southwest US, but history shows that you don’t want it getting out of control.
Of more dire long-term concern, pharmaceutical companies appear to be losing the war against bacteria. Vancomycin was so important as the last line of defense that it was kept under lock and key. Hospitals now use it routinely: did it lose its prominent role or did the medical community simply get sloppy? An antibiotic-resistant superbug in China is said to be an “alarming evolutionary event.”346 Big-cap pharma can’t get antibiotics to market before they start losing efficacy, forcing companies to abandon their antibiotic development programs. Although technically not a health problem, the backyard mosquito situation is being dealt with by “scientists” who are about to release 20 million genetically engineered mosquitos.347 Hope you guys know what you’re doing.
The challenges to pharma companies, ironically, take us back to price gouging. We all know the face of price gouging:
Martin Shkreli was finally convicted of terminal smugness when he offered $5,000 for a strand of Hillary’s hair.348 But the debate is deeper and more nuanced, as illustrated with three examples.
Eli Lilly cranked up the price of insulin at a brisk annual compounded rate (Figure 44).349 The unseemly profits are difficult to find: a zero percent annualized capital gain over 17 years suggests that they are either hiding all this cash in secret accounts in the Caymans or that pharmaceutical research is remarkably costly.
Figure 44. Price of insulin and zero percent annualized return (ex-dividends) of Eli Lilly.
Novartis is marketing a single-dose chemotherapeutic agent for $475,000:350 living another 50 years? Priceless! (Figure 45a) Critics of the price haven’t wrapped their brains around the cost of development and production. Novartis is not printing money either, returning capital gains (ex-dividends) of 3 percent annualized to investors over the last 20 years.
Figure 45. (a) Novartis’s 3 percent annualized returns boosted by $475,000 cancer treatment,
and (b) Mylan’s 1 percent annualized gains owing to soaring EpiPen prices.
Mylan offers the most instructive example (Figure 45b). It cranked up the price of EpiPens while the share price shows a 1 percent annualized gain over 15 years. Business Insider gloated with schadenfreude:351
“Mylan’s EpiPen—the center of one of the many blistering scandals in Big Pharma price gouging—is getting hammered in the market, as competitors have burst on the scene.”
Competitors bursting on the scene brought down the price? Where have I heard this before? Once again, unimpeded price discovery cures what are perceived to be unfair and excessive prices. Alas, with this kind of arbitrage, the pharmaceutical industry could become not-for-profit, possibly even nationalized. Progressives call this a victory. I’m kinda hoping they stay viable.
"A Hockey Fan Stabbed in Head With Screwdriver Refused Treatment Until Game Ended"
That is not me. I have little time now to watch sports, but there were some truly stupendous performances that caught even my inattentive gaze. Alex Honnold climbed the 3,000-foot of sheer cliff face of Yosemite’s El Capitan without any ropes or other climbing gear (free climbing).352 The only other guys who tried it are dead. Tom Brady engineered a miraculous comeback from a 25-point deficit to beat the Atlanta Falcons in Super Bowl LI. Amazingly, the Patriots won it with fewer scores than the Falcons—7 versus 8—at the end of the regular play, which according to democratic football fans, means that the Patriots stole the Super Bowl. UFC champion Conor McGregor shocked the world by going toe-to-toe with Floyd Mayweather Jr., winning the first few rounds before losing in a 10th-round technical knockout. (I saw it; he was great.) Conor pissed off professional whiners by claiming, “I turned him into a Mexican tonight” (made him fight scrappy).353 Mayweather then shocked the world by announcing he was a Trump supporter.354 To that, Conor said, “Fook ’im.”
I detest end zone displays—act like you’ve been there before. That said, a Tulsa wide receiver had his touchdown negated owing to a single strut-like stride en route to the end zone.355 Let’s start with the clown who feigned lifting his leg on the goalpost. A softball team of 12- to 14-year old girls got booted from the Junior League World Series after several of them flipped the bird to an opposing team in a social media photo.356 I have mixed emotions on this one: it was a good lesson, but harsh. Not speaking of baseball, you wanna see Major League Baseball’s 2030 home run champion? Check out the bat speed on this beastly 12-year-old slugger.357
“Colin has to make up his mind whether he’s truly an activist or he’s a football player. Football is commercial. You have owners. You have fans. And you want to honor that if you’re making that kind of money.”
~Jim Brown, white supremacist
Colin Kaepernick created quite a stir in the NFL. I supported him last year when he explained that he’d simply had enough of the clowns running the country.358 Triggered by inflammatory tweets by the POTUS, the NFL and the greater sporting world found itself in a full-Nelson headlock from which it couldn’t seem to extract itself and paid dearly in lost revenues and millions of viewers (Figure 46). This comes at a time when concussions are causing the league serious trouble. The NFL has strict rules about behavior (on the field at least). Previous displays that broke from these rules, no matter how meritorious to the common man, have been stopped cold. You demonstrably cannot take a knee to pray, mourn 9/11, display support for fighting cancer, support dead police officers, or oppose domestic violence.359 (There’s some irony.) Some say the outrage against the take-a-knee movement is racism. I say it is the change from common men with uncommon football skills leaving it on the field every Sunday for low pay to a bunch of overpaid prima donnas (who still leave it on the field every Sunday). They are also millennials, but I draw a line at calling them snowflakes. Other sports seem to have avoided the take-a-knee dilemma by nipping it in the bud. In a moment of hilarity, one chap in Major League Baseball was the only one to take a knee to oppose injustice and then was arrested the next week for jamming a gun in the face of a fast-food worker.360 Injustice indeed.
“You’re free to take a knee during the Anthem. POTUS is free to criticize you. And we’re free to turn you off. And that’s what’s happening.”
~Joe Walsh (@WalshFreedom)
Figure 46. Veteran’s Day boycott of the NFL.
Viewers wish to escape to the now largely color-blind, apolitical world of sports. Many detested Carter for boycotting the 1976 Olympics in Moscow. I certainly did. More recently, ESPN’
– Peak Prosperity –
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