Today’s edition of this missive is likely to
be a potpourri of stories from around the scene, since I don’t have any
subject in mind to discuss at great length like yesterday’s topic of
government “job creation.” But we’ll see.
First, however, let’s touch on the subject of
entrepreneurs and entrepreneurship. The Ludwig von Mises Institute ran a
great article by Chris Brown yesterday, titled “Entrepreneurs: The Real
‘Peace Prize’ Winners,” so let me share several excerpts of it with you.
We live in ludicrous times of rewarding good
appearance for evil action. President Obama is awarded the Nobel Peace
Prize while his war efforts intensify. But those who are true
promoters of peace need attention, for they will never likely receive
such ostentatious recognition for their noble efforts. Such
individuals are those who take risks in a world of uncertainty, and
who save or borrow capital to start a business. Such entrepreneurs
promote peace by serving the customer better than the next
entrepreneur through voluntary transactions in the market, rather than
commanding bureaucracy in government…
…Such efforts, in my opinion, are not merely
bordering on heroic, but are no doubt worthy of a peace prize. I
cannot help but point out how absurd it is — in contrast to the
voluntary, coordinating, and peaceful actions of
entrepreneurs — for virtually any political bureaucrat to receive an
award that has anything to do with peace. It is the seemingly small
efforts of millions of hardworking, passionate entrepreneurs who make
it difficult to understand why a peace prize still goes to someone who
lives off the fruits of entrepreneurs' efforts. Not only does
President Obama depend on the force of taxes for his position, but he
also decides how much and what to spend on with others' money.
Government merely consumes the efforts and capital of individuals. To
award a political bureaucrat for this is to add insult to injury.
President Obama is not only engaged in
foreign wars with some nations; he is engaged in economic wars with
nearly every nation, including his own, through trade
barriers and inflation, which often lead to actual war. Ludwig von
Mises provided great insight on this issue. Mises realized the link
between foreign trade wars and foreign wars.
When countries are trading freely and frequently there is less need to
protect them with soldiers and go to war over resources. When
entrepreneurs are allowed to engage in production and exchange, the
economic incentives to initiate war and conquest are minimized. Mises
put this idea succinctly when he wrote: "War is the alternative to
freedom of foreign investment as realized by the international capital
market."…
…Contrast this with the individual
sovereignty found in the marketplace. Entrepreneurs only reap profits
by offering something that individuals will buy voluntarily. They
obviously cannot force anyone to buy their product. If they knew
ex ante that their product had guaranteed demand, there would be
little risk. And if entrepreneurs do not satisfy the consumer, they
take a loss. Sustained losses (without government support) lead to the
entrepreneur shutting down unprofitable operations. Government,
paradoxically, rewards its losses with more funding and more labor…
…The more entrepreneurs can engage in
peaceful and coordinating actions that try to satisfy demands of
consumers, the less likely war is made. Surely, noble entrepreneurs
who contribute to the peaceful and voluntary exchange of property as
part of the coordinating market process are worthy of peace awards.
Political bureaucrats, who act as parasites on the rewards of such
entrepreneurs, should be disqualified by their very nature.
I couldn’t have said it any better than that,
Chris. And I couldn’t agree more. If you want to read the entire
article, please click
here.
With my philosophical side soothed for the
time being, let’s move on.
No Collateral… No Problem
This next story is pretty unbelievable.
A group of federal agencies including the FDIC,
Federal Reserve, and Office of Thrift Supervision just released new
guidelines for how banks deal with troubled commercial real estate
loans. And get this:
Under the guidelines, loans to creditworthy
borrowers that have been restructured and are current won't be
classified as high risk by regulators solely because the collateral
backing them has declined to an amount less than the loan balance.
Yes, you read that correctly. Banks won’t have
to show losses “solely” because the collateral has fallen in value below
the loan. Perhaps most incredible is that this move is being applauded
by the business community. The next step will be a federal move to
facilitate refinancing that same collateral.
Bye-Bye, WTI
Last week, in a decision that dealt a serious
blow to the New York Mercantile Exchange, Saudi Arabia chose to drop the
widely used West Texas Intermediate oil contract as the benchmark for
pricing its oil.
The Financial Times reports:
The decision by the world’s biggest oil
exporter could encourage other producers to abandon the benchmark and
threatens the dominance of the world’s most heavily traded oil futures
contract. It is the main contract traded on Nymex.
The move reveals the growing discontent of
Riyadh and its US refinery customers with WTI after the price of the
benchmark became separated from the global oil market this year.
The surge in oil inventories in Cushing,
Oklahoma, where WTI is delivered into America’s pipeline system,
depressed the value of the WTI against other global benchmarks,
throwing the global oil market into disarray.
In January, WTI, which usually trades at a
premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a
discount of almost $12 – a record gap. This dislocation in the market
continued well into the summer.
From January, Saudi Arabia will base the
price of oil for its US customers on a new index developed by Argus,
the London-based oil pricing company.
The Argus Sour Crude Index will track the
price in the physical market of a basket of US Gulf Coast crudes,
including Mars, Poseidon and Southern Green Canyon.
Argus said the change in policy reflected
the “increased importance of the US Gulf coast sour crude market, in
which both production and trading activity was rising sharply”.
Paul Horsnell, head of commodities research
at Barclays Capital in London, said Saudi Arabia’s decision was likely
to reflect a “wider discontent” from its customers in the US about WTI
performance.
ExxonMobil, Marathon and Valero are among
the US’s biggest buyers of Saudi crude oil.
Edward Morse, chief economist at LCM
Commodities in New York, said: “It is a recognition by large players
that WTI sometimes does not reflect the true value of crude oil in the
waterborne market.”
Saudi Arabia had priced its oil using WTI
since 1994.
Junk Bonds Booming
Investor appetite for U.S. junk bond mutual
funds hit record highs last week.
Cashing in on a relentless rally, investors
poured a net $207 million into junk bond funds in the week ended
Wednesday, pushing year-to-date inflows to $27.8 billion, the most ever,
AMG Data Services reported.
According to AMG, the previous inflow record
was $26.96 billion for the full year of 2003.
Andrew Feltus, manager of the Pioneer global
high-yield fund, had this to say on the subject:
In an environment where defaults are
falling, you still have pretty good potential for capital gains.
Unless you really think we’ve got a double dip economic scenario
coming, the high-yield market is still a good place to invest.
Ding, ding, ding… that’s what we were looking
for, the little caveat that junk bond funds are a good place to be
“unless you really think we’ve got a double dip economic scenario
coming.” Well, we certainly do, so these funds probably aren’t the right
place for you.
Another reason you might want to stay away
from junk bonds is because the demand for them is so high across the
board right now, companies are paying less to borrow; i.e., junk bond
investors are being compensated much less for the high risks they are
taking. Proof in the pudding… average yields on junk bonds are down to
9.9% from 19.5% at the beginning of the year.
If you want good ideas on where to park your
money for a good return, each month in
The Casey Report we run a section called “How To Invest” with
specific recommendations to do just that.
Do-Gooders
Here’s a story from BBC News that I feel
compelled to share and comment on.
Swiss to tackle ‘suicide tourism’
The Swiss government has laid out
the details of proposals to ban or severely restrict assisted suicide
as part of plans to tackle "suicide tourism".
More than 100 Britons with terminal or
incurable illnesses have used the Swiss centre Dignitas to kill
themselves.
Justice Minister Eveline Widmer-Schlumpf has
called for organisations like it to face stricter controls.
The proposals will now be subject to
consultation, with a draft law due to be sent to parliament in March.
Ms Widmer-Schlumpf said groups like Dignitas
would face prosecution if the proposals are passed into law and they
do not comply.
'Profit-driven'
As part of the proposals, patients would
have to provide two separate medical opinions proving that they have a
terminal illness and are expected only to have months to live.
Those who are chronically or mentally ill
would find it more difficult to get help in ending their lives.
Ms Widmer-Schlumpf said: "We have no
interest, as a country, in being attractive for suicide tourism."
She said organisations involved in assisted
suicide were "testing the boundaries of the law" and that deaths by
this method should not become a "profit-driven business".
In a statement, the justice ministry said
that "suicide must only be a last resort" and that it was committed to
protecting human life…
Look, you own your body and your life. And if
you want to end your life responsibly; i.e., in a manner that will not
harm others, and on your terms because you can’t take the pain of a
particular disease anymore, that should be your right.
Why can’t the do-gooders of the world just
leave people alone?
And a wag of the finger to the BBC, too, for
calling this “suicide tourism”… as if the terminally ill go on holiday
or take in a few sights before they check into this clinic.
The Visual History of the Federal
Reserve System
I came across this amazing chart by JP Koning
called “A Visual History of the Federal Reserve System” that I must
share with you. The free digital PDF version of the chart is too big to
post, but you can download it
here.
And that, dear reader, is that for today.
David returns from Argentina tomorrow, so he’ll be back with you on
Thursday. And I’m sure he has a bunch of great stories to share from his
trip… so stay tuned.
Chris Wood
Casey Research, LLC
