San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Friday, July 24, 2015

Bill O'Reilly Is Wrong About Mexican Drug Gangs

I tuned into Fox News the other night for a dose of Bill O'Reilly.  I hadn't tuned into Bill for a month or so and found myself desirous of some right wing propaganda.  I was not disappointed.  I discovered that Bill's latest hobby horse is his call for the Socialist Democracy of Amerika to close down the border with Mexico and enact a bill he calls "Kate's Law" in order to effectively abolish the 4th Amendment and allow roving bands of jack-booted thugs to force everyone to produce their citizenship papers or be imprisoned for five years.  I always suspected that Bill was a firm believer in the police-state and now I have proof.  It does not matter that the 4th Amendment was designed to protect me from precisely the sorts of things Kate's Law will entail.  Bill is terrified of terrorists and Mexican gangs and he will give up all of our freedom for the spurious promise of government protection.  Let's consider Bill's position for a bit today.
Bill made it very clear, as he badgered various guests with whom he always disagreed, that King Obama is an evil man because he has made no attempt to effectively close the border with Mexico.  Bill demands that no immigrants be permitted to cross the border.  None.  How that goal is to be accomplished is something Bill is less clear about.  I don't know if he wants the SDA to build a wall the entire length of the Mexican border and staff it with machine gun toting forces that shoot first and ask questions later or if he has some other plan to keep people from crossing that arbitrary geo-political line.  As usual, Bill is big on ideas and weak with specifics.
Bill interviewed John Stossel during the course of the show, if you could call his badgering of Stossel an interview, to attempt to prove his point that Mexican immigrants are taking SDA jobs and stealing SDA welfare program dollars.  Stossel's attempts to present information that countered what Bill was saying were all shouted down.  One particularly poignant point made by Stossel was belittled by Bill even though what Stossel said was 100% correct.  Bill argued that real income has gone down in the SDA as a result of illegal Mexican laborers forcing the price of manual labor down.  Stossel correctly pointed out that real income has actually been going up ever since the Great Recession.  I have blogged on this fact several times in recent months.  But because the truth did not fit Bill's presuppositions about reality, he ignored it and dismissed Stossel as a stupid Libertarian.
Bill believes in the ridiculous economic notion of the "static pie economy."  Under the provisions of this stupid view the economy is one size and never grows.  How we managed to get this big with a static pie economy is never explained.  All the proponents of this ludicrous position maintain is that the economy is static and always will be.  The more people who enter into the economy the less those who are already here have.  Therefore, when Mexicans come to the SDA we are all worse off because they steal some of our pie.  Stossel bravely tried to show Bill the economic truth that immigrants are economic capital that increase the size of the pie for everyone but Bill would have nothing of it.  His mind was made up and no economic truths were going to impinge upon his closed little pea-brain.
Perhaps most disconcerting of all was Bill's advocacy of Kate's Law.  I had to look it up to see what was going on.  Apparently some woman named Kate was murdered in San Francisco by an illegal Mexican immigrant who was also an illegal drug dealer.  I call him an illegal drug dealer to distinguish him from the people whom the SDA government authorizes to be dealers of government approved drugs.  They are called pharmacists.  Kate's Law would declare that any Mexican immigrant who is here illegally and who had been deported at least once previously would be automatically incarcerated for five years when caught in this country again.  Wow!  Great plan Bill!  That is sure to reduce the overcrowding problem with our prisons.
In Bill's mind the mere creation of a law brings about the desired result.  In that sense Bill worships the government just like everyone else in this idolatrous country.  It is amazing how normally rational and reasonable people will believe that the mere creation of the law is enough to change the behavior of people whom the law impacts.  A law against murder is not going to keep murderers from murdering.  A law against selling non-government approved drugs in the free market is not going to stop illegal drug dealing.  And declaring that all previously deported Mexicans who are caught in this country again must go to prison is not going to keep them from coming to this country and it is not going to keep them from selling drugs when they get here.  What Bill, and all his fellow government worshipers never seem to figure out is that all immoral laws never accomplish what they are designed to accomplish.  On the contrary, they establish a series of perverse incentives that bring about the exact negative result.  Kate's Law is no different.
Besides the fact that the only way to enforce Kate's Law would be for government thugs to force people to produce papers on demand in order to prove that they are SDA citizens, a direct violation of the 4th Amendment, the illegal immigrants most likely to be caught are not those who are here to sell drugs in the free (black) market.  It is those who are here to find jobs and earn income to send home to their families are those most likely to be caught and imprisoned.  Drug dealers operating in the free (black) market are going to fly under the radar.  Illegal immigrants working for various profit seeking companies will be easy to round up by simply having a series of unconstitutional raids upon those companies and checking everyone's papers.  Those who do not have the proper papers are thrown in jail for five years.  What a lovely country we have become.  So if Bill gets his way those illegal immigrants who are here to help the SDA economy grow will be thrown in prison and those who are here to sell drugs in the free (black) market will have free reign to pretty much do whatever they want. 
Most amazing about Bill's ignorance on this issue is his inability to comprehend why Mexican drug gangs have come to the SDA in the first place.  Mexican drug gangs have come into existence in Mexico as a direct result of the SDA's "war on drugs" and the Mexican government's willingness to be complicit with SDA requirements.  Just as Prohibition dramatically increased the power and authority of the Mafia, the prohibition of various types of drugs has created an entire army of drug salesmen who operate in the free market, but illegally according to stupid SDA law.  As is the case with any profit seeking business, it is important to continually expand markets and find new customers in order to grow.  Mexican drug dealers see fertile ground in the SDA and they have expanded their operations to include this country.  It is a reasonable and prudent business decision.  The fact that many drugs are declared to be illegal by the SDA government dramatically increases the prices for those drugs and the profits that can be made by selling them.  So what we see happening is totally predictable.  Mexican drug lords (aka free market businessmen operating under rules that make what they sell illegal) have expanded operations to the SDA to increase profits and market share.
If Bill wants to eliminate the violence, which Kate got caught up in, from the voluntary transactions between drug salesmen and their customers there is a simple action that would cause it to disappear overnight.  The decriminalization of all drugs in the SDA would immediately eliminate all violence associated with drug transactions and be a far more effective means to deal with the problem Bill perceives than the unconstitutional enactment of Kate's Law.  I know it is hard for those who worship the "law and order" State to understand, but it was not always the case that government determined which drugs could or could not be sold in the free market.  Until 1919 any citizen of the SDA could walk into a drug store and purchase heroin.  The same was true for cocaine.  Cocaine was the original stimulate used in Coca-Cola, being replaced by caffeine when cocaine was made illegal.  Prices were low, quality was high and people were free to make their own decisions about what to put into their bodies.  Then criminalization of hundreds of drugs created a behemoth bureaucracy in the federal government and drove the free market in drugs underground, where profits are high and danger and violence is everywhere.
If Bill really wants to solve the problem of violence associated with Mexican drug gangs operating in the SDA all that needs to be done is for all drugs to be decriminalized and for the border to be open to all who wish to come here to work.  But Bill hates those two ideas so it will never happen.  Instead Bill would give us another law that will only make things worse.

Thursday, July 23, 2015

Stock Traders Lie About Their Returns

Are you a compulsive liar?  Do you do everything you can to make yourself look like a financial genius when you attend a cocktail party and are desperately trying to impress the people there?  Do you manipulate the data about your portfolio to make it appear as if you are doing better than you really are?  If you answer "yes" to these questions, congratulations!  You are a stock trader.
I appreciate a good lie.  Some of my best friends are compulsive liars.  They can tell stories that sound credible enough but are really not true.  When I question them about the various details of their stories they are so quick on their feet they can create another lie to cover the first lie.  Only rarely am I able to catch them and expose their lying ways.
Lying is a Welsh national tradition.  Certainly all of you are aware of the story about the origination of Welsh rabbit, aren't you?  If not, I will let you in on it.  It seems that a Welshman wanted to pull one over on a Scotsman one day.  Given the fact that times are always tough in the Welsh and Scottish countryside there is rarely any meat to eat.  A steady diet of leeks and onions makes up the typical highlander diet.  So you can imagine the Scot's surprise when a Welshman invited him to his home for a dinner of fresh rabbit one evening.  The Scot jumped at the chance to have some fresh meat, especially tasty rabbit.  The only contingency was that the Scot could not come to the dinner empty handed, he had to bring some potato bread and a couple of pieces of cheese.  He was happy to oblige.
The Scot arrived at the Welshman's home with great anticipation.  The Welshman took the bread and cheese and disappeared into the kitchen.  A few moments later he came out with a lovingly prepared Welsh rabbit, or rarebit, if you prefer.  Do you know what it was?  A grilled cheese sandwich.  Tasty and satisfying!
Stock traders suffer from a variety of maladies.  Selective amnesia is one of them.  Somehow, no matter how hard they try, they are incapable of recalling any of their trades that ended in losses.  Hindsight bias is another characteristic of stock traders.  I understand a bit about hindsight bias.  After all, I was an impressive athletic specimen in my prime.  I have discovered that the older I get the better I was.  In a similar fashion stock traders are specialists at hindsight bias as the overall total returns on their portfolios inevitably get better with age.
To illustrate my point I have taken a screenshot of the top 25 holdings in the portfolio of a popular stock mutual fund.  Imagine for a moment that you are a stock trader and this portfolio of 25 stocks makes up your current holdings.  How do you think you would talk about your returns at a cocktail party?  Take a look at your portfolio and think about it for a moment....




Year to date this fund is up 7.8%.  In its top 25 holdings by percentage of portfolio, the best performing stock is up 126.5%.  That would be Netflix by the way.  The worst performing stock of the top 25 holdings is Precision Castparts Corp, down 18.4% year to date.  Now if you were going to describe your acumen as a stock trader, how would you describe your current portfolio?  My guess is that I am going to hear a lot about Netflix and nothing at all about Precision Castparts Corp.  If you talk about your tech holdings I will hear all about Amazon and nothing about Oracle.  But no matter how much you tell me about the stocks that you have selected that are up 126% and 57% this year alone, you will likely never inform me that your overall total return on your portfolio is a lowly 7.8% year to date.
Stock traders like to talk about their returns.  This is especially true when they have several big winners in their portfolios.  Listening to them can cause the average Joe like you and me to come to the conclusion that these people have some sort of gift for selecting stocks and realizing stellar total returns.  It is only when we examine their net worth at the end of a particular period and compare it to their net worth at the beginning of that particular period that we come to realize that they are no different than the rest of us.  They make some good calls and they make some bad calls and when everything is averaged out they are average, just like the rest of us.
I conclude that we should not be tempted by claims about fantastic total returns in the stock market.  I believe that if something sounds too good to be true it is too good to be true.  I encourage you to be satisfied with a decent long term total return on your stock holdings, somewhere around 12%/year sounds about right, and flee to the hills whenever someone comes along telling you he can get 20%/month if you only give him all your money and the discretionary power to manage it.