Author Archive for Petra

Serial entrepreneur, investor, trader, writer, world traveler; paleoconservative, traditionalist Catholic.

Real Estate – A Global View

After a few months long hiatus from writing, it was time to come back…

Martin Armstrong was very kind to ask me to share my views on global real estate. The links to the report are below. First comes Martin’s highly insightful piece on now unfortunately mostly forgotten real estate booms and busts of the 18th and 19th century USA, followed by my review of real estate opportunities around the world (as well as places to avoid).

Real Estate – The Global View 


Be careful what you wish for…

I suppose after decades of insane, counterproductive and suicidal economic and social policies espoused by much of the Western world, no one ought to be surprised at our foreign policy being equally insane, counterproductive and suicidal. And yet, I admit, at times I still marvel at the monumental scope of our stupidity.

The myth of man’s improvement and progress notwithstanding, it ought to be obvious that we have, over time, become progressively more delusional, removed from reality, and with an attention span and memory shorter than a goldfish’s.

Even by the standards of the demented policies and acts our governments routinely engage in, the war against Libya is as calamitous and unhinged as they get.

Have we really suffered mass amnesia on Afghanistan and Iraq? You know, those other regime change wars that have, over a decade, resulted in nothing but a million corpses, at a cost of trillions of dollars the bankrupt Western nations can hardly afford to spend. Apparently our enlightened leaders see military interventions in much the same way Messrs. Obama and Krugman judge economic stimuli – the only problem being we haven’t done enough of them or on large enough scale.

Now that the NATO-supported Libyan rebel forces took over Tripoli and the Libyan National Transitional Council (NTC) announced the end of the Muammar Gaddafi era, I suppose we are ready to celebrate another of those “mission accomplished” moments. But no amount of self-congratulation about “protecting civilians” can change the fact that the Libya intervention is an entirely counterproductive and irrational (not to mention illegal) act.

The laughable excuses about a responsibility to protect people at risk from their own governments notwithstanding, regime change was the objective of the British/French/US intervention all along. At least G.W.Bush had what seemed to be a half-plausible justification for his wars (e.g. WMDs). Presumably a Nobel Peace prize laureate president needn’t bother with such inconveniences. (Or have a Congressional vote or public debate before attacking a sovereign country.)

It’s patently nonsensical to claim that the US or Europe have any sort of “duty” to protect foreign people from their governments or, worse still, to pick sides in another country’s civil war. If the West truly cannot stand idly by while atrocities take place, why have we tolerated countless evil regimes all over the world? There have been dozens of tyrants far worse than Gaddafi. Why not intervene elsewhere too?

The West has had diplomatic and business relations with Gaddafi for years. Yes, he is evil and ruthless, but has fulfilled his part of the deal cut years ago – renouncing and stopping support to terrorism against the West, ending Libya’s nuclear weapons program, blocking African immigrants from heading toward Italy, keeping the oil flowing, and giving European companies nice fat contracts. Then, faced with a rebel uprising, he used force against those attempting to oust him (as almost any government would), and suddenly he became the biggest threat to the world and needed to be removed from power?

The UK, French and US forces, acting under the auspices of NATO, have clearly violated their mandate (under UN Security Council Resolution 1973) to protect civilians. No authorization was granted for military assault, boots on the ground, supply of weapons to the rebels, elimination of Gaddafi and regime change.

Dennis Kucinich summed it up quite well:

“In March of this year, the US, France, Britain and their North Atlantic Treaty Organisation (Nato) allies launched military operations in Libya under the guise of a “humanitarian intervention”. US diplomats and world leaders carelessly voiced unsubstantiated claims of an impending massacre in Benghazi. You hear no such appeals to humanity while Nato, in the name of the rebels (whoever they are), prepares to lay siege to Tripoli, a city of nearly 2 million people.”

“The use of military force on behalf of the rebels, in an attempt to impose regime change, has undermined international law and damaged the credibility of the United Nations. Countless innocent civilians have been killed, and Nato air strikes continue to place many at great risk. So much for the humanitarian-inspired UNSCR 1973 as a means to protect civilians.”

“The leading donor nations of Nato – the US, France and Great Britain – have been free to prosecute war under the cloak of this faceless, bureaucratic, alphabet security agency, now multinational war machine, which can violate UN resolutions and kill innocent civilians with impunity. War crimes trials are only for losers.”

Legality questions aside, the (rather foreseeable) consequences of the Libyan aggression are likely to ultimately come to haunt us. Lest we want Libya to descend into chaos after the collapse of the Gaddafi regime, we may be looking at a long military engagement. There are already mounting calls for boots on the ground for as long as it may be necessary.

Such presence will not be too welcome by the Arab world, and soon the West will (quite justifiably) take the blame for attacking yet another Muslim country. Just wait for it.

Perhaps one desperate enough to find any sort of rationality behind our involvement in Libya’s internal conflict might have uncovered a hint of such if the rebels could, in any way, be expected to be better for our security and relations with the Middle East. In reality, while Gaddafi posed no threat to the West, the same cannot be said about the fighters we have now legitimized as the new Libyan government.

The little we know about the rebels is not exactly encouraging. A number of them have been known to be Al-Qaeda linked Islamic fundamentalists. Furthermore, several Al-Qaeda and Muslim Brotherhood leaders (as well as radical British Islamists) have backed the uprising, saying it would lead to the imposition of a “State of Islam” in the country.

Nor can commercial interests provide a plausible enough reason for the intervention. The war against Libya can hardly be called a war for oil. Gaddafi has been more than happy to sell as much oil as we wanted, and Western energy (and construction) companies were welcome in Libya and have been operating there for a long time. The US is unlikely to see any economic benefit from Gaddafi’s fall. Europe has long had preferential business relations with Libya, with Italian companies being prime beneficiaries. Italy, France and Germany are now scrambling for new oil and construction contracts from the Libyan rebels.

As much as one would like to have a plausible reason for the aggression, unseating Gaddafi was not a rational decision; the grounds for this wholly unnecessary war were emotional, irresponsible and entirely counterproductive.

“Whom the gods would destroy, they first make mad.” 

This age-old wisdom, attributed to Euripides, appears to fit the Western world better and better each year.

What is Libya likely to look like in the coming years? What will replace the Gaddafi regime?

Despite not having any strategy, or even idea of what we hope to achieve in Libya, you can always count on idiotic media commentators and dim, historically ignorant politicians to wax lyrical about the spread of freedom and (Western-style) democracy.

One of the above lot, UK PM David Cameron said this:

“Our task now is to do all we can to support the will of the Libyan people for an effective transition for a free, democratic and inclusive Libya.”

“This has not been our revolution but we can be proud that we have played our part.”

“No transition is ever smooth or easy but today the Arab Spring is a step further away from oppression and dictatorship and a step closer to freedom and democracy, and Libyan people are a step closer to their dream of a better future free from the terror of Gaddafi.”

One would have to be extremely naïve to expect a blossoming of democracy in Libya. If our past military adventures have taught us anything (doubtful, I know), it should be that it’s much easier to overthrow a government than to put something better and stable in its place – especially in a country that was, for decades, held together by the raw power of a dictatorial regime.

It is clear that the NTC is a disparate mix of various rebel factions – from secularists to former Gaddafi loyalists to radical Islamists – that have had little in common beyond the desire to oust Gaddafi. That goal achieved, one could easily imagine the NTC fracturing and falling into internal fighting over their (often mutually contrary) interests, resulting in a long and deadly civil war.

Libya is a deeply fractured country, encompassing an estimated 140 different tribes divided by a myriad of dialects, loyalties and ancient histories. Gaddafi’s iron fist and alliances kept sectarian tensions in check and held the country together. These issues are now likely to reemerge, leading to a wider ethnic conflict. Jihadist elements (such as the anti-Gaddafi Libyan Islamic Fighting Group) will undoubtedly take advantage of the tumult. Whoever will succeed Gaddafi doesn’t stand much chance of controlling a country split by tribal hatred and (thanks to the Western involvement) awash with arms.

And if the optimists are right and freedom and democracy do come to Libya they may not be the kind of freedom and democracy we expect or want to see. Had we not been so busy with bestowing “democracy” on foreign peoples we might by now have realized that free elections in the Middle East tend to give rise to precisely the type of Islamic states we most seem to fear.

Western leaders should probably be more careful about what they wish for in the future. They just might get it.

Entitlement nation and spending cuts

“I place economy among the first and most important republican virtues, and public debt as the greatest of the dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt.” (Thomas Jefferson)

I was reluctant to waste time commenting on the debt ceiling and ‘spending cuts’ farce, but here it goes anyway…

Washington provided us with quite a spectacle this summer; first the tantrums in the debt ceiling debate, followed by the finger pointing and blame shifting in the aftermath of the Standard & Poor’s downgrade of long term US credit rating from AAA to AA+.

Regardless of how much – or rather little – credibility the S&P has left, the downgrade should not have surprised anyone, nor was it unjustified. Sure, the US is unlikely to default on its debt (after all, it can count on the printing press magic), but nobody seriously believes it will pay its creditors the $14.6 trillion (and counting) in anything but devalued currency.

Instead of confronting the problems, politicians aim at postponing any painful remedies ad infinitum, while debts continue to snowball. According to recent Congressional Budget Office projections (based on unrealistically rosy GDP growth forecasts) the national debt will grow by $9.5 trillion over the next 10 years. Even if the reductions proposed in the debt ceiling deal were to be implemented, the US would still accumulate $7.1 trillion in new debt by 2021!

The debt ceiling deal (allowing Obama to borrow a further $2.4 trillion – just enough to carry him to the end of his first term) and fight about a meager $2.4 trillion in “spending cuts” over a decade denounce an inability or unwillingness to face reality.

Does anyone truly think that $2.4 trillion “spending cuts” spread over 10 years will do anything to solve the problem when US federal debt stands at some $100 trillion, including the unfunded entitlement liabilities that lurk beneath the debt ocean?

(Not to mention, even the $2.4 trillion are heavily back-loaded, so the vast majority of these cuts won’t be implemented by the current Congress. The deal calls for a laughable $25 billion of savings in 2012 – in a $3.8 trillion budget! – and some $47 billion in 2013.)

Only politicians, intellectuals and academics would want to fix a debt crisis by issuing yet more debt. The problem wasn’t too low a debt ceiling but too high a debt. Yet far from attempting to remedy that… what Washington spent months arguing about are not even actual spending cuts – they are cuts in the rate of increase in spending. For anyone with half a functioning brain cell, cutting the projected rate of spending growth does not equal a spending cut!

It is also rather disingenuous of the politicians and media to talk about a $14.6 trillion national debt, when the true figure – including unfunded liabilities (Medicare, Medicaid and Social Security) – stands somewhere between $80 and 100 trillion (depending on estimates). While it’s true that people have been making payments for Social Security and Medicare, those earmarked funds have over the decades been plundered by both parties to pay for wasteful, vote-grabbing spending.

The reality nobody wants to acknowledge is that the US government has been on a historically unprecedented spending binge, accumulating debts for seven decades, and that the welfare state – enthusiastically embraced by Americans since the 1960s – has bankrupted the country just as European welfare states have bankrupted most of the old continent.

The truth is, neither party wants to do much to cut public spending. Laughably, Obama and the Democrats found the scapegoat for their failure to meaningfully cut spending (and the subsequent ratings downgrade) in the Tea Party, when Tea Party politicians have been the only ones taking the debt problem seriously.

If one wanted to cast blame, it would appear we mostly have the Democrats to thank for the gigantic entitlement liabilities of a welfare state that has created mass dependency on the government and destroyed the values that made America strong (self-reliance, industriousness, family, traditional morality): FDR’s Social Security, LBJ’s Medicare and Medicaid. (You can also include Obamacare – yet another under-funded, dependence-creating monstrosity.)

Entitlement reform (i.e. large-scale entitlement cuts) is absolutely essential if the US is ever to get its debt and deficit crisis under control. The Congressional Budget Office estimated that by 2025 all of the government’s income will go to entitlement spending and interest payments, leaving nothing for any other expenditures.

Debt reduction and balancing the budget can not be done without significant pain. The problem is, Americans (government and citizens) have lived so far above their means for so long that meaningful belt tightening holds little appeal. Hence poll after poll has shown people’s theoretical support for the idea of balancing the budget and cutting spending – provided they don’t have to bear the consequences. (Everyone agrees with spending cuts as long as their own programs and entitlements are not touched, and the 51% of Americans who pay no income taxes gladly approve of a higher-still tax burden for the ‘rich’ but not a much needed broadening of the tax base.)

The chances of the US voluntarily making a dent in that $100 or so trillion debt mountain are precisely zero. The government will do whatever it takes to keep the party going, which most likely means borrowing, printing, inflating and shifting debts onto future generations. Eventually, and quite inevitably, the country will default on its internal obligations to its citizens (i.e. Social Security, Medicare promises).

In the meantime, the massive $1 trillion+ annual deficits are here to stay for years to come. Borrow, tax and spend is what politicians do. More spending means more votes, especially once more than half the population has become reliant on government largesse. Federal government is now a giant wealth-transfer machine, taking money from a shrinking number of taxpayers and handing it out to a growing list of dependents.

“Payments to individuals” (Social Security, Medicare, Medicaid, public assistance, food assistance, housing assistance, unemployment assistance and student assistance) account for nearly 70% of total federal spending – the highest rate in history. The US now pays out more in benefits than it collects in taxes. More than half of Americans (59%) receive a Government payout in one form or another. Government transfer payments account for 18.4% of personal income.

National debt – at $14.6 trillion – has now surpassed 100% of GDP. The government currently borrows about 43 cents for every dollar it spends.  In 192 years – from George Washington to Ronald Reagan – US government accumulated only $1 trillion of debt. In the last 30 years it has added $13.6 trillion in additional debt. (When G.W. Bush took office the debt was just under $5.8 trillion. By the time he left office, it had nearly doubled, to $10.6 trillion. Under Obama it’s already at $14.6 trillion – a staggering $4 trillion increase in just two and a half years.)

The government has, in the last few decades, been piling up debts at an unprecedented speed, creating more and more bureaucracy, employing ever larger percentage of American workers and ensnaring countless millions into welfare dependency. More recently, it spent trillions of dollars on stimulus and QE I + II, with the sole result of greatly increasing the levels of debt.

The problem is relatively easy to grasp – the US spends vastly more than it earns. As such, the solution is simple as well, at least theoretically. All we’d need are enlightened voters willing to accept short term suffering for the sake of their (and their children’s) long term prosperity, and principled politicians willing to do the right thing even if it was to cost them reelection. Well, I did say theoretically simple.

Thanks to a huge expansion of entitlement spending over the decades, the debt the US has piled up is too large for the country to be able to grow or tax its way out of it. The focus has to be on massive spending cuts. Paring back entitlement programs should be accompanied by scaling down of the public sector, as well as a tax reform. The tax code should be simplified, loopholes, exemptions and deductions eliminated, the tax base broadened and tax rates cut for individuals and corporations alike. (A flat tax would be better still.) Lifting some of the crushing burden of bureaucracy, regulation, counterproductive taxation and immoral, dependency-creating entitlements would revive the growth-generating dynamism and industriousness the US used to be known for.

Unfortunately mass democracy doesn’t lend itself to doing unpleasant things for the sake of a better future.


It is not just the US. The entitlement nations of Europe have too, for decades, been spending more than they earned. And, much like in the US, the so-called spending cuts are, more often than not, merely cuts in the rate of spending increase. Welfare is still booming, and politicians – while paying lip service to slashing spending – are as set on voter-pleasing as ever.

London in flames: The un-PC truth

It’s been three days and three nights now that London has been burning, and there is no end in sight. An orgy of violence, destruction and looting has been raging across the capital; gangs of mostly black youths continue to smash up and plunder shops, vandalize and torch properties and set cars ablaze.

Yet politicians and much of the media (including the BBC, the bastion of political correctness) persist in ignoring the facts while dishing out fashionable propaganda. And so gang members and criminals become poor, misunderstood and ‘socially deprived’ young people, and looting and violence are justified as alleged consequence of government spending cuts, poverty and inequality. Not surprisingly, the fact that vast majority of these savages (sorry, disadvantaged youths) belong to certain protected minorities has barely been noted by our PC, diversity-worshipping media and politicians.

Let’s put things straight. Spending cuts (which are in any case more imaginary than real – public spending will continue to increase each year for the next four years, according to the government budget) and inequity have nothing to do with what’s been taking place in London (and now other UK cities as well). The criminal gangs of looters and arsonists are not victims of the economy or society; they are worthless, feral thugs who never had any interest in honest work, choosing instead to live off welfare and proceeds of crime.

That they – and many millions more – have been allowed to make such life choices, paid for by one of the world’s highest tax rates imposed on the hard working and productive Britons, is a consequence of the suicidal policies the UK has adopted in recent decades. Britain has bred (and imported) a vast underclass of savages and degenerates lacking any moral values, oblivious to ideas of hard work and social obligation, ingrained with a sense of entitlement with zero responsibility, and indulged in instant gratification.

Such people should have no place in a civilized society. But then, the UK can no longer claim to be one. It is a crumbling nation that has slowly but surely been descending into utter madness, with its celebration of moral inversion, non-judgmentalism, tolerance for the intolerable, support and protection of all that is evil, criminal, ugly and destructive. What we’re seeing in London is the product of a self-indulged, decaying society lacking any moral codes and sanctions or penalties for unacceptable behavior.

Unsurprisingly, even staring reality in the face (in the form of torched buildings, burnt out cars, wrecked buses, Molotov cocktails, and looting gangs) is apparently not enough to wake people from their carefully constructed delusions. The escalating violence has – predictably – brought out a growing army of apologists reveling in an orgy of excuse-making for the widespread lawlessness and violence.

There are also those who blame the feral violence and mass thuggery on alleged police brutality and – what else? – ‘racism’. The police certainly have plenty to answer for. They could start by explaining why they have been standing aside, allowing wholesale looting and violence in broad daylight. Their lack of intervention led to a complete breakdown of order, sending out a message that gangsters can act with brazen impunity. From there it was only a matter of time for the attacks to spread across the capital (and now other UK cities).

The British police, courts and justice system have long been a joke, going out of their way to protect and appease law-breakers, while denying both support and any right to self-defense to the victimized, law-abiding citizens whom they unleash the criminals on. It is the soft policing approach coupled with laughable sentencing (no incarceration even for serial violent offenders) and focus on the ‘human rights’ of the perpetrator that are partly responsible for the plight of all those who were made homeless, had their businesses destroyed and their lives ruined over the last three days (and counting).

Then there is the pervasive culture of political correctness that has, over the years, fatally wounded all British institutions, police force including. That the police made little attempt to restore order in the streets or intervene as looters were lining up to plunder stores and torch buildings has much to do with the ‘sensitivities’ of the minority population. For years police have been trained to be oversensitive to issues of race and to gently ‘engage’ and ‘reach out’ to those who use imaginary discrimination and grievances as excuse for criminal behavior. Police, much as everyone else in the UK, are paralyzed by fear of being called racist. It’s safer for their career to stand aside when it comes to minorities’ crime.

The Hate Crime guide published by the Association of Chief Police Officers in 2002, and periodically updated, dismissed the strict impartiality principle on the basis that impartial justice was unfair; “colour blind” policing – described as “policing that purports to treat everyone in the same way” was deemed flawed and unjust because it “fails to take account of the fact that different people have different reactions and different needs. Failure to recognise and understand these means failure to deliver services appropriate to needs and an inability to protect people irrespective of their background.” Officers who practiced such policing were to expect disciplinary action.)

Years of ‘sensitivity training’, health & safety focus and false priorities (such as being non-threatening, non-confrontational, and non-provocative instead of effective in crime fighting) have also created a new breed of police officers who are simply too cowardly and unable to do what their job requires.

Hence the appalling scenes of police standing by watching violent mobs destroy vast swathes of the capital. Despite the 16,000 officers on the streets, London has descended into chaos, anarchy and brutality, and law-abiding, tax-paying citizens are getting zero protection as their lives and property are being threatened and ruined. The cops, although fully armed and armored, are not reacting (unless one considers retreat an appropriate response) even as teams of young men are throwing rocks and Molotov cocktails at them.

Today, after three days of mayhem, Home Secretary Theresa May ruled out the use of more appropriate tactics: “The way we police in Britain is not through use of water cannon. The way we police in Britain is through consent of communities. Not that this comes as a surprise; the elites have long proven to be completely out of touch with the reality of ordinary Britons. After all, Ms May et al don’t have to suffer the consequences of their delusional and evil policies and decisions.

The black community, unwilling to control its youths and happy to tolerate the criminal activities of its members, rarely accepts any responsibility, yet is always eager to voice indignation against the police. The death of Mark Duggan, a North London gang leader allegedly involved in drug dealing and gun crime (but of course praised by some as a leader of his community) was no exception. His killing on August 4, in an apparent shoot-out with officers from Operation Trident (a unit that deals with gun crime in the Afro-Caribbean communities) sparked a protest rally that soon escalated into demands for vengeance and the mass violence that has now spread across London, Birmingham, Bristol, Liverpool, Nottingham and Manchester.

If Britain was a civilized country with its priorities right, the police would have stepped in immediately and with full force, arresting every looter, arsonist and gang member. Were the police unable to do so, the army should have been sent in to wipe out the scum.

But of course this being a ‘caring’ and ‘compassionate’ nation (instead of say zero tolerance, low crime Singapore or Japan), David Cameron et al will instead continue to spout their touchy-feely “hug a hoodie” garbage and throw billions more on ‘disadvantaged’ and ‘disenfranchised’ special groups. Meanwhile, the country will keep spiraling down into the depths of moral and spiritual poverty and degeneracy.

And if London’s burning now, just wait to see what happens in the coming years, once the economy collapses and the welfare checks stop coming. If you happen to live in the UK and haven’t left yet (as I thankfully did earlier this year), better start preparing for war.

The end of the future

I’m not known for overt sentimentality, but watching the TV coverage of the last Space Shuttle returning to earth last Thursday morning was one of the saddest moments I can recall. Once Atlantis touched down it was all over; there would never be another Shuttle.

Atlantis - final landing (

Atlantis - final landing (


I’ve always had a penchant for all things space related. As a child I dreamt of space ships, aliens and far flung galaxies, religiously followed every NASA mission, and was glued to the TV screen each time a Shuttle rocketed into the sky or landed. I’d often wished to have been born some years earlier, to have witnessed the thrill of watching Neil Armstrong step onto the moon. (Undoubtedly influenced by my dad’s recollection of that incredible event as one of the most memorable of his lifetime). It didn’t matter that we were in the then Eastern Bloc; we watched the various US advances into space with awe and pride, just as millions of Americans did. It was yet another milestone for Western civilization and human achievement. The greatest of human adventures.

I was convinced some years later we’d get to Mars and beyond. Alas, it was not to be. I suppose it’s fitting that all this is over now. The US (and the West) have given up. The end of manned space flight is just one more symptom of the cultural, moral and economic decline.

The space program was an expression of the energetic, vigorous, optimistic, united America of the late 1950s. It symbolized the country’s ambitions, aspirations and hopes for a better future, its belief that Americans can achieve great things and do them better than anyone else. All that is history now. Today’s America lacks a sense of identity and vision, its confidence is on the wane, exceptionalism has become a nasty word, unity has been replaced by tribal rancor, idealism and pioneer spirit are long gone, substituted by all-pervasive bureaucracy and political correctness.

Is it surprising that instead of reaching out to the stars manned space flight is returning to where it started – science fiction?

The landing of Atlantis ended the 30-year Space Shuttle program. The entire US space age lasted just five decades: it was May 5, 1961 when Alan Shepard’s 15 minute sub-orbital flight made him the first American in space. Just eight years later Apollo 11 blasted off for the Moon.

The Space Shuttle fleet began setting records with Columbia’s launch on April 12, 1981 and continued with Challenger, Discovery, Atlantis and Endeavor. The Shuttle has, during its 135 missions, carried people into orbit, launched and repaired satellites, conducted cutting-edge research and built the largest structure in space, the International Space Station. One of its key successes was the deployment of the Hubble Space Telescope (launched into space aboard Space Shuttle Discovery in 1990); the Shuttle and its astronauts were also crucial for each repair and servicing Hubble needed over the years. (Hubble, aside of giving us hundreds of thousands of awesome images, has revolutionized our knowledge of astronomy.)

Countless technological innovations we take for granted today are also result of the US space program and Shuttle research. The Space Shuttle program alone has generated more than 120 technology spinoffs, including miniaturized heart pumps that save lives, thermal protection system materials, bioreactors (help chemists design new drugs and antibodies), compact laboratory instruments, sensitive hand-held infrared cameras, light-emitting diodes for treatment of cancerous tumors, lighter and stronger prosthetic limbs, an extrication tool to remove accident victims from wrecked vehicles, and many more. (NASA has an entire website dedicated to spinoff technology.)

Now the Shuttle is gone and there is nothing to take its place. The US no longer has the ability to put astronauts into orbit. NASA will have to rely on the Russians to hitch a ride to the International Space Station – on the old-fashioned Soyuz spacecraft, at some $50 million per ride.

It wasn’t supposed to end like this. A few years ago George W. Bush announced the return to manned space exploration with the Constellation program. Missions to the Moon (by 2020) were to be followed by a manned flight to Mars and beyond. Then came Barack Obama who, believing in social programs and wealth redistribution rather than science and exploration, promptly cancelled Constellation, the country’s only chance at continuing with human space flight.

In any case the space program no longer seems appropriate for today’s America. Space exploration was a symbol and inspiration for Americans who believed in excellence, courage, self-reliance, achievement, science (hard science, not the politically correct pseudo-science of today). That country no longer exists; its spirit has been broken. The “virtues” America, and the West, worship today – equality, diversity, feminism – are a fast-track to a third world status, not to the stars.

As much as we may want to convince ourselves otherwise, it seems clear we no longer have the ability to achieve great things, space flight or otherwise. I suspect Bruce Charlton is onto something when he writes that “human capability reached its peak or plateau around 1965-75 – at the time of the Apollo moon landings – and has been declining ever since”.

“This may sound bizarre or just plain false, but the argument is simple. That landing of men on the moon and bringing them back alive was the supreme achievement of human capability, the most difficult problem ever solved by humans. 40 years ago we could do it – repeatedly – but since then we have *not* been to the moon, and I suggest the real reason we have not been to the moon since 1972 is that we cannot any longer do it. Humans have lost the capability.

The US space program started on its downward trajectory in the early 70s, slowly drifting away from further development of deep space missions and new technologies. (The Shuttle itself is 1970s technology and should have been replaced by a new generation of spaceships years ago.) NASA has been gradually taken over by technologically and managerially inept bureaucrats lacking any vision and imagination. Instead of attracting the brightest engineers, scientists and innovators, the agency has cared more about politics and displaying its commitment to ‘diversity’. Well, at least now that manned space flight is no longer, NASA can work on its preferred mission – Muslim outreach.

Those who claim the US could no longer afford its space program would be well advised to look at the actual NASA budget. While during most of the 1960s NASA spending came to between 2-5% of the annual federal budget, since mid 70s it’s been less than 1% and in the last few years only about 0.50% of the federal budget ($17-18 billion p.a.).

So you can’t afford to spend a minuscule share of the annual fed budget – one half of one percent! – on space exploration, but consider it a good use of money to waste a couple of trillions on entitlements and welfare programs and $700 billion on stifling bureaucracies (i.e. various executive departments and agencies, most of which would serve the nation best by being abolished)? Not to forget the estimated $3 trillion cost of ObamaCare.

And what about the supposedly too expensive Space Shuttle program itself? The total cost of the Shuttle program over its entire four decade lifespan (including 10 years of R&D) was just under $200 billion. Expensive? Well, the US federal government, at present rate, spends $200 billion every three weeks!

I don’t see anything that has brought taxpayers a comparable return in industrial and technological advancement, increased understanding of our world and universe, as well as prestige, pride and inspiration as the manned space program.

But this isn’t about money or savings… it’s about a nation’s priorities. An America that spends trillions of dollars a year on welfare, entitlements and bureaucracy is an America that lacks any purpose, identity or belief in future; a space program is something such a nation has no use for.

Mankind has always felt the call to explore and push back the boundaries of human capability. I have no doubt there were people in Columbus’s day who wanted to find a ‘better’ use for the money that was to finance his voyages. Thankfully King Ferdinand and Queen Isabella of Spain had more vision and sense than Barack Obama.

We can only hope that a more enlightened people, perhaps the Chinese or Russians or Indians, are going to take over space exploration and become a beacon of hope and inspiration to those in the rest of the world, as America once used to be.


Thank you, Space Shuttle, for all the memories.


NASA – The Shuttle Program: A tribute in pictures (mission by mission)

Major moments in the Shuttle program (incl video)

NASA’s Space Shuttle pages

Hubble website (awesome images)

Atlantis – final landing (video)


Atlantis (


Discovery (

Petra’s Readings

Links to interesting articles I have read over the past few days that you might also enjoy…

Barron’s mid-year roundtable: Buy Low, Stay Nimble

Avoiding Losses Is One of the Keys to Managing Money

Everything You’ve Heard About Fossil Fuels May Be Wrong

Modern Portfolio Theory Is Harming Your Portfolio

Checklist: How to Spot a Bubble in Real Time

Free Book Downloads! National Academies Press Offers More Than 4,000 Titles

‘I’ve Got Nothing to Hide’ and Other Misunderstandings of Privacy

The Onion: Nation Down To Last Hundred Grown-Ups: ‘Mature Adults Could Be Gone Within 50 Years,’ Experts Say (funny… and true)

Dunning-Kruger effect

Guest post by Cantillon

On occasion it can be remarkably frustrating putting the case for an investment thesis to an unreceptive audience based on its intrinsic and rational merits.  Over time one perhaps learns that the approach one takes to forming an insight into likely prospective market developments is simply not compatible in the general case with the best way of persuading people of the correctness of that view.  Markets have their own intrinsic logic, and people have their own logic and the different logics do not play nicely together.  Indeed it could hardly be any other way, for were that to be the case we would see many more incidences of consistent investment success than we actually do see.

It is interesting how people do not generally seem to learn from their mistakes in the market.  If in July 2008 they listened to the hawkish rhetoric from the ECB and were swept up in the general climate of inflationary fear and as a result remained positive on inflation hedges and negative on European fixed income with unfortunate financial repercussions, then in May 2011 with perhaps a very similar setup it seems that they are quite content to make the same mistake.  And then as commodity prices correct, inflationary expectations ebb, and European fixed income rallies they say “well, the facts change”.  But the facts changed in an absolutely predictable, and predicted way that could be identified based on the initial conditions before the moment of hysteria started to exhaust itself due to natural forces.  And I wager that, once again, many commentators and economists will learn little from this experience, and what they learn will be the wrong thing.

But the world is so noisy, and our culture so unreflective and reactive that often being needlessly wrong has little adverse career impact.  In fact it is much better not to upset people with then-unconventional (and therefore unsound-seeming) ideas though they may yet become conventional wisdom with the passage of years; the path to success for most is to reinforce the audience’s self-esteem by uttering the conventional and acceptable platitudes and bromides of the time, paying lip-service to originality and the importance of recognizing reality, but without actually letting such a dangerous creature into the room.

In this context, I find it worth reminding oneself of the Dunning-Kruger effect.

The Dunning–Kruger effect is a cognitive bias in which unskilled people make poor decisions and reach erroneous conclusions, but their incompetence denies them the metacognitive ability to appreciate their mistakes.[1] The unskilled therefore suffer from illusory superiority, rating their ability as above average, much higher than it actually is, while the highly skilled underrate their own abilities, suffering from illusory inferiority. Actual competence may weaken self-confidence, as competent individuals may falsely assume that others have an equivalent understanding. As Kruger and Dunning conclude, “the miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others”

Perhaps one must therefore adopt the rules appropriate to the domain one is working in.  Form one’s market view based on relevant considerations; communicate it informed by the rules developed by authors of antiquity. And reserve most conversations about the nitty gritty behind the view for the elect who have proven their competence and discernment in previous interactions.

Time to sell real assets for USD cash

Guest post by Cantillon

In recent years it has become very fashionable amongst the want-to-be contrarian crowd to focus on the relative valuation of gold to other assets – particularly vs equities.  There are clearly long swings of relative equity appreciation and then of relative gold appreciation – the latter being not terribly happy ones economically, socially, politically and geopolitically.  The argument has been made that since in previous cycles the value of the Dow to Gold reached an extreme of 1.5 to 2, that this is a reasonable expectation for what can be achieved in the present or most recent cycle of relative Gold appreciation.

Possibly this may yet be proven right, but it is interesting to note that we have  close-to-hysterical public sentiment regarding the perceived consequences for commodities of QE (the Glenn Beck special was really quite amazing, as has been the widespread public chatter over a supposed large dealer short in the precious metals) and objectively still-negative big picture sentiment towards equities (consumer confidence in the dumps, Obama approval rating very low with Osama bounce almost erased, net AAII relatively oversold, and a generally grumpy public mood).

Just today, I was struck by the FT publishing an admiring profile entitled “Angus Murray: believer in real assets”. Mr Murray is the CEO of a $500mm asset management company that offers a wide range of offerings including commodities, emerging market equities, and post-war art organized around a unifying thesis that a devaluation of money is under way, and that inflation is significantly understated based on the official data.  He believes that in addition to the end of imported disinflation from the emerging world, the increase in the money supply seen in recent years will lead to acceleration in this devaluation of money from here.  He recommends a portfolio of 40% emerging markets equities (since he is sure that returns will be poor on developed world equities) and 60% precious metals.

Now I do appreciate the evils of monetary inflation – I first read Milton Friedman and Hayek in 1989; have worked at the Cato Institute, where I read many books by the Supply Siders and journal contributions by the late 70s/early 80s advocates of restoring the gold standard; I persuaded Sir Samuel Brittan (then editor of the FT) to review David Glasner’s book on free banking in the FT; in summer 1999 I asked a member of the Austrian seminar at NYU if we were not at a moment very like in the 1920s (monetary inflation hidden by productivity growth and imported disinflation).  And I have been a long-term commodities bull since shortly after I first heard Jim Rogers speak in London at the Institute for Economic Affairs on the launch of his first book.  In summer 2003 I expressed very strongly to my boss, head of an investment company with substantial assets, that it was a momentous trade at that juncture to take the free money from the Fed and buy hard assets. So I do appreciate the longer-term arguments in favor of precious metals and against equities.  I just don’t think making money in the markets is as easy as some otherwise very smart people seem to believe.  Secular investment trends have a habit of expiring just when one is finally able to persuade a reasonable number of people of the merits of one’s argument and to be recognized for that.

To step back for a bit – the chart below shows what is easy to forget – that it’s really a paper asset vs commodities cycle: taking a view on stocks vs gold is similar to taking a view on stocks vs crude over the long run.  Crude sentiment and positioning is extreme, and reading the media/bank research response to the selloff reveals astonishing complacency.  Even my deflationist friends (“the US is like Japan, only much worse”) are bullish crude based on a supposed structural supply-demand imbalance.  Reading notes of the recent Skybridge hedge fund conference – held one week after the silver crashlet -  (with some heavy hitters incl Burbank, Steve Cohen and others)  showed participants very worried about ‘black’ swans involving commodity prices taking off to the upside, but there was not one mention that prices could go significantly lower, let alone break Mar 2009 lows in some commodities with adverse consequences for more leveraged producers.  The legendary Mark Fisher, author of the “Logical Trader” put forth what seemed to me to be a nonsensical argument: up till now there has been no fear premium; since there now is starting to be one, one ought to earn this by buying every dip or selling put spreads. At the risk of not paying sufficient respect to those more experienced, to me this shows a complete failure to grasp the intensity of the present mania for hard assets (and therefore scope for a substantial mess when it reverses).

Five factors come to mind that might lead to substantially weaker commodity prices on a 6mo – 2.5 yr horizon

  • Falling resource intensity of Chinese growth – possibly we are quite far up the S curve of industrialization.  Plenty left to go in other regions, of course.
  • Slowing growth in the emerging world as lagged response to rate hikes and rising inflation in the developed world with  tighter US policy – fiscal and monetary – leading to strong dollar.
  • Unanticipated increase in supply from the Arab world, at least temporarily, as a consequence of the Arab Spring.
  • Dawning realization that high commodity prices of past years have in fact led to large increase in supply (at least in some areas) – with a long lag.  We mistook delay in supply response for no response. (Particularly significant with regards to Shale Oil, which by some estimates could lead to an increase in supply of 3mm odd barrels per day by 2015).
  • Ebbing of inflationary psychology amongst producers, consumers, investors and speculators.  Maybe people are just tired of being bullish.

If I am right about commodities, it’s hard to expect that Gold doesn’t also experience a substantial correction – although no doubt it would hold up a bit better than copper or crude.

Of course the other leg to the trade is that consumer confidence, consumer spending, job growth, credit growth and house prices are all at a juncture where much lower gas prices (up 50% from August low last year!) could kick start the next leg of the recovery and the next leg in an equity market rally.

(Since first drafting the above rather longer term take, I realize that I suppose I should include the brewing mess in Europe.  No matter how much support core Europe can be persuaded to give to the periphery, there is no way for the periphery to recover competitiveness without maintaining very much lower inflation than the core for some years.  And of course of late they have actually continued to experience inflation.  Germany’s higher rate of growth in productivity simply makes the extent of the problem worse.  So the only way we can possibly avoid an unraveling is with EUR/USD very much lower, and substantially higher German inflation over time.  Once we get there, German exporters are likely to see a surge in profitability, since they are already profitable at the present high exchange rate.  Of course wages are likely to grow under such circumstances and we should see rents and house prices rise also.  I think the best case scenario is that we have a messy few months ahead for the periphery; and this isn’t by any means the most likely or only case.  Weaker global growth, weaker risk appetite and a strengthening dollar would of course tend to hurt commodity-related plays much more than US equities).

I do not want to discuss it in much length at this juncture, but I am not sure that art – of whatever period – will be such a rewarding place to hide.  In the old days, before art was considered a legitimate asset class, it was always the case that art and collectibles would perform very impressively just as the surge in liquidity was coming to an end.  The boosters of this market suggest that things are different this time.  I am not so sure.

Regarding breakeven inflation – that subject deserves an entire post of its own.  But I think that the present focus on inflation is overcooked in the near-term.  Stabilization in commodity prices will bring headline inflation back down closer to core.  And if we do see commodity prices fall, as I expect, the current short-term panic that we see should ebb.  I don’t think that changes the longer-term picture though that we are indeed early in a cycle of rising inflation (that began shortly after the tremendous outbreak of complacency and self-congratulation amongst central bankers as they recognized the ‘Great Moderation’).  Even a horrible central banker can bring down inflation progressively over each cycle with little effort if imported goods are falling and there is a period of modest productivity growth at home; at the best of times, and in the best of cultures, it is much more challenging to decide to impose short-term pain in order to achieve a long-term benefit of low inflation and belief by people in price stability.  Since World War Two we have grown rather accustomed to comfort, and I wonder how much suffering we will need to endure before we realize the cost of not recognizing what must be done and executing it rather than ignoring the painful aspect of the situation and hoping it will go away.

The point is that I think liquidity flows into asset prices early into an inflation.  This is fun for the wealthy (who benefit from asset prices going up) and less so for the poor (who see their cost of living go up without a compensating increase in wealth).  Later we may see a period that is less fun for everyone – assets go down, but the cost of living goes up.

Many of the ‘hard asset’ bulls seem to have forgotten that a rising cost of living does not imply hard assets go up in price – particularly if it is a rising nominal rate environment.  There is a prevalent belief that assets and commodities will rise so long as real rates are negative and credit growth exceeds nominal GDP growth.  There may be some truth to this over decades, but if one incurs the minor unpleasantness (discomfort again!) of getting hold of the data and studying it, it becomes evident very quickly that this belief is misplaced on a shorter-term horizon.  Industrial commodities tend to peak (or at least experience their most positive phase) when credit growth is at its height.  If credit growth falls, even if it is from say 30% to 20%, that is outright negative for commodities in the short run.

I do think that one buys the dip in breakeven inflation.  This is a tremendous trading environment for people involved in these markets.  Sadly it seems to me that many investors have a misplaced exposure to this asset class – for example holding inflation-linked bonds on an outright/unhedged basis.  Not exactly the ideal trade in an environment of rising real rates!

Here is a picture of a long-term perspective on the Dow/Gold and Dow/Crude ratios – it shows very well my earlier point that hard asset bulls – even Gold bulls – are making a much bigger bet on industrial commodities (crude included) that they might realize.

Dow/Gold and Dow/Crude Ratios

Dow-Gold-Crude chart

With regard to the outlook for equities here – I do think that there are many US equities that are at attractive valuations and will perform well on a longer-term basis.  Sentiment about the economy is very negative, and should improve if gasoline prices come down as I expect.  But would prefer not to run a large outright long trading position in US stocks, given various risks I see to growth and to risk appetite in the shorter-term.

Liberty…it was nice while it lasted

The erosion of people’s rights by the government continues at breakneck speed, and virtually unopposed. A ruling by the Indiana Supreme Court from last week should have been a grave cause for concern to any Americans who still value their remaining liberties. But of course very few noticed, or bothered to pay attention.

In Barnes v. State of Indiana, the Supreme Court held that, quoting Justice Steven David, “there is no right to reasonably resist unlawful entry by police officers”.

In a 3-2 decision the SC basically ruled that police can forcefully enter a Hoosier’s (resident of Indiana) home without a warrant, without probable cause, and that a person confronted with such an illegal police assault has no right to resist.

“A right to resist an unlawful police entry into a home is against public policy and is incompatible with modern Fourth Amendment jurisprudence. We also find that allowing resistance unnecessarily escalates the level of violence and therefore the risk of injuries to all parties involved without preventing the arrest.” (Justice David for the majority.)

So the Indiana SC, blaming “escalation of violence” on citizens who defend themselves from unlawful activity, completely disregarded people’s Fourth Amendment rights in order to prevent harm being done to illegal intruders (in this case government thugs).

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

— 4th Amendment to the US Constitution

Well, apparently, the “modern Fourth Amendment” does not apply when it comes to police acting unlawfully.

Justice Robert Rucker and Justice Brent Dickson dissented from the ruling stating it ran afoul of the Fourth Amendment:

“The common law rule supporting a citizen‘s right to resist unlawful entry into her home rests on a very different ground, namely, the Fourth Amendment to the United States Constitution. Indeed, the physical entry of the home is the chief evil against which the wording of the Fourth Amendment is directed… In my view it is breathtaking that the majority deems it appropriate or even necessary to erode this constitutional protection based on a rationale addressing much different policy considerations. There is simply no reason to abrogate the common law right of a citizen to resist the unlawful police entry into his or her home.”

“In my view the majority sweeps with far too broad a brush by essentially telling Indiana citizens that government agents may now enter their homes illegally – that is, without the necessity of a warrant, consent or exigent circumstances. And that their sole remedy is to seek refuge in the civil arena. I disagree and therefore respectfully dissent”, said Rucker.

The Indiana case involved an argument between a husband and wife outside their home. Upon arrival of the police the couple went inside and shut the door on the officer who tried to follow. When the officer forced his way inside, the husband shoved him against a wall in defense of his property. He was shocked with a stun gun, arrested and charged with resisting law enforcement and battery on a police officer.

In court the defense intended to argue that a citizen had the right to resist unlawful entry into his home. The judge refused to let the defendant make that argument to the jury, denying him his defense, and the man was convicted. The case was appealed all the way up to the Indiana Supreme Court.

That’s when things took a bizarre turn…

The SC deemed that the police officers entered the Barnes home illegally. The Justices also agreed that one’s right to resist illegal entry had existed since the Magna Carta (1215). And yet, in what amounts to eliminating this ancient legal right, the Court stated that when a police officer wants to enter a home for any reason or no reason at all, the homeowner is not allowed to do anything to block such entry.

The Indiana SC essentially gave the police free reign to do whatever they like, including breaking the law. Willful and illegal police action now trumps citizens’ rights.

But not to worry; as Justice David noted, a person arrested following an unlawful entry by the police could still be released on bail and would have plenty of opportunities to protest the illegal entry through the court system.

Now, isn’t that comforting? After the harm has been done, all you can do is try to argue in court that your rights were violated. And hope & pray for an enlightened judge to vindicate your rights against the police or other government agents (not to mention dismiss any unrelated incriminating evidence that such unlawful entry might have produced). Good luck with that, judging by the Indiana ruling.

Of course there are plenty of other problems with this concept. Criminals have sometimes impersonated police officers during home invasions. The SC has now taken away any legitimate right to self-defense in such situations.

All this may be an indication of what’s yet to come.

First it’s the police and agents of the government who get to invade your home for any reason or no reason at all. Next your right to self-defense of person and property will be stripped away entirely (look at the UK and much of Europe, where the law now firmly stands on the side of the criminal and self-defense is punished with a jail sentence).

Although the Barnes case has the most worrying implications, it’s not the first ruling against once sacred citizens’ rights.

Just a few days ago the US Supreme Court, reversing a Kentucky SC decision, ruled 8-1 that police can forcefully enter a home without a warrant if they believe to smell marijuana, knock, and then hear (what they think is) evidence being destroyed.

Justice Ruth Ginsburg dissented, saying: “The court today arms the police with a way routinely to dishonor the Fourth Amendment’s warrant requirement in drug cases. In lieu of presenting their evidence to a neutral magistrate, police officers may now knock, listen, then break the door down, never mind that they had ample time to obtain a warrant.”

She asked, “How ‘secure’ do our homes remain if police, armed with no warrant, can pound on doors at will and, on hearing sounds indicative of things moving, forcibly enter and search for evidence of unlawful activity?”

In another case this month (Lacey v. State of Indiana) Indiana SC Justices ruled that police serving a warrant can enter a home without knocking. (Before police serving a warrant had to obtain a judge’s permission to enter without knocking.)

Much like the UK and a few other so-called “free” countries, the US is getting ever closer to becoming a totalitarian state. The government and its agents have full authority to violate a person’s privacy and seize their property; the victim having little recourse to a fair and impartial court.

The Fourth Amendment and the right to remain free from illegal search and seizure of person and property have long been deemed irrelevant and inconvenient. Americans have been stripped of any rights at airports, border checkpoints, and increasingly at train stations, bus terminals and so on. (And now also in their own homes.)

The abuses of government power continue to grow, gradually training the masses to accept a police state. You are subjected to wholesale searches at airports, including naked scanners and intrusive pat downs of men, women and children that would be considered a criminal act if committed by anyone but government officials. Try to resist the molestation and you’ll be fined and thrown in jail. (A new bill is to give TSA similar sweeping powers over “surface transportation” including train stations and bus terminals. Undoubtedly shopping malls and other places will soon follow.)

Not only can government agents search you virtually any time and under any excuse (and use whatever they may find against you), they are also allowed to spy on your communication and keep track of everything you do.

How long before other basic rights such as freedom of speech (or whatever still remains of it), assembly, possession of guns, are abolished too? (Of course always for the greater good and your own security and protection!)

The Constitution no longer has any force of law. Politicians, government officials and judges interpret the laws as to fit their desired outcomes. Brave men have, over centuries, died for these ideals and freedoms. Today everyone happily endures even the most grotesque overstepping of government. We are on a fast track back to tyranny and, unlike our ancestors, don’t even seem to notice, or care.

Americans, just as Europeans before them (and similarly citizens of any totalitarian states of the past) have surrendered their liberty and freedom without batting an eyelid, buying the government’s excuse of having to give up their rights in exchange for safety. We don’t need any terrorists to destroy our freedom and way of life; we have relinquished them voluntarily.

They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.”

There has scarcely been a time when Benjamin Franklin’s words rang truer than today.    

Petra’s Readings

Links to interesting articles I have read over the past few days that you might also enjoy…

Ray Dalio: The Billionaire Who Expounds Truth

More Dalio: Pursuing Self-Interest in Harmony With the Laws of the Universe and Contributing to Evolution Is Universally Rewarded

John Paulson’s View on Markets

What Exactly is Dow Theory?

Dylan Grice On The Coming Japanese Hyperinflation

Peter Thiel: We’re in a Bubble and It’s Not the Internet. It’s Higher Education

What does one TRILLION dollars look like?

10 Fascinating Facts About The World’s Richest People

Top 20 Countries in All Science Fields

The 16 Greatest Cities In Human History

California vs. Arizona (funny… and true)