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Supply & Demand - DRUG POLICY - CLIMATE CHANGE

When setting about the task of developing government policy Supply and Demand plays a role. The law of "Supply and Demand" is in no way an economic theory; the affects of Supply and Demand are as profound and real as gravity. It is a simple reality that the more people value something, the more they will pay for it and if the supply of that valued item increases, the price falls. This was true in Soviet Russia, this was true before the first clay tablets were used as currency in Mesopotamia.

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Supply and Demand dictate that the better police do their job with the war on drugs, the worse the problem gets. When the police constrain the supply of drugs, the price goes up, and people are often addicted to drugs so their demand for drugs is “inelastic”, they have to have them – so they pay more. As the product becomes more valuable, the greater lengths drug pushers will go to provide them, so violence grows. Further, as drugs become more valuable drug pushers look for new ways to get drugs to markets in the more difficult environment police have created for the drug pushers to operate – so now highly potent drugs that are easier to smuggle become required – now the Fentanyl crisis is born. This is just reality, a reality we have to accept – and then build a policy that addresses this reality. We have watched this reality be ignored and we have watched too many of our young people affected by the ravages of drug abuse.

Supply and Demand play a role in climate policy. The carbon tax as a deterrent to fossil fuel use fails to work. There are years of price sensitivity analysis from all the oil majors that support this statement. The reason, the demand for fossil fuels is inelastic – inelastic because there are presently no viable substitutes for fossil fuels, and there is nothing on the horizon to offer a viable alternative. This is supported by more or less consistent oil consumption over any given time frame, regardless of price fluctuation.

Supply and Demand play a role in supply management, a process whereby government regulation restricts the volume of a given commodity’s production to elevate price. This causes the affected products’ to increase in price and the consumer pays more.

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Too often policymakers choose for political reasons to ignore this reality. Ignoring this reality in drug policy has resulted in an escalation in violence, an escalation in the amount and types of street drugs used and to a degree, the Fentanyl crisis. By ignoring the realities of Supply and Demand in climate policy a massive distortion in the public perception of the challenge has given rise to carbon policy that effects regional disadvantage, offers no value in a transition away from damaging carbon emissions, no avenue to developing the safe use of fossil fuels or no reduction in carbon emissions.  Ignoring this reality in food policy means a Canadian family pays an estimated $275 more per year for dairy products than they would otherwise, a single parent or the most affluent among us.  No amount of political spin will change these cold mechanics, they are as elemental as gravity or any other force of nature.

Oilsands Moratorium - NOW - Why

Carbon Tax V Cap & Trade

Drug Policy that works

Finance - An Industry Perspective

FOR MORE DISCOURSE RELATED TO FINANCE PLEASE SEE MY SERIES TITLED - DISCOURSE OF THE GREAT RECESSION IN THIS BLOG.  

Macro Contemplation

I view finance as the activity associated with the management and direction of the abstract representations of the economy. That would include currency through the spectrum to asset backed securities. In the world of finance speculators look after the risk taking and others secure a production related net income target. We all, as investors, speculate to varying degrees, we choose a risk profile and invest in accord with it. The first contemplation one needs to undertake when entering the arena of finance is to clearly define your mission there, is it to secure a profit position, is it to invest, is it to be a trader, is it to speculate - clarity here allows one to enter the space and govern one's self in accord with the mission, as opposed to being a news windsock with one finger over the enter button and one over the exit button.  

As an investment philosophy, the broader your scope the better, full spectrum of sectors, companies, instruments - all pursued with the tireless assessment to identify best of breed. Investment for me begins with the contemplation of the macro elements of economy; geopolitical, economic cycles, demographics, monetary policy, general product cycles ... etc.. From the macro data one discerns where the macro trends lie, Warren Buffet, when he sees a commodity supper cycle, he thinks railroads - so a economic dependent origination assessment is required, to see how a given trend will filter through the economy. Having determined the your best prediction of the economy and societal trends, one needs to find how the trends will find satisfaction for the demand they will generate in the arena of products and services; from here a list of companies or financial instruments while emerge. At this point one would choose best of breed in the company space or, for example, if gold was indicated as a holding - one would choose the appropriate ETF or instrument to take a position is gold.  At this point "trading" plays a role insomuch, as technical data will inform the best entry point to a given stock or instrument within a specified period, perhaps 0 to 12  months; during the period technical data will inform the purchase of investments intended as holdings. This is effectively, a deep value strategy, this is an investment strategy - the investments you make are intend to hold and generate growth - the only activity in your portfolio is to maintain balancing for proper sector diversification and winnowing of laggards and selection of replacements. This is conservative investing, it can be profitable, during the Japanese malaise the best 10 Japanese "blue chips" generated nearly 300% return, 10 to 15% annually, when the general economy was in deflation. 

There is reward in risk, the above strategy is for the money one needs to secure them self in their none productive years, then there is the fun money, the money you can afford to loose, the money it is ok to risk. Here you can take an aggressive option position or play in the more aggressive instruments. 

In the world of risk management, the mission is clear, secure an agreeable operational outcome - hedge inputs and sales, secure a profit level and review the position at intervals and adjust if a better outcome is indicated. 

When working in the financial space one is working with the abstract representations of the economy on the one hand, and the expansion and contraction of human sentiment on the other. The challenge with this reality is gaining resolution on which is affecting which and what is going to trigger an event. This contemplation is important in trading of course, it comes to play also in shorter term financial system participation, like managing risk - hedging production inputs or commodity sale prices for example.  

We accept cycles in nature – spring, summer, fall, winter – the predator prey cycle, etc. People not only accept these cycles, they want to preserve and protect them. Cycles are an inevitable element in the interface with the environment, the economy is an extension of the environment - ergo, the economy will have cycles – this is a good thing; we burn more heating oil in winter there is an affect on heating oil prices every year. There is a cattle cycle, absent extenuating influences, it runs ten years - it runs ten years because the gestation period of a a cow is nine months - for the overall herd to build from a low, to affect increase in supply enough to reduce prices to effect the sale of the cow herd, to increase demand etc .. takes ten years - the Real Estate Cycle 5 to 7 years, the business cycle 7 years. Government interventions work at times to lengthen or shorten cycles, the US governments monetary policy in conjunction with its inadvertent underwriting of home lending extended the housing real estate cycle with a calamitous outcome. The point here is that real world cycles are anchored in real events, there is a degree of predictability here - one needs only inform them self of there presence and act in accord with them.      

Public sentiment is a challenging element in the assessment of market behaviour, it shows up in technical assessment, news and the like, vigilance is key here, history helps, as was said once - events, dear boy, events. Public sentiment does way on entry points for trades or positions in the risk management sphere and or general investing - it is a critical point of contemplation. Public sentiment, I believe is best managed by, technical assessment, historical observations and vigilance. 

Micro Contemplation 

In the micro financial space, contemplation centers around decision making; predicting, to the degree possible decision outcomes and the assessing of financial outcomes of decisions to inform future undertakings. To lease or not to lease, to borrow here or there on what terms, to engage in expansion or not, to do capital improvements or not. The joy in currency, and the other abstract representations of the economy, is the ability to see clearly in a concentrated way what is occurring as a result of your actions. There is always the bottom line, the cumulative outcome of choice, financial assessment when done correctly, gives resolution to or puts a fine filter on, the financial outcomes of operational decision making. 

I believe in taking the time to quantify and qualify business choice, to apply as much objective assessment as possible - science and data. When the science ends however, judgement takes over, as the saying goes - it is the eye of the master that fattens his cattle - to put another colloquialism to work, two heads are better than one - an outsourced perspective is help in this space.  

General Comment on the Financial Space

In 1980, the abstract representations of the economy were at about par with world GDP, by 2006 they exceeded world GDP by approximately %300 - a phenomenon referred to by some as financial deepening. There are very real repercussions the emanate from this reality, John Kennith Galbraith in his book on the causes of the Great Depression, used another name, but sited financial deepening as one of five causal elements of the great depression. The financial fluff that was created in those years, in large measure still exists, the challenges that arouse from opaque trading systems and layered abstract representations of the real economy have found no real redress, window dressing and lip service mostly. With that in mind, in the context of business management, the financial system should be viewed as a short term tool to manage the financial matters. 

The financial sector requires representation in a investment portfolio, but vigilance is certainly required. At some point there will be a rationalization of the abstract and the real economies, and tactile assets will be your friend. We have recovered in large measure from the ills of exuberance, the recession took care of that, the un-anchored collective human psyche will come to play again - that is the reality of currency volume that is in no way dependent on the volume of goods and services in the economy - instability will be our constant companion - the key is to have it work in our favour.  

FOR MORE DISCOURSE RELATED TO FINANCE PLEASE SEE MY SERIES TITLED - DISCOURSE OF THE GREAT RECESSION IN THIS BLOG.  

Mutilated Economy - New York Times - Paul Krugman

"The public spending most of us object to is the flagrant waste and inefficiency that is inherent in public spending, the accountability loop is far to defuse in government – this is just the reality of a big organization. Show us clear accountability – clearly stated objectives, metrics and indicators, and objective reporting – then reach in our pockets." 

http://www.nytimes.com/2013/11/08/opinion/krugman-the-mutilated-economy.html?src=recg

Curious that the organization singing the litany is the one that has most rewarded the biggest culprits in the great recession trainwreck, with quantitative easing policy the gives money to banks to provision liquidity to corporations with fat balance sheets. Aggregate demand is built on the backs of people buying things with earned (and or free) money, as opposed to more credit to an already over levered economy. Your comments on infrastructure are most welcome, the one thing government can manage marginally competently is big, long lasting, stable infrastructure. The reason why human capital is under considered, is because no one has ever come up with a way to value it, the supply demand analysis has left many of us “supply siders” blind-sided, we need a value calculation on latent human potential and the resulting lost revenue calculations – then you would likely find some friends on my side of the economic debate; perhaps this document will help. There can be little argument however, that the nearly pan western world 1980 economic restraint and an the effort for responsible spending set up the 25 years of joy prior to the great recession, we can only inflate away so much debt – in long run we may all be dead, but someone will still have to pay. Infrastructure is investing, as opposed to spending and money is cheap - so sure lets build as much as we can as fast as we can, lets also invest in human capital there are great returns there. The public spending most of us object to is the flagrant waste and inefficiency that is inherent in public spending, the accountability loop is far to defuse in government – this is just the reality of a big organization. Show us clear accountability – clearly stated objectives, metrics and indicators, and objective reporting – then reach in our pockets. 

  

Discourse on the great recession

http://nthomson2.blogspot.ca/2013/09/discourse-on-great-recession.html