The Bear’s Lair: The most precious thing is patient cash

Hundreds of billions in private equity and hedge fund money has been raised, and is bursting to be deployed in the market. Companies like Apple (Nasdaq:AAPL) with multiple billions of liquidity feel the need to find a home for it – in Apple’s case, possibly buying Disney (NYSE:DIS). Yet interest rates are too low, the market is overvalued and misguided investment is everywhere. The truly wealthy man is he who has liquidity in today’s market – and the patience to hold off investing until prices have collapsed and bargains abound. Continue reading

The Bear’s Lair: How do we fix finance?

National Economic Council Director Gary Cohn, formerly President of Goldman Sachs, startled markets last week by suggesting that the United States should re-impose the Glass-Steagall division between commercial and investment banking. That is probably desirable on balance, but the U.S. and global financial system was already a mess when Glass-Steagall was removed in 1999. We should do more, beyond restoring Glass-Steagall, to restore finance to its proper state. Continue reading

The Bear’s Lair: Avoiding the fate of the horses

We are not horses. Yet the Luddite left is telling the story of how the horses lost their jobs after 1900 as a parable of what might happen to most humans as the robots take over. In a truly free market, in which government was small and with little power, this would be impossible; the world economy is set up to benefit humanity, not horses, so the market would adjust to robots as a useful new human tool. Yet we are far enough from a free market today, and government is powerful enough and stupid enough, that the equine nightmare cannot entirely be ruled out. We must thus take steps to avoid being sent to the glue factory. Continue reading

The Bear’s Lair: Don’t ask cronies to reform crony capitalism

Paul Ryan’s health care “reform” bill was defeated last week without even receiving a vote in the House of Representatives, in spite of the care he had taken to get input from the health insurance industry. That was the problem. In a crony capitalist system, where bad lobbyist-pushed laws and regulations have poured illicit profits into the pockets of oligopolists, the oligopolists are the last people to consult on how to reform those laws. The same dynamic is visible in monetary policy, in bank regulation and in corporate and individual tax. We are a long way from true free-market capitalism, and we won’t get there by consulting the current crony “capitalists.” Continue reading

The Bear’s Lair: When Big Brother knows everything

We are rapidly approaching a position where, though genetic testing and infinite information searching, both the state and some private companies can know everything they need to know. Our genetic predisposition to disease, our dislike of the government, our taste in partners and our risky behaviors in gambling joints, strip clubs, empty roads, Internet porn and alt-whatever sites and the drug store will all be readily available information. We need to figure out how such a society could possibly be made to work. Continue reading

The Bear’s Lair: Say No to Scottish and Catalonian independence!

In general I am in favor of self-determination for small nations. I would have been on South Carolina’s side in 1861 (though not on the issue of slavery, obviously), and in 1991 I was on the side of Slovenia, Croatia, Macedonia and the other dissolving parts of the former Yugoslavia. However, in today’s world it has become more difficult for small nations to be economically self-sustaining, so they need to be a member of a larger grouping. The problem is to find a grouping that is large enough, crosses no cultural fault lines, yet offers an adequate measure of influence over the central bureaucracy to preserve rights, freedoms and local culture. The United Kingdom, Spain and the former Austria-Hungary pass these tests; the former Yugoslavia and the European Union fail them. Continue reading

The Bear’s Lair: Where is all the malinvestment?

We have had eight, nearly nine years of zero interest rates and negative real interest rates. You don’t have to be a convinced Austrian economist to believe that in this length of time an extraordinary amount of “malinvestment” – investment that is not justified by economic reality – has grown up. Now that interest rates seem to be rising, that malinvestment will collapse, losing lenders’ and investors’ money. This column therefore surveys the various forms that malinvestment may have taken, and where the greatest value traps lie. Continue reading