Wednesday, June 28, 2017

Enough, Already about “Gold Darn” Gold


James Ledbetter is the editor of Inc. Magazine and the author of a recently released book, “One Nation Under Gold.”   On June 27, 2017 Ledbetter was the guest on the NPR show “Fresh Air.” In this book, Ledbetter shared America’s tumultuous relationship with the metal.

Currently, there are no countries in the world that use the gold standard for their currency. America last used the gold standard in 1971. America has used the gold standard for much of its history. But those “golden days” were by no means golden.  Various “panics” from the 19th century occurred under the gold standard. And the Gold Rush of 1848 dislocated and drove crazy people and financial markets.

SO WHY DO AMERICANS TREAT THE METAL LIKE A SHIBOLLETH?

The current spot price of gold is 1252. The Author Rob has owned it a various times and trades options on Gold ETFs, i.e. GLD. And the Author’s have made a nice return in it.  But what is the future for gold as an investment?

There is no magic in gold. Gold competes in the market with everything else. It has some intrinsic value because of its metallurgic properties. But most of its value is reflected in its perceived, not intrinsic, value. History has given it a vaunted economic position.  And taken away much of that economic fascination has dissipated. But many Americans cling to gold. But then again, Americans cling to obsolescent motorcycles and are afraid their kids may hear the word Islam on TV.

Most mainstream investors to not hold lots of gold. Some may have a gold ETF as part of a diversification strategy. But then there are the gold nuts. (Or silver nuts.)

There are others, however, that see an apocalypse behind every closed door. They want something that they can hold on to. While touching your shibboleth might be fun for some, that tactile fascination defines the problem. Gold is heavy and hard to store. It is a honey pot for burglars and robbers. It is liquid, but only in places like jewelry stores and pawnshops. The Authors would rather leave their money in a brokerage account than have to hire a bodyguard for our booty.

IF THIS KEEPS UP, THERE WILL NO LONGER BE HEALTHCARE EVEN FOR THE HEALTHY . BUT WE ARE SAFE, ASSURED AND STRONG IN THE DESERT OF THE REAL.

Sunday, June 25, 2017

HAS GOD REALLY BEEN GOOD TO INDIANA?


A poem written by Willian Wendell Hirschell “A’int God Been Good to Indiana,” often works its way into the Author Rob’s writing.  It’s like, you got to be goofin’, right?

Indiana calls itself the “crossroads of America.” Of course, a doormat is the crossroads of an entrance or exit to a building. A runner rug is the crossroads of a well-traveled room. Whenever a TV show or a movie wants to place a setting in a common, dull, or dense place, the writers draw upon Indiana. The malpractice case waiting to happen in “MASH” was Frank Burns from Fort Wayne, Indiana. Muncie is often a fool’s foil. And the short-lived fantasy TV show “Erie, Indiana” drew upon the contrast between spooky strangeness and the saccharine sameness of the Hoosier State.  And let’s stay with the term “Hoosier” for a while. The original term for “Hoosier” has been long forgotten, likely because people from Indiana were so imminently unmemorable.

By most positive measures, Indiana lags. Of course Indiana is upheld by the south. That is one positive outcome of the Civil War. Indiana will never fall below 44th or 45th.  Inversely, Indiana comes in high when it doesn’t count. That is not to say that Indiana is just Iowa with fewer teeth per capita or Washington state with just a lot more wastrels, however. It is a life sciences center and orthopedic manufacturing hub. It boasts two of the finest state universities in the country. Some areas are rich with advanced manufacturing. But much of Indiana is low skill worker land. Indiana’s industrial base will always be walloped and whip sawed between the low wage overseas workforce and robots and AI.

KEEP SWINGING

There are some positives in Indiana, however. Elkhart and Kosciuszko counties in north central Indiana have unemployment rates around two percent, about as low as it can get. Fort Wayne is a regional education center and is the headquarters of a large regional healthcare system. And there is the Westgate Crane Technology Park in Odon, Indiana that leverages its relationship with nearby Crane Naval Weapons Support Center.  This innovative business park is linked to the eight-county south central Indiana economic development organization called Radius Indiana.   

The organization shares the struggles that many rural areas face-lack of innovation. While West Lafayette and its incubator industries can crank out thousands of patents and breakthrough technologies, rural manufacturing focuses more on low tech manufacturing and smaller satellite facilities of large out-of-state firms.  Still the core of some progressivity is around in Indiana academic centers and with energized people. It is more than a lot of places have.

INDIANA IS A GOOD PLACE TO “BE FROM”

It is almost cliché that most talented and ambitious college graduates leave Indiana for more hospitable places. Simply put, much of Indiana just plain munches. Almost no recreational and cultural events or opportunities. Chain restaurants, if lucky. Treeless newly-platted subdivisions and decayed downtowns.

These advancements are important to note and there are some opportunities in the Hoosier state for economic and social advancement. But at the end of the day, Indiana is still a good state to “be from.”

WE SOMETIMES HAVE TO TAKE WHAT WE CAN SCROUNGE IN THE DESERT OF THE REAL!


Thursday, June 22, 2017

Tough Titty said the Kitty.

The enemy of my enemy is my electoral base.

Doug Masson is a successful attorney in West Lafayette, IN. He also writes a blog called Masson's Blog-A Citizen's Guide to Indiana. Doug is poly math and has fingertip knowledge of Indiana history. He has this most northerly Confederate state pegged pretty well.  He recently addressed the American "class' collision that is taking place in this classless land that is America.

Doug wrote:

One of my favorite news sites is Cracked.com, a comedy site. I don’t know if it’s the old thing about the jester being able to speak truth to power or the lack of a particular axe to grind that makes me find it more informative than a lot of straight news and commentary places. A podcast they aired in March 2016 was a discussion about how bad America is at talking about class (and how that contributed to the rise of Trump). We like to pretend that we’re essentially a classless society, a meritocracy where people rise and fall according to their own abilities. We pretend that social class and wealth are pretty much the same thing. The podcast also talked about how we get a lot more riled up by people in the social class adjacent to us than we do by social classes who are a couple of steps removed. (So, the gentry (upper middle class) tend to get more pissed about acts from the upper class than the lower middle class might.) Social classes who are a few steps removed are more cartoonish abstractions than real threats to your way of life. The podcast website linked to an interesting essay entitled, “I can tolerate anything except the out-group.” The out group is going to be one that’s close to home. The author references what Freud described as the narcissism of small differences:“it is precisely communities with adjoining territories, and related to each other in other ways as well, who are engaged in constant feuds and ridiculing each other.”

 I don't know if these electoral tranches can play nice. Income inequality skews against the working class and from all I read, the AI and Robot Revolution WILL sideline many workers, even the semi-skilled factory workers (CNC, welding, low skill machining).  It will effectively finish hollowing out the middle class. There will be the upper middle class creative and knowledge class (winning class) and lower classes (losing class) of service workers. Many of these service jobs will be concentrated in healthcare  education, and foods services. And even many of these jobs can be automated. These jobs won't pay for Harleys and F350s. Or bass boats.  Or blast furnace size gas backyard barbecue grills. And try spending 40% of your disposable income on health insurance with high deductibles.

Much of what I read about the rural working class and many rural small business owners is that they believe they are losing their cultural identity. This disruption is destiny. I am sure that the hundreds of thousands of middle east refugees in Europe would like to keep their cultural identity. But only the placenta's of the top one percent come with promises.

Much of this nascent knowledge is based upon a growing understanding of the  economic changes coming. They aren't doing as well as grandpa or dad. It will be worse for their kids. They sense that automation and AI are fast approaching. They can barely make the payments now.

Some analysis I recently read is that these folks do not want to go to college and improve themselves  to get up to and into the Winning Class. They just want to make more money and stay where they are at.

Well, what did the kitty say about the momma cat's mammamaries? I would like to live high in the Sandia foothills, ride my Ducati superbike on the twisties and the canyon straights each morning after entering my options trades for the day. And spend mornings partway through my rides at the art colony in Madrid, New Mexico, drinking green iced tea with artists and musicians. But I digress...

They sure put the hurt on the world by not voting for the C***.  And unless they wise up fast and in great masses, their Chosen will cut and dice up anything that is left of the social safety net.  Their  mendacious and manipulative leaders are engaging in the destruction of the social contract that gave the US unmatched economic success for the 30 years that followed World War II. Cruel and dismissive policy changes will harm the poor and disabled. Healthcare will become only an aspiration.

Then whom will they call the C***?

Thursday, June 15, 2017

ETFs on the Road to Serpentdom*


WHAT, ME? I NEVER WORRY

John Mauldin of Mauldin Economics is one of the finest aggregators of investment information   The Author Rob has read Mauldin since at least 2005.

The Author Rob will pay Mauldin the highest compliment he can pay a financial guru. He writes in the tone of the author. Funny, acerbic, and with some knowledge of what he is talking about. (Well, that last part is more what the Author Rob does.

A RISING TIDE LIFTS ALL BOATS. EVEN A FEW THAT SHOULD REALLY BE LEFT TO SINK. AND HEAVEN FORBID THAT SOME WILL BE BAILED OUT.

Mauldin discussed some writings by Doug Kass, the president of Sea Breeze Management. What a nice name. “Sea Breeze.” Desert of the Real Economics was not taken. But the Author digresses.

Kass notes the “band wagon effect” of ETF funds and passive investing. 

“The stratospheric ascent of passive indexing is having side effects that I suspect will make markets sick at some point. Passive investing is perverting the financial markets’ core economic function, i.e., efficient capital allocation. In terms of stimulating buying interest, a company’s fundamental business prospects are now much less important than its presence in (or absence from) popular indexes.’

We’ve created this environment in which badly managed companies can still see their stock prices rise along with those of well-managed companies. The actual facts about a company don’t mean all that much in a passive-investing world. Capitalization-weighted indexes aggravate this already problematic phenomenon. Money is pouring into stocks like Apple (AAPL) and Amazon (AMZN) simply because they are big. The resulting higher prices make them bigger still, and they pull in yet more capital. Here’s a look at the five largest stocks in the S&P 500.”

“FANGS” ARE NO LONGER FOR VAMPIRES ONLY

The FANG stocks are Facebook, Amazon, Apple, Netflix and Google. These companies are mammoth and would make monopolists like Rockefeller and JP Morgan bend a knee. They are among five stocks that compose 42% of the NDX (NASDAQ 100) and13% of the S&P 500. Apple alone is 12% of the NDX and 4% of the S&P 500. 

So when the selloff begins, and it will, the losses for passive investors will be big. Price discovery will kick in and the valuations of the hanger- on stocks on the NDX and the QQQ will plummet as investors leave the indexes and the values revert.

*The Author once noted that a Monitor lizard, which can effectively count to six, was sharper than a broker that said that the market declines in 2008 was "only paper."

AS THE CIRCLE JERKS SANG IN THE DESERT OF THE REAL, “WE ALL GOTTA DUCK, WHEN THE [STOCKS] HIT THE FAN.



Tuesday, June 6, 2017

WE DARE YOU TO NOT TO TAKE THIS GOOD ADVICE

WE DARE YOU NOT TO READ THIS GOOD ADVICE…

Kind of like the National Lampoon cover from the 1970s, “Buy this magazine or we will shoot this dog.”

The Author Rob is constantly amazed, or perhaps a little dismayed, at how highly educated, high earning people, even business people, can be so financially challenged. “Challenged” is a nice way of saying dumb.  Personal financial planning is not differential calculus. It is not Organic Chemistry 600. Nor does it require a finance degree. Yet very smart people can be very ignorant, perhaps more so oblivious, to savings and investments for long-term financial goals and retirement.

The Author Rob recalls a guy he used to work with. A vice president in the actuarial department at a large health insurance company.  He bought stocks based upon tips and hunches. Yet he had the math skills to rival the brightest quants. Phyisistis. Engineers.  The Author Rob explained his fundamental analysis methodology, drawn from Better Investing magazine, some low priced newsletters (real paper with stamps and return addresses), loose-leaf volumes of Value Line, calculator, pencil and eraser. 

He left the company after a short time and the Author does not know if he picked up any of the ideas shared with him.

FLINTSTONES, MEET THE FLINTSTONES…

Gatis Rose writes is a principal at Stock Market Mastery. http://stockmarketmastery.com/
In a column he wrote for stockharts.com, He discusses a married couple with advanced graduate degrees. He calls them Fred and Wilma.

Rose provides the following advice in his column:

Okay, so here are my ten basic rules for all the Fred and Wilmas out there — for the investment ostriches who prefer to bury their heads in the sand.
  1. Save first.  Put aside a portion of each paycheck you receive. Force yourself to stretch.  Then do a budget after you’ve stashed your savings.
  2. Learn to budget.  Stay away from credit card debt.  That’s not budgeting.
  3. Take a class.  Read a book.  Make an effort to learn about finances.
  4. Purge bad habits.  Perhaps you shouldn’t buy new shoes every week!
  5. Create a plan. Put it in writing and get a professional to review your plan.
  6. Taxes matter.  Understand the difference between a taxable account, a tax-deferred account and a tax-exempt account.
  7. Make it a hobby.  Embrace your financial assets.  Play with your portfolio. Have fun.
  8. Discipline. Automate your investing through all seasons and all types of markets.  Compounding is indeed the eighth wonder of the world — use it to your benefit.
  9. Don’t procrastinate.  Start now. There are always hundreds of excuses not to do so — ignore them all!
  10. Invest for your kids’ sake.  Make sure you have enough for a long retirement so that you aren’t a financial burden to them.  Better yet, teach them to be financially responsible so you can spend their inheritance.

Number Seven is especially important. When the Author Rob thinks back to his budget busting hobbies-Ducati Motorcyles, scuba diving, sports cars. But investing is one hobby that makes money and does not swallow it. An avocation that is fast becoming a vocation.

And Nine is perhaps the most important. It is never to late, but it cannot ever be to early.  The compounding effect of money comes straight to earth from paradise.

WE DON’T LEAVE MONEY ON THE GROUND IN THE DESERT OF THE REAL!


Saturday, June 3, 2017

I AM MAKING YOU AN OFFER YOU CANNOT REFUSE

In the previous iteration of this blog, the Author addressed film with some regularity. After all, the title "Desert of the Real" is a key concept in the iconic film "The Matrix."

Turner Classic Movies and Fathom Events present a classic movie each month at cinemas. Here in Fort Wayne they are presented at Coldwater Crossing.  The Author's have seen many of them. "Psycho," "Animal House," "North by Northwest," and most recently "Smokey and the Bandit."

This weekend and next week perhaps the best American film ever made, "The Godfather," will be presented on Sunday, June 4th and Tuesday, June 6. 

Films coming up include "Some Like it Hot," the Tony Curtis and Jack Lemmon cross-dressing romp which also features classic film comedian Joe E. Brown. Also, the iconic love and war story Casablanca will be screened as well as a look back at the Stoners in "Fast Times at Ridgemont High."

Check them out. 

24 FRAMES PER SECOND IN THE DESERT OF THE REAL!

Friday, June 2, 2017

June 2017 Desert of the Real Investment Newsletter


June 2017 Desert of the Real Economics Investment Newsletter

GRIND AND WIND

Two terms the Author hears with some frequency are “Wind and Grind.” First, the markets are still grinding a little higher with low volume.

On June 2nd, the DJIA closed at 21,197.15, up .25% on the day and up 7.23% Year-to-Date(YTD). The NASDAQ closed at 6,305.80, up 17.14% YTD.  On a related pace, the S&P 500 closed at 2,437.11, up 8.86% YTD. 

The term “Grind” refers to the methodical, slow, but generally unabated set of moves higher.  Grinding moves with generally low volume.  Many analysts predict a correction. But they are by no means unanimous.

The “”Wind” is the series of small increases again paired with low volumes.  Wind up a spring or a rubber band and what happens at some undetermined future point that cannot be pinpointed.

OPINIONS, OPINIONS, OPINIONS
           
The Author Ro/b picks up some stock names from Investors Business Daily (IBD) .  IBD has a very bullish predilection. Almost perma-bullish. But in a market that is moving, it is a relatively low-priced investment service. Heck, it’s free at larger public libraries.

In addition to financial and other general news, IBD provides stock recommendations and has provides an investment methodology that works well in an upward moving, high momentum, high volume market. 

The Author Rob has used IBD picks in moving markets for momentum plays. In 2000, in 2003, and earlier in this year. `

IBD also uses a rather common methodology for predicting a correction, distribution days. A distribution day is a 0.2% decline in a major index with volume higher than the previous day.  This IBD page provides a good description of distribution days and reading the signals.  You might keep an eye on it. The Authors will take a peek or two.

MAULDIN AND MODERN PORTFOLIO THEORY

John Mauldin provides investment services and sponsors events that assemble some of the finest minds in the business arena. These events also include political analysts. George Friedman, founder of Geopolitical Futures. Friedman predicts that the US is preparing to attack North Korea. On his site, Friedman discusses this potential conflict. The Author Rob addressed the prospects and potential for a War with the PDRK in a blog entry from last week.  The Author Rob does not believe that the current CIC is capable of planning beyond the choice between a Big Mac or a Whopper.  But blundering into a conflict is a possible outcome. With Horrific results.

Modern Portfolio Theory (MPT) was developed by Harry Markowitz as far back as 1952. MPT as defined on Investopedia as:

Modern portfolio theory (MPT) is a theory on how risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward. According to the theory, it's possible to construct an "efficient frontier" of optimal portfolios offering the maximum possible expected return for a given level of risk.

Speaking a bit dismissively, if you want higher reward, you merely dial up the risk knob. The Author Rob once has a risk knob that went from zero to eleven. But he digresses.
MPT earned Markowitz a Nobel Prize in Economics in 1990. 

BACK TO PIE CHARTS???

As stated in Investopedia, one element of MPT to maximize return and lower risk is asset allocation.  A very simple explanation would be a stock type/bond reallocation every few years as an investor works towards retirement. For example, a single dude quits his job at Silgan and goes to work for GM. He has about $20,000 in his 401K. His dad tells him he should take his 401k as a rollover and invest it with the guy he uses, Main Street Investment Services. The Dude takes his payout as a rollover into an account at Main Street. The advisor/broker at Main Street will put him in a managed account that has a mixture of domestic stocks, foreign stocks, bonds and maybe a small slice in a REIT (Real Estate Investment Trust).


The dude and the advisor at Main Street will talk a couple times a year and as the dude gets older and approaches retirement, the mix will move to less risky, lower returning investments. More bonds, more large cap and value stocks.  These mixes will reduce risk and attempt to preserve capital as the dude closes in on retirement. Main Street will use a rough form of MPT, seeking to maximize return given the dude’s imputed risk tolerance as he ages. 

Two problems present themselves. One is long periods of bear markets. The Author heard as recently as two weeks ago his barber sloughing off  “paper losses” in his investment account. Brokers and investment advisors will tell investors that since you do not need the money until you retire in ten years, you really haven’t “lost money.” I’m here to tell you, Cuz, that market loses are real losses and mean you have less green paper when you cash it out. Active account management is a way to minimize “paper losses,” and that it what this Newsletter is all about. Without active account management, an investor is setting herself up for long periods to recoup market losses. Remember that if you portfolio falls 25%, the account will have to increase by 33% to break even again.

Another risk is implicit in many asset allocation strategies. Correlation. Simply put, as a general rule, when stocks retreat, the value of bonds rise. (Interest rates fall so people are willing to pay more for the underlying instrument to get the same return.)  This is a negative correlation. Correlation, at its worst, is just another way of regressing to the mean. This goes up, that goes down, we’re all even-steven.

NONCORRELATION    
    
One way to overcome correlation limits on gain is to put non-correlated assets in the portfolio. An article in Seeking  highlights a good number of non-correlated assets. Another class of noncorellated assets are Inverse Funds. These are ETFs managed to return the inverse of a specific index.  Direxion provides a broad menu of inverse ETFs. These inverse ETFs trade derivative instruments and futures with an appropriate strategy.  As one might imagine, management expenses are high for these funds.


STOCK UPDATE

The Quantum Multiplier Portfolio is a slim place.  Here are the long stock holdings:


                        Current Price June 2, 2017                  Annualized Gain
FDX                            203.11                                     40.94%
AMAT                         46.80                                      108.08%
AERI                           55.15                                       34.09%
CE                               88.04                                       00.99%

The rest of the Portfolio is in a few options, some cash and long RSP ETF.

THE DESERT OF THE REAL IS ON IMPEACHMENT WATCH.  WE ARE ALREADY AT OBSTRUCTION OF JUSTICE. EXECUTIVE PRIVILEGE MAY SOON BE INVOKED.  IT WON'T WORK. IT HAS BEEN TRIED BEFORE.  UNITED STATES V. NIXON, 418 US 683 (1974).





DESERT OF THE REAL ECONOMICS IS A MEMBER OF THE FEIGHTNER CONSULTING LLC FAMILY COMPANIES AND IS ALSO AN ASSUMED BUSINESS NAME OF FEIGHTNER CONSULTING LLC. (DAMNED LAWYERS ALSO WANT SOMETHING OUT OUT OF US.)








Monday, May 29, 2017

WHAT WOULD HAPPEN IF THE "INDIANA POLICY REVIEW" REALLY HAD POLICY TO REVIEW AND WRITE ABOUT??


Somewhere on the Isle of Irony a publication entitled “Indiana Policy Review” clings to the fabulists notion that Indiana government actually generates policy or resembles an organization that could actually develop policy, rather than put ad hoc glosses on whatever squirms through the Indiana House and Senate in the late winter and spring.

The “Indiana Policy Review” publishes four editions per year. It would seem there would not be enough substance for an annual tri-fold, but it is their press, their ink, and their electrons.

An editorial in the “Indiana Policy Review” combines racist southern revisionism with a sucker’s punch aimed at Fort Wayne Mayor Tom Henry.  It begins by deriding the long overdue riddance of memorials to confederate treason.

Armed rebellion against the government of the United States is the basest form of treason. It was tried in 1861 by indolent operators of forced labor camps. The military leader of the traitors was Robert E. Lee.  Fortunately for Lee, he was not hung after the rebellion along with the rest of the treasonous leadership.

Louisiana is currently removing statutes that honor Lee and the southern war of treason. Indeed, as regaled by the editorial, removing the idols will not change the sordid history. But it lessens the reverbative message of hate and the daily reminder of the abomination of carnage unleashed by the treasoners.  It removes the imprimatur of government assent.  It continues the shaming that is welcome to most, but still little effect on the south’s endemic racism and bigotry.

But the “Indiana Policy Review,” not content to fete Lee and his legions of the treacherous, slams Fort Wayne’s Tom Henry to out bigot Brietbart and out apologize the League of the South.  The editorial further degrades the 21st century inclusive leadership to which all should aspire.

The statue of General “Mad” Anthony Wayne, a founder and name sake of Fort Wayne,  was reconditioned in 2013 as part of a proposed move to the Court House lawn across the street. The purpose of the move was to provide better visibility to the statue.  The public objected and the statute was not moved. Seemingly end of story.  But still big news for bigots.

MAD ANTHONY WAYNE WOULD HAVE LIKED THE DESERT OF THE REAL!

Sunday, May 28, 2017

A LOOK BACK AT NORTH KOREA. AND MAYBE A PATH FORWARD...

In September of 2005, the Author Rob wrote a long post in his predecessor Blog. The title of the post was "Happy Pirate's Day from North Korea." It was written on September 19, Talk Like a Pirate Day.

North Korea is a recurring and long metastasizing world threat. It was thought in 1990 that it would go away with the rest of the Communist world. It didn't. There were several junctures where an "acceptable" accommodation could have been made with the hermit regime. They were might have held, they might not. But in any event, they were missed.

TIME AND OPPORTUNITY ARE RUNNING OUT. WITH NO COOLER HEADS...

The common American dismissal of adversaries or cultures they do not see a vassal states, is "those people over there are crazy." During Desert Storm One, the Author Rob often heard the statement "those people over there (Arabs) are crazy. Let's let them kill each other off."  These statements were from college educated individuals. So much for college.

FAST A LITTLE FORWARD

On 9-11, the TVs were playing at work. Early into the attack, the Author Rob was reminded by a co-worker that "those people over there are all a little crazy."  No, they are not. The terrorists conduct, however homicidal and small-scale suicidal, was "rationale" based upon their situation and their world view.  They must be dealt with on that basis. We must know what they will respond to, and what they will not respond to. I give the UK, France, and Israel great credit for engaging them without naive posturing. Postponing the pain with the "they're crazy" refrain will make the fix harder and deadlier.

The only refrain that sounds worse is "they hate us for our freedom." The 9-11 terrorists could give a rat's gonad less about "our freedom." That is just more pablum to avoid addressing the matters head one rather that showing hours of grainy gun and bomb camera footage.

FAST MORE FORWARD

So guess what the Author Rob is hearing? "That guy over there is crazy." Some people, but not many,  can even correctly recount their leader's name, Kim Jong-Un.

The North Korean leadership is not crazy. They have held their hell-hole together for more than seventy years. It was widely believed that North Korea would fail when Communism fell in the early 1990s. It didn't. And each president has made some effort to deal with the regime. Bill Clinton had the most success. His deal(1) keep North Korea non-nuclear weaponized. Each subsequent president has done less. Bush made a good start but dropped the ball when he stumbled into the Iraq misadventure.  Obama's focus was domestic and more opportunities were lost.  Failure to address the issues with North Korea is a bipartisan issue.

NOW AN EMPTY HEAD IS RATTLING (LIKE A BABY'S RATTLE) THE SABRES

 Here is the Author Rob's post from 2005. It is long but is a tale of the lost:

On September 15th, the Author saw an amazing documentary about North Korea at his favorite theatre, the Guild Cinema in Albuquerque. And yesterday it was announced that the six-nation talks had produced a tentative agreement for North Korea to drop its nuclear weapons program in exchange for nuclear assistance, other aid, and what sounds like a non-aggression pact to be executed between the US and North Korea.

The author is not naive about the possibility of North Korea sabotaging this agreement, or the lesser possibility of the hard-line Neo-Conservatives in the US sinking the nascent entente. The North Koreans are consummate deceivers, vacillators and manipulators. But this might be the breakthrough that has eluded the parties since 1994. And if the agreement comes to fruition, it will be the most important diplomatic event to date in this early century. It would signal the end of The Cold War and would resolve the final issue that remains from World War II. Big Stuff. Important Stuff.

So what does this have to do with Economics? Much. North Korea is the last Communist State on earth. It is a living fossil, like the coelacanth or the gingko tree. It has outlived Stalin, Mao, the Berlin Wall, Marshal Tito, Leonid Brezhnev’s eyebrows and Fearless Leader, the scar-faced potentate of Pottsylvania.[1] Despite all that was and is wrong with communism, North Korea still trundles along in the Land of the Morning Calm.

Deprivation amid Technicolor Displays

The film the author saw was entitled “State of Mind”. The BBC produced it in 2003 and the documentarians had extraordinary access to this xenophobic country to produce a story about the Mass Games. The Mass Games are a periodic gymnastic showcase to celebrate North Korean events, such as the birthday of President Forever Kim Il Sung or the peasants exceeding their cabbage-growing quotas.[2]

The storyline follows the preparation of two 12-year old girls who will participate as gymnasts in the Mass Games. The Mass Games are indeed impressive. They make the Superbowl Halftime extravaganza look like a first-grade pageant. North Korean “guides” constantly escorted the filmmakers, but none of the documentary was censored. There were several reasons nothing was censored, but two stand out. The filmmakers did not need to ask probing political questions. The poverty, the totalitarian nature of the state, the comical propaganda recited all showcased the degraded conditions of the marginally operating state. Food is rationed. Power outages occurred daily. The buildings are old and decaying. The massive boulevards are crumbling and bereft of traffic. It looks worse than Albania circa 1965.

Secondly, the North Koreans are genuinely proud of these Mass Games. They wanted this story told. The games showcase, in the minds of North Koreans, the resilience and strengths of the country. The skills and discipline of the participants are amply evident. But the show backstage is far different. The director of the games has only rotary dial phones. And the images of the prior Mass Games were filmed in Technicolor, a film process that has been obsolete since the time of the Korean War. The Author, an assiduous student of film minutiae and obscurities found the use of Technicolor quaint and fun.[3]

Yet within all of this state domination, children worked several hours per day, in addition to their schoolwork and homework, to compete in the games. People go to work and about their lives. They walk in the park on Sunday. And underneath all of the pretense, poverty and some unintentional parody, there is a pride and work ethic that may explain how this pariah nation keeps going amid sacrifice, suffering, and occasional famine.

North Koreans Would Not Greet “Liberators” with Street Dancing and Flowers
Korea, like Vietnam, has a history of foreign invasion met with fierce resistance. North Koreans believe that they stood up to, and repelled, U.S. forces in the Korean War. They did, but with the help of a few million Chinese soldiers. The “victory” they won in 1953 when the Korean conflict ended still defines the country. And in fact, the Mass Games that were the subject of the movie were held to celebrate the 50th anniversary(in 2003) of the North Korean “victory”. This “victory” is manifested in “juche”, which roughly translates to “self-reliance”.

War on the Korean peninsula would be a very barbarous affair. It is estimated that there would be one million casualties within the first 24 hours of peninsular war. Seoul, the capital of South Korea, is within artillery range of the border with North Korea. Except in tactical Pentagon plans and in the vituperative and vacuous minds of a few American chickenhawks, a second peninsular Korean war is unthinkable. Millions of Koreans and tens of thousands of American GIs would die. Korean terrain makes most of the country a huge killing zone. Mortars are already dialed in and fields of fire plotted.

Back to economics. Just as market forces have unleashed reform and emergent prosperity in Russia, Eastern Europe and China, North Korea could one day become a prosperous and democratic nation. The work ethic of its people is strong and the success in South Korea would appear to be reproducible.

Can Bush go to “China”? With the Domestic Side not Looking So Good Right Now, Bush Could use the Frequent-Flier Miles.
When the Clinton Administration was negotiating with North Korea in 1994, it had two problems. One domestic, one intelligence-related. Pressure from the Republican Right prevented him from offering the Koreans what they really want. A non-aggression pact with the US that recognizes its independence and puts some ink on the end of the Korean conflict. Both political parties and most of the western intelligence world shared the other problem. It was generally believed that North Korea would go the way of every other communist nation and collapse. In that sense, whatever deal was made with North Korea was deemed at the time to be irrelevant. In a year or two there would be no communist Korean government to deal with.

The US and its Asian Allies must resign themselves to the fact that North Korea will not fall of its own weight and will become a nuclear power if nothing changes. If an enforceable and verifiable deal can be put in place, it would be a monumental move. Continued stalemate will allow the North Koreans to develop, or increase, their nuclear arsenal[4]. And miscalculation leading to a shooting war is always a possibility in the tense standoff that currently exists between North and South.

Change is on the wind. These winds can either steer our ships of state on a safer course or blow us further into uncharted and dangerous waters.

[1] Pottsylvania is the fictional US adversary in the Bullwinkle and Rocky cartoon show of the 1960s. The cartoon was a cold war satire and a darn good one. Fearless Leader commanded Boris and Natasha in their ever-failing efforts to bring down our heroes, Bullwinkle J. Moose and Rocket J. Squirrel. Pottsylvania appeared to be a place not unlike a seedy beer hall undergoing a perpetual –putsch.
[2] The Author is of course being smarmy. Westerners should be suspicious of the degree of Korean loyalty to their leaders. But we must not completely discount it. Kim Il Sung has been proclaimed “President Forever,” and his son, the puffy Kim Jong Il the “Great General”. The author has heard the level of cult worship of Kim I and II as something akin to the Christian Trinity. Kim Il Sung is “the father”, Kim Jong Il is “the son”, and juche, the doctrine of self-reliance, is “the holy spirit”.
[3] Some of the scenes from the prior Mass Games were of fireworks. Technicolor produces “hot” tones of red, and vibrant golds and silvers. They looked good on screen.
[4] There is some question whether North Korea has weaponized its nuclear capacities, or if it is still in the process of weaponizing their nuclear materials. Regardless, without massive incentives, it will be a nuclear state.


1. Clinton may have missed a clear opportunity to change the relationship in his presidency. Clinton later went to North Korea in 2009. http://www.eastwestcenter.org/news-center/east-west-wire/bill-clinton-in-north-korea-winners-and-losers And like nearly all former American political leaders, they sound rationale, sensical and reasonable after they leave office. He said in the early 2000s that the US should just bite the bullet and sign a non-aggression agreement with North Korea in return for aid and the dismantling of the-then nascent nuclear weapons program. Sure the North Koreans would try to cheat on their promises. But such agreements, even with nations like Iran, Russia, and North Korea, have, like options, "time value." You buy time, allowing for things to change that may better your position. But American have a one news cycle memory and a view of the future that changes faster than the TV remote control.

KOREA IS FAR AFIELD FROM THE DESERT OF THE REAL.