Passive Aggressive Investing

from Barron’s and Randall Forsyth, Is It Time to Return to Active Stock-Picking?

What’s needed, say some outspoken active investors, is a return to old-fashioned Houseman–Smith Barney securities selection, rather than the tide of passive investing washing over the financial markets. “Passive investing is in danger of devouring capitalism,” Paul Singer wrote in the second-quarter letter to his Elliott Management hedge fund investors.

That recalls last year’s rather histrionic paper from Bernstein, “Why Passive Investing Is Worse Than Marxism.” The gist of both attacks on index funds is that, without active investors diligently working to allocate capital and to hold managements accountable, our economic system would be in peril.

“What may have been a clever idea in its infancy has grown into a blob that is destructive to the growth-creating and consensus-building prospects of free market capitalism,” Singer is quoted by Bloomberg News as having written.

The market is facing other pressures, too. As stock-picking has declined in recent years, so has the number of stocks. In a recent column, The Wall Street Journal’s Jason Zweig makes this startling observation: “There were 7,355 U.S. stocks in November 1997, according to the Center for Research in Security Prices at the University of Chicago’s Booth School of Business. Nowadays, there are fewer than 3,600.”


Everybody cannot be passive.  It is not self fulfilling, it is self defeating.



Focus on Growth not Trade Balance

From the Wall Street Journal Editorials,  About That Obama Boom:

A closing word to Trumpians who will point to the fourth-quarter decline in net exports that subtracted 1.7% from GDP. Part of the explanation is that a bumper crop of soybean exports boosted growth in the third quarter and then dropped off at the end of the year. This is not an argument for starting a trade war with China or Mexico, which could harm U.S. exports.

Imports are subtracted from GDP calculations to avoid overstating domestic production, but that doesn’t mean the U.S. should ban imports or run a trade surplus. Imports are vital to American prosperity, both as components for exports and affordable goods for consumers. They enhance the U.S. standard of living. Mr. Trump should keep his policy focus on growth, not on the meaningless trade balance.

Prosperity and Inflation

from Steve Forbes, The Fed Needs A New Leader–And New Policies, Too:

Yellen openly and unapologetically made clear that our central bank still hews to the discredited theory that prosperity causes inflation. “The economy is operating relatively close to full employment at this point,” and therefore higher interest rates will be warranted. The idea is that a hike in the cost of money would ensure that the economy didn’t get too strong. Otherwise, employers would aggressively bid up wages, which could fuel too much inflation.

Yellen confuses changes in prices that come in response to supply and demand in the marketplace with movements in prices that result from changes in the value of the dollar. It’s the dollar changes that wreak havoc. When the Fed and the Treasury Department began weakening the greenback in the early 2000s, commodity prices took off. The price of oil, for example, went from around $25 a barrel to over $100. That head-spinning surge wasn’t a result of oil shortages but of the dollar losing value. In contrast, the price of wide-screen TVs has plummeted from $10,000 to a few hundred dollars today. That’s a result of productivity, not deflation.

The True Function of the Corporate Income Tax

From Holman Jenkins at The WSJ, Harmonize this Eurocrats, 

What about the undoubted problem of companies like Apple shielding their globally earned profits behind a small country’s friendly tax regime? There’s a remarkably sanitary solution: Get rid of the corporate income tax.

Companies receive their revenues from their customers and distribute them to their suppliers, investors and employees. Thus corporate taxes can be eliminated in complete comfort that the revenue will pop up elsewhere as taxable personal income or taxable consumption expenditure.

The only real function of a corporate income tax is non-transparency. Taxing a company is a way for politicians to pretend they are not taxing any actual voter to pay for programs that voters find desirable as long as they seem not to come with a price tag.

Drop the pretense that citizens don’t have to pay for the amenities they want, and real harmonization becomes possible: The harmonization of tax and spending priorities in the direction of efficiently fostering the clean, peaceful, orderly and civilized countries that productive citizens enjoy living in.

The New Trusts

from The Great Regression in The National Review by Victor Davis Hanson

As a result of liberal hyper-wealth, the new trusts are given veritable media and political passes on their embrace of practices once seen as illiberal and self-serving, like excessive electronic monitoring of our daily lives, offshoring and outsourcing wealth, monopolizing, and giving lavishly to candidates for public office to win exemption from regulations and tax law. Just because a master of the universe wears jeans, sneakers, and a T-shirt and tips his hat to Solyndra, sanctuary cities, or Black Lives Matter, that does not mean that his telos is any different from that of a Gilded Age monopolist. Hillary is Wall Street’s hedge-fund heroine; she resonates with Big Money in a way not seen since Warren G. Harding.

Yet for some reason, Silicon Valley’s products are deemed exempt from liberal notions of consumer liability, although it might be as easy for a nanny-state regulator to insert a motion-activated shut-off device in a smart phone as it is to install a trigger lock on a gun or to reduce the tar content of a cigarette. It is a toss-up as to which is the more deleterious to teenagers’ health: three daily cigarettes, or six hours on the sofa addicted to a video-game console, or walking in a busy crosswalk hypnotized by a smart-phone screen.

We should not delude ourselves that because a cocooned scientific elite has made startling gains in consumerism and technology, that therefore we the public are any freer, more socially and politically advanced, or somehow more ethical human beings.