Orderly Chaos
Research for Online Investors

by John Dalt

2/12/10

Why do we spend so much time, trying to predict what cannot be known?   Watching a quarter flip five times with the same result, how many of us will bet the farm on the next flip?  We all innately know the result is incalculable, but feel sure the outcome must break the streak.  We must bring order to chaos.

Years ago, we had a friendly game of craps every January.  A sort of ‘civil defense’ meeting if you will.   Larry couldn’t resist betting on the ‘seven’.  The longer it had been since a ‘seven’ was rolled, the surer he was it had to come on the next roll.  Since it paid five for one, he always celebrated when he won.

Untold time is spent and ink wasted predicting the gyrations of the stock market.  Will it be up today?  What does the Greek situation mean to the value of the Australian Dollar?  Does this drive gold higher, because investors will fear all government debt is suspect?  Or, will precious metals fall because disaster has been averted?

Your author is guilty of trying to divine the meaning of all inputs, in order to trade based on knowledge rather than guessing with a blindfolded jab at the newspaper financial pages.

In all human endeavors, we try to apply reason to an unruly world.  Here is where we spiral into the mist of human arrogance.  Where is it written that we must understand everything around us?  We arrogantly believe that we can apply order to disorderly things.  Can you herd cats?

This belief that we can understand and order everything around us is the basis of much trouble perpetrated by the government.  How many times have we uttered or heard, “Someone ought to do something.”  The something that government may do is far removed from the original problem, may make it worse, and generally will cause more problems that must have something done.

Witness unemployment insurance.  We all pity the person that has lost his/her job.  We offer them unemployment insurance, so they don’t starve while they look for a job.  The benefits are so generous; the person is reluctant to take a job for less money.   Why work when you can make more money sitting at home?  Productivity goes down, government debt goes up, and employer taxes go higher to replenish the unemployment fund.  This places a lid  on the speed of the recovery, and limits the ability of employers to ramp up employment because of higher costs on payroll.

Look at the ‘war on poverty’, laudable in its intentions.  But what have been the results?  A large underclass of citizens that have developed a dependency on the government, with little hope of exiting the welfare class.  Is a single parent family better off living in government housing with a big screen and cell phone, than when the family was intact, and dad did honorable back breaking work for minimum wage?

We could go on with other examples, but brevity requires that we not mount our soapbox.  Suffice it to say, that our arrogance for understanding everything, drives us to do stupid things.  If we cannot understand it, order it, or quantify it, we want to regulate it, control it, and restrict it.  All for a more orderly life, and one we understand.

The internet gives us wonderful access to information. Access that humans have never had before. I have mentioned many times the importance of F.A. Hayek’s book “The Road to Serfdom.” Last year we did a promotion for the Long-Term Portfolio where I sent a copy to every new subscriber! I found a video on YouTube of F.A.  Hayek interviewed by Robert Bork addressing the issue of “intellectuals” on college campuses, and why they must understand how something works or completely discount it.This video is the genesis of my dissertation today.

You may also enjoy a video of F.A. Hayek discussing the problem of “Socialism”, or his discussion of democracy and money in “Omnipotent Elected Assembly.”  These videos are short.   After watching them, I felt in awe.  What a treasure that these videos are available to us.  There are others, go ahead and enjoy them.  We have a three day weekend!  I will see you Tuesday, as Monday is my 24th  wedding anniversary, thank goodness the market is closed.

To the Mailbag:
Your quote from Cicero is fantastic.  How much time to you spend reading history?  Factoid.  As of right now, some HR types tell me that 30% of our workforce is made up of contingent workers.  Within the next few years, it will be around 50%, or so they say.  That is a lot of temporary workers.---Paid up subscriber J.P.

John’s Reply:  I enjoy history, politics and economics.  The move to temporary workers is in response to government compliance with erroneous labor laws.  The pols pass laws to tie the hands of employers, employers sub-contract the hiring process and the liability.  Employees become less attached and more disposable.  Statists do not understand the laws of unintended consequences.  Or do they?  Nah.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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