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Notes on the government shutdown

Notes on the government shutdown

I have a post on the housing market pending at Seeking Alpha. If and when it goes up there, I will link to it here.

In the meantime, here are a few important notes on the shutdown.

I can’t find the quote now, but about a week ago it was floated that Trump could “save face” by declaring an emergency, starting to build the wall, and then allow the government to open. Then Trump indicated that if he declared a state of emergency, that wouldn’t mean that he would open the government even then. This is a win-lose capitulation transaction, and Trump is bound and determined to show dominance over the Democrats.

Aside from the fact that there is a large portion of the GOP that is taking advantage of this to “drown the government in a bathtub,” now that a Federal judge has turned down government workers’ “involuntary servitude” challenge, Trump has a ready-made force of de facto slaves that he can recall — or not — depending on whether he wants a particular government program to work or not:

Rank-and-file Democrats reject Trump’s invitation to shutdown talks, back Pelosi in opposition to border wall

The nearly 50,000 furloughed federal employees are being brought back to work without pay — part of a group of about 800,000 federal workers who are not receiving paychecks during the shutdown, which is affecting dozens of federal agencies large and small. A federal judge on Tuesday rejected a bid by unions representing air traffic controllers and other federal workers to force the government to pay them if they are required to work.

Don’t hold your breath waiting for SEC workers or those necessary to issue food stamps to be recalled.

 

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Getting Ever More Surreal

Getting Ever More Surreal

I am referring to a comment Sean Hannity made on his show earlier this evening in his monologue. The reports tht  President Trump was under  investigation by FBI Counterintelligence as being a possible “Russian asset” supposedly taking orders from Vladimir Putin has pushed uber Trump defender Hannity to ever more surreal forms of defense, in this case one especially bizarre given the cloase association in Trump’s early career between him and Roy Cohn, the lead attorney for the late anti-communist scourging Senator Joseph McCarthy of Wisconsin.

This new more surreal position has Hannity after declaring that “the walls are closing in” on former FBI Director James Comey over his supposed role in this investigation, although apparently it was the circumstances around Trump’s firing of Comey that initially triggered this reported conterintelligence investigation, Hannity then compared Comey to the late anti-communist scourge, J. Edgar Hoover, FBI director for 48 years.  In particular he pinpointed Hoover’s investigation of the late Henry Wallace in 1948 for his reputed ties to the Soviet Union, highlighting that Wallace had served as vice  president during FDR’s third term (and was pushed out of that position to be be replace by Harry Truman in FDR’s fourth term by conservative Democrats worried about his perceived to be friendly attitude to the Soviet Union).  In 1948, when Hoover was making his investigation and allegations, the Cold War was starting, and Wallace was the candidate for president of the Progressive Party, running heavily on a platform of opposing the Cold War (and certainly the anti-communist positions of McCarthy).  The sight of Hannity of all people praising and defending Wallace against the supposedly evil Hoover was quite a spectacle.

As it  is, I am sympathetic to the view that Wallace was unfairly treated and smeared.  Also, the Progressive Party and Wallace supported many, well, progressive policies that were and remain reasonable, such as national health insurance.  All of that adds to the irony of Hannity now defending him as he has no use for such policies.  The exact nature of Wallace’s relations with Soviet leaders and of the connection between the Progressive Party and CPUSA remain controversial to this day, but but ceetainly Wallace opposed the incipient Cold War and publicly supported Soviet positions in 1948.  I do not know if it was possible to avoid the Cold War or not, and it is impossible to know what would have happened if Wallace had won, especially given that he came nowhere near dong so.  As it was, Hoover was correct that Wallace was very friendly with various Soviet leaders and agreed with their views, for better or worse.

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Flying blind

Flying blind

The government shutdown is affecting some important economic indicators. All of the series published by the Census Bureau, including retail sales, manufacturers’ and wholesalers’ data, personal income and spending, new home sales and housing permits and starts, are not being published.  It appears that GDP is not going to be published by the BEA either.

In the past I have created work-arounds for a few economic series, in particular new jobless claims and industrial production, neither of which appear affected at this point, as the former is published by the Department of Labor, and the latter by the Fed.

If the government shutdown continues — and a long shutdown, until there is widespread pain or an avoidable disaster (like a plane crash or widespread food-borne disease outbreak) looks like the most likely scenario for now — I will attempt serviceable work-arounds for at least some of these series.

For starters, retail sales was scheduled to be released this Wednesday. Almost certainly that isn’t going to happen, so on Wednesday I’ll publish a guesstimate that hopefully will at least get the direction correct, and capture some of the strength or weakness of that direction.

But, make no mistake, not having access to reliable economic data isn’t just a drawback for me, it’s a cost to any enterprises attempting to make decisions. Some of those businesses are going to postpone making a decision — on hiring as well as spending — until they have more clarity. And the postponement of spending decisions means a drag on GDP and employment.
Unfortunately it appears that the spate of short shutdowns in the past several decades have caused Washington to “learn” that, at least in the short term, nothing too bad happens when government is closed. Thus, flying blind will continue until we crash into something.

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The Key to Gentrification

The Key to Gentrification

In the world of urban politics, there is probably no more potent populist rallying cry than the demand to halt gentrification.  Activists have fought it on multiple fronts: zoning, development subsidies, permitting, rent control—every lever housing policies afford.  But what if they’re mistaking cause for effect, hacking away at the visible manifestations of the problem while leaving the problem itself intact?

Pivot to an important article in today’s New York Times, reporting on recent research David Autor  of MIT presented at the economics meetings in Atlanta earlier this month.  It’s all summed up in this set of charts:

As you can see from the tiny print at the top, the data are being read horizontally within each chart, from less dense regions (rural areas) on the left to high density cities on the right.  The question being asked in the article is, if you live in a rural area or a small town, how much benefit can you get from moving to a big city?

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Value of the Chrysler Building and California Property Taxes

Value of the Chrysler Building and California Property Taxes

The big news in New York City is that the Chrysler Building is for sale:

New York City’s iconic Chrysler Building has appeared in dozens of movies and remained an Art Deco jewel of the Manhattan skyline for decades. Now, the 89-year-old skyscraper can be yours. Located on 42nd Street just east of Grand Central Terminal, sale price estimates for the famed Chrysler Building vary, but its majority owners, the Abu Dhabi Investment Council, hope to recoup the $800 million it paid for their stake of the building back in 2008.

They hope but some think the building might go for as little as $650 million and that does not cover the value of the land:

the land beneath the building is owned by New York’s Cooper Union School and the lease last year came to $32.5 million.

If we assume a 5% discount rate, the present value of annual lease payments like these might be another $650 million if one wants to know the value of the land and the building. But is it reasonable to assume a 5% discount rate? Let’s return to this after noting some grumpiness from John Cochrane towards something Paul Krugman wrote:

I try very hard not to get in to the business of rebutting Paul Krugman’s various outrages. The article “The Economics of Soaking the Rich” merits an exception. I will ignore the snark, the… distoritions, the … untruths, the attack by inventing evil motive, the demonization of anything starting with the letter R, and focus on the central economic points … Diamond and Saez made a big splash precisely because their estimates were so novel and so much higher than the prevailing consensus. For example, Greg Mankiw, also a previous CEA chair, and not a fraud, writing the excellent “Optimal Taxation in Theory and Practice” in the Journal of Economic Perspectives … Krugman and company are proposing a 70% top federal rate on top of all the others, which is … a bit deceptive relative to the 70% total marginal tax rate even in his cherry-picked sources.

OK – I cherry picked much of this rant so read the entire long winded thing for yourself. Optimal taxation is indeed a controversial topic and I applaud the notion that we should go beyond Federal taxation. Can someone tell Mankiw that before his next oped on how progressive the Federal tax system is? Cochrane followed this by some claim that we should include property taxes in the calculus of calculating the marginal tax on income:

How much is the property tax? In Calfornia, we pay 1% per year. That doesn’t seem bad, except that property values are very high. You can’t get a tear-down in Palo Alto for under $2 million. If you buy a house that costs 5 times your income — say someone earning $200,000 per year buying a $1 million house — then that is equivalent to 5 percentage points additional income tax. On top of 42% federal, 13.2% state, 9% sales, and other taxes, it’s part of my view that we’re past 70% top marginal rate now.

Maybe it is because so many of us in New York City choose to pay rents but adding the tax on property to the tax on income strikes me as odd. I’ll leave to others to weigh on this debate but I would be amiss if I did not note Peter Dorman’s latest post:

In the world of urban politics, there is probably no more potent populist rallying cry than the demand to halt gentrification. Activists have fought it on multiple fronts: zoning, development subsidies, permitting, rent control—every lever housing policies afford. But what if they’re mistaking cause for effect, hacking away at the visible manifestations of the problem while leaving the problem itself intact? Pivot to an important article in today’s New York Times, reporting on recent research David Autor of MIT presented at the economics meetings in Atlanta earlier this month.

Cochrane had an odd calculation of the present value of property taxes:

A 1% property tax at a 1% interest rate is equivalent to a 100% tax on houses. That $1,000,000 house is really going to cost you $2,000,000!

Wait, wait – I’m assuming a 5% discount rate and he assumes a 1% discount rate? OK, he continues:

What is the right rate? We can have a lot of fun with that one. The current 30 year TIPS (inflation indexed) rate is 1.19%. The 30 year nominal Treasury rate is 2.97%. In California, under Proposition 13, you pay 1% of the actual purchase price per year, but that quantity never increases. (This fact results in the paradox of extremely high property taxes on new purchasers, older people staying in huge old houses, and low property tax revenues.) So you might say that the nominal rate applies.

You might say? If the nominal cash flow is not indexed, then you should use the nominal risk-free rate as your starting point. So I started with a 3% rate and then added 2% more. Why the extra 2% you ask? Well I have read the seminal paper on leasing by Merton Miller and Charles Upton that note we should add a premium for bearing the risk of obsolescence. A lot of research would put that premium at 2% but I guess Cochrane wants to pretend owners of property should discount cash flows at the risk-free rate, which reminds me of that book by James Glassman and Kevin Hassett entitled DOW 36000. Never mind having fun with the appropriate discount rate – who did Cochrane rely on when teaching his students finance – Glassman & Hassett or Merton Miller?

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More News

A National Emergency Believe It or Not Version, The Hill, Republican Congressional Representative Andy Bigg

It is hard to believe someone would write this stuff with any degree of being serious. This is why it should be reprinted as this Representative is an idiot.

“In this time of stasis in Congress and a national security crisis at the border, the president should strongly consider declaring a national emergency on the border and temporarily diverting a small fraction of the national budget to build the border wall. The invasion of illegal aliens has reached the point of a national security threat. Failure to recognize the gravity of the issue is willful submission to cognitive dissonance.

The border is wide open, and hundreds of thousands are entering the country illegally. On average we are interdicting more than 10 people every day who are known or suspected terrorists. While not all illegal aliens commit violent crimes against Americans, there are still dangerous gang members and other malevolent intentioned people who are pouring into America.”

There is no national security issue, no need to declare a national security crisis, no need to divert any money, no need for a wall, no invasion of illegal aliens, no suspected terrorists, no serious issues, no hundreds of thousands, no violent crimes, no large numbers of dangerous gang members, etc except in this man’s man.

Guaranteed’ Healthcare for All Residents – NYC, MedPage Today, Joyce Frieden

The program, which will cost $100 million annually, involves several parts. First, officials will work to increase enrollment in MetroPlus, which is New York’s public health insurance option. According to a press release from the mayor’s office, MetroPlus provides free or affordable health insurance that connects insurance-eligible New Yorkers to a network of providers that includes NYC Health + Hospitals’ 11 hospitals and 70 clinics. MetroPlus serves as an affordable, quality option for people on Medicaid, Medicare, and those purchasing insurance on the exchange.

Mayor de Blasio: “While the federal government works to gut health care for millions of Americans, New York City is leading the way by guaranteeing that every New Yorker has access to quality, comprehensive access to care, regardless of immigration status or their ability to pay.”

Grocery Store Chain Dismantled, investors recover their money, and Labor pensions short $millions. The Washington Post, Peter Whoriskey

The owner, a private-equity firm, sold off the vast retail empire, piece by piece, selling more than 100 convenience stores, pharmacies, and closed some of the 115 grocery stores. It previously auctioned off the real estate. In May 2017, the company announced the closure of the remaining 44 stores.

Founded in 1931, Marsh Supermarkets, filed for bankruptcy.

They didn’t treat employees right, and since the bankruptcy, everyone is out for their blood. The anger arises because although the sell-off allowed Sun Capital and its investors to recover their money and then some, the company entered bankruptcy leaving unpaid more than $80 million in debts to workers’ severance and pensions.

Many People are Dying in Canadian Clothing Donation Bins, National Post.

It was the third such Canadian death since November and at least the seventh since 2015.

The victims were homeless or suffering from addiction issues, and appeared to have been trying to remove clothing from the bins. “She climbed to get clothing and got hung up and succumbed to her injuries,” Assistant Vancouver Fire Chief David Boone said after a woman was killed by a bin in the city’s West Point Grey neighborhood.

Saudi Woman Fleeing Family admitted to Thailand, Bangkok Post, AGENCIES AND ONLINE REPORTERS

Hey I’m Rahaf. My father just arrived as I heard which worried and scared me a lot and I want to go to another country that I seek asylum in. But at least I feel save now under UNHCR protection with the agreement of Thailand authorities. And I finally got my passport back.

Australia said Tuesday it will “carefully consider” the asylum claim of an 18-year-old Saudi woman who fled alleged abuse from her family and is now in the care of the UN in Bangkok, after she fended off deportation in a gripping, live-tweeted ordeal.

Canada gave her asylum.

Shifting from Oil to Sun, The Manila Times, EI SUN OH

Tropical countries, Malaysia and the Philippines included, with their almost year-round exposure to hot sun and often breezy winds, should do a serious job of mapping out the most suitable locations for extracting solar and wind energy, not to mention harnessing geothermal and even wave energy. It is fortunate that some of us are blessed with oil and gas reserves, but all of us here in the tropics should cast our eyes far and wide and make our baby steps toward decoupling ourselves from the yoke of oil and perhaps also coal, and start taking energy nourishment directly from the sun, to name but one alternative energy source.

Merkel Appears to Take Aim at Trump with Vow to take on ‘More Responsibility’, Independent, Eleanor Busby

It appears to have been delivered as a veiled rebuke to Donald Trump as she vowed Germany would in the future play a larger role in the world. In her new year’s address, the German Chancellor said the concept of international cooperation was “coming under pressure” – which has been interpreted as a reference to strained relations with the US president.

Ms. Merkel said her country must “stand up for, argue and fight more strongly for our convictions” and “take on more responsibility in our own interests”.

The Chancellor devoted a large part of her speech to the benefits of bringing a multilateral approach to international problems – which she has defended in the face of Mr. Trump’s “America First” foreign policy.

Ms. Merkel said Germany will push for “global solutions” as it takes up a two-year seat on the UN Security Council, and she noted that the country is spending more on defense and humanitarian aid.

Ms. Merkel, who will step down as chancellor in 2021, pointed to curbing climate change, managing migration and combating terrorism as the kinds of challenges that benefit from international cooperation.

“We want to resolve all these questions in our own interest, and we can do that best if we consider the interests of others.

“That is the lesson from the two world wars of the last century. But this conviction is no longer shared today by everyone, and certainties of international cooperation are coming under pressure.”

What a White Boy Taught A Black Woman About Resistance, Medium, Autumn Allen

Two parent teachers had cookies and gave them out to the brown-eyed children only. The blue-eyed children sat and watched while the brown-eyed children enjoyed their cookies. Most of the blue-eyed children waited patiently, with hurt and confusion evident on their faces.

After the brown-eyed children had finished, the blue-eyed children were told to come up to get a cookie. They came eagerly except for Mark. Even though offered, Mark refused to line up with the rest.

The parent teachers then told the blue-eyed children they could have a cookie for one penny.

Shoulders drooped and hopeful eyes looked down to the floor. One boy dug in his pockets, hoping he could find a penny not realizing the rule was made specifically for his kind.

The experiment lasted for 5 minutes. In the end everyone received a cookie except for Mark who refused to take one even after the children were each given a penny. The teachers asked the brown-eyed children how it felt to take being privileged. Did they feel bad when the blue-eyed people were left out? Did anyone consider not eating their cookie until everyone got one?

They asked Mark why he didn’t come for his cookie. “Because I knew that  you were unfair. You were just gonna to keep being unfair. You were lying.”

The anger mirrored young black boys and also men who recognized the injustice and realized the whole system is corrupt and that participating in the system keeps you at its mercy while privileging others.

The Failure of Walls

There is speculation in some historical accounts as to why the Great Wall of China was built. The tribes in the north of China were militarily ahead but culturally behind the South of China. The northern tribes would drop down and raid southern China whenever possible to steal the riches of their neighbors. This is one reason as to why the Chinese opted to build the Great Wall.

Another speculation is the Great Wall was nothing more than an ambitious project contrived by a vain and glory seeking emperor. The Great Wall was supposed to show the world China’s superiority, making a clear distinction between civilized people of the north and the barbarians of the south. A simple barrier and very similar to what we are faced with today.

If you have not walked it, it is worth the effort to go to it and spend some time at it. North of Beijing and south of The Wall you will also go past the Ming Tombs.

In and around 122 AD, the Roman Emperor Antoninus Hadrian built a 70 + mile or what is called Hadrian’s Wall across England. Its purpose too was to keep the uncivilized from the south of England. was built after Hadrian had died by the new Emperor Antoninus Pius. Legitimately they were a defensive wall against the Picts; however, it was meant more for showing power and controlling the flow of people for purposes of taxation.

The Berlin Wall was built to keep people in Eastern Berlin preventing their escape to West Berlin. Thousands of ordinary Germans tried to breach these fortifications, to escape the GDR. Attempts were punished, and 138 people died trying, many of them shot, even pregnant women.

The Israel−Gaza security barrier is a border barrier first constructed by Israel in 1994 between the Gaza Strip and Israel. The barrier runs along the entire land border of the Gaza Strip.

The Maginot Line was a defense wall between France and Germany. Germans went around it. The Warsaw Ghetto was walled in and people still escaped from the ghetto.

Walls do not work and in each case people will eventually cross over or go under them to get to where they want to be. It is better to take the $billions and create a better environment on the other side of the wall or fence.

Texas: The time of parole cannot exceed the length of sentence ordered by the judge, Free Advice Staff

For example, if you were sentenced to ten years in prison, and released after three years, the length of your parole would be the balance of your sentence or seven years. If you were paroled after receiving a life sentence, then you would be on parole for the rest of your life.

If that is not cruel and unusual punishment, then what is?

White People Are Broken Medium, Katherine Fugate

Racism is not just an attitude or a feeling toward people who are different than you; racism is also a structural, institutional system which has benefited white people from the day Europeans landed on this soil.

White America owns the majority or wealth in this county. White people own the majority of real estate, run the vast majority of corporations, determine the cost of the products, and the pay of the employees. We control the political system, the judicial system, the educational system, the health system, and the legal system.

But none of these systems are broken. They were built this way. White people are broken. We built these systems this way.

That we live in a country where anyone would have to assert they matter at all, should tell you something is very wrong.

White people are broken, but we don’t have to be. Broken is not evil. Broken means something needs to be fixed. Healed. Changed.

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The Ethics of Clinical Trials

In a clinical trial the therapy is decided by a pseudo random number generator. How can this be ethical ? People are treated differently for no reason related to different interests different values and priorities or even different merit (assuming merit can differ).

There is a utilitarian rational for clinical trials. Through such trials doctors learn, and that knowledge is useful to future patients. But this rationale is utterly rejected as ethically unacceptable, because it was used to justify depraved experiments.

I think the current discussion of the ethics of clinical trials is based on a mixture which is partly consequentialist and partly deontological, and that it is incoherent, because people feel the need to claim it is totally both, while the two are inevitably in conflict.

So it is asserted that physicians must act in the interest of the patient – each and every patient. It is also argued that clinical trials are morally acceptable. This does not make sense.

It is only possible if the expected welfare of the patients is identical under the two treatments over which one randomizes. Any difference, no matter how tiny, in expected welfare would compel the use of only the current standard therapy, or of only the new experimental therapy.

I think the failed effort to avoid this is to reject the concept of expected welfare. It is argued that it is OK to do one or the other because one does not know which is better for the patient.

It would be OK if one were to say all probabilities must be rounded to 0, 1 or 0.5 so we don’t know means each is exactly equally likely. However, this approach would make life strange and brief. In particular it would rule out general anesthesia for any procedure not necessary to save a life. The chance of death is very low but demonstrably not zero. Don’t operate unless you would operate with a 50% chance of killing the patient would rule out almost all surgery. We must make choices under uncertainty and can’t pretend that all uncertainty is the same and survive for long.

Consider 2 examples:

1. There are 2 treatments, and, with best estimates, with treatment A the probability that the patient lives is 50% and with treatment B the probability is 30%.

2. There are 2 treatments, and, with best estimates, with treatment C the probability that the patient lives is 50% and with treatment D the probability is 30%.

According to current medical ethics, one must provide treatment A not treatment B but one may chose treatment D or treatment C. This always is based on the assertion that the interests of the patient is all that matters. Yet I have assumed that, for the patient, the two pairs of choices are identical. This can’t make sense.

In the first case there is an unobservable difference between patients of type 1 or type 2 where if they are type 2, then treatment A kills them on the spot. 10% of people are of type 2 (as learned from decades of painful experience). If someone is of type 1, their chance of surviving with treatment A is 5/9. In contrast with treatment B all have a 30% chance of living. With decades of painful experience it is known with essentially complete certainty that the probabilities are 50% and 30%.

In the second case, there aren’t two types, but the evidence on treatment C is preliminary based on a small (phase II) trial. The fraction who survived in the trial was 50% but the 95% confidence interval is 20% to 80%. The null that the true chance is 30% is not rejected at standard confidence intervals. By standard reasoning it is time for a phase III trial with randomization.

In each case, we know that giving A not B might cause a patient to die who would otherwise live and our best estimate of the probabilities of survival are higher with A than with B and higher with C than with D.

I think the difference is that one learns something by randomizing and giving half of the patients D and that this outweighs the expected deaths due to the randomization.

I think it is possible to believe people have a right to care, and also conduct randomized trials, if one says there must be a standard of care, and all people have right to that. That one may deviate if the weight of evidence suggests that an experimental therapy is better, but that such deviation is a matter of utilitarian total expected welfare maximization not individual rights which trump average interests.

But it is not easy or comfortable to believe this, so I think that doctors have decided to rely on statistics but reject the very concept of probability. The logical inconsistency might cause some discomfort. It would cause more if the concept of probability weren’t so utterly alien to normal human thought. But in any case the tension between believing in rights and believing those rights don’t always trump utilitarian calculations clearly causes more discomfort.

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Slavery in the US

Slavery in the US

An issue so far not openly addressed in this “Partial Shutdown” situation is that those who have been deemed to be “essential,” are now working without pay, even though we all believe that they will eventually receive their overdue backpay. I really do not know the law that says that these people must work without being paid within a reasonable time period of their work, but my basic view of this is that people being forced to work without being paid in a clearly established time period are slaves. And this is the status of those US federal workers now being forced to work without pay. They are slaves.

A ludicrous effort by Trump to minimize the damage of his idiotic partial shutdown has been his sporadic efforts to deal with consequences of his worthless shutdown. So, we have rich cronies of his who have found themselves inconvenienced for hunting in US natural preserves. Trump has ordered that the federal employees who oversee this particular matter must show up for work to make sure that this handful of wealthy Trump cronies can hunt in US natural preserves, without pay. These federal employees must be slaves to these spoiled brat pals of Trump.

We must recognize what is going on here, although nobody prior to me now has called it for what it is, this is slavery. Trump has been ordering all sorts of fed employees to show up and perform their duties without pay as an accumulating pile of interests get to him complaining about not getting their government services.

Of course, slavery leads to shirking, unless Massa wields a whip, which I think is not seriously there, so we have already seen lines at LaGuardia airport as TSA employees call in “sick.” Everyday this condition of slavery persists, the calling in sick of the slaves will increase.

We adopted an amendment 154 years ago that abolished slavery in the United States of America. It is about time this amendment was enforced.

Barkley Rosser

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Weekly Indicators for January 6 – 10 at Seeking Alpha

by New Deal democrat

Weekly Indicators for January 6 – 10 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

Recent gyrations have changed both the short and long term forecast. Once again, it shows that the biggest problem is that most forecasters simply project existing trends forward.

As usual, reading the article should be informative for you, and helps reward me with a little pocket change for my efforts.

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