The Battle for Qualfin II - The Daily Reckoning

The Battle for Qualfin II

Sep 14, 2015

- By Bill Bonner

Bill Bonner
Salta, Argentina

Dear Diary,

Stocks have been wiggly-waggling along for the last few days, like the tail on a happy dog. Investors don't know what to do. And everyone is on the edge of his anticipation of what must be the anticipated move by a central bank in all history.

But let's come back to that. First, we'll fill you in on the latest developments in the Battle for Qualfin:

"Look, are you naive or something? Look who's been targeted. Hess - from Switzerland. Jan, he's German, I think..."

"No, he's Dutch."

"Same thing. And you. Three foreigners. None of the local landowners is having any trouble. At least no more than usual."

A lawyer in Salta was explaining what is going on. Only the landowners who are foreigners are being challenged by the 'originarios..

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You will remember that some people on our ranch have recently claimed that they do not have to pay their rent (an insignificant amount) because they are "originarios." That is, they say they are indigenous people who have special rights, including the right to land that isn't theirs.

We know it isn't theirs, because we bought it. We paid for it.

Money talks. And money says it's ours.

But wait. Maybe the originarios are right. Maybe money got it wrong. There is some legislation that does give special rights to tribal peoples. We tried to understand what these rights were and to whom they applied. But it was a muddle.

In our case, the chain of title goes back 400 years or more. Giving this to people who claim to be "originarios" (no one really knows whose great, great, great...grandparents once lived here) would be setting a shocking precedent. The whole New World could be up for grabs.

But a lawyer explained why it wasn't a problem.

"Look, we've been fighting this for four centuries - at least. Somebody always seems to come along who doesn't like the European method of distributing property rights. We buy and sell property - for money. Or, you get it because your parents gave it to you. But these 'originarios' think they have the right to own property just because they live there - and think their ancestors once owned it. Of course, we don't know whether they did or not. They don't know either. But we don't give title to property that way. You have to buy it. Or inherit it.

"You foreigners don't know how to deal with these problems. But the local landowners do. In the 18th century alone, we put down at least two different uprisings, both led by people named 'Tupac.' Both times, the rebels went from farm to farm, killing the landowners. And both times, we caught the leader and had him drawn and quartered.

"Maybe that is why the local landowners still resort to violence to deal with these problems. I know one who burned down the house of someone he wanted to get rid of. Another threw sticks of dynamite down a well. It was in the paper, with a caricature of the guy with a stick of dynamite in his hand...this was just a couple years ago. And sometimes they send people up into the mountains to kill their cattle.

"It's not very nice. It shouldn't happen. But when you can't depend on the courts and the government to enforce property rights, I guess people think they are entitled to use extreme measures.

"I'm just telling you this so you know how the system really works. I'm not suggesting you do these things. First, you wouldn't know how. And second, you'd never get away with it.

"You're a foreigner. You're being shaken down. You're going to have to pay to make these problems go away...and pay a lot."


Back to the US stock market....

In a few days, Janet Yellen and her banking cronies will decide whether to begin normalizing interest rates. Supposedly, the 6-year emergency is over. It's time to help those interest rates up off the floor.

If the Fed does anything at all, it will probably do so little that it won't make real difference. Maybe an increase in the key lending rate of 0.25%!

But most likely, Janet et al. will do nothing...because nothing is the safest thing to do. Ms. Yellen is well aware that there is always some last straw that will break a camel's back. Her main goal as chief of the Fed is to avoid being the one who puts it there.

We have seen, over the last 7 years, that adding money (credit) will not really improve the economy. We knew that already. If it weren't so, Argentina would be one of the most prosperous economies in the world...following Zimbabwe and Venezuela.

And just as adding money won't really improve an economy, neither will taking money away hurt it much. That should be a comforting thought. But we say it with a bit of caution. Because it is also true that that Fed has put so much make-up on this economy, it may not be a pretty sight when it comes off.

In theory, an economy is indifferent to the quantity of money. It merely adjusts prices - rapidly - to the volume and velocity of money. But some prices adjust more quickly and easily than others. Stock prices, for example, are adjusted every second. In a few days of trading, stocks may lose half their value. Housing takes longer. And labor costs - wages - can be particularly "sticky."

It is much easier to raise wages than to lower them. Employment contracts and compensation levels are rarely set more than one a year. So, when the money supply falls, labor rates tend to remain stuck at high levels. This means that labor is too expensive relative to output (and the available money supply) ...forcing cuts in employment.

Nobody - not even us - wants that to happen.

But the more immediate fear is simply that - if the Fed were to raise rates - investors would panic out of stocks. We've had a little hint of that in the last few weeks. It must be on Janet Yellen's mind.

What puzzles us is why investors haven't already panicked. Corporate earnings are peaking out. World trade is declining, along with the level of 'excess liquidity.' Even if you believe the official statistics, this recovery was the weakest ever.

Sooner or later, the bull market that began in March '09 has to end. 'Trees do not grow to the sky,' say the old-timers. Nope. There are limits to everything...and surely there is a limit to the prices investors will pay for stocks. In this go-round, we suspect we have already passed it.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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