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51 Guns, A Chihuahua, And Investing Inertia

Tyler Durden's picture




 

Via ConvergEx's Nick Colas,

The current set of dominant market narratives are so well known as to be cliché.  Invest where central banks are pumping liquidity, and short the currency of those countries or regions.  Look for growth, and pay any valuation multiple that seems half way reasonable in today’s market.  Expect any spike in volatility to wilt like cut flowers in the hot sun, and the Fed to care intensely about stock prices.  And maybe that will continue to work in this last month of the first quarter…  But it always pays to question the foundations of market assumptions, and today we do just that.
 
“51 Loaded Firearms and a Chihuahua” isn’t an invitation to a wild party; it is the headline for the U.S. Transportation Security Administration’s blog post this week.  In the seven days ending March 6th, 2015 the TSA found all those guns and the one dog in various flyers’ carry on and checked luggage.  The dog was evidently taking a nap when its owner zipped up her bag.  Security at LaGuardia found the dog and reunited pooch and owner.
 
Now, let’s talk about the guns. Since the beginning of 2015, the TSA has found 365 loaded firearms in the carry-on luggage of U.S. travellers – an average of 6/day. Some other odds and ends from this week’s TSA haul: 4 other guns (unloaded), 13 stun guns, and 2 large hooked machetes measuring 10 inches apiece. Yes, all in baggage that the owner fully expected to pass through security. 
 
A few other fun facts about what the TSA has discovered passing through their x-ray machines:

  • In 2014, the TSA found a total of 2,212 guns in carry-on luggage across 224 domestic airports. The vast majority (83%) were loaded, many with a round in the firing chamber. By comparison, consider that in 2006/2007 the average annual TSA haul of loaded guns found in carry-ons was 812. Yes, in the last 7 years the number of guns found has increased by 170%.
  •  Top airports for gun finds: Dallas/Ft. Worth (120), Atlanta International (109), Phoenix International (78), Houston (77), and Denver International (70).
  •  Other notable finds in 2014: 140 inert/replica hand grenades, a knife hidden in a computer hard drive, and a checked bag with 33 pounds of marijuana, 2 disassembled handguns, 350 rounds of ammunition, and some kitty litter (presumable to mask the smell from drug sniffing dogs). The owner was, needless to say, arrested on the spot. 

 So what’s going on here? The most obvious observation is that Americans own a lot of guns. Data from the FBI shows that last year the Bureau performed 21 million instant background checks on prospective and current gun owners/buyers. That number a decade ago was less than half that level. The fact that the top airports for gun finds are in states where concealed carry is more popular supports the notion that gun ownership is increasing throughout America.  So does the growth rate for year-over-year TSA finds of those weapons.
 
Psychologically, the problem is complacency and inertia. The TSA data shows that many people simply forget that their handgun is in their bag. They know they cannot bring it on an airplane.  Like the TV ad says, “Everybody knows that”.  But they are so used to carrying their firearm that they don’t even check for it, let alone leave it safely at home.
 
I think the current set of dominant market narratives are much like a loaded gun passing through an airport x-ray machine. We know better.  We know that investing is all about clear-minded foresight rather than assuming today is the same as yesterday. But inertia has taken hold of many capital markets, and money flows resemble a piece of driftwood simply moving with the tide.
 
Take, for example, volatility – both actual and projected.  The last time the CBOE VIX index was over 25 was 5 months ago. For readings over 30 you have to time-travel back to 2011. Yes, Friday’s sell off on the back of the jobs number was dramatic, but the VIX ended the day at 15.2. The long run average is 20, and we are a long way from that.  Fading any VIX rally over the past 5 years has been some of the easiest money on offer in any derivative market globally.
 
The foundation of this complacency in U.S. stock markets is easy to find; it is central bank policy. The Federal Reserve set out, in large part, to create a wealth effect with ultra-low interest rates and capital injections into the financial system. From that perspective, quantitative easing was a singular success. But now we see that the market will struggle with any change in that fundamental construct.  Make no mistake – the Fed really should increase interest rates if only to signal that American economic growth is truly self-sustaining. It just won’t be an easy pill for U.S. equity investors to swallow.
 
Have no fear, however, for the European Central Bank is picking up where the Fed ends. Its quantitative easing program is just leaving the gate, and investors are putting even money on Europe being the winning trade du jour. Consider that of the $32 billion of fresh money invested in U.S. listed exchange traded funds, $10 billion has gone to just two products – HEDJ and DBEF – both of which are currency-hedged Europe or EAFE (Europe, Asia Far East developed economy) equity funds.
 
Those flows suggest a high degree of certainty in the notion that quantitative easing in Europe and Japan will deliver higher asset prices along with weaker currencies.  Risks to that assumption remain. Japan is a country with uniquely challenging demographics and parts of Europe are not far behind. Policymakers have kicked the Greek amphora down the road a few months, but the existential problems remain.  Bottom line: money might not buy happiness or a true self-sustaining economic recovery.  So how long can it buy higher asset prices?
 
And then there is the problem of asset price valuations in the U.S. capital markets.  At 17x earnings for the S&P 500 and 19x on the NASDAQ, no one can say equities are cheap. The problem for the bears is simple – investors have to put their money somewhere. I know that sounds like a lame explanation, but it is true. The NASDAQ has the same yield as a German 30 year sovereign bond. The S&P 500 yield of 1.8% isn’t far off the U.S. 10 year’s of 2.2%. Which would you rather own for a decade or two or three, even considering risk? With rates so low, stocks could grow more expensive before they finally reach peak valuations.
 
In the end, I don’t have a problem with high equity prices or even lazy thinking; at issue is the balance of volatility against these factors. Since the market lows 6 years ago, investors have built up a set of beliefs about how markets work. Follow the central bank money. Use the valuation measures of the day rather than assuming any long-term reversion to the mean.  Sell any spike in volatility. And, in general, this worked.
 
But just as with our forgetful gun-toting traveler, investors need to understand that not every day is the same as the last. So check your bags for anything that shouldn’t be there before you leave home. There just might be a Chihuahua in there.

 

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Mon, 03/09/2015 - 16:04 | 5870671 HonkyShogun
HonkyShogun's picture

Michael Chertoff's investments are paying off I guess. And they only needed a perfectly-timed "underwear bomber" to get those machines deployed everywhere. Fancy that.

Mon, 03/09/2015 - 16:10 | 5870691 1000yrdstare
1000yrdstare's picture

The vast majority (83%) were loaded, many with a round in the firing chamber.

 

 

 

 

ALWAYS!....  have one in the pipe.

Mon, 03/09/2015 - 16:12 | 5870698 Thirst Mutilator
Thirst Mutilator's picture

nowadays, the "one in the pipe" would be the one that blows the head off of the dipshit that removed the clip & had no knowledge of the chambered round.

Mon, 03/09/2015 - 16:21 | 5870731 ShorTed
ShorTed's picture

So you're saying that you CAN FIX STUPID?

Mon, 03/09/2015 - 16:32 | 5870762 1000yrdstare
1000yrdstare's picture

nowadays, the "one in the pipe" would be the one that blows the head off of the dipshit that removed the clip & had no knowledge of the chambered round.

 

 

and that would fall under serparating the "wheat from the chaff"

Mon, 03/09/2015 - 16:34 | 5870768 Thirst Mutilator
Thirst Mutilator's picture

yes & yes ~ to you & ShorTed

Mon, 03/09/2015 - 16:02 | 5870673 forexskin
forexskin's picture

i feel safer already

Mon, 03/09/2015 - 16:07 | 5870685 stant
stant's picture

I paid hard erned $ for every gun I own , and know where everyone of them is at all times.

Mon, 03/09/2015 - 16:12 | 5870695 ebworthen
ebworthen's picture

"Buy Stocks Or We Kill The Dog!"

http://www.alamut.com/images/2000_misc/buyOrShoot.jpg

 

Mon, 03/09/2015 - 16:38 | 5870777 Kirk2NCC1701
Kirk2NCC1701's picture

Speaking of "Buy OUR stocks or else..."

Many managers are "encouraging" their subordinates to buy the stock of their own company, for several reasons:

- Re-invest in own business (brown-nosing tool for managers)
- Help keep up stock price for when you need to cash in
- Take advantage of employer-subsidized stock prices, and sell for profit a few quarters later.

People either don't know or think about it, but... managers do have stats on Employee's stock purchases of own company.
Ambitious managers do this with zeal, and I've even heard of several managers competing with each other, to curry favor with their bosses.

These bosses/executives then use profits to buy back stock, which they grant themselves, and then cash in their stock options for tidy bonuses/profits.

Ain't Capitalism great (if you're on the Exec Merry-Go-Round)? Yi-haaa, gitty up horsie!

Mon, 03/09/2015 - 16:12 | 5870700 clade7
clade7's picture

Sounds like a standard TSA employee home inventory?...51 loaded guns is about right, for the kiddies, the chihuahua was the pit bulls playtoy....'investing inertia' is an expired EBT card..

Mon, 03/09/2015 - 17:09 | 5870859 rlouis
rlouis's picture

I'm starting to think that a 4.4% ROI on residential real estate is a distasteful but realistic altenative. uggg

Mon, 03/09/2015 - 17:30 | 5870919 Niall Of The Ni...
Niall Of The Nine Hostages's picture

Okay, help me out here. Everybody hates the TSA. I'm just not seeing why any airline company in its right mind would want any passenger carrying a loaded gun in carry-on luggage.

In this case all the TSA does is allow the airline to suggest you blame the inconvenience on the ebil gubmint and not the fact that nobody working for the airline has a death wish. ("We don't make the rules, sir, we just get in serious trouble if we break them...")

You want to buy a private jet, get roaring drunk or high and blow out the windows or your own brains at 30,000 feet, go nuts. You're flying on a regular airline, check that shit, all right?

(Second Amendment to the US constitution says the government can't restrict your right to keep and bear arms. Amen. Nobody said property owners or their agents, viz. airline staff, have to let other people bear arms on their property, viz. an airliner.)

Mon, 03/09/2015 - 18:53 | 5871268 Mandel Bot
Mandel Bot's picture

Only 40 years ago, people carried guns on airlines all the time. Nobody checked, nobody got hurt.

Schools used to have rifle shooting teams. Members brought their rifles to school and parked them in the office. Nobody was hurt.

More Guns = Less Crime. Read the book with this title and find how law abiding citizens owning and carrying guns actuallly reduces crime. http://www.amazon.com/More-Guns-Less-Crime-Understanding/dp/0226493660/r...

Tue, 03/10/2015 - 06:37 | 5872505 Catullus
Catullus's picture

The TSA is welfare for the airlines. The airline should be responsible for securing their assets. They should monitor who and what gets on their plane.

But this cute TSA thing is the airline's security costs foisted on the rest of us. And they gave it to the gubmint so they double up and use it as law enforcement. Then they take naked pictures of you. And they feel you up in Public. Soon they'll create a public union for the mongoloids that screen you so it'll never go away. It'll just be another voting bloc for their Democratic Party.

Mon, 03/09/2015 - 19:44 | 5871428 itstippy
itstippy's picture

I'm forever misplacing my iPhone, keys, wallet, loaded pistol, reading glasses, umbrella, and wristwatch.  Sometimes they turn up again, sometimes not.  Last week I lost my left shoe.  Who knows where all that stuff ends up?  It's one of life's mysteries.

Mon, 03/09/2015 - 21:36 | 5871743 22winmag
22winmag's picture

The AR10 and Galil won't fit in my carry-on bag and handguns are useless, so I believe I'm good. 

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