The Markets Are On Fire- Santelli

50 Facts About the 50 States

Three Leadership Lessons from the Battle of Gettysburg

By Jeffrey D McCausland in the Guardian

1. The importance of time and timing

When a leader makes a decision for his/her organization, timing may actually be more important than the decision taken. The battle of Gettysburg occurs largely because a Union cavalry commander, John Buford, recognizes the critical importance of the town's crossroads. As a result, he positions his troopers on the best terrain west of the city, resulting in the initial fighting on 1 July.

Today, we often believe that leaders are better equipped to make decisions based on a plethora of available technological devices (cellphones, iPads, computers, etc) and data. But if leaders today are not careful these very devices can rob their organizations of initiative. Buford made a decision for the entire Union army. If he had had a cellphone he might well have called his boss to ask his opinion, left a voicemail, sent a text, etc and then waited for a reply before acting thus wasting precious time.

2. Effective leaders must "park" their personal ego and focus on what is best for their organization

Jim Collins, author of Good to Great, argues his research of the best modern companies demonstrates that so-called "Level 5 leaders" who make decisions solely based on what is best for their organizations are the most successful. Robert E Lee arrived at Gettysburg following a string of victories at Chancellorsville and Fredericksburg. Consequently, some civil war historians have suggested that Lee, despite his brilliance as a tactician, may have suffered from hubris. He appears to have believed that he and his army of Northern Virginia could not be defeated. As a result he orders the now famous "Pickett's Charge" on the third day, which resulted in disaster.

3. An effective leader must articulate and communicate a strategic vision to his/her organization

The full story of Gettysburg encompasses both the battle and the Gettysburg Address delivered by President Lincoln on 19 November 1863. This iconic speech of less than 300 words described a clear vision for the nation's future – "a new birth of freedom". It followed naturally from his first inaugural address that focused on preserving the Union, and the Emancipation Proclamation which freed slaves in the "states under rebellion" but did not end slavery as an institution.

Lincoln would continue to communicate his vision for the nation to the end. At his urging, the US Congress passed the 13th Amendment ending slavery in America in January 1865. On 4 March, Lincoln was inaugurated for a second term. During his brief remarks (only slightly over 700 words) he described a vision of reconciliation: "With malice towards none, with charity towards all." He later provided guidance to his Generals Ulysses S Grant and William Tecumseh Sherman that they should let them up easy when dealing with the impending surrender of Confederate troops.

On 10 April, there were celebrations throughout Washington following the announcement that Robert E Lee had surrendered. Lincoln addressed a crowd outside the White House that evening, and his final speech argued that former slaves who had fought for the Union should receive full citizenship including the right to vote. One of the onlookers was John Wilkes Booth, a relatively famous actor. On 14 April, Booth shot Lincoln during a play at Fords Theater. The president would die the next day – Good Friday. Sadly, the vision he articulated would not be realized for over a century.

Leadership is clearly an art and not a science, and we can learn much from the past. As we prepare for the future, leadership is as critical to any organization today as it was during a few days 1863.

Happy 4th of July

Traveling for a few day and posts will be limited. For readers who are stateside, have a great holiday.

Gold- Irrational and Rational Exuberance

I will admit, I was concerned, technically speaking, that the price gold was in bubble of sorts in the recent past. Just look at the chart.



The ascension since 2000 dredges up ingrained memories of recent bubbles-  the internet bubble, the stock market bubble two or three times over, the housing bubble, etc. So gold must be a bubble, right?

Actually no, gold is most certainty not in a bubble, as the following illustrations show. The price of gold will generally rise and fall with inflation, coincidentally or otherwise. Market pundits can talk all they want about a low CPI reading implying little to no inflation, however, this misses the point. Rising or falling prices are a symptom and not actual inflation. Inflation is a monetary phenomenon defined as a general or outsized increase in the supply of money.

One of the broadest definitions of money is True Money Supply (TMS) or Austrian Money Supply. This definition of money was proposed by Murray Rothbard and measures money that is readily and immediately available for exchange in the economy. A more broad definition can be found here at the Mises Institute site. (Note- I do not use True Money Supply in my gold stock timing models due to a monthly calculation along with a significant lag in data.) The following chart shows TMS since the later 1950's



The rise in TMS is by definition showing an acceleration in inflation in recent years. The following chart shows how TMS has tracked against gold over the same time period.



The relationship is OK with OK defined as 87.5% correlation. However, the long-term chart is obfuscating two distinct trends. First, the following chart shows the same relationship since 2000 through the present.



This relationship is tight or correlation of 97%. Gold prices marched higher with the rise in money supply.  I am hard pressed to a see a bubble in gold prices despite the $1,600 per ounce rise over the 20 year, most recent time period. Compare this to the period between the late 1950's through 2000.



Now this is a bubble. The extraordinary rise in the price of gold in the 1970's occurred as Nixon closed the gold window, stopping the convertibility of dollars into gold on the international exchanges. Essentially making the dollar a fully fiat currency. Gold prices prices rose rapidly in response. Money supply growth, in contrast, accelerated in the same time period, but not nearly as mush as the rise in gold prices. Money supply took almost 20 years to catch up to the price of gold. Only after the supply of  money proverbially caught up in the early 2000's did the price of gold begin to rise anew.

It is my thesis that gold prices were in a bubble in the 1970's and spent much of the 1980's and 1990's floundering as the money supply caught up. Since 2000, however, gold prices have risen in tandem with an acceleration in supply of money. The $1,600 per rise in gold prices since 2000 rationally responds to an acceleration in the supply of money. Those pundits claiming that gold is a bubble are just plain wrong.