“When the capital development of a country becomes a by-product
of the activities of a casino, the job is likely to be ill-done.”
John Maynard Keynes
"Life is a school of probabilities."
Walter Bagehot
Neoliberal economics (aka casino
capitalism) function from one crash to another. Risk is
pervasively underpriced under neoliberal system, resulting in bubbles small and large which hit the
economy periodically. The problem are not strictly economical or political. it is ideological as in "greed is good" slogan. Like
a country which adopted a certain religion follows a certain path, the USA behaviour after adoption
of neoliberalism somewhat correlate with the behaviour of alcoholic who decided to booze himself to
death. The difference is that debt is used instead of booze.
Hypertrophied role of financial sector under neoliberalism introduces strong positive feedback look
into the economic system making the whole system unstable. Any attempts to put some sand into the wheels
in the form of increasing transaction costs or jailing some overzealous bankers or hedge fund managers
are blocked by political power of financial oligarchy, which is the actual ruling class under neoliberalism
for ordinary investor (who are dragged into stock market
by his/her 401K) this in for a very bumpy ride. I managed to observe just two two financial crashed
under liberalism (in 2000 and 2008) out of probably four (Savings
and loan crisis was probably the first neoliberal crisis). The next crash is given, taking into
account that hypertrophied role of financial sector did not changes neither after dot-com crisis of
200-2002 not after 2008 crisis (it is unclear when and if it ended; in any case it was long getting
the name of "Great Recession").
Timing of the next crisis is anybody's guess but it might well be closer then we assume. As Mark
Twain aptly observed: "A thing long expected takes the form of the unexpected when at last it comes"
;-):
This morning that meant a stream of thoughts triggered by Paul Krugman’s most
recent op-ed, particularly this:
Most of all, the vast riches being earned — or maybe that should be “earned” —
in our bloated financial industry undermined our sense of reality
and degraded our judgment.
Think of the way almost everyone important missed the warning signs of an impending crisis.
How was that possible? How, for example, could Alan Greenspan have declared, just a few years
ago, that “the financial system as a whole has become more resilient” — thanks to derivatives,
no less? The answer, I believe, is that there’s an innate tendency
on the part of even the elite to idolize men who are making a lot of money, and assume that they
know what they’re doing.
As most 401K investors are brainwashing into being "over bullish", this page is strongly bearish
in "perma-bear" fashion in order to serve as an antidote to "Barrons" style cheerleading. Funny, but
this page is accessed mostly during periods of economic uncertainty. At least this was the case during
the last two financial crisis(2000 and 2008). No so much during good times: the number of visits drops
to below 1K a month.
When will the next crash occur ?
There is no doubt that it will occur. But the question is whether the market in 2021 is ripe to the crash? If the answer
is yes, you better trip your stock holdings. Especially if you are over 60 and has sizable 401K savings.
Can the stock market go another 20-50% up. No double it can. But a more interesting question is: "Can it go down 50%?"
from the current level. The situation
when some financial assets are grossly overvalued is called a bubble. Few understand that bubbles are not accident or the result of
actions of "evil does" but a logical development of investing in financial capitalism, which
logically creates so called "Minsky moment".
See also a book “Boom and Bust- A Global History
of Financial Bubbles,” by William Quinn and John Turner of Queen’s University Belfast in Northern Ireland.
Rather than regarding overvalued assets as a bubble, the authors view them as a fire. “Boom and Bust” looks closely at 300
years’ worth of market manias using the metaphor of “the fire triangle.” (oxygen, fuel and heat). Remove one factor, and you can
prevent or put out a fire.
The oxygen of investing is marketability, or the ease of buying and selling an asset. Centuries ago, that meant carving up
difficult-to-transfer corporate ownership into tradable shares. Nowadays it’s carrying a stockbroker in your pocket. With a
smartphone-trading app, you can buy or sell so-called fractional shares in increments anyone can afford.
The fuel, is manifested in financial markets by money and credit. Low interest rates make investing with borrowed money
cheaper, while paltry yields on safe savings compel people to take more risk then necessary or prudent. With stocks at record
highs, bonds yielding next to nothing and memories of market crashes faded, many investor jumped into risky investments
with both feet. Fixed-income investors turn to corporate loans, equity-linked debt and even stocks. So investors ire chasing the
chimera of higher yield at lower risk, along with the reflected glow of investing alongside a billionaire by investing in extoic
funds operating with derivatives like Infinity Q. Kind of shadow on 2006-2008 over us. Last year, pension funds lost
billions on strategies that had long earned steady returns by betting against steep market declines. Some of the world’s largest
pensions and endowments were caught in a cash crunch in 2008 and 2009 when the smooth ride they’d been getting from their
alternative investments turned rough. The other alternative is to say, "Our goals for returns are unrealistic" and cut them
drastically switch from the foal of positive return to the goal of minimal loss. But that’s harder as bull market can persist
another year or two or three...
Heat in stock market fire triangle is supplied by speculation. When prices go up, more people and more machines buy,
inflaming prices even more and attracting another rush of speculators. That lures in naive buyers who think making money is easy.
But hedge funds and other institutions also chase those hot returns, fanning the flames even higher.
The third side of our bubble triangle, analogous to heat, is specula-
tion. Speculation is the purchase (or sale) of an asset with a view to selling
(or repurchasing) the asset at a later dale with the sole motivation of
generating a capital gain.21 Speculation is always present to an extent;
there are always some investors who buy assets in the expectation of
future price increases. However, during bubbles, large numbers of
novices become speculators, many of whom trade purely on momentum,
buying when prices are rising and selling when prices are falling. Just as
a fire produces its own heal once it starts, speculative investment is self-
perpetuating: early speculators make large profits, attracting more spec-
ulative money, which in turn results in further price increases and higher
returns to speculators. The amount of speculation required to start the
process is only a small fraction of that which occurs at its peak.
Once a bubble is underway, professional speculators may purchase an
asset they know to be overpriced, planning to re-sell the asset to ‘a greater
fool’ to make a capital gain.22 This practice is commonly referred to as
‘riding the bubble’.
However, it is often difficult to distinguish investors
who rode the bubble from those who were lucky enough to sell at the
right time. Speculation is also much more widespread when many inves-
tors have limited exposure to downside risk. This may be the case when defaulting on debts incurs few costs, when institutional
investors are faced with poorly designed incentive structures or when bank owners have limited liability. In these circumstances,
the prospect of buying a risky asset in the hope of short-term gains is much more appealing. Of course, investors can also
speculate ‘for the fall’: selling assets in the hope of buying them back later for a lower price. If the speculator does not own
the asset, they can speculate for the fall by short selling: borrowing the asset, selling it, buying it back later for a lower
price, then returning it to the lender. The short seller is hoping that the asset’s price will fall in the intervening period so
that they can make a profit from the trade. In practice, however, short selling is often much more difficult and risky than simply
buying an asset.
NOTE: The “Boom and Bust” notes that the fire triangle has in recent years been expanded with a fourth component, an
“exothermic chain reaction.” Marketability, credit and speculation are necessary, but not sufficient, to start and maintain a
market fire. A fourth component, what the authors call a “spark,” is also needed. That can come from new technology, government
intervention or both. The stock-buying binge of the late 1990s was sparked by euphoria over the potential of the internet. “Boom
and Bust” shows that most bubbles tend to be confined to a few stocks or industries.
What is the spark that sets the bubble fire ablaze? Economic
models of bubbles struggle to explain when and why bubbles start -
according to Vernon Smith, a Nobel laureate, the sparks that initiate
bubbles are a mystery.26 In this book, we argue dial the spark can
come from two sources: technological innovation, or government
policy.
Technological innovation can spark a bubble by generating abnormal
profits at firms that use the new technology, leading to large capital gains
in their shares. These capital gains then attract the attention of momentum traders, who begin to buy shares in the firms because their price has
risen. At this stage, many new companies that use (or purport to use) the
new technology often go public to take advantage of the high valuations.
While valuations may appear unreasonably high to experienced observers, they often persist for two reasons. First, the technology is
new, and its economic impact is highly uncertain. This means that there is limited information with which to value the shares
accurately. Second, excitement surrounding technology) leads to high levels of media attention,
drawing in further investors. This is often accompanied by the emergence of a ‘new era’ narrative, in which the world-changing magic of the
new technology renders old valuation metrics obsolete, justifying very
high prices.27
Alternatively, the spark can be provided by government policies that
cause asset prices to rise. Usually, but not always, die rise in asset prices
is engineered deliberately in the pursuit of a particular goal. This goal
could be the enrichment of a politically important group, or of politicians themselves. It might be part of an attempt to reshape society in
[neoliberal fashion]...
The key lesson of previous bubbles is that financial markets, however, can easily heat up fivefold or even 10-fold and then
collapse at least 50% in a flash, burning millions of speculators and sometimes charring entire economies. Here is one review from
Amazon:
Reviewed in the United States on December 26, 2020. Verified Purchase
Quinn and Turner prefer to use the analogy of a "fire" to describe speculative bubbles. A fire is "destructive, self-perpetuating
and difficult to control once it begins." And just as a fire needs oxygen, fuel, and heat, a speculative bubble needs assets that
are easy to trade (i.e., oxygen), plenty of money and credit (fuel), and speculation (heat). It also needs a spark, which usually
comes from government action or new technology.
The authors describe how these key elements played out in 11 speculative booms since the 1700s: • French Mississippi Bubble (1719 to 1720) • British South Sea Bubble (1719 to 1720) • British Emerging Market Mines Bubble (1824 to 1826) • U.K. Railway Mania (1844 to1846) • Australian Land Boom (1886 to 1893) • The U.K. Bicycle Mania (1895 to 1898) • U.S. Roaring Twenties (1920 to 1931) • Japanese stock and real estate bubble (1985 to 1992) • U.S. Dot-Com Bubble (1995 to 2001) • U.S. and European Subprime Bubble (2003 to 2010) • the 2007 and 2015 Chinese stock bubbles.
Some of the many interesting facts they uncover include:
• The word "bubble" originated from Shakespeare in the 'All the world's a stage' speech from his comedy "As You Like It." He uses
'bubble' to mean "fragile, empty or worthless, just like a soap bubble." Beginning in 1719, with the South Sea Bubble, writers like
Daniel Defoe and Jonathan Swift used "bubble" to describe new companies that were worthless.
• Charles Mackay's 1841 book "Extraordinary Popular Delusions and the Madness of Crowds", which gives a vivid account of the foolish
speculation during the South Sea Bubble, is mostly fiction: almost none of the anecdotes can be substantiated.
• In 2008 The Economist described the British Railway Mania as "arguably the greatest bubble in history."
• During the British Railway Mania of 1848, railway shares rose from constituting 23 percent of total stock market value to 71
percent. So many new speculators began buying railway stocks that 15 new stock exchanges opened in England during the mania to meet
the demand. (Half of them shut down when the mania ended.)
• Fueling the railway bubble was the Bank of England's low discount rate. At 2.5 percent in 1844, it was the lowest it had ever been
in the 150 years of the bank's history. Investors bought railway stocks to earn a higher yield.
• The Japanese government deliberately sparked the land and stock bubbles during the late 1980s to create a boom. Japan lowered
interest rates, gave tax breaks to real estate developers, and allowed banks to accept land as collateral, which increased the
amount of lending they could do, which was usually plowed back into more land and stocks.
• The authors believe that the Dot-com bubble during the late 1990s had many good economic benefits, despite the 8-month recession
that followed it. The bubble directed a lot of money into innovative companies and motivated smart entrepreneurs to create new
companies. It also supplied the capital needed to build internet communications, which have been so critical for our lives today.
• Between 2000 and 2008 in both Ireland and Spain, more than one new home was built for every new inhabitant in the country.
• In the U.K., the bank Northern Rock marketed "Together mortgages," which allowed individuals to borrow up to 125 percent of their
home value, targeting borrowers who could not afford to buy a home or even furnish it.
• The Chinese stock market bubbles resembled the South Sea and Mississippi bubbles of 1720, where the bubbles were created
deliberately to offload government debt onto stockholders.
The main lesson from the book is that while bubbles can be blurry during the heat and smoke of a speculative fire, we should look
for three key elements: asset marketability, speculation, and leverage.
In proportion to market size—which weights giant tech stocks heavily—the companies in the S&P 500 recently traded at 21 times
expected earnings over the next 12 months, according to Matarin Capital Management, an investment firm in New York. That’s about 24%
higher than their average over the past quarter-century. This can go higher (probably to mid 30th) or crash to Earth.
Market will definitely collapse sooner or later. But nobody knows when. Especially taking into account FED Plunge protection team activities. If is stupid and irresponsible to talk about June crash...
20210424 : Why Grantham Says the Next Crash Will Rival 1929, 2000 by further inflating money not by deflating it. So people who warn regular fold about risks are rare and they harm their own business, if they have any. Profit of doom and gloom are not popular and it is precarious occupation
He suggest that SPACs,Tesla, and bitcoin can serve are canary in the mine as for timing of bubble deflation.
This video is over two months old of course and the the market has continued to set new records. Ray Daleo also issued a warning as did Harry Dent. And market still is going up.
Because of the corona epidemic, investments in real production have dried up and the money has instead flooded the stockmarkets. I guess that if the crisis continues the stockmarket bubble can be kept inflated because the money has nowhere else to go!
electrification, especially in cars is a very long shot and here it is unlear if it make sense to invent int he currest companies involvedas they are in a bubble. Just look at Tesla. electrification, especially in cars is a very long shot and here it is unlear if it make sense to invent int he currest companies involvedas they are in a bubble. Just look at Tesla. ( Jan 22, 2021 , www.youtube.com )
20210413 : U.S. Treasury yields slip despite surge in inflation to 2˝-year high by very small number of companies. Treasury yields slipped Tuesday after bond investors shrugged off an increase in U.S. consumer prices in March that sent yearly inflation measures to the highest level in two and a half years. Treasury yields slipped Tuesday after bond investors shrugged off an increase in U.S. consumer prices in March that sent yearly inflation measures to the highest level in two and a half years. ( economistsview.typepad.com )
Sometimes it is prudent to stop investing for a while.. And what the author calls savers and investors should properly be called speculators. Petty speculators that serve as the feed for Wall Street sharks.
The situation with office and retail space after COVID-19 is simply bad. There will be no return to previous state. And this situation generall reflact that general situation in the US economy/ In this sense stock market is completely detached from reality, fueled by speculation and 401K inflows. The latter makes passivly managed funds like based on S&P500 index yet another Ponzi scheme.
20210408 : Financial crises get triggered about every 10 years -- Archegos might be right on time by Paul Brandus Paul Brandus Financial crises are never quite the same. During the late 1980s, nearly a third of the nation's savings and loan associations failed, ending with a taxpayer bailout -- in 2021 terms -- of about $265 billion. In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- Financial crises are never quite the same. During the late 1980s, nearly a third of the nation's savings and loan associations failed, ending with a taxpayer bailout -- in 2021 terms -- of about $265 billion. In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- Long-Term Capital Management (LTCM). Its reach and operating practices were such that Federal Reserve Chairman Alan Greenspan said that when LTCM failed, "he had never seen anything in his lifetime that compared to the terror" he felt. LTCM was deemed "too big to fail," and he engineered a bailout by 14 major U.S. financial institutions. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. ( www.advisorperspectives.com )
20210405 : Financial crises get triggered about every 10 years -- Archegos might be right on time by 14 major U.S. financial institutions. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. ( www.wsj.com )
Listen to this article 6 minutes 00:00 / 06:06 1x Earnings, valuation and rampant speculation have all played a role in the extraordinary bull market that began a year ago this week. The latest combination of the three has a troubling reliance on the speculative element. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. Earnings, valuation and rampant speculation have all played a role in the extraordinary bull market that began a year ago this week. The latest combination of the three has a troubling reliance on the speculative element. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. U.S. 10-year Treasury yield Source: Tullett Prebon As of March 24 % Pre-pandemic peak of S&P 500 2020 '21 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 S&P 500 forward price/earnings ratio Source: Refinitiv Note: Weekly data S&P 500 peak 2020 '21 12 14 16 18 20 22 24 The parallel in the stock market is stocks going up when earnings -- or rather the expectation of earnings, since the market looks ahead -- go up. There is a risk of course, just as there is with debt: The earnings might not appear, and the stock goes back down. But earnings offer the least risky form of gains, and one that we should welcome as obviously justified. From the low in the summer, 2020 earnings forecasts jumped more than 10%, and expectations for this year rose more than 8%. Stocks responded. In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The parallel in the stock market is stocks going up when earnings -- or rather the expectation of earnings, since the market looks ahead -- go up. There is a risk of course, just as there is with debt: The earnings might not appear, and the stock goes back down. But earnings offer the least risky form of gains, and one that we should welcome as obviously justified. From the low in the summer, 2020 earnings forecasts jumped more than 10%, and expectations for this year rose more than 8%. Stocks responded. In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The parallel in the stock market is the The parallel in the stock market is the hunt for the greater fool . Sure, GameStop < shares bear no relation to the reality < of the company, but I can make money from buying an overpriced stock if I can find someone willing to pay even more because they "like the stock." Wild bets became obvious this year, as newcomers armed with stimulus, or "stimmy," checks Wild bets became obvious this year, as newcomers armed with stimulus, or "stimmy," checks Wild bets became obvious this year, as newcomers armed with stimulus, or "stimmy," checks drove up the price of many tiny stocks, penny shares and those popular on Reddit discussion boards. Speculative bets such as the solar and ARK ETFs rallied up until mid-February, long after growth stocks peaked in August Price performance Source: FactSet *Russell 1000 indexes As of March 25, 7:02 p.m. ET % Invesco Solar Value* ARK Innovation Growth* Sept. 2020 '21 -25 0 25 50 75 100 125 The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back. The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back. me title= A look at how stocks moved through the pandemic suggests earnings and bond yields are still much more important than the gambling element for the market as a whole, but is still troubling. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. A look at how stocks moved through the pandemic suggests earnings and bond yields are still much more important than the gambling element for the market as a whole, but is still troubling. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. A look at how stocks moved through the pandemic suggests earnings and bond yields are still much more important than the gambling element for the market as a whole, but is still troubling. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. NEWSLETTER SIGN-UP ( Mar 26, 2021 , www.wsj.com )
Inflation also might be coming via the devaluation of the dollar.
Notable quotes:
"... These articles are great at d ..."
"... There are no safe options. TIPS are indexed to the CPI. The CPI is "adjusted" by weighting, substitution, and hedonics to preserve the mirage of low inflation. We are being forced to either speculate in the market or watch our savings get swallowed by inflation. ..."
These articles are great at describing the problem, but not so great at suggesting what investors ought to do to
protect themselves.
TIPS are sometimes suggested, but if the govt is manipulating the reporting of inflation then TIPS
aren't going to be much help. Gold and blue chip stocks... "diversify"? how about some articles that will explore strategies.
There are no safe options. TIPS are indexed to the CPI. The CPI is "adjusted" by weighting, substitution, and hedonics to
preserve the mirage of low inflation. We are being forced to either speculate in the market or watch our savings get swallowed
by inflation.
Strong economic rebound and lingering pandemic disruptions fuel inflation forecasts
above 2% through 2023, survey finds. The U.S. inflation rate reached a 13-year high recently,
triggering a debate about whether the country is entering an inflationary period similar to the
1970s. WSJ's Jon Hilsenrath looks at what consumers can expect next.
Americans should brace themselves for several years of higher inflation than they've seen in
decades, according to economists who expect the robust post-pandemic economic recovery to fuel
brisk price increases for a while.
Economists surveyed this month by The Wall Street Journal raised their forecasts of how high
inflation would go and for how long, compared with their previous expectations in April.
The respondents on average now expect a widely followed measure of inflation, which excludes
volatile food and energy components, to be up 3.2% in the fourth quarter of 2021 from a year
before. They forecast the annual rise to recede to slightly less than 2.3% a year in 2022 and
2023.
That would mean an average annual increase of 2.58% from 2021 through 2023, putting
inflation at levels last seen in 1993.
"We're in a transitional phase right now," said Joel Naroff, chief economist at Naroff
Economics LLC. "We are transitioning to a higher period of inflation and interest rates than
we've had over the last 20 years."
Inflation likely rose sharply again in May. Economists polled by Dow Jones and The Wall
Street Journal predict the consumer price index rose 0.5% last month. The report comes out on
Thursday. If so, that would push the yearly rate close to 5% from 4.2% in April.
Consumer prices have only risen that fast twice in the past 30 years, most recently in 2008
when the cost of a barrel of oil topped $150.
... ... ...
The central bank has stuck to its prediction that inflation will drop back toward 2% by next
year. But many are beginning to wonder.
"The writing is on the wall: The Fed's temporary-inflation mantra is sounding more dated by
the week," said senior economist Sal Guatieri of BMO Capital Markets.
Neoliberal oligarchy fight against income redistribution by pushing perverted social justice
smoke screen and in effect can turn the USA in South Africa. Money quote from comments: "If I
read NASDAQ's proposal for Board representation in the Onion, I would have thought that even
these jokesters have exceeded the creativity threshold of ridiculousness I thought was possible."
and "What about the Mentally Ill? Do they get a seat? How about the Homeless?"
Three words about famele CEO and board room members: Elizabeth Holmes, Theranos. BTW what is
unclear in NASDAQ bold critical race theory support is: Can we exchange one black member for two
female members? Or not.
Also why stop at the boardrooms. Why not require the same in professional sport teams?
Nasdaq has, in its own words, embraced "the social justice movement." The
actual job of a stock exchange, however, is to ensure that trading is orderly and its listed
companies follow standard governance rules. But doing that doesn't earn the applause of the
political left. Progressive approval apparently means a lot to Nasdaq, which has officially
proposed to its regulator -- the Securities and Exchange Commission, newly chaired by Gary
Gensler -- to increase boardroom diversity through a "regulatory approach."
This proposal would require that Nasdaq-listed companies not only disclose the diversity
characteristics of their existing boards, but also retain "at least one director who
self-identifies as female," and "at least one director who self-identifies as Black or African
American, Hispanic or Latinx, Asian, Native American or Alaska Native, two or more races or
ethnicities, or as LGBTQ+."
Noncompliant firms must publicly "explain" -- in writing -- why they don't meet Nasdaq's
quotas. Nasdaq has, in its own words, embraced "the social justice movement."
The actual job of a stock exchange, however, is to ensure that trading is orderly and its
listed companies follow standard governance rules. But doing that doesn't earn the applause of
the political left. Progressive approval apparently means a lot to Nasdaq, which has officially
proposed to its regulator -- the Securities and Exchange Commission, newly chaired by Gary
Gensler -- to increase boardroom diversity through a "regulatory approach."
The Fed, in sync with the fiction writers at the Bureau of Labor Statistics (BLS), reports
consumer inflation as honestly as Al Capone reported taxable income.
Vardaman 3 hours ago
"A basket of things no one actually buys, with prices we just pull out of our
asses..."
Glock 1 hour ago
Yep, the BLS uses the CPI-W to literally avoid raising SS payments. The real rate of
inflation for seniors is close to 10% as the things they spend most of their money on like
medical care, medicine, food and utilities have gone through the roof
While the government claims they are entitled to 1.5% or less COLA's out of which comes a
bigger deduction every year for Medicare. Scam artists.
NEW YORK (Reuters) - In this manic era of meme stocks, cryptocurrencies and real-estate
bidding wars, studying the history of financial markets might seem a little dry and
old-fashioned.
Except to Jeremy Grantham.
The chairman of the board of famed asset managers GMO is a certified bubble-ologist,
fascinated by how and why bubbles emerge. Grantham studies classic ones like 1929, but - now in
his eighties - he has also lived through (and called) numerous modern booms and busts,
including the dot-com wreckage in 2000, the bull market peak in 2008 and the bear market low in
2009.
In case you did not know where this is headed: He says we are in a bubble right now.
In January Grantham wrote an investor letter, "Waiting For the Last Dance," about an
inflating bubble that "could well be the most important event of your investing lives."
Six months later, the stock market is starting to show some cracks. Grantham spoke with
Reuters about this moment of market history.
Q: When your letter of warning came out, what was the response like?
A: I got a lot of pushback. Waves of Bitcoin freaks attacked me in every way possible. They
said my ears were too big, and that I needed to be locked up in an old-folks home.
Q: So if we were already in a bubble then, where do things stand right now?
A: Bubbles are unbelievably easy to see; it's knowing when the bust will come that is
trickier. You see it when the markets are on the front pages instead of the financial
pages, when the news is full of stories of people getting cheated, when new coins are being
created every month. The scale of these things is so much bigger than in 1929 or in 2000.
Q: What is your take on equity valuations now?
A: Looking at most measures, the market is more expensive than in 2000, which was more
expensive than anything that preceded it.
My favorite metric is price-to-sales: What you find is that even the cheapest parts of the
market are way more expensive than in 2000.
Q: What might bring an end to this bubble?
A: Markets peak when you are as happy as you can get, and a near-perfect economy is
extrapolated into the indefinite future. But around the corner are lurking serious issues like
interest rates, inflation, labor and commodity prices. All of those are beginning to look less
optimistic than they did just a week or two ago.
Q: How long until a bust?
A: A bust might take a few more months, and, in fact, I hope it does, because it will give
us the opportunity to warn more people. The probabilities are that this will go into the fall:
The stimulus, the economic recovery, and vaccinations have all allowed this thing to go on a
few months longer than I would have initially guessed.
What pricks the bubble could be a virus problem, it could be an inflation problem, or it
could be the most important category of all, which is everything else that is unexpected. One
of 20 different things that you haven't even thought of will come out of the woodwork, and you
had no idea it was even there.
Q: What might a bust look like?
A: There will be an enormous negative wealth effect, broader than it has ever been, compared
to any other previous bubble breaking. It's the first time we have bubbled in so many different
areas "" interest rates, stocks, housing, non-energy commodities. On the way up, it gave us all
a positive wealth effect, and on the way down it will retract, painfully.
Q: Are there any asset classes which are relatively attractive?
A: You could always own cash, or you could do what the institutions do, which is buy heavily
into the asset classes that are least bad. The least overpriced are value stocks and emerging
markets. Those are the two arbitrages. With value and emerging, you should make some positive
return over the next 10 years.
Q: It is difficult to be bearish right now?
A: Not for me, because I don't have career risk anymore. But every big company has lots of
risk: They facilitate a bubble until it bursts, and then they change their tune as fast as they
can, and make money on the downside.
But this bubble is the real thing, and everyone can see it. It's as obvious as the nose on
your face.
NEW YORK (Reuters) - In this manic era of meme stocks, cryptocurrencies and real-estate
bidding wars, studying the history of financial markets might seem a little dry and
old-fashioned.
Except to Jeremy Grantham.
The chairman of the board of famed asset managers GMO is a certified bubble-ologist,
fascinated by how and why bubbles emerge. Grantham studies classic ones like 1929, but - now in
his eighties - he has also lived through (and called) numerous modern booms and busts,
including the dot-com wreckage in 2000, the bull market peak in 2008 and the bear market low in
2009.
In case you did not know where this is headed: He says we are in a bubble right now.
In January Grantham wrote an investor letter, "Waiting For the Last Dance," about an
inflating bubble that "could well be the most important event of your investing lives."
Six months later, the stock market is starting to show some cracks. Grantham spoke with
Reuters about this moment of market history.
Q: When your letter of warning came out, what was the response like?
A: I got a lot of pushback. Waves of Bitcoin freaks attacked me in every way possible. They
said my ears were too big, and that I needed to be locked up in an old-folks home.
Q: So if we were already in a bubble then, where do things stand right now?
A: Bubbles are unbelievably easy to see; it's knowing when the bust will come that is
trickier. You see it when the markets are on the front pages instead of the financial
pages, when the news is full of stories of people getting cheated, when new coins are being
created every month. The scale of these things is so much bigger than in 1929 or in 2000.
Q: What is your take on equity valuations now?
A: Looking at most measures, the market is more expensive than in 2000, which was more
expensive than anything that preceded it.
My favorite metric is price-to-sales: What you find is that even the cheapest parts of the
market are way more expensive than in 2000.
Q: What might bring an end to this bubble?
A: Markets peak when you are as happy as you can get, and a near-perfect economy is
extrapolated into the indefinite future. But around the corner are lurking serious issues like
interest rates, inflation, labor and commodity prices. All of those are beginning to look less
optimistic than they did just a week or two ago.
Q: How long until a bust?
A: A bust might take a few more months, and, in fact, I hope it does, because it will give
us the opportunity to warn more people. The probabilities are that this will go into the fall:
The stimulus, the economic recovery, and vaccinations have all allowed this thing to go on a
few months longer than I would have initially guessed.
What pricks the bubble could be a virus problem, it could be an inflation problem, or it
could be the most important category of all, which is everything else that is unexpected. One
of 20 different things that you haven't even thought of will come out of the woodwork, and you
had no idea it was even there.
Q: What might a bust look like?
A: There will be an enormous negative wealth effect, broader than it has ever been, compared
to any other previous bubble breaking. It's the first time we have bubbled in so many different
areas "" interest rates, stocks, housing, non-energy commodities. On the way up, it gave us all
a positive wealth effect, and on the way down it will retract, painfully.
Q: Are there any asset classes which are relatively attractive?
A: You could always own cash, or you could do what the institutions do, which is buy heavily
into the asset classes that are least bad. The least overpriced are value stocks and emerging
markets. Those are the two arbitrages. With value and emerging, you should make some positive
return over the next 10 years.
Q: It is difficult to be bearish right now?
A: Not for me, because I don't have career risk anymore. But every big company has lots of
risk: They facilitate a bubble until it bursts, and then they change their tune as fast as they
can, and make money on the downside.
But this bubble is the real thing, and everyone can see it. It's as obvious as the nose on
your face.
Strong economic rebound and lingering pandemic disruptions fuel inflation forecasts
above 2% through 2023, survey finds. The U.S. inflation rate reached a 13-year high recently,
triggering a debate about whether the country is entering an inflationary period similar to the
1970s. WSJ's Jon Hilsenrath looks at what consumers can expect next.
Americans should brace themselves for several years of higher inflation than they've seen in
decades, according to economists who expect the robust post-pandemic economic recovery to fuel
brisk price increases for a while.
Economists surveyed this month by The Wall Street Journal raised their forecasts of how high
inflation would go and for how long, compared with their previous expectations in April.
The respondents on average now expect a widely followed measure of inflation, which excludes
volatile food and energy components, to be up 3.2% in the fourth quarter of 2021 from a year
before. They forecast the annual rise to recede to slightly less than 2.3% a year in 2022 and
2023.
That would mean an average annual increase of 2.58% from 2021 through 2023, putting
inflation at levels last seen in 1993.
"We're in a transitional phase right now," said Joel Naroff, chief economist at Naroff
Economics LLC. "We are transitioning to a higher period of inflation and interest rates than
we've had over the last 20 years."
Unfortunately,
seniors often miss tax-saving opportunities that are available to them. Don't let that happen
to you!
For new retirees, it's more important than ever to take full advantage of every tax break
available. That's especially true if you're on a fixed income. After all, you have to stretch
out your retirement savings to cover the rest of your life. But holding on to your money during
retirement is easier said than done. That's why retirees really need to pay close attention to
their tax situation.
Unfortunately, though, seniors often miss valuable tax-saving opportunities . In many cases,
it's simply because they just don't know about them. Don't let that happen to you -- check out
these often-overlooked tax breaks for retirees . You could save a bundle!
When you turn 65, the IRS offers you a gift in the form of a larger standard
deduction . For example, a single 64-year-old taxpayer can claim a standard deduction of
$12,550 on his or her 2021 tax return (it was $12,400 for 2020 returns). But a single
65-year-old taxpayer will get a $14,250 standard deduction in 2021 ($14,050 in 2020).
The extra $1,700 will make it more likely that you'll take the standard deduction rather
than itemize. And, if you do claim the standard deduction, the additional amount will save you
over $400 if you're in the 24%
income tax bracket .
Couples in which one or both spouses are age 65 or older also get bigger standard deductions
than younger taxpayers. If only one spouse is 65 or older, the extra amount for 2021 is $1,350
– $2,700 if both spouses are 65 or older. Be sure to take advantage of your age!
For new retirees, it's more important than ever to take full advantage of every tax break
available. That's especially true if you're on a fixed income. After all, you have to stretch
out your retirement savings to cover the rest of your life. But holding on to your money during
retirement is easier said than done. That's why retirees really need to pay close attention to
their tax situation.
Unfortunately, though, seniors often miss valuable tax-saving opportunities . In many cases,
it's simply because they just don't know about them. Don't let that happen to you -- check out
these often-overlooked tax breaks for retirees . You could save a bundle!
When you turn 65, the IRS offers you a gift in the form of a larger standard
deduction . For example, a single 64-year-old taxpayer can claim a standard deduction of
$12,550 on his or her 2021 tax return (it was $12,400 for 2020 returns). But a single
65-year-old taxpayer will get a $14,250 standard deduction in 2021 ($14,050 in 2020).
The extra $1,700 will make it more likely that you'll take the standard deduction rather
than itemize. And, if you do claim the standard deduction, the additional amount will save you
over $400 if you're in the 24%
income tax bracket .
Couples in which one or both spouses are age 65 or older also get bigger standard deductions
than younger taxpayers. If only one spouse is 65 or older, the extra amount for 2021 is $1,350
– $2,700 if both spouses are 65 or older. Be sure to take advantage of your age!
The rules are clear: To qualify for tax-free profit from the sale of a home, the home must
be your principal residence and you must have owned and lived in it for at least two of the
five years leading up to the sale. But there is a way to capture tax-free profit from the sale
of a former vacation home.
Let's say you sell the family homestead and cash in on the break that makes up to $250,000
in profit tax-free ($500,000 if you're married and file jointly). You then move into a vacation
home you've owned for 25 years. As long as you make that house your principal residence for at
least two years, part of the profit on the sale will be tax-free.
Basically, the $250,000/$500,00 exclusion doesn't apply to any profit that is allocable to
the time after 2008 that a home is not used as your principal residence. For example, assume
you bought a vacation home in 2001, convert it to your principal residence in 2015 and sell it
in 2021. The post-2008 vacation-home use is seven of the 20 years you owned the property. So,
35% (7 ÷ 20) of the profit would be taxable at capital gains rates; the other 65% would
qualify for the $250,000/$500,000 exclusion.
"... Here are the other ominous signs of froth in the IPO market. ..."
"... Tech leads the way: It dominates the IPO market again, just as in 1999. ..."
"... Frothy first-day gains: The average first-day pop for IPOs in the second quarter was 42% ..."
"... Historically high valuations ..."
"... Retail investors in the mix ..."
"... "I think it says more about general liquidity than it does about where the stock market is going next,"ť says Kevin Landis of the Firsthand Technology Opportunities TEFQX, -3.24% , referring to the IPO frenzy. "There is so much money sloshing around. The capital markets look like the rich guy from out of town who just got off the cruise ship, and we are all coming out of the woodwork to sell him stuff,"ť he says. ..."
"... "Things are going up simply because of liquidity, which means eventually there will be a top,"ť says Landis. "But not necessarily an impending top right around the corner."ť Landis is worth listening to because his fund outperforms his technology category by 9.6 percentage points annualized over the five years, according to Morningstar. ..."
"... Market calls are always a matter of what intelligence spies call "the mosaic."ť Each bit of information is a piece of an overall mosaic. While the IPO market froth is disturbing, you should consider this cautionary signal as just one among many. ..."
A frothy market for initial public offerings suggests stocks are overvalued
Oatly, which produces oat milk products, went public in May. (Photo Illustration by Scott Olson/Getty Images)
I hear more money managers say it's starting to feel like 1999" the bubble year followed by an epic market crash.
They may be on to something.
The initial public offering (IPO) market now shows the froth that foreshadows big stock market corrections.
Consider these troubling signals from the IPO market.
1. Ominous volume:
Second-quarter IPO proceeds were the biggest since" get this" the fourth quarter of 1999. The huge
tech selloff that scarred a generation of investors started in March 2000 and then spread to the entire market.
Some details: A total of 115 IPOs raised $40.7 billion in the second quarter. That follows a busy first quarter when 100 IPOs
raised $39.1 billion. Both quarters saw the largest amount of capital raised since the fourth quarter of 1999, when IPOs raised
$46.5 billion. These numbers come from the IPO experts at Renaissance Capital, which manages the IPO exchange traded fund, Renaissance
IPO ETF
IPO,
-3.43%
.
Of course, adjusted for inflation, the 2021 numbers shrink relative to the fourth quarter of 1999. But this doesn't get us off
the hook. The 2021 IPO figures, above, exclude the $12.2 billion and $87 billion raised by special purpose acquisition companies
(SPACs) in the second and first quarters.
This spike in IPO volume is troubling for a simple reason. Investment bankers and companies know the most opportune time to sell
stock is around market highs. They bring companies public at their convenience, not ours. This tells us they may be selling a
top now.
Here are the other ominous signs of froth in the IPO market.
2.
Tech leads the way:
It dominates the IPO market again, just as in 1999.
The tech sector raised the majority
of second-quarter proceeds and posted its busiest quarter in at least two decades with 42 IPOs, says Renaissance Capital. This
included the quarter's largest IPO, DiDi Global
DIDI,
+1.61%
,
the Chinese ride-hailing app. The large U.S.-based tech names were Applovin
APP,
-5.54%
in app software, the robotics company UiPath
PATH,
-3.68%
,
and the payments platform Marqeta
MQ,
-4.93%
.
3. We can expect more of the same:
A robust IPO pipeline sets the stage for a booming third quarter, says Renaissance
Capital. The IPO pipeline has over a hundred companies. Tech dominates.
4.
Frothy first-day gains:
The average first-day pop for IPOs in the second quarter was 42%
. That's well above
the range of 31%-37% for the prior four quarters.
5.
Historically high valuations
:
Typically, tech companies have come public with enterprise-value-(EV)-to-sales
ratios of around 10. Now many are coming public with EV/sales ratios in the 20-30 range or more, points out Avery Spears, an IPO
analyst at Renaissance Capital. For example, the cybersecurity company SentinelOne
S,
-6.14%
came public with an EV/sales ratio of 81, says Spears.
6.
Retail investors in the mix
:
They're big participants in IPO trading" often driving IPOs up by crazy amounts
in first-day trading. "In the second quarter there were a lot of small deals with low floats and absolutely insane trading, popping
well over 100% and in one case over 1,000%,"ť says Spears. Pop Culture Group
CPOP,
-12.38%
rose over 400% on its first day of trading, and E-Home Household Service
EJH,
-3.67%
advanced 1,100%. "This demonstrates presence of retail investors in the market,"ť she says. Both
names have since fallen.
Keep in mind that the 2000 selloff was not the only one foreshadowed by IPO froth. The selloffs during mid-2015 to early 2016
and the second half 2018 were both preceded by high-water marks for IPO deal volume.
IPO-froth pushback
"It's different this time"ť are maybe the most dangerous words in investing. But market experts say several factors suggest the
robust IPO market isn't such a negative signal.
First, decent quality companies are coming public. "Because companies stay private longer, you are seeing far more mature companies
coming public,"ť says Todd Skacan, equity capital markets manager at T. Rowe Price. These aren't like the speculative Internet
companies of 1999. "It would be more of a signal of froth if more borderline companies were coming public like in the fourth quarter
of 1999,"ť he says.
We saw some of this with the SPACs, says Skacan, but the SPAC craze has cooled off. Second-quarter SPAC issuance fell 79% compared
to the first quarter, muted by "investor fatigue and regulatory scrutiny,"ť says a Renaissance Capital report on the IPO market.
In the second quarter, 63 SPACs raised $12.2 billion, compared to the 298 SPACs that raised $87 billion in the first quarter.
Next, the type of company coming public might also calm fears. Alongside all the tech names, there are many industrial and consumer-facing
companies" not the kinds of businesses that indicate froth. The latter category includes public national brands like Mister Car
Wash
MCW,
-1.82%
and Krispy Kreme
DNUT,
-2.16%
,
and the high-growth oat milk brand Oatly
OTLY,
-2.79%
.
Third, IPOs are only floating 10%-15% of their overall value, and many post-IPO valuations are not that much higher than valuations
implied by pre-IPO capital raises. That's different, compared to 1999. "It is not like they are selling a high number of shares
at inflated prices,"ť says Skacan. This makes sense, because companies that are more mature when they do an IPO don't need as much
money.
Liquidity flood
"I think it says more about general liquidity than it does about where the stock market is going next,"ť says Kevin Landis
of the Firsthand Technology Opportunities
TEFQX,
-3.24%
,
referring to the IPO frenzy. "There is so much money sloshing around. The capital markets look like the rich guy from out of town
who just got off the cruise ship, and we are all coming out of the woodwork to sell him stuff,"ť he says.
"Things are going up simply because of liquidity, which means eventually there will be a top,"ť says Landis. "But not necessarily
an impending top right around the corner."ť Landis is worth listening to because his fund outperforms his technology category by
9.6 percentage points annualized over the five years, according to Morningstar.
The bottom line
Market calls are always a matter of what intelligence spies call "the mosaic."ť Each bit of information is a piece of an overall
mosaic. While the IPO market froth is disturbing, you should consider this cautionary signal as just one among many.
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned APP. Brush has suggested APP in his stock
newsletter,
Brush Up on Stocks
. Follow him on Twitter @mbrushstocks,
There's nothing more beautiful to a professional investor than a negative correlation between stocks and bonds. When stocks have
a bad month, bonds have a good month, and vice versa. Since their zigs and zags offset each other, the value of the combined portfolio
is less volatile. The customers are pleased. And that's how it's been for most of the last two decades.
But for almost a year now, Bloomberg market reporters have been detecting anxiety from the pros that the era of negative correlation
may be over or ending, replaced by an era of positive correlation in which stock and bond prices move together, amplifying volatility
instead of dampening it. "Bonds Have Never Been So Useless as a Hedge to Stocks Since 1999," read the headline on one article this
May.
Yet hope springs eternal. The headline on a July 7 article was, "Bonds Are Hinting They'll Hedge Stocks Again as Growth Bets Ease."
In the big picture and over long periods, it's obvious and necessary that stock and bond returns are positively correlated. After
all, they're competing investments. Each generates a stream of income: dividends for (most) stocks, coupon payments for bonds. If
stocks get very expensive, investors will shift money into bonds as a cheaper alternative until that rebalancing makes bonds more
or less equally expensive. Likewise, when one of the two asset classes gets cheap it will tend to drag down the other.
When the pros talk about negative correlation they're referring to shorter periods""say, a month or two--over which stocks and
bonds can indeed move in different directions. Lately two giant money managers have produced explanations for why stocks and bonds
move apart or together. They're worth understanding even if your assets under management are in the thousands rather than billions
or trillions.
Bridgewater Associates, the world's biggest hedge fund, based in Westport, Conn., says that how stocks and bonds play with
each other has to do with economic conditions and policy. "There will naturally be times when they're negatively correlated and naturally
be times when they're positively correlated, and those come from the underlying environment itself," senior portfolio strategist,
Jeff Gardner says in an edited transcript of a recent in-house interview.
According to Gardner, inflation was the most important factor in the markets for decades""both when it rose in the 1960s and 1970s
and when it fell in the 1980s and 1990s. Inflation affects stocks and bonds similarly, although it's worse for bonds with their fixed
payments than for stocks. That's why correlation was positive during that long period.
For the past 20 years or so, inflation has been so low and steady that it's been a non-factor in the markets. So investors have
paid more attention to economic growth prospects. Strong growth is great for stocks but doesn't do anything for bonds. That, says
Gardner, is the main reason that stocks and bonds have moved in different directions.
PGIM Inc., the main asset management business of insurer Prudential Financial Inc., has $1.5 trillion under management. In a report
issued in May, it puts numbers on the disappointment the pros feel when stocks and bonds start to move in sync. Let's say a portfolio
is 60% stocks and 40% bonds and has a stock-bond correlation of -0.3, which is about average for the last 20 years. Volatility is
around 7%. Now let's say the correlation goes to zero" not positive yet, but not negative anymore, either. To keep volatility from
rising, the portfolio manager would have to reduce the allocation to stocks to around 52%, which would lower the portfolio's returns.
If the stock-bond correlation reached a positive 0.3, then keeping volatility from rising would require reducing the stock allocation
to only 40%, hitting returns even harder.
PGIM's list of factors that affect correlations is longer than Bridgewater's but consistent with it. The report by vice president
Junying Shen and managing director Noah Weisberger says correlations between stocks and bonds tend to be negative when there's sustainable
fiscal policy, independent and rules-based monetary policy, and shifts up or down in the demand side of the economy (consumption).
The correlation is likely to be positive, they say, when there's unsustainable fiscal policy, discretionary monetary policy, monetary-fiscal
policy coordination, and shifts in the supply side of the economy (output).
One last thought: It's a good idea to spread your money between stocks and bonds even if they don't hedge each other. The capital
asset pricing model developed by William Sharpe in the 1960s says everyone should have the same portfolio, consisting of every asset
available, and adjust their risk by how much they borrow. True, not everyone agrees. John Rekenthaler, a vice president for research
at Morningstar Inc., wrote a fun article in 2017 about the different strategies of Sharpe and fellow Nobel laureate Harry Markowitz.
Images removed. See the original for the full version...
Notable quotes:
"... To shed light on this question, let's look at where both asset classes stand relative to their long-term trendlines. It's important to take a long-term perspective because commentators seem overly eager to detect bubbles everywhere they look these days. They (and we) need to be reminded that not every bull market is a bubble, and not every bear market represents the bursting of a bubble. ..."
Which U.S. asset class is more likely in a bubble right now" stocks or housing? More than 80% of traders polled in a
Charles Schwab survey say both.
To shed light on this question, let's look at where both asset classes stand relative to their long-term trendlines. It's important
to take a long-term perspective because commentators seem overly eager to detect bubbles everywhere they look these days. They (and
we) need to be reminded that not every bull market is a bubble, and not every bear market represents the bursting of a bubble.
Why are we so eager to detect bubbles? Will Goetzmann, a finance professor at Yale University, told me that he suspects it traces
to the moral overtone that investors have when they declare something to be forming a bubble. When they do, he said, they're implying
that those who lose big in that bear market will be getting what they deserve.
This column leaves moral judgments out of the equation. I instead am focusing on the most comprehensive data set of U.S. equity
and housing returns that I know. This database, which extends back to the late 1800s, was compiled by Ã'scar Jordà of the Federal
Reserve Bank of San Francisco, Katharina Knoll of Deutsche Bundesbank in Frankfurt, Dmitry Kuvshinov and Moritz Schularick, both
of the University of Bonn, and Alan M. Taylor of the University of California Davis.
This database is unique in several ways. One big advantage
is that it includes data for both stocks and housing; other databases extend further back in the case of the stock market but don't
include housing. The database also takes rent into account when calculating housing's return. Some prior historical analyses of housing's
return have focused only on price appreciation, which significantly underreports housing's performance.
The chart below plots the returns since 1890 of U.S. stocks and housing. Notice that equities and housing have each produced
largely similar returns over the past 130 years . As recently as the late 1940s, housing was ahead of equities for cumulative
performance since 1890. As recently as the late 1970s the two data series were nearly neck-and-neck. Notice further that housing's
performance has been less volatile than the stock market's, especially since World War II.
For each asset class I calculated an exponential trendline that most closely fit the 130 years' worth of data. The bad news is
that both stocks and housing currently are above their respective trendlines, so if you insist that both assets are in bubbles now
you in fact could find some statistical support.
Of the two, the stock market is further ahead of its long-term trendline than is housing. So if you'd have to pick which of the
two is more likely to decline significantly, you should choose stocks.
Bonds are vulnerable
I've not said anything about bonds, but they are even further ahead of their trendline than either stocks or housing. So from
this long-term perspective they are even more vulnerable than stocks to a big decline.
when the tax rates increase even more, it just encourages automation or DIY (bring your own sheets to avoid paying the cleaning
fee), which just grinds down growth rather than accelerates it.
Notable quotes:
"... Applebee's is now using tablets to allow customers to pay at their tables without summoning a waiter. ..."
Companies see automation and other labor-saving steps as a way to emerge from the health crisis with a permanently smaller
workforce
PHOTO:
JIM THOMPSON/ZUMA PRESS
... ... ...
Economic data show that companies have learned to do more with less over the last 16 months or so. Output nearly
recovered to pre-pandemic levels in the first quarter of 2021 -- down just 0.5% from the end of 2019 -- even though U.S.
workers put in 4.3% fewer hours than they did before the health crisis.
... ... ...
Raytheon Technologies
Corp.
RTX
0.08%
,
the biggest U.S. aerospace supplier by sales, laid off 21,000 employees and contractors in 2020 amid a drastic
decline in air travel. Raytheon said in January that efforts to modernize its factories and back-office operations
would boost profit margins and reduce the need to bring back all those jobs. The company said that most if not all
of the 4,500 contract workers who were let go in 2020 wouldn't be called back.
... ... ..
Hilton Worldwide Holdings Inc. HLT -0.78% said last week that most of its U.S. properties are adopting "a
flexible housekeeping policy," with daily service available upon request. "Full deep cleanings will be conducted
prior to check-in and on every fifth day for extended stays," it said.
Daily housekeeping will still be free for those who request it...
Unite Here, a union that represents hotel workers, published a report in June estimating that the end of daily
room cleaning could result in an industrywide loss of up to 180,000 jobs...
... ... ...
Restaurants have become rapid adopters of technology during the pandemic as two forces -- labor shortages that are
pushing wages higher and a desire to reduce close contact between customers and employees -- raise the return on such
investments.
...
Applebee's is now using tablets to allow customers to pay at their tables without summoning a
waiter.
The hand-held screens provide a hedge against labor inflation, said John Peyton, CEO of Applebee's
parent
Dine
Brands Global
Inc.
... ... ...
The U.S. tax code encourages investments in automation, particularly after the Trump administration's tax cuts,
said Daron Acemoglu, an economist at the Massachusetts Institute of Technology who studies the impact of
automation on workers. Firms pay around 25 cents in taxes for every dollar they pay workers, compared with 5 cents
for every dollar spent on machines because companies can write off capital investments, he said.
A lot of employers were given Covid-aid to keep employees employed and paid in 2020. I
assume somebody has addressed that obligation since it wasn't mentioned.
But, what happens to the unskilled workers whose jobs have been eliminated? Do Raytheon
and Hilton just say "have a nice life on the streets"?
No, they will become our collective burdens.
I am all for technology and progress and better QA/QC and general performance. But the
employers that benefit from this should use part of their gains in stock valuation to keep
"our collective burdens" off our collective backs, rather than pay dividends and bonuses
first.
Maybe reinvest in updated training for those laid off.
No great outcome comes free. BUT, as the article implies, the luxury of having already
laid off the unskilled, likely leaves the employer holding all the cards.
And the wheel keeps turning...
Jeffery Allen
Question! Isn't this antithetical (reduction of employees) to the spirit and purpose of
both monetary and fiscal programs, e.g., PPP loans (fiscal), capital markets funding
facilities (monetary) established last year and current year? Employers are to retain
employees. Gee, what a farce. Does anyone really care?
Philip Hilmes
Some of this makes sense and some would happen anyway without the pandemic. I don't need my room
cleaned every day, but sometimes I want it. The wait staff in restaurants is another matter. Losing
wait staff makes for a pretty bad experience. I hate having to order on my phone. I feel like I might
as well be home ordering food through Grubhub or something. It's impersonal, more painful than telling
someone, doesn't allow for you to be checked on if you need anything, doesn't provide information you
don't get from a menu, etc. It really diminishes the value of going out to eat without wait staff.
al snow
OK I been reading all the comments I only have a WSJ access as the rate was a great deal.
Hotel/Motel started making the bed but not changing the sheets every day for many years I am fine as
long as they offer trash take out and towel/paper every day
and do not forget to tip .
clive boulton
Recruiters re-post hard to fill job listings onto multiple job boards. I don't believe the reported
job openings resemble are real. Divide by 3 at least.
Stocks are near all-time highs, and though U.S. markets opened slightly lower on Thursday, it's much easier to find bulls than
bears these days.
But a technical indicator showing itself in five high-profile stocks and two funds suggests that a market correction is
coming, according to strategist
Michael
Kramer of Mott Capital Management
, in our
call
of the day
.
The relative strength index, or RSI, measures the speed and change of recent price movements and is one of the most
renowned technical signals. It allows investors to evaluate whether a security is overbought or oversold -- i.e. overvalued or
undervalued. A reading of 70 or above is considered overbought, while 30 and below is oversold.
A look back at 2018 is enough to tell investors why they should watch this indicator, according to Kramer, who noted on
January 29, 2018 that high RSIs for some of the biggest names signalled that the stock market was ready to fall. "Things
got really ugly after that through February 8," he said.
In those 10 days early in 2018, Dow industrials
DJIA,
+0.15%
tumbled
near 9%, the S&P 500
SPX,
-0.33%
plunged
more than 10%, and the Nasdaq Composite
COMP,
-0.70%
fell
near 10%.
Now, "the same thing is emerging," Kramer said, "with the biggest stocks all reaching very overbought reading."
By the end of Wednesday, Apple had an RSI of more than 80, with Amazon at 70, Microsoft at 76, and Google-owner Alphabet at
73 and showing a rising pattern, Kramer said. He noted that Nvidia's RSI was in the process of breaking a near-two month
rise up to 83.
Ark Innovation ETF's RSI was sitting at 76, while the QQQ was above 75. "When the QQQ RSI gets this high, the outcomes are
not good most of the time, including January 2018," Kramer said.
Cryptos are a collectors item just like fine art. While money has value based on the military jack boot of empire which insures
its value only with its domination of most countries and the violent destruction of any attempt to set up a transparent real money
system exchangable for gold (Libya). A painting by a hot painter is worth 900k because there are a handful of people who will
pay that for it, they're interest in it keeps the value at a certain level. Same with Bitcoin, but that interest is spread out
to millions of people. If they all decide its worthless than it is, but why would they? I think a lot of these evidence free claims
of hacking and ransom wear are made to devalue the currency that the ransom is paid in, it could have easily been paid in dollars
via the internet, as cryptos is basiclly just that: a stand in for the dollar being moved to an account that is a number. Cryptos
in this way provide a window to real capitalism. This to me is natural human evolution toward anarchism and a system of exchange
that is transparent and based on people working together instead of militaristic violence. You can exchange cryptos for gold,
rubles and yaun, so saying that it exist only based on the dollars supremacy is wrong.
What I know about computers and Bitcoin would get lost in a thimble. However, what I've learnt about the US Govt over the years
tells me that this problem wouldn't be happening if the USG hadn't dedicated itself to micro-managing, and dominating the www
- for Top Secret (i.e. bullshit) reasons.
I was appalled when I learnt that the USG had made strong encryption ILLEGAL, and dumbfounded when I first heard about the
PRISM 'co-operative' USG-mandated www surveillance program. Edward Snowden's NSA revellations confirmed that the USG has KILLED
computer security for crappy, feeble-minded reasons.
It's more or less par for the course that the USG blames other entities for its own prying and mischief-making. Were it not
for the USG placing LOW limits on computer security, we would all have access to Pretty Good Privacy and pro-active, timely means
of detecting and defending and/or evading malware.
"They mostly never see the piece, it's kept in climate controlled storage."
This is standard practice. Using "Ports Franches" as in several Swiss towns including Geneva. Perfectly legal as they are not
IN the country (for Tax purposes).
However, this is not really for "drug" cartels but just a way of transferring assets from one rich person to another.
Many ownership deals are made inside the Port Franche itself, without the need to transport the work outside. There is a limitation
on the time a work can be left inside the building, but I believe all that they have to do is drive more or less "round the block"
and re-enter it. I'm a bit hazy about that detail, as I do not have a spare Rembrandt to verify this personally.
****
jsanprox | Jul 12 2021 1:59 utc | 103
A painting by a hot painter is worth 900k because there are a handful of people who will pay that for it, they're interest
in it keeps the value at a certain level.
The primary dealers agree on a common price level for a stated painter. These paintings can even be used as collateral when
borrowing money.
Other painters do not have a "guaranteed" price level but one based on auction values (ie. What the customer is willing to pay.)
The Primary dealers are a very small group who control all the big art fairs and which other dealers are allowed to sell or deal
there -.
There are "rules" about "participation" (not sure about the terminology here), that various dealers will have made between themseves.
ie. There is a split-up of profits following certain agreed parts. Woe unto a dealer that doesn't pay his part. (OK; personal
note here, I once accidently fell foul of the "cartel" because a gallery owner with my works, had not paid "out" on a large sum
that he had made on another artist he was representing. They decided to "get" him.)
****
Ransomware ; Why are people getting all hot and bothered about Corporations paying money in Bitcoin? Happens all the
time.
Another Personal anecdote ; About five years ago I started recieving emails from unknown "people", Real first names,
with an attachement. As normal, these go into trash without being opened (or into a folder I have, called "dodgy spam?) About
20 + of them. Next I recieved one email saying (in French) " I know your little secret, and if you don't want everyone else to
know, pay (about €30) a "Small" sum into the following bitcoin account xxxxx."
In France you can " porter plainte" , ie, denounce and start a legal process against an "unknown person, or persons".
This is to protect yourself, and is run by the Government/police. In my case, never having opened any of the "attachments", I
don't know what they were, probably porn of some sort. IF they had been opened there would have been a suspicion that I was a
"willling" victim. (The first question asked by the Gov. Site was "Have you paid them/it, and by how much". in my case - none)
******
Haven't heard anything since. BUT, Bitcoin was already being used for criminal purposes.
Nobody had to find a super-secret backdoor into my computer. Just buy a data base with working emails - Corporations
use them all the time to send publicity. By looking at the address, and other more or less freely available information, they
can target people, by location, age, etc.
But you only know a Picasso is worth a lot because you can calculate it in USD terms (ultimately: you can also calculate in
any other fiat currency, but, since we live in the USD Standard, we only know a certain amount of fiat currency is worth if we
can convert it to USDs). The USD is still the unit of accountancy and the means of payment even in the art market.
You can never pay your taxes or fill the tank of your car with a Picasso - you would have to sell it for USDs, and use these
USDs to pay for everything you need. Sure, two megarich persons could exchange art between them as some kind of permute, but that
doesn't constitute a societal unity (because billionares don't exist in a vacuum). It is a particularity of society, not society
itself.
The same is true with crypto. And with gold. And with platinum. And with whatever else you want. It is a myth crypto is "fake"
just because it is purely digital: the material specification of the thing doesn't matter for its status of money. Being digital
is the lesser of crypto's problems. Crypto's main problem is the very economic foundations of its existence, which ensure it will
never be money.
And no: subdividing crypto wouldn't solve it - they tried it with gold when capitalism lived through the Gold Standard (when
it was on its death throes) and there's a limit to this. Even if the digital era allowed it, you would then simply have fiat money
system with extra steps and double the brutality, because then the power to issue money would rest with few private individual
hoarders of the crypto with no legal accountability and responsibility; it would be a dystopian "Pirates of the Caribbean" meets
"Mad Max" scenario.
Keith Speights: Some findings were recently published in Nature magazine that
indicate that the Pfizer-BioNTech and the Moderna vaccines may provide protection for
years.
Many investors are and were hoping for annual recurring revenue from these companies'
vaccines. Brian, how troublesome is this latest data for the prospects for Pfizer, BioNTech,
and Moderna?
Brian Orelli: There's a bit of an extrapolation going on here. The researchers looked at
memory B cells, which tend to provide more long-term protection than, let's say, antibodies.
They looked at those in the lymph nodes and found the cells were there as long as 15 weeks.
Typically, they'd mostly be gone by four to six weeks. So that's the basis of this claim
that it could offer protection for years. If true, that will be a big blow obviously to vaccine
makers, at least for Moderna and BioNTech.
Pfizer would be fine because it's so diversified. It's really hard to make an argument for
the valuations of Moderna and BioNTech right now if these vaccines are one and done over a
couple of years. They really need to have ongoing sales until they can get growth from other
drugs in their pipelines.
Speights: Brian, when I first saw the story, I went to check out to see how the stocks were
performing, and Moderna is up, BioNTech was barely changed, Pfizer barely changed. It seems to
me that investors really aren't making much of this news. Do you think that's the right take at
this point?
Orelli: I think it's still too early to be able to conclude that it's definitely going to
work for years. The other issue is that we're looking at, will those B cells actually protect
against the variants?
If they don't protect against the variants, then it doesn't really matter if you have B
cells in your lymph nodes. If they're not going to protect against the variants then we're
going to have to get a booster shot anyway.
Speights: Right. Obviously, if these vaccines provide immunity for multiple years, these
companies aren't going to make nearly as much money as they expect and a lot of investors
expect. So this is a big story to watch, but like you said, really, really early right now and
too soon to maybe go drawing any conclusions at this point.
The continued decline in Treasury yields has prompted many short-sighted arm-chair analysts
to declare that the Fed was right about inflationary pressures being "transitory". Of course,
as Treasury
Secretary Janet Yellen herself admitted, a little inflation is necessary for the economy to
function long term - because without "controlled inflation," how else will policymakers inflate
away the enormous debts of the US and other governments.
As policymakers prepare to explain to the investing public why inflation is a "good thing",
a report published this week by left-leaning NPR highlighted a phenomenon that is manifesting
in grocery stores and other retailers across the US: economists including Pippa Malmgren call
it "shrinkflation". It happens when companies reduce the size or quantity of their products
while charging the same price, or even more money.
As
NPR points out, the preponderance of "shrinkflation" creates a problem for academics and
purveyors of classical economic theory. "If consumers were the rational creatures depicted in
classic economic theory, they would notice shrinkflation. They would keep their eyes on the
price per Cocoa Puff and not fall for gimmicks in how companies package those Cocoa Puffs."
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However, research by behavioral economists has found that consumers are "much more gullible
than classic theory predicts. They are more sensitive to changes in price than to changes in
quantity." It's one of many well-documented ways that human reasoning differs from strict
rationality (for a more comprehensive review of the limitations of human reasoning in the
loosely defined world of behavioral economics, read Daniel Kahneman's "Thinking Fast and
Slow").
Just a few months ago, we described shrinkflation as "the
oldest trick in the retailer's book" with an explanation of how Costco was masking a 14%
price hike by instead reducing the sheet count in its rolls of paper towels and toilet
paper.
NPR's report started with the story of Edgar Dworsky, who monitors grocery store shelves for
signs of "shrinkflation".
A couple of weeks ago, Edgar Dworsky walked into a Stop & Shop grocery store in
Somerville, Mass., like a detective entering a murder scene.
He stepped into the cereal aisle, where he hoped to find the smoking gun. He scanned the
shelves. Oh no, he thought. He was too late. The store had already replaced old General Mills
cereal boxes -- such as Cheerios and Cocoa Puffs -- with newer ones. It was as though the
suspect's fingerprints had been wiped clean.
Then Dworsky headed toward the back of the store. Sure enough, old boxes of Cocoa Puffs
and Apple Cinnamon Cheerios were stacked at the end of one of the aisles. He grabbed an old
box of Cocoa Puffs and put it side by side with the new one. Aha! The tip he had received was
right on the money. General Mills had downsized the contents of its "family size" boxes from
19.3 ounces to 18.1 ounces.
Dworsky went to the checkout aisle, and both boxes -- gasp! -- were the same price. It was
an open-and-shut case: General Mills is yet another perpetrator of "shrinkflation."
It's also being used for paper products, candy bars and other packaged goods.
Back in the day, Dworsky says, he remembers buying bigger candy bars and bigger rolls of
toilet paper. The original Charmin roll of toilet paper, he says, had 650 sheets. Now you
have to pay extra for "Mega Rolls" and "Super Mega Rolls" -- and even those have many fewer
sheets than the original. To add insult to injury, Charmin recently shrank the size of their
toilet sheets. Talk about a crappy deal.
Shrinkflation, or downsizing, is probably as old as mass consumerism. Over the years,
Dworsky has documented the downsizing of everything from Doritos to baby shampoo to ranch
dressing. "The downsizing tends to happen when manufacturers face some type of pricing
pressure," he says. For example, if the price of gasoline or grain goes up.
The whole thing brings to mind a scene from the 2000s comedy classic "Zoolander".
Note to Goldman: you're a bank. Stick to banky-stuff. Leave the fear **** and lies to
the professionals in the .gov and MSM.
p3scobar 7 hours ago
Goldman is the government... sooo.....
espirit 9 hours ago
If Goldman can give medical advice, so can I.
A Lunatic 9 hours ago remove link
Turning off the TV will neutralize the Delta Variant.
rag_house 9 hours ago
Just like 'Climate Change' you know it's contrived when the bankers start doing
'science.'
liberty2day 9 hours ago
when did they not?
rag_house 8 hours ago
Bankers aren't scientists. They simply dream up fake things they want to convince people
of and bribe people to try to make it seem real.
Enraged 9 hours ago remove link
Goldman Sachs Charged in Foreign Bribery Case and Agrees to Pay Over $2.9 Billion
The Goldman Sachs Group Inc. and Goldman Sachs (Malaysia) have admitted to conspiring to
violate the Foreign Corrupt Practices Act (FCPA) in connection with a scheme to pay over $1
billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for
Goldman Sachs, including its role in underwriting approximately $6.5 billion in three bond
deals for 1Malaysia Development Bhd. (1MDB), for which the bank earned hundreds of millions
in fees.
bond prices have nothing to do with recovery [sic]
stock prices have nothing to do with growth, except growth of the money supply
Kreditanstalt 3 hours ago
"...the price of a beer or a McDonalds in 10-years time will be exactly the same as it
is today. (Which it won't.)"
But the type who buy US government bonds don't care about the price of burgers. They
only plan to flip the thing back to the next Greater Fool...or THE FED
Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers
ability to create money.
"Simons envisioned banks that would have a choice of two types of holdings: long-term
bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw
this as beneficial in that its ultimate consequences would be the prevention of
"bank-financed inflation of securities and real estate" through the leveraged creation of
secondary forms of money."
Bankers do need to ensure the money they lend out gets paid back to balance their
books.
Banking requires prudent lending.
If someone can't repay a loan, they need to repossess that asset and sell it to recoup
that money.
If they use bank loans to inflate asset prices they get into a world of trouble when
those asset prices collapse.
As the real estate and stock market collapsed the banks became insolvent as their assets
didn't cover their liabilities.
They could no longer repossess and sell those assets to cover the outstanding loans and
they do need to get the money they lend out back again to balance their books.
The banks become insolvent and collapsed, along with the US economy.
When banks have been lending to inflate asset prices the financial system is in a
precarious state and can easily collapse.
Cont ......
Sound of the Suburbs 2 hours ago
That was the 1920s.
What was the ponzi scheme of inflated asset prices that collapsed in Japan in 1991?
Japanese real estate.
They avoided a Great Depression by saving the banks.
They killed growth for the next 30 years by leaving the debt in place.
Japan could study the Great Depression to avoid this fate.
What was the ponzi scheme of inflated asset prices that collapsed in 2008?
"It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back
of $1.4 trillion of US sub-prime loans, and dispersed throughout the world" All the
Presidents Bankers, Nomi Prins.
We avoided a Great Depression by saving the banks.
We left Western economies struggling by leaving the debt in place, just like Japan.
It's not as bad as Japan as we didn't let asset prices crash in the West, but it is this
problem has made our economies so sluggish since 2008.
We, in turn, seem to have learnt something from Japan, as they did let asset prices
crash.
The banking system and the markets are still closely coupled.
Any significant fall in asset prices will feed back into the banking system.
We are trapped, and the only way to keep things from collapsing is to keep pumping in
more and more liquidity.
It's a choice
Let the assets bubbles collapse, and watch this feed back into the financial
system.
Keep the whole thing afloat, but make things worse in the long run as the bubbles
just get bigger and bigger.
We've gone for option two.
That's why the FED get so jittery when the markets start to fall.
During the coronavirus lockdowns there was no way the markets could be allowed to
reflect what was going on in the real economy.
The banking system would go down.
Sound of the Suburbs 1 hour ago remove link
They learnt from the mistakes of the 1920s and put regulations in place to ensure this
didn't happen again.
Financial stability arrived in the Keynesian era and was locked into the regulations of
the time.
"This Time is Different" by Reinhart and Rogoff has a graph showing the same thing
(Figure 13.1 - The proportion of countries with banking crises, 1900-2008).
Neoclassical economics came back and so did the financial crises.
The neoliberals removed the regulations that created financial stability in the
Keynesian era and put independent central banks in charge of financial stability.
Why does it go so wrong?
Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion
from 2001 – 2007 and knew there was going to be a financial crisis.
Richard Vague has looked at the data for financial crises going back 200 years and found
the cause was nearly always runaway bank lending.
We put central bankers in charge of financial stability, but they use an economics that
ignores the main cause of financial crises, private debt.
Most of the problems are coming from private debt.
The technocrats use an economics that ignores private debt.
The poor old technocrats never really stood a chance.
Many people seem to have forgotten after their nearly four-decade run that bonds have a
very ugly side that can yield great pain. Today's lower yields may be part of a greater
conundrum created by the reality of too much freshly printed money floating around and
people needing someplace to stash it. The article below delves into why interest rates may
unexpectedly rise. https://Bonds
As An Investment Have A Very Ugly Side.html
besnook10 4 hours ago
the equity market is reflecting the rush to dollar assets as a function of economic
uncertainty especially dedollarization while the low rates also reflect the lower demand
for dollars because of dedollarization.
George Bayou 5 hours ago
Treasury rates are set by the fed and have absolutely nothing to do with reality
anymore. The rates are set so that the government can sustain a higher debt ceiling,
nothing more. Corporate bonds can be made artificially low because they don't have to
compete against treasuries.
buzzsaw99 4 hours ago
i would argue that the s&p 500 is set by the fed and has absolutely nothing to do
with reality anymore. i would further add that if the fed didn't meddle treasury rates
would be even lower and the corporate spread would be huge.
bshirley1968 PREMIUM 4 hours ago
I would argue you are both right. The meddle when they have to. As long as the sheep run
with their narrative, the "markets" usually go the way they want them to. But they will
step in when there is a divergence.
George Bayou 4 hours ago remove link
I agree that the s&p is inflated due to fed injection and currency devaluation. I
disagree about treasury rates, if the fed stopped buying treasuries then the market would
not take up the slack unless the rates went higher.
The fed can't do this not only because the government couldn't afford paying higher
rates, but the housing industry that they've inflated would get crushed as well.
"How many impossible things can you believe before breakfast?"
US 10-year bonds and US equity are in full rally mode. They show contradictory expectations
for a stalled recovery and future strong growth! How can that be? Because the market is about
what participants collectively think – and how markets think has been utterly changed by
12 years of monetary experimentation, repression, and distortion. We've got to change the way
we think about markets.
That the reflation trade is fading fast? Falling bond yields = rising bond prices, and are a
sign the market anticipates a slowdown and declining inflationary threat.
Yet, we still expect to see further equity upside? Falling dividend yields = rising equity
prices, and are a sign the market anticipates strong growth and rising corporate profits.
In bonds there is truth. Bonds are about credit risk – getting repaid principal and
interest. But not the US treasury market – which is why it is called the risk-free rate.
The risk of holding a Treasury bond actually boils down to inflation risk. Whatever mad-eyed
Libertarian preppers hiding in mountain lairs say, the US Government defaulting on debt is a 50
Sigma possibility – it aint going to happen.
But inflation will eat away the value of the bond today in terms of its purchasing power
relative to its future purchasing power at maturity. The greater inflation, the less the bond
is worth, and its price today should reflect that. Inflation could occur through rising prices,
and declining confidence in currency which creates inflation as its FX value tumbles.
If you assume zero inflation – as the market clearly does when the 10-year risk free
rate is 1.34% – then there is no downside risk holding Treasuries. You will happily
collect $1.34 for each $100 invested semi-annually and the price of a beer or a McDonalds in
10-years time will be exactly the same as it is today. (Which it won't.)
Bonds have rallied strongly in recent weeks – clearly telling us the expectations of a
strong global recovery have stalled. There is little upside to holding bonds. Just certainty.
If the global economy does staggering well you won't get $2 back on your $100 investment. The
only way you get more at maturity is if we see deflation – when the price of a beer is
less in 10 years time than it is today.
Yet, we all know the world is a very uncertain place – its been illustrated by supply
chain shifts and breaks, and rising trade hassle and protectionism. Inflation is not only
likely – but nailed on. And that means any pension fund buying bonds today to pay your
pension tomorrow – is going to fail unless they find other ways to generate returns.
It's the same problem if they buy equity. Long term, bonds outperform, but today we believe
stocks are the only place to generate Alpha. If you want upside, then buy stocks. If the global
economy rallies and grows, then profits rise and companies become more valuable yada, yada The
downside? If the global economy stalls, companies make less money, the price falls or they
collapse completely and you get nothing back.
How can the two markets be telling us such a contradictory story?
Distortion is a terrible thing. It affects minds and they way we think about markets.
And this is what I suddenly realised yesterday talking to my chums yesterday. We all noted
the same thing – those of us of a certain age are watching younger, more nimble financial
minds take over our business. That's normal. They have different perspectives and different
reads on what's happening and No One Working In Global Finance Today Under the Age of 32 has
ever known markets that were undistorted by QE!
Think about it a second – central bank policies holding interest rates artificially
low and them standing ever-ready to support global markets from the consequences of induced
bubble conditions – have been the dominant theme of market for 12 years now. A whole
generation of very clever bankers and investment managers are maturing into senior positions
across the global financial industry having known nothing else.
It amazes me in our own internal discussions how the divide between we few surviving old
fogey's who remember free market currency crashes, bond market collapses and equity tumbles,
and the younger financiers who can just accept the distortions caused by central banks to avoid
these events, as a factor to include in their market expectations..
That's probably why anyone over 40 is such a bear and convinced the market is unsustainable,
while the younger generation is far more accepting of distortion as a permanent market
reality..
Remember when it comes to generating investment returns, it's not what you think, but what
the market thinks that matters. It is just a voting machine
(And, by the way, the only way funds are going to make proper returns in these markets is
probably to shift out of distorted financial assets (bonds and equity) and start buying real
world assets linked to reality that's a story for tomorrow!)
In the past year the combined QE of the EU plus the Fed went from $8.3 Tr to $17.4 Tr.
That is massive economic stimulus and rate suppression. It is estimated by the Fed that
for each $ 1Tr of QE in the US, there is a 50 BP reduction from what would have been
market interest rates. So, $4 trillion of QE by the Fed equals 200 BP of rate reduction.
If inflation is running at 3%, and then there is 2% QE reduction, then real Fed Funds
rates are around 500 BP negative. QE is completely distorting the bond market. That is
driving a lot of the stock market growth
NoDebt 5 hours ago
Well, for sure, one thing UST rates are NOT is a proxy for inflation. Haven't been in a
long time.
They are a proxy for where the Fed wants the rates to be. Nothing more. And that is
mostly driven by the need to finance profligate federal government deficits. What the
market won't buy at a given rate, the Fed will buy. But make no mistake, the rate will be
what they want it to be. Simple as that.
buzzsaw99 5 hours ago
That the reflation trade is fading fast? Falling bond yields = rising bond prices, and
are a sign the market anticipates a slowdown and declining inflationary threat...
ah, ********. there is no market.
Herdee 3 hours ago (Edited)
The numbers are 3.5% for the U.S. and 2.5% for Japan. Hit those numbers on interest
rates and it's game over. Neither one of them at that point according to their tax revenues
could even make a payment on the interest, let alone make a principle payment.
Adino 2 hours ago
Yeah, I'd love for someone to explain to me how $30 trillion + debt and over $130
trillion in unfunded liabilities gets paid off without hyperinflation.
Especially when the frn itself is the primary source of the debt.
bshirley1968 PREMIUM 4 hours ago
Sure, whatever Blain.
It's just time to throw bond traders a bone. Two weeks from now stawks will be once
again pushing new records and we'll be talking about "rising interest" rates.
The narrative changes.......consistently.
How long ago were we hearing about the significance of 1.75% on the ten year......as
stawks rallied to all time highs day after day? Now we are supposed to be scared because
rates are falling......and telling us there is "risk" out there.
The ******** is thick.......and it's all ********.
Hal n back 4 hours ago
meanwhile, this week a 10.7 ounce bag of M&M's went up 11%.
90% hamburger meat is $4 a pound on sale.
eggs, which do fluctuate, are 1.49 a dozen for large (they were 88 cents not too long
ago)
cereals are up in price or down in content.
A bagel is now a buck without the smear.
Too bad there is not an official true inflation rate. even when the govt does it by
region, its not correct.
Actually too bad government is not held accountable. On a fair and even basis.
ChromeRobot 5 hours ago
Yeah there is no possible way that the "Japanofication" of US bonds and economy can
occur. Our CB is much smarter than theirs. Lol, lol, lol.... The 10yr has appreciated 10%
in a month! Who cares about the yield. Negative yields on German bunds. This guy kills
me!
Heroic Couplet 5 hours ago
The libertarian magazine Reason yesterday had an interesting article about the 10 year
Treasury and how student loan interest rates are tied to it. Now, if the 10 year goes down,
are we going to see the 3% student loan interest rate and the 6% student loan interest rate
go down? OF COURSE NOT.
gcjohns1971 1 hour ago
The US Defaulted in 1790 "Continentals" 1824 "He killed the Bank", the Civil War
"Greenbacks", arguably the Panic of 1907, 1933 "Gold Confiscation", 1971 "Temporary
suspension of Convertibility...Like the Pound Sterling in 1914!..
Kreditanstalt 3 hours ago
"...the price of a beer or a McDonalds in 10-years time will be exactly the same as it
is today. (Which it won't.)"
But the type who buy US government bonds don't care about the price of burgers. They
only plan to flip the thing back to the next Greater Fool...or THE FED
As
Peter Hitchens noted recently "the most bitterly funny story of the week is that a defector
from North Korea thinks that even her homeland is 'not as nuts' as the indoctrination now
forced on Western students."
One of Yeonmi Park's initial shocks upon starting classes at Colombia University was to be
met with a frown after revealing to a staff member that she enjoyed reading Jane Austen. "Did
you know," Ms. Park was sternly admonished, "that those writers had a colonial mind-set? They
were racists and bigots and are subconsciously brainwashing you."
But after encountering the new requirement for the use of gender-neutral pronouns, Yeonmi
concluded: "Even North Korea is not this nuts North Korea was pretty crazy, but not this
crazy." Devastatingly honest, but not exactly a compliment to what once might have been the
land of her dreams.
Sadly, Hitchens reports that her previous experience served Yeonmi well to adapt to her new
situation: "She came to fear that making a fuss would affect her grades and her degree.
Eventually, she learned to keep quiet, as people do when they try to live under intolerant
regimes, and let the drivel wash over her."
Eastern European readers will unfailingly understand what it is that Hitchens meant to
say.
"... For now, loose monetary and fiscal policies will continue to fuel asset and credit bubbles, propelling a slow-motion train wreck. The warning signs are already apparent in today's high price-to-earnings ratios SPX , low equity risk premiums, inflated housing and tech assets COMP , and the irrational exuberance surrounding special purpose acquisition companies (SPACs), the crypto sector BTCUSD, , high-yield corporate debt , collateralized loan obligations, private equity, meme stocks AMC, and runaway retail day trading. ..."
"... But meanwhile, the same loose policies that are feeding asset bubbles will continue to drive consumer price inflation, creating the conditions for stagflation whenever the next negative supply shocks arrive. Such shocks could follow from renewed protectionism; demographic aging in advanced and emerging economies; immigration restrictions in advanced economies; the reshoring of manufacturing to high-cost regions; or the balkanization of global supply chains. ..."
"... More broadly, the Sino-American decoupling threatens to fragment the global economy at a time when climate change and the COVID-19 pandemic are pushing national governments toward deeper self-reliance. ..."
"... Making matters worse, central banks have effectively lost their independence, because they have been given little choice but to monetize massive fiscal deficits to forestall a debt crisis. With both public and private debts having soared, they are in a debt trap. Central banks will be damned if they do and damned if they don't, and many governments will be semi-insolvent and thus unable to bail out banks, corporations, and households. The doom loop of sovereigns and banks in the eurozone after the global financial crisis will be repeated world-wide ..."
"... When former Fed Chair Paul Volcker hiked rates to tackle inflation in 1980-82, the result was a severe double-dip recession in the United States and a debt crisis and lost decade for Latin America. But now that global debt ratios are almost three times higher than in the early 1970s, any anti-inflationary policy would lead to a depression, rather than a severe recession. The question is not if but when. ..."
Roubini warns: After 'the Minsky Moment' crashes overheated speculative markets, 'the
Volcker Moment' will will arrive to crash the debt-burdened global economy
( Project Syndicate ) -- In
April, I
warned that today's extremely loose monetary and fiscal policies, when combined with a
number of negative supply shocks, could result in 1970s-style stagflation (high inflation
alongside a recession). In fact, the risk today is even bigger than it was then.
After all, debt ratios in advanced economies and most emerging markets were much lower in
the 1970s, which is why stagflation has not been associated with debt crises historically. If
anything, unexpected inflation in the 1970s wiped out the real value of nominal debts at fixed
rates, thus reducing many advanced economies' public-debt burdens.
The warning signs are already apparent in today's high price-to-earnings ratios, low
equity risk premiums, inflated housing and tech assets, and the irrational exuberance
surrounding special purpose acquisition companies (SPACs), the crypto sector, high-yield
corporate debt, collateralized loan obligations, private equity, meme stocks, and runaway
retail day trading.
Conversely, during the 2007-08 financial crisis, high debt ratios (private and public)
caused a severe debt crisis -- as housing bubbles burst -- but the ensuing recession led to low
inflation, if not outright deflation. Owing to the credit crunch, there was a macro shock to
aggregate demand, whereas the risks today are on the supply side.
Worst of both
worlds
We are thus left with the worst of both the stagflationary 1970s and the 2007-10 period.
Debt ratios are much higher than in the 1970s, and a mix of loose economic policies and
negative supply shocks threatens to fuel inflation rather than deflation, setting the stage for
the mother of stagflationary debt crises over the next few years.
For now, loose monetary and fiscal policies will continue to fuel asset and credit
bubbles, propelling a slow-motion train wreck. The warning signs are already apparent in
today's high price-to-earnings ratios SPX , low equity risk
premiums, inflated housing and tech assets COMP , and the
irrational exuberance surrounding special purpose acquisition companies (SPACs), the crypto
sector BTCUSD, ,
high-yield corporate debt , collateralized loan obligations, private equity, meme stocks
AMC, and runaway
retail day trading.
But meanwhile, the same loose policies that are feeding asset bubbles will continue to
drive consumer price inflation, creating the conditions for stagflation whenever the next
negative supply shocks arrive. Such shocks could follow from renewed protectionism; demographic
aging in advanced and emerging economies; immigration restrictions in advanced economies; the
reshoring of manufacturing to high-cost regions; or the balkanization of global supply
chains.
Recipe for macroeconomic disruption
More broadly, the Sino-American decoupling threatens to fragment the global economy at a
time when climate change and the COVID-19 pandemic are pushing national governments toward
deeper self-reliance. Add to this the impact on production of increasingly frequent
cyberattacks on critical infrastructure and the social and political backlash against
inequality, and the recipe for macroeconomic disruption is complete.
Making matters worse, central banks have effectively lost their independence, because
they have been given little choice but to monetize massive fiscal deficits to forestall a debt
crisis. With both public and private debts having soared, they are in a debt trap. Central
banks will be damned if they do and damned if they don't, and many governments will be
semi-insolvent and thus unable to bail out banks, corporations, and households. The doom loop
of sovereigns and banks in the eurozone after the global financial crisis will be repeated
world-wide
As inflation rises over the next few years, central banks will face a dilemma. If they start
phasing out unconventional policies and raising policy rates to fight inflation, they will risk
triggering a massive debt crisis and severe recession; but if they maintain a loose monetary
policy, they will risk double-digit inflation -- and deep stagflation when the next negative
supply shocks emerge.
But even in the second scenario, policy makers would not be able to prevent a debt crisis.
While nominal government fixed-rate debt in advanced economies can be partly wiped out by
unexpected inflation (as happened in the 1970s), emerging-market debts denominated in foreign
currency would not be. Many of these governments would need to default and restructure their
debts.
At the same time, private debts in advanced economies would become unsustainable (as they
did after the global financial crisis), and their spreads relative to safer government bonds
would spike, triggering a chain reaction of defaults. Highly leveraged corporations and their
reckless shadow-bank creditors would be the first to fall, soon followed by indebted households
and the banks that financed them.
The Volcker Moment
To be sure, real long-term borrowing costs may initially fall if inflation rises
unexpectedly and central banks are still behind the curve. But, over time, these costs will be
pushed up by three factors. First, higher public and private debts will widen sovereign and
private interest-rate spreads. Second, rising inflation and deepening uncertainty will drive up
inflation risk premiums. And, third, a rising misery index -- the sum of the inflation and
unemployment rate -- eventually will demand a "Volcker Moment."
When former Fed Chair Paul Volcker hiked rates to
tackle inflation in 1980-82, the result was a severe double-dip recession in the United States
and a debt crisis and lost decade for Latin America. But now that global debt ratios are almost
three times higher than in the early 1970s, any anti-inflationary policy would lead to a
depression, rather than a severe recession. The question is not if but when.
Under these conditions, central banks will be damned if they do and damned if they don't,
and many governments will be semi-insolvent and thus unable to bail out banks, corporations,
and households. The doom loop of sovereigns and banks in the eurozone after the global
financial crisis will be repeated world-wide, sucking in households, corporations, and shadow
banks as well.
As matters stand, this slow-motion train wreck looks unavoidable. The Fed's recent pivot
from an ultra-dovish to a mostly dovish stance changes nothing. The Fed has been in a debt trap
at least since December 2018, when a stock- and credit-market crash forced it to reverse its
policy tightening a full year before COVID-19 struck. With inflation rising and stagflationary
shocks looming, it is now even more ensnared.
So, too, are the European Central Bank, the Bank of Japan, and the Bank of England. The
stagflation of the 1970s will soon meet the debt crises of the post-2008 period. The question
is not if but when.
Nouriel Roubini is CEO of Roubini Macro Associates and chief economist at Atlas Capital
Team.
The U.S. has won international backing for a
global minimum rate of tax as part of a wider overhaul of the rules for
taxing international companies , a major step toward securing a final agreement on a key
element of the Biden administration's domestic plans for revenue raising and spending.
Officials from 130 countries that met virtually agreed Thursday to the broad outlines of
what would be the most sweeping change in international taxation in a century. Among them were
all of the Group of 20 major economies, including China and India, which previously had
reservations about the proposed overhaul.
Those governments now will seek to pass laws ensuring that companies headquartered in their
countries pay
a minimum tax rate of at least 15% in each of the nations in which they operate, reducing
opportunities for
tax avoidance .
"... The US seems to be especially vulnerable to issues caused by lack of precarity as it has such a poor welfare system, previously relying on infinite growth to smooth things over or a, now failing, religious faith to keep things in order; prolonged economic and political success that has led to a sense of entitlement and self-belief in the American way, a history of putting personal liberty above all else, which embraces competition rather than co-operation; and a world beating phobia of death well beyond when reproductive age has passed. ..."
"... The gig economy, middle class collapse, MAGA, BLM (and the police actions that prompted its rise), cancel culture, (un)reality TV's attraction, FOMO, the increase in low level strife, self-harming, on-line pornography addiction, the Oxycodone/Fentanyl epidemic etc. are all manifestations and/or causes of that precarity. Civil wars and major revolts (and almost any that succeed in their aims) tend to happen only when there is intra elite infighting rather than uprisings from below. The most likely catalyst for that at the moment is Trump, which may be a good sign given his ineffectualness, ineptitude and general repulsive lack of charisma; anyone even a bit more like a real human being could cause serious ructions. ..."
I have been reading "˜A More Contested World: Global Trends 2040' by The National
Intelligence Council; slowly as there's a lot in it but also a lot missing. No mention of
specific resource limits, no discussion of GM just general "˜technology' concerns
concentrating on AI and of course, god forbid any mention of overpopulation. It is very
US-centric "" in the good scenarios the world gets to a better place only through US leadership
"" and humanist focused with no consideration of the rights of the earth in general, only the
perpetuation of our civilisation and to that end all future scenarios are some variant of
technology led, growth obsessed, centralised BAU (maybe not with full globalism but still based
around hegemonic power structures at some level). It's a view from mainstream economists and
politicians carrying all the normal drawbacks that those words imply: i.e. bad things happen
when the world doesn't do as it's told to do by us, and if you don't agree with us about what
constitutes "˜bad' then you're wrong about that too.
The rising wealth gap and other inequality issues are a common theme in these global risk
studies. However, theories in some recent studies have proposed that it is not inequality
itself that is the problem so much as a prolonged sense of precarity (a new word to me and,
apparently, to MS spellchecker, but it is essentially identical to precariousness) of the
non-elites that accompanies it.
This makes sense from an evolutionary standpoint, as parents desire a stable and resource
abundant household in which their children can be expected to reach a reproductive age. This
might be expected to come more from the female side, as they are tied to their offspring more
than males, who are free to spread their sperm and move on. I have read reorts, possibly
anecdotal only, that it will invariably be the woman that will be the party insisting on buying
the largest house that can be attained, whether affordable or not. I'm all for gender equality
and women's rights but some things are innate and equal-rights do not mean equal hormones,
ambitions, impulses and behaviors.
From this viewpoint therefore, solving the wealth inequality issue is actually anathema to
population reduction. For example the already low birth rate in Italy had a further step down
caused by the increased precarity due to the economic impact of Covid-19, the government has
responded by offering direct incentives for having children. The apparent short term aims are
in direct opposition to the what is best long term, this is called a dilemma rather than a
problem.
The US seems to be especially vulnerable to issues caused by lack of precarity as it has
such a poor welfare system, previously relying on infinite growth to smooth things over or a,
now failing, religious faith to keep things in order; prolonged economic and political success
that has led to a sense of entitlement and self-belief in the American way, a history of
putting personal liberty above all else, which embraces competition rather than co-operation;
and a world beating phobia of death well beyond when reproductive age has passed.
The neologism for the growing proportion of people affected by precarity is the precariat.
The always readable Tim Watkins has a new post that touches on some of theses issues, with a
particular eye on the possibility (or not) of significant inflationary issues ( The
Everything Death Spiral ).
The gig economy, middle class collapse, MAGA, BLM (and the police actions that prompted
its rise), cancel culture, (un)reality TV's attraction, FOMO, the increase in low level strife,
self-harming, on-line pornography addiction, the Oxycodone/Fentanyl epidemic etc. are all
manifestations and/or causes of that precarity. Civil wars and major revolts (and almost any
that succeed in their aims) tend to happen only when there is intra elite infighting rather
than uprisings from below. The most likely catalyst for that at the moment is Trump, which may
be a good sign given his ineffectualness, ineptitude and general repulsive lack of charisma;
anyone even a bit more like a real human being could cause serious ructions.
Great post George thank you. It is quite evident for the astute observer that western
democracy has over the years turned more and more into an amalgam of kleptocracy, oligarchy and
plutocracy.
How many countries have colonial Europe and U.S foreign policy destroyed in the name of
"democracy" and "freedom" ?
I've lost count.
Plato famously is said to have said:
"If you do not take an interest in the affairs of your government, then you are doomed to live
under the rule of fools."
In Platos book the republic, Socrates despises democracy as one of the worst forms of
government. His criticism those many years ago still resonates till this day (in my
opinion).
WIthout invoking logic, I feel the world is in uncharted waters and heading towards a
precipice which no one will see coming.
You have a typo, I believe you mean oxycontin (oxycodone) epidemic. HICKORY IGNORED HOLE
IN HEAD IGNORED 06/27/2021
at 1:12 pm
Hicks , not being based in USA ,my view maybe incorrect . The US is undergoing an
identity crisis . Where in the world did we have this gender crisis , male "" female heck can't
people see between their thighs ? Red-Blue . White Supremacy vs BLM . North vs South . Growing
up in the 70's US entrepreneurship was my inspiration . My hero's were Ford, Sloan , Edison etc
and what do we have today, Musk ? What changed that a society where work was an ethic has
transformed into a system where everyone is looking for an opportunity to suck at the teat of
the government . Amazing transformation for someone who has a reference point . Now I am going
into the stupid zone . What changed was the net surplus energy available per capita to the US
citizen . Once that flipped it was downhill all the way . I reserve the right to be incorrect
in my assessment .
Regarding the off-topic finish, I don't think most people realize how fragile is the glue
holding the US together.
Fragmentation along tribal lines is the biggest theme in American culture.
If a minority collection of tribes succeeds in the attempts to reverse election results, even
more than the Electoral College already does, the country will undergo a major restructuring
(polite description) with no guarantees on a recognizable outcome.
"... This is not the first time Summers has predicted that the firehose of fiscal and monetary stimulus will unleash soaring inflation. While career economists at the White House and Fed - who have peasants doing their purchases for them - urge Americans to ignore the current hyperinflation episode, saying that the recent inflation surge will soon pass, Summers has been unique among his fellow Democrats in predicting that massive monetary and fiscal stimulus alongside the reopening of the economy would spark considerable price pressures. ..."
"... Asked how financial markets may behave in the rest of 2021, Summers said "there will probably be more turbulence" as traders react to faster inflation by pushing up bond yields. "We've got a lot of processing ahead of us in markets," he said. ..."
It may not be quite hyperinflation - loosely defined as pricing rising at a double-digit
clip or higher - but if former Treasury Secretary and erstwhile democrat Larry Summers is
right, it will be halfway there in about six months.
One day after Bank of America warned that the coming "hyperinflation" will last at least 2
and as much as 4 years - whether or not one defines that as transitory depends on whether one
has a Federal Reserve charge card to fund all purchases in the next 4 years - Larry Summers,
who is this close from being excommunicated from the Democrat party, predicted inflation will
be running "pretty close" to 5% at the end of this year and that bond yields will rise as a
result over the rest of 2021.
Considering that consumer prices already jumped 5% in May from the previous year, his
forecast is not much of a shock.
Speaking on Bloomberg TV, Summers said that "my guess is that at the end of the year
inflation will, for this year, come out pretty close to 5%," adding that "it would surprise me
if we had 5% inflation with no effect on inflation expectations." If he is right, the recent
reversal in one-year inflation expectations which dipped from 4.6% to 4.2% according to the
latest UMich consumer sentiment survey, is about to surge to new secular highs.
This is not the first time Summers has predicted that the firehose of fiscal and monetary
stimulus will unleash soaring inflation. While career economists at the White House and Fed -
who have peasants doing their purchases for them - urge Americans to ignore the current
hyperinflation episode, saying that the recent inflation surge will soon pass, Summers has been
unique among his fellow Democrats in predicting that massive monetary and fiscal stimulus
alongside the reopening of the economy would spark considerable price pressures.
Asked how financial markets may behave in the rest of 2021, Summers said "there will
probably be more turbulence" as traders react to faster inflation by pushing up bond yields.
"We've got a lot of processing ahead of us in markets," he said.
Ironically, Summers - who now teaches at Harvard University whose president he was not too
long ago when he hung out with his buddy Jeffrey Epstein...
Plus Size Model 5 hours ago (Edited)
Exactly!! Not only that, it's not just the FED that is contributing to inflation. We can
also blame the SEC and the DOJ. I've never seen a Zero Hedge article blaming stock price
appreciation or buybacks for causing inflation or increasing the money supply. The DOJ
never enforces antitrust laws. The FBI never investigates money laundering from overseas
that creates artificial real estate appreciation that inflates the money supply when people
take out HELOC. There are other oversight bodies that, in a sane world, would not allow
foreign investment in real estate. Bitcoin and others are a new tool that is being used to
manipulate the money supply. It's comical how coins always go down when the little guys are
holding the bag and go up when Coinbase executives want to cash out.
Another thing, this artificial chip shortage, punitive tariffs, and new tax laws are
also adding to price increases.
Totally_Disillusioned 1 hour ago
Speculative investments have NEVER been included in the forumulation of CPI that
determines inflation rate.
Revolution_starts_now 6 hours ago
Larry Summers is a tool.
gregga777 5 hours ago (Edited) remove link
Banksters in 2010's: We've got to revise how we calculate inflation again to conceal it
from the Rubes.
Banksters in 2020: Ho Lee Fuk! Gun the QE engine! Pedal to the metal! Monetize all of
the Federal government's debt! Keep those stonks zooming upwards!
Banksters in 2021: Ho Lee Fuk! The Rubes have caught onto our game! Gun the QE engine!
Keep that pedal to the metal! Maybe the Rubes won't notice housing prices going up 20% per
year?
Summer 2021: Ho Lee Fuk! They are noticing Inflation! We'd better revise how we
calculate inflation again to conceal it from the Rubes.
When and how another housing bubble will burst? This is the question.
The author forget that the current movement out of the cities into the suburb can lead to the
collapse of prices in overpriced areas of big cities like NYC. Also the retain space collapse is
evident even to untrained observers. So people moving out of big cities like NYC and cities
devastated by riots need to sell their current condos and apartments. To whom?
There are
many reports of homebuyers getting into bidding wars and many cities where home prices have
appreciated
by well more than 10% over the past year. This naturally leads to a concern about market
volatility: Must what goes up come down ? Are we
repeating the excesses of the early 2000s, when housing prices surged before the market
crashed?
Some analysts
argue that this time, it's even less likely that prices will fall. Inventories
of new homes for sale are very low, and lending standards are much tighter than in 2005. This
is true. In fact, the ground is even firmer than it seems.
New home inventories were very high before the Great Recession. Today, they are closer to
the level that has been common for decades. The portion of inventory built and ready for move-in is
especially low because of supply chain interruptions combined with a sudden boost of demand
during the coronavirus pandemic. We shouldn't worry much about a crash when buyers are eagerly
snapping up the available homes.
... ... ...
At the June 2006 Federal
Reserve meeting, Ben Bernanke said, "It is a good thing that housing is cooling. If we could
wave a magic wand and reinstate 2005, we wouldn't want to do that." It's notable that Jerome
Powell, who today holds Bernanke's former position as Fed chair, isn't openly pining for a
"cooler" housing market.
There is a common belief that before the Great Recession, homebuyers were taken in by the
myth that home prices never go down, and they became complacent. Those buyers turned out to
be wrong. Yet, even when a concerted effort to kill housing markets succeeded, we had to beat
them into submission for three full years before prices relented. Home prices can go down, but
we have to work very hard, together, for a long time, to make them fall.
If you are a buyer in a hot market where home prices are 30% higher than they were a year
ago, you're getting a 30% worse deal than you could have had back then. Nothing can be done
about that. That said, the main things to be concerned with are the factors federal
policymakers are in control of. There is little reason to expect housing demand to collapse. If
it does, it will require communal intention""federal monetary and credit policies meant to
create or accept a sharp drop in demand. And even if federal officials intend for housing
construction to collapse, history suggests that a market contraction would push new sales
down deeply for an extended period of time before prices relent.
Guest commentaries like this one are written by authors outside the Barron's and
MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit
commentary proposals and other feedback to [email protected] .
Kevin
Erdmannis a visiting research fellow with the Mercatus Center at George Mason
University and author of Shut Out: How A Housing Shortage Caused the Great Recession and
Crippled Our Economy.
The problem is that many people face long term unemployment without substantial emergency funds, which further complicates
already difficult situation.
Notable quotes:
"... More than 2K adults to were interviewed to try and ascertain how long they could survive without income. It turns out that approximately 72.4MM employed Americans - 28.4% of the population - believe they wouldn't be able to last for more than a month without a payday. ..."
Imagine you lost your job tomorrow. How long would you be able to sustain your current
lifestyle? A week? A month? A year?
As we await Friday's labor market update, Finder has just published the results of a recent
survey attempting to gauge the financial stability of the average American in the post-pandemic
era.
More than 2K adults to were interviewed to try and ascertain how long they could survive
without income. It turns out that approximately 72.4MM employed Americans - 28.4% of the
population - believe they wouldn't be able to last for more than a month without a payday.
Another 24% said they expected to be able to live comfortably between two months and six
months. That means an estimated 133.6MM working Americans (52.3% of the population) can live
off their savings for six months or less before going broke.
On the other end of the spectrum, roughly 8.7MM employed Americans (or 3.4% of the
population) say they don't need to rely on a rainy day fund since they have employment
insurance which will compensate them should they lose their job.
Amusingly, men appear to be less effective savers than women. Some 32.4MM women (26.7% of
American women) say their savings would stretch at most a month, compared to 40MM men (29.9% of
American men) who admit to the same. Of those people, 9.7MM women (8% of American women) say
their savings wouldn't even stretch a week, compared to 15.5MM men (11.6% of American men) who
admit to the same.
A majority of employed Americans over the age of 18 say their savings would last six months
at most. About 70.7MM men (52.8% of American men) and 62.8MM women (51.8% of American women)
fear they'd be in dire straits within six months of losing their livelihood.
Unsurprisingly, younger people tend to have less of a savings buffer - but the gap between
the generations isn't as wide as it probably should be.
While increasing one's income is perhaps the best route to building a more robust nest egg,
Finder offered some suggestions for people looking to maximize their savings.
1. Create a budget and stick to it
Look at your monthly income against all of your monthly expenses. Add to them expenses you
pay once or twice a year to avoid a surprise when they creep up. After you know where your
money is going, you can allot specific amounts to different categories and effectively track
your spending.
"... Indeed, economists and analysts have gotten used to presenting facts from the perspective of private employers and their lobbyists. The American public is expected to sympathize more with the plight of wealthy business owners who can't find workers to fill their low-paid positions, instead of with unemployed workers who might be struggling to make ends meet. ..."
"... West Virginia's Republican Governor Jim Justice justified ending federal jobless benefits early in his state by lecturing his residents on how, "America is all about work. That's what has made this great country." Interestingly, Justice owns a resort that couldn't find enough low-wage workers to fill jobs. Notwithstanding a clear conflict of interest in cutting jobless benefits, the Republican politician is now enjoying the fruits of his own political actions as his resort reports greater ease in filling positions with desperate workers whose lifeline he cut off. ..."
For the past few months, Republicans have been waging a ferocious political battle to end
federal unemployment benefits, based upon stated desires of saving the U.S. economy from a
serious labor shortage. The logic, in the words
of Republican politicians like Iowa Senator Joni Ernst, goes like this: "the government pays
folks more to stay home than to go to work," and therefore, "[p]aying people not to work is not
helpful." The conservative Wall Street Journal has been beating the drum for the same argument,
saying recently that it was a " terrible
blunder " to pay jobless benefits to unemployed workers.
If the hyperbolic claims are to be believed, one might imagine American workers are
luxuriating in the largesse of taxpayer-funded payments, thumbing their noses at the earnest
"job creators" who are taking far more seriously the importance of a post-pandemic economic
growth spurt.
It is true that there are currently millions of jobs going unfilled. The U.S. Bureau of Labor Statistics just
released statistics showing that there were 9.3 million job openings in April and that the
percentage of layoffs decreased while resignations increased. Taking these statistics at face
value, one could conclude this means there is a labor shortage.
But, as economist Heidi Shierholz explained in a New York
Times op-ed , there is only a labor shortage if employers raise wages to match worker
demands and subsequently still face a shortage of workers. Shierholz wrote, "When those
measures [of raising wages] don't result in a substantial increase in workers, that's a labor
shortage. Absent that dynamic, you can rest easy."
Remember the subprime mortgage housing crisis of 2008 when
economists and pundits blamed low-income homeowners for wanting to purchase homes they
could not afford? Perhaps this is the labor market's way of saying, if you can't afford higher
salaries, you shouldn't expect to fill jobs.
Or, to use the logic of another accepted capitalist argument, employers could liken the job
market to the surge pricing practices of ride-share companies like Uber and Lyft. After
consumers complained about hiked-up prices for rides during rush hour,
Uber explained , "With surge pricing, Uber rates increase to get more cars on the road and
ensure reliability during the busiest times. When enough cars are on the road, prices go back
down to normal levels." Applying this logic to the labor market, workers might be saying to
employers: "When enough dollars are being offered in wages, the number of job openings will go
back down to normal levels." In other words, workers are surge-pricing the cost of their
labor.
But corporate elites are loudly complaining that the sky is falling -- not because of a real
labor shortage, but because workers are less likely now to accept low-wage jobs. The U.S.
Chamber of Commerce
insists that "[t]he worker shortage is real," and that it has risen to the level of a
"national economic emergency" that "poses an imminent threat to our fragile recovery and
America's great resurgence." In the Chamber's worldview, workers, not corporate employers who
refuse to pay better, are the main obstacle to the U.S.'s economic recovery.
Longtime labor organizer and senior scholar with the Institute for Policy Studies Bill Fletcher Jr. explained to me in an email
interview that claims of a labor shortage are an exaggeration and that, actually, "we suffered
a minor depression and not another great recession," as a result of the coronavirus pandemic.
In Fletcher's view, "The so-called labor shortage needs to be understood as the result of
tremendous employment reorganization, including the collapse of industries and companies."
Furthermore, according to Fletcher, the purveyors of the "labor shortage" myth are not
accounting for "the collapse of daycare and the impact on women and families, and a continued
fear associated with the pandemic."
He's right. As one analyst
put it, "The rotten seed of America's disinvestment in child care has finally sprouted." Such
factors have received little attention by the purveyors of the labor shortage myth -- perhaps
because acknowledging real obstacles like care work requires thinking of workers as real human
beings rather than cogs in a capitalist machine.
Indeed, economists and analysts have gotten used to presenting facts from the perspective of
private employers and their lobbyists. The American public is expected to sympathize more with
the plight of wealthy business owners who can't find workers to fill their low-paid positions,
instead of with unemployed workers who might be struggling to make ends meet.
Already, jobless benefits were slashed to appallingly low levels after Republicans reduced a
$600-a-week payment authorized by the CARES Act to a mere
$300 a week , which works out to $7.50 an hour for full-time work. If companies cannot
compete with this exceedingly paltry sum, their position is akin to a customer demanding to a
car salesperson that they have the right to buy a vehicle for a below-market-value sticker
price (again, capitalist logic is a worthwhile exercise to showcase the ludicrousness of how
lawmakers and their corporate beneficiaries are responding to the state of the labor
market).
Remarkably, although federal jobless benefits are funded through September 2021,
more than two dozen Republican-run states are choosing to end them earlier. Not only will
this impact the bottom line for
millions of people struggling to make ends meet, but it will also undermine the stimulus
impact that this federal aid has on the economies of states when jobless workers spend their
federal dollars on necessities. Conservatives are essentially engaged in an ideological battle
over government benefits, which, in their view, are always wrong unless they are going to the
already privileged (remember the GOP's 2017
tax cuts for corporations and the wealthy?).
The GOP has thumbed its nose at federal benefits for residents before. In order to
underscore their ideological opposition to the Affordable Care Act, recall how Republican
governors
eschewed billions of federal dollars to fund Medicaid expansion. These conservative
ideologues chose to let their own
voters suffer the consequences of turning down federal aid in service of their political
opposition to Obamacare. And they're doing the same thing now.
At the same time as headlines are screaming about a catastrophic worker shortage that could
undermine the economy, stories abound of how American billionaires paid
peanuts in income taxes according to newly released documents, even as their wealth
multiplied to extraordinary levels. The obscenely wealthy are spending their mountains of cash on luxury
goods and fulfilling
childish fantasies of space travel . The juxtaposition of such a phenomenon alongside the
conservative claim that jobless benefits are too generous is evidence that we are indeed in a
"national economic emergency" -- just not of the sort that the U.S. Chamber of Commerce wants
us to believe.
West
Virginia's Republican Governor Jim Justice justified ending federal jobless benefits early
in his state by lecturing his residents on how, "America is all about work. That's what has
made this great country." Interestingly, Justice owns a resort that couldn't find enough
low-wage workers to fill jobs. Notwithstanding a clear conflict of interest in cutting jobless
benefits, the Republican politician is now enjoying the fruits of his own political actions as
his resort reports greater ease in filling positions with desperate workers whose lifeline he
cut off.
When lawmakers earlier this year
debated the Raise the Wage Act , which would have increased the federal minimum wage,
Republicans wagged their fingers in warning, saying higher wages would put companies out of
business. Opponents of that failed bill claimed that if forced to pay $15 an hour, employers
would hire fewer people, close branches, or perhaps shut down altogether, which we were told
would ultimately hurt workers.
Now, we are being told another story: that companies actually do need workers and won't
simply reduce jobs, close branches, or shut down and that the government therefore needs to
stop competing with their ultra-low wages to save the economy. The claim that businesses would
no longer be profitable if they are forced to increase wages is undermined by one
multibillion-dollar fact: corporations are raking in record-high profits and doling them out to
shareholders and executives. They can indeed afford to offer greater pay, and when
they do, it turns out there is no labor shortage .
American workers are at a critically important juncture at this moment. Corporate employers
seem to be approaching a limit of how far they can push workers to accept poverty-level jobs.
According to Fletcher, "This moment provides opportunities to raise wage demands, but it must
be a moment where workers organize in order to sustain and pursue demands for improvements in
their living and working conditions."
Sonali Kolhatkar is the founder, host and executive producer of "Rising Up With Sonali,"
a television and radio show that airs on Free Speech TV and Pacifica stations. She is a writing
fellow for the Economy for All project at the Independent Media Institute. This article was
produced by Economy for All , a project of the
Independent Media Institute.
Paul Tudor Jones said economic orthodoxy has been turned upside down with the Federal
Reserve focused on unemployment even as inflation and financial stability are growing
concerns.
Inflation risk isn't transitory, the hedge fund manager said in an interview on CNBC.
If the Fed says the U.S. economy is on the right path, "then I would go all in on the
inflation trade, buy commodities, crypto and gold," he said. "If they course correct, you will
get a taper tantrum and a sell off in fixed income and a correction in stocks.
By Joe Carroll and Kevin Crowley
June 21, 2021, 3:30 PM EDT Updated on June 21, 2021, 4:00 PM EDT
Performance-improvement program will involve 5%-10% annually
Reviews are separate from sweeping job cuts disclosed in 2020
Exxon Mobil Corp. is preparing to reduce headcount at its U.S. offices by between 5% and 10%
annually for the next three to five years by using its performance-evaluation system to suss
out low performers, according to people familiar with the matter.
The cuts will target the lowest-rated employees relative to peers, and for that reason will
not be characterized as layoffs, the people said, asking not to be identified because the
information isn't public. While such workers are typically put on a so-called performance
improvement plan, many are expected to eventually leave on their own. This year's evaluation is
happening now but affected employees have not yet been notified, the people said.
"Our annual performance assessment process has been occurring over the last several months,"
Exxon spokesman Casey Norton said in an email. "Where employees are not contributing to their
highest ability, they may need to participate in an improvement plan. This is an annual process
which has been in place for many years, and it is meant to improve performance. This process is
unrelated to workforce reduction plans."
The plan is separate from Exxon's announcement last year that it will cut 14,000 jobs
worldwide by 2022, and it would extend reductions well beyond that original time frame. It's a
tumultuous time for Exxon, which is still grappling with the fallout from last month's annual
meeting, when shareholders rebuffed top management and replaced a quarter of the company's
board over climate and financial concerns.
Exxon had 72,000 employees globally at the end of last year, of which 40% worked in the
U.S., according to a company filing.
White-Collar Jobs
Several high-profile traders have also left in the last few weeks. While the
performance-review process mostly applies to white-collar jobs in areas such as engineering,
finance and project management, there's no suggestion the trading departures were related to
the review program.
Exxon's other cost-cutting initiatives have included suspending bonuses and halting
employee-contribution matches to 401k savings plans as the pandemic crushed demand for crude,
saddling the company with a record annual loss.
International crude prices have surged 44% this year to almost $75 a barrel, improving
Exxon's financial position markedly. Still, the supermajor has some way to go to pay down debts
accumulated during 2020's market collapse. A smaller and more efficient workforce is key to
further improvements.
Exxon achieved $3 billion of annual "structural cost reductions" in 2020 and will continue
to make savings through 2023, Chief Executive Officer Darren Woods said at the annual meeting
in May.
"We've got additional work to continue to take advantage of the new organization and find
opportunities to reduce our costs," Woods said.
Exxon's shares rose 3.6% to $62.59 at the close in New York trading amid a broad rally in
energy stocks on stronger oil prices.
BofA expects U.S. inflation to remain elevated for two to four years, against a rising
perception of it being transitory, and said that only a financial market crash would prevent
central banks from tightening policy in the next six months.
It was "fascinating so many deem inflation as transitory when stimulus, economic growth,
asset/commodity/housing inflations (are) deemed permanent", the investment bank's top
strategist Michael Hartnett said in a note on Friday.
Thyagaraju Adinarayan
Fri, June 25, 2021, 5:24 AM
By Thyagaraju Adinarayan
LONDON (Reuters) - BofA expects U.S. inflation to remain elevated for two to four years,
against a rising perception of it being transitory, and said that only a financial market crash
would prevent central banks from tightening policy in the next six months.
It was "fascinating so many deem inflation as transitory when stimulus, economic growth,
asset/commodity/housing inflations (are) deemed permanent", the investment bank's top
strategist Michael Hartnett said in a note on Friday.
Hartnett thinks inflation will remain in the 2%-4% range over the next 2-4 years. U.S.
inflation has averaged 3% in the past 100 years, 2% in the 2010s, and 1% in 2020, but it has
been annualising at 8% so far in 2021, Bofa said in the note.
Global stocks were holding near record highs hours ahead of the reading of May core personal
consumption expenditures index, an inflation gauge tracked closely by the Fed. The gauge is
estimated to rise 3.4% year-on-year.
... In the week to Wednesday, investors pumped $7 billion into equities and $9.9 billion
into bond funds, while pulling $53.5 billion from cash funds, BofA calculated, using EPFR
data.
Meme-based investing 'is a totally nihilistic parody of actual investing,' says Jeremy Grantham, who called 3 stock-market
bubbles
Last Updated: June 24, 2021 at 7:18 p.m. ET
First
Published: June 24, 2021 at 3:16 p.m. ET
By
Mark DeCambre
18
'This is it guys, the biggest U.S. fantasy trip of all time,' says Grantham
Jeremy Grantham, founder of GMO, speaks in 2012 in Oxford, England
GETTY
IMAGES
"'Meme' investing -- the idea that something is worth investing in, or rather gambling on, simply because it is funny --
has become commonplace. It's a totally nihilistic parody of actual investing. This is it guys, the biggest U.S. fantasy
trip of all time."
That's Jeremy Grantham, co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo
& Co., in a recent interview with
Bloomberg
News
, lamenting the state of an investment world that has prominently featured the emergence of meme-linked trading in
stocks like GameStop Corp.
GME,
-1.32%
,
AMC
Entertainment Holdings
AMC,
-4.66%
and
BlackBerry Ltd.
BB,
-4.42%
,
among
others.
Grantham noted that the meme cryptocurrency dogecoin
DOGEUSD,
-1.74%
is
"worth billions in the market and not even pretending to be [a] serious [investment]."
"Dogecoin was created as a joke to make fun of cryptocurrencies being worthless, and, not only has it taken off, but it's
such a success that second-level joke cryptocurrencies making fun of dogecoin have gone to multibillion-dollar valuations,"
he said.
Indeed, AMC Entertainment is up over 2,500% in 2021 thus far; GameStop has gained over 1,000% in the year to date; dogecoin
is up by about 5,000%, despite a precipitous drop; and BlackBerry shares are up over 90% so far this year.
By comparison, traditional assets have seen more mundane returns. The Dow Jones Industrial Average
DJIA,
+0.69%
is
up a more than respectable 12% so far in 2021, while the S&P 500
SPX,
+0.33%
has
returned over 13% in the year to date and the Nasdaq Composite
COMP,
-0.06%
has
made a powerful comeback in June to achieve a gain of nearly 12% in the first six months of the year.
Grantham views the social-media-driven meme-stock moves as concerning and indicative of bubbles percolating in financial
markets that will ultimately need to be contended with.
Grantham is worth paying attention to due to his prescient calls over the years. He said that stocks were overvalued in
2000 and again in 2007, anticipating subsequent market downturns,
the
Wall Street Journal reports
. Grantham also signaled that elements of the financial market had become unmoored from
reality leading up to the 2008–09 financial crisis.
However, his bearishness thus far hasn't helped his core investment strategies, amid a relentless run-up in stocks, be they
traditional or meme. The Nasdaq Composite has already put in back-to-back record closes this week and was aiming for a 17th
record finish on Thursday, while the S&P 500 index was eyeing a record of its own.
A significant global bond market correction is likely in the next three months as central
bankers eye the exit door from pandemic emergency policy, according to a Reuters poll of
strategists who also forecast modestly higher yields in a year.
Financial markets were caught off guard by the Federal Reserve's surprisingly hawkish tone
at its meeting last week, sparking a sell-off in equities and a safe-haven rush into
Treasuries.
While Fed Chair Jerome Powell played down rising price pressures on Tuesday, just a day
later two Fed officials said the recent bout of higher inflation could last longer than
anticipated.
The MOVE index - a bond market volatility gauge - hit a two-month high on Monday,
underscoring those mixed signals and uncertainty about the near-term.
In the June 17-24 poll, over 60% of fixed-income strategists, or 25 of 41, who answered an
additional question said a significant sell-off in global bond markets was likely over the next
three months.
... The U.S. 10-year Treasury yield was forecast to rise about 50 basis points to 2.0% by
June 2022, from around 1.5% on Thursday.
... When asked how high would U.S. 10-year Treasury yields rise to over the next three
months, the median of 30 analysts was 1.75%, with forecasts ranging between 1.5% and 2.0%.
... "Inflation is not all transitory. It is going to be a mix of sustainable and
transitory," said Guneet Dhingra, head of U.S. interest rates strategy at Morgan Stanley.
Traders are addicted to trading, much like murderers fixate on murdering. The traders
noticed a slight change in the Fed's tone and sold anything tied to inflation. They whacked
gold good. Then they went after the other commodities. When they were done there, they went
after value stocks, before finishing the week by blasting a bunch of cyclical names.
25 play_arrow
ted41776 5 hours ago
the only kind of ism that has exist is sociopathism
they always end up at the top of any power pyramid and make the rules that apply to all
others but not them
same as it always was and same as it always will be
NoDebt 4 hours ago
Traders are addicted to trading, much like murderers fixate on murdering
A line I wish I had come up with.
lambda PREMIUM 4 hours ago
This was already modeled and formalized: The Gambler Fallacy.
(cointelegraph.com)
45BeauHD on Monday June 21,
2021 @05:20PM from the not-dog-friendly dept. The president of the Federal Reserve Bank of
Minneapolis, Neel Kashkari, took a jab at Dogecoin (DOGE) last week by referring
to the memecoin as a Ponzi scheme , upping his rhetoric against cryptocurrencies.
Cointelegraph reports: Kashkari's comments were in response to a LinkedIn poll by Paul
Grewal, the chief legal officer and corporate secretary of Coinbase, who
asked his connections about the proper way to pronounce "Doge." "The right pronunciation is
pon-zi," Kashkari quipped.
This isn't the first time Kashkari has taken aim at cryptocurrencies. In February 2020,
he said digital assets like Bitcoin (BTC) lack the basic tenants of a stable currency and
praised the Securities and Exchange Commission for "cracking down" on initial coin offerings.
Kashkari is not a member of this year's Federal Open Market Committee, the group responsible
for setting United States monetary policy. The Minneapolis branch of the Fed will serve as an
alternate FOMC member in 2022 before rotating back onto the committee as a voting member in
2023.
In the face of prolonged low interest rates, all investors face three basic choices, says
Mr. Skjervem, the consultant who formerly managed roughly $100 billion as chief investment
officer of the Oregon State Treasury.
You can raise your existing holdings of traditional risky assets like stocks, even though no
one thinks they're cheap.
You can add a bunch of new and exotic bets and hope they don't blow up on you.
Or you can grit your teeth and stay the course, through a period of what may be lackluster
returns, until interest rates finally normalize.
"People are looking for the silver bullet, the magic wand, the get-out-of-jail-free card,"
says Mr. Skjervem. "There isn't one."
Jason Zweig always offers a breath of fresh air in the world of investment advice.
I like the cautionary tale he offers in re Fund "Trustees". Likely that many serve as
decoys on the pond. Ignore that blind, look how comfortable the plastic ducks appear.
Stuart Young
There will be no solution to the yield problem until Powell and the Federal Reserve Bank stop
having a fire sale on money and return interest rates to their normal levels. It certain that
there is much resistance to do this from the administration due to the trillions of dollars
they are borrowing and yes, these borrowed dollars are coming from the same Federal Reserve
Bank that controls the interest rates for the nation.
John Zarwan
Two quick comments. 1, a pension system is different than an individual, as the pension
system has a legal obligation to meet the payouts of its members. If my retirement nest egg
doesn't provide, too bad for me, but my heirs aren't required to make up the shortfall. 2, it
would have been nice if the article focused more on the purported subject rather than the
shortcomings of a possibly corrupt pension plan.
BRIAN HILL
For those who say just have an S&P 500 index fund, the index had no return from 2000 to
2012 and other long periods like 1966 to 1982. And if you were withdrawing income during this
period the sequence of return risk would be a disaster. You need multiple asset classes - not
just large cap US stocks.
Richard Fishman
How easy it is for these pension trustees to make themselves popular with participants by
raising earning assumptions and payouts when they have their big daddy the U.S. Pension
Benefit Guarantee Corp. ready to raid the taxpayers pockets again and again. As usual,
intelligent, conservative, fiscal management is a joke. What else is new?
Khyshang Lew
I do agree. It is time to lower expected rate of return.
Frank Walker
I wouldn't want to pour any water on all the great returns of the past 10 years but they came
after a major crash in 2008. A Federal Reserve that dropped the interest rate to 1.5% on a 10
year bond. They have created a Stock, Bond, and Real Estate market bubble. How would your
averages work out with a 50% correction?
Ralph Tibiletti
"People are looking for the silver bullet, the magic wand, the get-out-of-jail-free card,"
says Mr. Skjervem. "There isn't one."
All of these problems are caused by a dysfunctional federal government controlled by
politicians from both parties whose only concern is getting elected and reelected. They
accomplish their goal by redistributing wealth in the form of many different entitlement
programs and by catering to the legislative needs of special interest groups.
Voting is not the solution because we only replace the existing set with a different set
that will perform in the same way. We need a Solomon like individual who can solve the
problem.
Y.C. Sung
Private equity is great for money managers; there's no transparency in the value of the
investment. Unlike public market managers who have a scorecard on them every day, private
equity managers have wide latitude in valuing their investments. They can avoid being fired
for a long time.
Rachel Glyn
Not sure why it's different than a SPAC.
Ralph Tibiletti
"The challenge we all face as investors is that the collapse in interest rates makes
achieving historical rates of return very difficult,"
As we all know this problem has been caused by the Fed's zero interest rate and
money printing polices in support of the profligate spending and borrowing by both parties in
the federal government.
Why is the Fed so interested in the interest rate that savers may receive but has no
interest in the interest rate that lenders may charge like credit card companies? It does
seem a bit unfair when lenders can borrow at near zero percent interest rates and then loan
the money out at 16 percent plus. This smacks of inequality with which both the Fed and the
federal government seem so terribly concerned.
James Winkle
The only magic bullet for a lot of people is to spend less.
While Alphabet Class A and Facebook shares are up 37% and 21%, respectively, other members
of the group have weighed on the market. Amazon shares are up 7.1% in 2021, lagging behind the
11% rise in the benchmark S&P 500. Apple and Netflix have fared even worse, down 1.7% and
7.4% for the year.
... ... ...
For much of 2020, a badly constricted economy pushed investors toward stocks -- like the
FAANG names -- whose businesses were less affected and whose future growth became even more
alluring with the drop in interest rates. The Russell 1000 Growth Index advanced 37% for the
year, while the Russell 1000 Value Index eked out a 0.1% gain -- the largest annual performance
gap between the two style benchmarks in FactSet data going back to 1979.
Big tech stocks were among the leaders of that rally. Apple shares climbed 81% in 2020 --
last August becoming the first U.S. public company to
surpass $2 trillion in market value -- while Amazon rose 76% and Netflix gained 67%.
Facebook added 33% for the year, and Alphabet 31%.
These companies are too big and too powerful. I hope for anti-trust legislation that cuts
them down to size. The tech oligarchs have too much influence on what Americans think and do.
They are a direct threat to our democracy. I hope more Americans will decide to support
smaller companies (especially local stores), putting conviction ahead of convenience.
J Pate
Google and Amazon has no near peer competitors. Netflix and Apple do. My family got rid of
Netflix last year and now have Hulu. There is a ton of free steaming sites also. We never
missed Netflix.
Jay Urbain
"While Alphabet Class A and Facebook shares are up 37% and 21%, respectively, other members
of the group have weighed on the market. Amazon shares are up 7.1% in 2021, lagging behind
the 11% rise in the benchmark S&P 500. Apple and Netflix have fared even worse, down 1.7%
and 7.4% for the year."
Time to take another look at AMZN and AAPL.
Jon Tannen
Gasp! So after breathtaking rises for Apple and Netflix stocks, they're merely flat these
days? Not up 30% this month? Uh-oh! Sound the alarms! Someone please tell the writer that
stocks are not a straight diagonal to the sky. [She's actually wrong about Apple's valuation
being down this year, according to WSJ's very charts! The price is 130 now vs. 129 on Jan 4.
But hey, she's obliged to come up with an article this week.]
This all reminds me of analyst Dan Niles coming on CNBC for years and proclaiming he's
shorting Apple. Every few months: "I'm shorting Apple." "I'm shorting Apple." Again and again
and again. The guy must be broke. [Of course, no one calls him out about it.]
Marshall Dillon
Amazon? Not for me. I have switched most of my online buying to Walmart and local stores.
Amazon needs to get out of politics and stop suppressing free speech, much like the WSJ
moderators.
SACHIN SHARMA
This entire article is misleading. Choosing 2020 as a base year to compare this group of
stocks leaves out the important context of what happened the prior ten years, when FB and
GOOGL underperformed vs APPL, NFLX, AMZN. A mean reversion within this group because money
managers need to justify their existence could be the simple explanation. Also, how much of
the Russel growth fund performance came from AMC and GME, those bell weather companies?
In IT corporate honchos shamelessly put more then a dozen of very specific skills into the
position rescription and want a cog that hit that exactly. they are not interested in IQ, ability
to learn and such things. that want already train person for the position to fill, so that have
zero need to train this persn and they expect that he will work productively from the day
one.
But corporate elites are loudly complaining that the sky is falling -- not because of a
real labor shortage, but because workers are less likely now to accept low-wage jobs.
Duh. This is so blindingly obvious, but NC is the only place that seems to mention this
fact.
Here in the UK, the outmigration of marginally paid workers from Eastern Europe and the
resultant "labour shortage" triggered by Brexit has made it abundantly clear that Blair's
change to open borders was not from any idealistic considerations but as a way of importing
easily exploited labor.
Business leaders quoted in the the tsunami of hand-wringing MSM articles about the current
catastrophe are offering such helpful solutions as allowing housekeepers to use pools and
gyms in off hours, free meals to waiters, etc. Anything but a living wage.
" I don't actually see any untruths to the GOP talking points. "
"" Workers are less likely to accept a job while receiving Gov't benefits" and "workers are
less likely to accept low wage crappy jobs ".
Well,if u can survive on a $300/week program that ends after several weeks pass,bless u.
No one else in America can. That's a $7.50 hr full time "summer job" with no pension or
medical benefits that teenagers with no dependents,few bills n maintenance issues might be
interested in; adults with adult responsibilities,no way. That so called RepubliCons, the
"economics experts", can make such a fraudulent claim n anyone out of elementary school
believes it has a quantum particle of reality or value is . well I'll just say a sad n
unbelievable situation.
They get 300 dollars plus regular UI. They can also get Medicaid and CHIP, or if they are
still making too much they are eligible for Obamacare exchange. Plus they're eligible for
SNAP and housing vouchers
There is one significant fallacy in this article: The author conflates Republican
opposition to enhanced benefits with opposition to unemployment benefits overall.
I very much stand with labour over business on most (probably all) points, but the
Republican argument is to end the enhanced benefits in most cases – Not to abolish
unemployment assistance. They believe the role of government is to step in to help pay basic
bills in the event of unemployment, but oppose the current higher level of benefit due to the
market distortions it causes (Hence the appearance of the term 'labour shortage'.)
I agree that it basically forces mcdonalds et al to up their wages if they want to do
business, which should be a positive for society, but I find it unlikely that the author
could have unintentionally mistunderstood the argument on such a fundamental level, and all
it does is try to drive a wedge further between each side of the argument.
Anyone that believes that workers supported their jobs being sent overseas is either
demented or delusional or suffers from a mental hernia. The same goes for the common working
stiffs supporting massive immigration to help drive down their ability to demand a livable
wage.
American labor has been sold down the river by the International Labor Leaders,
politicians and the oligarchy of US corporate CEO's.
======
Got a new hip recently. Do your P.T., take it easy, follow the warnings of what not to do
until you heal and you should discover that decades feel like they are lifted off your
shoulders.
Sierra,
You've made a very interesting point that actually never occurred to me and one in which I
never seen fully examined.
Exploiting labour and outsourcing it are two sides of the same coin with the same goal in
mind, diverting revenue streams into the C-suite and rentier class.
Obviously you cannot outsource most of the workers in the hospitality industry or the
non-virtual aspects of world's oldest profession, but a lot of the tech industry and the
virtual aspects of the latter are very amenable to being shipped overseas.
Immigrants are extremely visible and an easy target, while outsourcing is essentially an
impossible to contain concept that creates real world hardship.
Dear NC readers, do you know of any studies comparing and contrasting the economic impact of
immigration and/or limiting it and outsourcing?
Indeed, economists and analysts have gotten used to presenting facts from the
perspective of private employers and their lobbyists.
You are acting if economists and lobbyists are separate groups, as opposed to largely a
subset thereof. Funny how a field entirely based on the study of incentives claims incentives
don't distort their policy prescriptions, isn't it?
As for low-paid jobs, they are traditionally the last resort of immigrants and other
marginalized populations, but the anti-immigration push that began under Obama, and
enthusiastically continued by Trump and Biden, has perfectly predictable consequences.
One factor not mentioned is many free-riding businesses refuse to pay for training, then
wonder why there are no trained workers to hire.
Now, there are definitely fields where there is a genuine and deliberate labor shortage.
Usually white-collar credentialed professions like medical doctors and the AMA cartel.
Economics is not based on incentives. That's behavioral economics. I hate to quote Larry
Summers, but this is Summers on financial economics:
Ketchup economists reject out of hand much of this research on the ketchup market. They
believe that the data used is based on almost meaningless accounting information and are
quick to point out that concepts such as costs of production vary across firms and are not
accurately measurable in any event. they believe that ketchup transactions prices are the
only hard data worth studying. Nonetheless ketchup economists have an impressive research
program, focusing on the scope for excess opportunities in the ketchup market. They have
shown that two quart bottles of ketchup invariably sell for twice as much as one quart
bottles of ketchup except for deviations traceable to transaction costs, and that one
cannot get a bargain on ketchup by buying and combining ingredients once one takes account
of transaction costs. Nor are there gains to be had from storing ketchup, or mixing
together different quality ketchups and selling the resulting product. Indeed, most ketchup
economists regard the efficiency of the ketchup market as the best established fact in
empirical economics.
Happy to see you back at a keyboard, and hoping your recovery is progressing well. I had
the misfortune of spending two days in the hospitals while they got my blood chemistry
strightened out. Here's the kicker; the hospitalist, who I saw 3 times, submitted a bill for
a whopping $17,000. Just yesterday, the practice she works for submitted a bill that was
one-tenth her charges for the work she did, yet her bill is still sitting waiting to be
processed.
OMG, how horrible. HSS is a small hospital for a big city like NYC, only 205 beds and 25
operating rooms. No emergency room. They are not owned by PE and so I don't think play
outsourcing/markup games (they are very big on controlling quality, which you can't do if you
have to go through middlemen for staffing). Some of the MDs do that their own practices
within HSS but they are solo practitioners or small teams, which is not a model that you see
much of anywhere outside NYC
The last time I was hospitalized, all the hospitalists were in the employ of the hospital,
now they are in the employ of a nationwide hospitalist practice, which has all the smell of
private equity around it. I'm really beginning to think that a third party focusted on
healthcare might have a real shot at upsetting the political order – maybe it's time to
drag out your skunk party for 2024.
As for low-paid jobs, they are traditionally the last resort of immigrants and other
marginalized populations, but the anti-immigration push that began under Obama, and
enthusiastically continued by Trump and Biden, has perfectly predictable
consequences.
Well I'm sorry you can't find easily exploitable labor, except I'm not immigrants face the
same ridiculous costs, and weren't hispanic workers more heavily impacted by covid due
to those marginal jobs (I'll switch your dynamic to low wage workers , and
marginal jobs, thanks), so by your logic more should have been let in to die from
these marginal jobs? but yeah we need more PMC except we don't Now, there are definitely fields where there is a genuine and deliberate labor shortage.
Usually white-collar credentialed professions like medical doctors and the AMA
cartel."
Last I checked it was private equity, wall st and pharmaceutical companies and their
lobbyists that drive up costs so labor needs to charge more.
Wake up and smell the coffee.
How much of this is over specification on the part of employers in the ad for the job? We
want the perfect candidate who can do the job better than we can with no training .
OMG this is such a long-standing pet peeve! We've commented on this nonsense regularly.
Companies took the position that they don't have to train and now they are eating their
cooking.
The mismatch between job openings and job applicants is not just about wages.
In fact, if companies were willing to take a chance on people who didn't exactly match the
job requirements, the likely effect would be to raise the wages some of those that did not
qualify under the over exacting job requirements. [And likely paying these new employees less
than they had contemplated paying the perfect candidate.]
But that seems like someone making the hiring decision might, just possibly, be seen as
taking a risk.
At my empolyer we know we can't find any colleges that teach mainframe skills, so we bring
in graduates who are willing to learn those skills – we submit them to a 3-month
bootcamp and then there's a long period of mentorship under a senior person to their group
that has an opening. Since everybody and their dog are now moving headfirst into DevOps,
where all the tooling is in somewhat less ancient software, they get exposed using those
Eclipse/VScode-based tools and are able to come up to speed somewhat quicker. Still, no one
in corporate America dares to bite the bullet and re-platform their core systems with few
exceptions (SABRE) for fear of losing all the institutional knowledge that's in software,
rather than wetware (humans).
Just think what is happening right now with everyone holding an Indian outsourcing
contract. You don't have individual's cellphone numbers over in India, which would cost you
an arm and a leg to call, never mind what's going on in their facilities.
On the other hand, there's something to be said for employers not training their staffs.
In the SF Bay Area computer industry, employees and independent contractors alike continually
race to train themselves in the new technologies that seem to crop up like mushrooms after a
rain. Many companies train their customers–and charge them for it–before they'll
train their staffs. This is a principal reason there's a market for contractors. Training
oneself in new technologies lays a base for opportunities that don't appear if you spend a
decade in the same job (unless, like mainframe programming, your job is so old it's new). I
suppose this is a beneficial side of capitalism?
I get that you want experience for mid to senior level jobs but the experience
requirements for what are ostsensibly entry-level jobs have gotten absurd. The education
requirements have also gotten out of hand in some cases.
That being said, a lot of the shortages are in low-wage, part-time jobs so the issue isn't
necessarily ridiculous requirements, like you sometimes see for entry level white collar
jobs, but wages that are too low and awful working conditions.
How many people want to be treated like dirt–be it by customers, management, or
both–for not much more than minimum wage if they have other options?
A wage increase will help fill these jobs but there also needs to be a paradigm shift in
how employees are treated–the customer is not always right and allowing them to treat
employees in ways that would not be tolerated in other businesses, and certainly not in many
white-collar workplaces is a huge part of the problem and why these jobs have long had
high-turnover.
It never ends – when it was about immigrant labor under George B junior – I
think – the call was
-- - They do jobs that Americans won't -- or something to that effect.
It always bothered me that the sentence was never, in my mind, completed. It should have been
said
-- They do jobs that Americans won't do at that pay level. --
The tax system, economic system and higher education departments have been perverted by the
continuous bribery and endowments by the rentier class to our elected law makers and dept
heads for decades –
The creditor, debtor relationships distorted for eons.
The toll takers have never, in history, been in any higher level of mastery than they are
now.
It is not to throw out the constitution but, to throw out those who have perverted it.
The construction industry knows how to exploit immigrant labor, documented as well as
undocumented. I'm sure most peole born here refuse to work for the same wages.
The exploitation occurs on many levels. For small residential jobs, a lot of wage theft
occurs. For larger jobs, a lot of safety regs get ignored. When you have a population that
won't use the legal avenues available to other citizens to push back against abuse you can
get a lot done :/
When I go looking for a job if a degree isn't required I am very unlikely to pursue it
further. Same if the list of 'required' is overly detailed. I'm making assumptions in both of
these cases (that might not be correct) about pay, benefits, work environment, etc. and what
is actually going on with a job listing. Why? Chiefly my likelihood of actually getting a
reasonable offer. I expect either being seen as overqualified in the first case or the job
only being listed because of some requirement in the second.
I have to wonder if many places know how to hire. This is made much more difficult by
years of poorly written (maybe deceptive) job postings. You probably know many of the
phrases; flexible schedule, family ___, reliable transportation required, and so on. Its no
surprise if puffery doesn't bring back the drones.
If we're playing with statistics. How many of these posted job openings, how many
interviews did the companies offer v. how many offers were made until the position was
filled? If position remains open, has the company increased the base pay offer? guaranteed an
increased min. number of weekly hours? offered bonuses or increased benefits? How many times
has this same job opening using the original posting criteria been re-posted? Is this a real
single job opening that the company plans to fill in real time or just a posting that they
keep opening because they have high turnover? etc., etc., etc.
The real problem with this workers are lazy meme is that it is repeated and repeated all
year long on the local news from the viewpoint of business. It has filtered down to local
people. I hear them repeating what the local news said without giving it any critical
thought. Even those who say that we need unions and believe themselves to be on the side of
workers.
Ear wigs are good for businesses. Insidious for workers.
In the UK, in the days of Labor Strive, before Neo-liberalism , there was always newspaper
reports about "Labor Strife" and "bolshy workers." Never once did the press examine
Management had behaved and caused the workers to become "bolshy" – a direct reaction to
Management's attitudes and behavior, probably based on the worst attributes of the UK's class
system.
Definition: A bolshy person often argues and makes difficulties.
Management get the workers (Their Attitudes) it deserves.
I recommend reading "The Toyota Way" to explore a very successful management style.
This song is getting a probably getting more hits these days
Take this job and Shove It https://www.youtube.com/watch?v=eIjEauGiRLo
But I hear lots of businesses will close to to no labor, so when they close they can go work
for 7.25 an hour for one of their competitors who also needs laborors Solidarinosc!
If businesses are suffering, it's restaurants and small scale enterprise. The Covid
response was tailored to the needs of economy of scale mega biz. They likely knew multitides
of mom-n-pops would go away- and they have. But that's fine.
So if state governments can turn down federal unemployment supplements because they want
labor to go back to work for unlivable wages this means the federal government can do nothing
about it. When push comes to shove the question that must be settled is, Is it a human right
to receive employment assistance until a job is found that pays a livable wage? (Not even a
republican will actually say No). So then that puts all the stingy states on notice that
there is a human rights issue here. States will have the choice to either let businesses shut
down for lack of workers, or states can subsidize minimum wages and benefits. If states
choose, in desperation, to subsidize minimum wages, then the states can apply to the feds to
be compensated. The thing that is needed in the interim, between when the real standoff
starts and ends, is a safety net for workers who are being blocked by the state from
receiving unemployment benefits. I say call in the national guard. This is a human rights
issue.
The real exploitation happened when we allowed companies to delocalize, manufacture
product in China and sell it here with no strings attached.
James Goldsmith seems like a prophet now, he was so absolutely right.
Wow. The Clinton flack was insufferable. AND WRONG about pretty much everything. Goldsmith
was brilliant. I wasn't paying enough attention at he time, but how many high profile people
were making the arguments he was making?
I'm surprised that nobody has taken the opportunity to comment on how this discussion
shows how hypocritical Biden and the democrats were not to press for raising the minimum
wage.
The pretense (which they must have coached the "Senate scholar" on) was that raising the
minimum wage was not related to revenue (i.e., a revenue bill). But of course it is! Right
now, paying below-poverty wages enabled Walmart and other employers to make the government
pay part of their wage bill. Higher minimum wages would raise these government aid recipients
out of the poverty range, saving public revenue.
That is so obvious that the failure of the Democrats to make the point shows that they really
didn't want to raise wages after all.
I didn't expect much from Biden but he's even worse than I thought. Along with those
bought senators hiding behind Joe Manchin. Depressing to think how much worse everything will
become for working people here.
When I think about how they're complaining about Manchin now when there was a serious
primary challenge against him last year, and how the Democrat organization rallied around
Manchin and not his challenger, it is disgusting to see Slate/The Guardian/NYT/other "Blue no
matter who" mouth breathers write articles asking what can be done to salvage a progressive
agenda from the curse of bipartisanship.
I had given up on national politics long before the 2020 election circus but this latest
has confirmed my resolve. The destruction of the Democrat party can't come soon enough.
If I call them Hypocritics, when I never believed them in the first place, will they feel
any shame at all? Or must I be part of their class for them to feel even the tiniest of
niggles?
Perhaps they'll feel ashamed once they cut the check for the $600 they shorted us this
winter. Or maybe that they are reneging on the extended unemployment benefits early or
One side makes you sleep on a bed of nails and swear allegiance.The other side generously
offers to help you out, no strings attached, but you might bleed out from the thousands of
tiny means-testing cuts. Each side want the lower tiers to face the gauntlet and prove one's
worthiness, hoping to convince us that a black box algorithm is the same thing as a jury of
peers.
Exactly right! And keep in mind deluge of op-eds telling us that Biden is a
transformational president! The same authors presented a deluge of op-eds telling us how
Senator Sanders was to radical for the American people after he did well in early primaries.
That the reforms he supported like Medicare for all, raising the minimum wage, lowering drug
costs, help with daycare, doing something about climate change etc. were reforms that the
people would never accept because the people value their freedom and don't want to live in a
socialistic country.
It looks like none of the promises Biden made during the campaign will be implemented by
President Biden. That why he is in the White House.
Would a lot of these positions be filled if the US had single payer healthcare or similar?
Would workers accept low paying positions if they didn't have to lose so much of their pay to
crappy health insurance?
At our local Petsmart they cut staff during the pandemic. They laid off all full time
workers
And are only hiring back part time. I knew several of the laid off people and they are not
coming back. Two of the people that worked full time have found other jobs one with slightly
better pay the other with slightly better benefits. We are in California where rent is very
high so another person we know decided to use this as a chance to relocate to another state
where housing is less expensive. Our older neighbor retired, although vaccinated now, he
decided it just wasn't safe and after the CDC told everyone to take off their mask off. He is
glad he just decided to live on a little less money. I suspect there are a lot of reasons as
Yves stated above for a lack of workers, but this "they are lazy" trope is capitalistic
nonsense.
Some highlights:
>> everyone but an idiot knows that the lower classes must be kept poor, or they will
never be industrious.
-- Arthur Young; 1771
>>Even David Hume, that great humanist, hailed poverty and hunger as positive
experiences for the lower classes, and even blamed the "poverty" of France on its good
weather and fertile soil:
'Tis always observed, in years of scarcity, if it be not extreme, that the poor labour more,
and really live better.
>>Poverty is therefore a most necessary and indispensable ingredient in society It
is the source of wealth, since without poverty, there could be no labour; there could be no
riches, no refinement, no comfort, and no benefit to those who may be possessed of
wealth.
I'll just point out, per the Old Testament, that wage, debt and rent slavery were the
exception, not the norm (as they are in the US) for citizens (Hebrews) in ancient
Israel/Judah.
That's because the assets in ancient Israel/Judah were roughly equally owned by all
citizens with provisions in the OT Law (eg. Leviticus 25, eg. Deuteronomy 15, eg. Deuteronomy
23:19-20) to keep it that way in the long run (but less than 50 years).
Contrast that to US where we have privileges for a private credit cartel, aka "the banks",
and no limits to the concentration of land ownership and the roots of our problems are
evident.
So begging for better jobs for citizens is, in the Biblical context, pathetically weak tea
indeed.
On a personal note I had a great job interview Thursday at the local food co-op. This is
my first in person interview since I was terminated without cause by IBM (after almost 24
years there in a server development job) almost a year ago. Despite applying for over 100
positions. I'm over 60 and haven't worked in a year so I admit I'm grateful to even get the
chance.
I have another interview with them next week and hoping to start soon as a produce clerk
making $13.50 an hour. If I can get on full time they offer a decent insurance plan including
dental. The HR person acknowledged that I was "wildly overqualified" but encouraging. The
possibility of getting health care is key; my IBM Cobra benefits will start costing me almost
$1400/monthly for myself and my husband in September after the ARA subsidy expires.
I've adjusted my expectations to reinvent myself as a manual laborer after decades in
fairly cushy corporate life. I've managed to keep my health and physical capacity so somewhat
optimistic I can meet the job requirements that include lifting 50 lb boxes of produce. But
we'll see.
You mean you haven't had a job in a year since it's highly doubtful that you have not done
any work in a year; eg. cooking, cleaning, shopping, car maintenance, gardening,
chauffeuring, mowing the lawn, home maintenance and caring for others count as work.
We need to stop conflating work (good) with wage slavery as if the former necessarily
requires the latter.
Okay sure. I haven't earned in a year. But it's still a problem I'm trying to sort
out best as I can.
Since I still live in the US where earning is highly correlated with insurance
coverage, and I still have about 5 years until we're both qualified for Medicare this may
turn out to be a great thing that has happened.
And since I don't see a path out of wage slavery today I'll be happy to accept almost any
offer from the food co-op. It's a union job with decent pay and benefits and may offer other
opportunities in the future. They mostly buy and sell products that are locally made so that
makes it easier too. The money we are all enslaving each other over is staying around here as
much as possible. Okay.
Good luck! Fyi i strongly suggest u look into taking your IBM pension asap as 1. It will
minimally impact your taxes as u r now earning less n 2. How many more years do u think it
will be there? ( I usually recommend most people take their social security at 62 for similar
reasons but in your case I'd do your research b4 making any move like that. ) Take a blank
state n Fed tax form n pencil in the new income n see what the results are.
Btw truly wonderful people are involved in food co-ops,enjoy!
No one really questions the idea of maximising profit.
How do you maximise profit?
You minimise costs, including labour costs, i.e. wages.
Where did the idea of maximising profit comes from?
It certainly wasn't from Adam Smith.
"But the rate of profit does not, like rent and wages, rise with the prosperity and
fall with the declension of the society. On the contrary, it is naturally low in rich and
high in poor countries, and it is always highest in the countries which are going fastest to
ruin." Adam Smith
Exactly the opposite of today's thinking, what does he mean?
When rates of profit are high, capitalism is cannibalising itself by:
1) Not engaging in long term investment for the future
2) Paying insufficient wages to maintain demand for its products and services
Today's problems with growth and demand.
Amazon didn't suck its profits out as dividends and look how big it's grown (not so good on
the wages).
The benefits of the system can be passed upwards in dividends or downwards in wages.
Both actually detract from the money available for re-investment as Jeff Bezos knows only too
well.
He didn't pay dividends, and paid really low wages, to maximise the amount that he could
re-invest in Amazon and look how big it's grown.
The shareholders gains are made through the value of the shares.
Jeff Bezos hopes other people are paying high enough wages to buy lots of stuff from Amazon;
his own workers don't have much purchasing power.
Where do the benefits of the system go?
Today, we pass as much as possible upwards in dividends.
In the Keynesian era they passed a lot more down in wages.
> Jeff Bezos hopes other people are paying high enough wages to buy lots of stuff from
Amazon; his own workers don't have much purchasing power.
You are missing the tree in the forest. Jeff hopes other people will pay a high enough
price for Amazon stawk. We already know Jeff doesn't give a shit about the stuff he sells, or
the inhumane working conditions that go along with the low pay and short "career". I mean,
not even the nastiest farmer would treat his mules like that, even if mules were easy and
cheap to come by.
We don't think people should get money when they are not working.
Are you sure?
What's the point in working?
Why bother?
It's just not worth all the effort when you can make money doing nothing.
In 1984, for the first time in American history, "unearned" income exceeded "earned"
income.
They love easy money.
With a BTL portfolio, I can get the capital gains on a number of properties and extract
the hard earned income of generation rent at the same time.
That sounds good.
What is there not to like?
We love easy money.
You've just got to sniff out the easy money.
All that hard work involved in setting up a company yourself, and building it up.
Why bother?
Asset strip firms other people have built up, that's easy money.
"West Virginia's Republican Governor Jim Justice justified ending federal jobless
benefits early in his state by lecturing his residents on how, "America is all about work.
That's what has made this great country."
Have you had a look around recently?
In 1984, for the first time in American history, "unearned" income exceeded "earned"
income.
America is not about work at all.
The US is largely about exploiting or being exploited with most of US doing both.
We should resent an economic system that requires we exploit others or be a pure victim
ourselves.
That said and to face some truths we'd rather not, the Bible offers some comfort, eg:
Ecclesiastes 7:16 Do not be excessively righteous, and do not be overly wise. Why should you ruin
yourself?
Ecclesiastes 5:8-9 If you see oppression of the poor and denial of justice and righteousness in the province,
do not be shocked at the sight; for one official watches over another official, and there are
higher officials over them. After all, a king who cultivates the field is beneficial to the
land.
Nonetheless, we should support economic justice and recognize that most of us are net
losers to an unjust economic system even though it offers some corrupt compensation* to
divide and confuse us.
*eg positive yields and interest on the inherently risk-free debt of a monetary
sovereign.
Jim Justice made his money the old fashioned way, he inherited it:
From Wiki: James Conley Justice II (born April 27, 1951) is an American businessman and
politician who has been serving as the 36th governor of West Virginia since 2017. With a net
worth of around $1.2 billion, he is the wealthiest person in West Virginia. He inherited a
coal mining business from his father and built a business empire with over 94 companies,
including the Greenbrier, a luxury resort.
I wonder how much of this is also related to a change in the churn we assume existed
pre-pandemic? For example, the most recent JOLTS survey results from April
2021 show the total number of separations hasn't really changed but the number of quits
has increased.
So, one possible interpretation of that would be employers are less likely to fire people
and those who think they have skills in demand are more interested in leaving for better
opportunities now. That makes intuitive sense given what we've been through. If you had a
good gig and it was stable through 2020 you had very little reason to leave it even if an
offer was better with another company. That goes double if you were a caregiver or had
children. Which of course is why many women who were affected by the challenges of balancing
daycare and a career gave up.
This is also my experience lately. While it's only anecdotal evidence, we're having a hard
time hiring mid career engineers. Doesn't seem like pay is the issue. We offer a ton of
vacation, a separate pool of sick time, decent benefits, and wages in the six figures with a
good bonus program. We're looking to hire 3 engineers. We can't even get people to apply. In
2019 we could be sure to see a steady supply of experienced candidates looking for new
opportunities. Now? If you have an engineering position and your company is letting you work
from home it seems you don't have a good reason to jump.
Look no further than Cedar Point Amusement Park in Sandusky, Ohio. They had only half the
staff they normally need at $10 an hour. So they double the wage to $20 an hour and filled
every job in less than a week. The Conservaturds will never admit they are lying.
As a small business owner providing professional services I am grateful for the comment
section here.
I have called professional peers to get a behind the corporate PR perspective of their
businesses. Although anecdotal, the overall trend in our industry is to accept the labor
shortage and downsize. Most firms have a reliable backlog of work and will benefit from an
infrastructure bill. Our firm has chosen to downsize and close vacant positions.
Remote work, although feasible, has employees thinking they are LeBron James, regardless
of their skill set. Desperate employers are feeding their belief. Two years from now it will
be interesting to see if these employees they fail forward. Company culture minimized
employee turnover pre-covid. This culture has little meaning to an employee working in his
daughter's playroom.
For context, in California, I believe the median income for licensees is approximately
$110,000 with lower level technicians easily at $75k in the urban areas.
Lastly, the "paltry" $300 per week is in additional to the state unemployment checks and
is not subject to taxes. As stated previously, $300 is equal to $7.50 per hour. Federal
minimum wage is $7.25 and is adopted by many states minimum, for what it's worth.
With respect, I do not see any there there in the comment. Adjusted for inflation the
minimum wage at its height in 1968 at 1.60, would be just under $13 per hour today. However,
even at $15 in California, it is inadequate.
Anyone making anything like the minimum wage would not be working from home, but would be
working in some kind of customer service job, and would find paying for adequate food,
clothing, and shelter very difficult. Not in getting any extras, but only in getting enough
to survive. People, and their families, do need to eat.
If the response of not paying enough, and therefore not getting new hires, is to downsize,
perhaps that is good. After all no business deserves to remain in business, especially if the
business model depends on its workers being unable to survive.
I am also fed up with the "lazy worker" meme. Or rather, propaganda. People are literally
exhausted working 2 or 3 lousy jobs and no real healthcare. Equally irritating to me is a
misguided notion that we have some magically accessible generous safety net in the US. As
though there aren't thousands and thousands on waiting lists for government subsidized
housing. Section 8 vouchers? Good luck.
We've ended "welfare as we [knew] it" (AFDC) thanks to Bill Clinton and then the screw was
turned tightly by Junior Bush (no child care, but go to work.) The upshot was bad news for
kids.
Seems to me one of the few things left is the food stamp program, and I can't imagine how
that's been reconfigured. Whomever gave that fantastic list of goodies people can get in the
US with a mere snap of the fingers isn't in the real world, imho.
Ok! Yves, lovely to see you again, my friend! (Cue the Moody Blues ) Get well!
Here is my story.
I am 56 years old, on dialysis and I was collecting SSI of 529 a month.
I was living with and taking care of my mother in her home because she had dementia.
She died in December and I had to start paying the bills. In March I inherited her IRA which
I reported to SS. I was able to roll it over into my own IRA because I am disabled, due to
the Trump tax law changes.
I reported the changes in a timely manner and because I couldn't afford to live here without
a job, I took a part time job for 9 an hour.
So now, because I inherited my mother's IRA and have too much resources I no longer qualify
for SSI and have been overpaid to the tune of almost 2 grand, which I am assuming I will have
to pay back. I have no idea how that works either. Do they just grab money out of your
account? Anyone who knows please tell me.
I would run, run, run to the nearest public assistance counselor or lawyer. In the San
Francisco Bay Area, it is should not be too hard to find one. They saved me. There are also
in California several state websites. There was a useful to me benefits planning site (It only covers nine states though).
The rules for SSI (Supplemental Security Income), SSDI (Social Security Disability
Insurance), Social Security, Medi-Cal or Medicaid, and Medicare are each different. Each
state has its own modifications as well, so that is fifty additional sets of modified rules
especially for the medical benefits. If they are determined to claw back the money, how it is
done might depend on the individual state. It is truly a maze of flycatchers and trapdoors
out for you and your money.
The overworked benefits clerks often do not have the knowledge to deal with anything even
slightly unusual and are not encourage or at least discouraged from finding out due to
the never shrinking pile, not from anyone's malice. This means you could lose benefits
because they did not know what they were doing or just by mistake. So, it is up to you to
find those nonprofit counselors or the for profit lawyer to help you through the laws, rules,
and whatever local regulations there are. Hopefully, you will not have to read through some
of the official printed regulations like I did. If wasn't an experience paper pusher.. The
average person would have been lost. Intelligence and competence has nothing to do with.
Hell, neither does logic, I think.
In my case, when I inherited a retirement account, SSDI was not affected, because of how
the original account was set up. However, SSDI is different from SSI although both have
interesting and Byzantine requirements. I guess to make sure we are all "deserving" of any
help.
So don't ask anonymous bozos like me on the internet and find those local counselors. If
it is nonprofit, they will probably do it completely free. If needed, many lawyers, including
tax lawyers, and CPAs will offer discounted help or will know where you can go.
What is the floor on wages?
Disposable income = wages – (taxes + the cost of living)
Set disposable income to zero.
Minimum wages = taxes + the cost of living
So, as we increase housing costs, we drive up wages.
The neoliberal solution.
Try and paper over the cracks with Payday loans.
This what we call a short term solution.
Someone has been tinkering with the economics and that's why we can't see the problem.
The early neoclassical economists hid the problems of rentier activity in the economy by
removing the difference between "earned" and "unearned" income and they conflated "land" with
"capital".
They took the focus off the cost of living that had been so important to the Classical
Economists as this is where rentier activity in the economy shows up.
It's so well hidden no one even knows it's there and everyone trips up over the cost of
living, even the Chinese.
Angus Deaton rediscovers the wheel that was lost by the early neoclassical economists. "Income inequality is not killing capitalism in the United States, but rent-seekers like
the banking and the health-care sectors just might" Angus Deaton, Nobel prize winner.
Employees get their money from wages and the employers pay the cost of living through wages,
reducing profit.
This raises the costs of doing anything in the US, and drives off-shoring.
The Chinese learn the hard way.
Davos 2019 – The Chinese have now realised high housing costs eat into consumer
spending and they wanted to increase internal consumption. https://www.youtube.com/watch?v=MNBcIFu-_V0
They let real estate rip and have now realised why that wasn't a good idea.
The equation makes it so easy.
Disposable income = wages – (taxes + the cost of living)
The cost of living term goes up with increased housing costs.
The disposable income term goes down.
They didn't have the equation, they used neoclassical economics.
The Chinese had to learn the hard way and it took years, but they got there in the end.
They have let the cost of living rise and they want to increase internal consumption.
Disposable income = wages – (taxes + the cost of living)
It's a double whammy on wages.
China isn't as competitive as it used to be.
China has become more expensive and developed Eastern economies are off-shoring to places
like Vietnam, Bangladesh and the Philippines.
Inflation for common people level means devaluation of the dollar. It can happen for reasons
completely detached from money supply issues. For example shortage of commodities (especially
oil) or diminishing of the world reserve currency status of the dollar (refusal of some countries
to hold their currency reserves in dollars and switch to other currencies in mutual trade).
Increase of military expenses (Pentagon budget is over trillion dollars now) also does not help
(guns instead of butter policy)
The reason that rates are discounting the current "economic growth" story is that artificial
stimulus does not create sustainable organic economic activity.
"This is because bubble activities cannot stand on their own feet; they require support
from increases in money supply that divert to them real savings from wealth generators. Also,
note again that a major cause behind the possible decline in the pool of real savings is
unprecedented increases in money supply and massive government spending. While the pool of
real savings is still growing, the massive money supply increase is likely to be followed by
an upward trend in the growth rate of the prices of goods and services. This could start
early next year. Once the pool of real savings starts to decline, however -- because of
massive monetary pumping and reckless fiscal policies -- various bubble activities are will
plunge. This, in turn, is likely to result in a large decline in economic activity and in the
money supply." – Mises Institute
As stimulus fades from the system, that decline in money supply is only one of several
reasons that "deflation" will resurface.
Monetary & Fiscal Policy Is Deflationary
The Federal Reserve and the Government have failed to grasp that monetary and fiscal policy
is "deflationary" when "debt" is required to fund it.
How do we know this? Monetary velocity tells the story.
What is "monetary velocity?"
"The velocity of money is important for measuring the rate at which money in circulation
is used for purchasing goods and services. Velocity is useful in gauging the health and
vitality of the economy. High money velocity is usually associated with a healthy, expanding
economy. Low money velocity is usually associated with recessions and contractions. " –
Investopedia
With each monetary policy intervention, the velocity of money has slowed along with the
breadth and strength of economic activity.
While in theory, "printing money" should lead to increased economic activity and inflation,
such has not been the case.
A better way to look at this is through the " veil of money" theory.
If money is a commodity, more of it should lead to less purchasing power, resulting in
inflation. However, this theory began to fail as Governments attempted to adjust interest rates
rather than maintain a gold standard.
Crossing The Rubicon
As shown, beginning in 2000, the "money supply" as a percentage of GDP has exploded higher.
The "surge" in economic activity is due to "reopening" from an artificial "shutdown."
Therefore, the growth is only returning to the long-term downtrend. As shown by the attendant
trendlines, increasing the money supply has not led to either more sustainable economic growth
rates or inflation. It has been quite the opposite.
However, it isn't just the expansion of the Fed's balance sheet that undermines the strength
of the economy. For instance, it is also the ongoing suppression of interest rates to try and
stimulate economic activity. In 2000, the Fed "crossed the Rubicon," whereby lowering interest
rates did not stimulate economic activity. Therefore, the continued increase in the "debt
burden" detracted from it.
Similarly, we can illustrate the last point by comparing monetary velocity to the
deficit.
As a result, monetary velocity increases when the deficit reverses to a surplus. Such allows
revenues to move into productive investments rather than debt service.
The problem for the Fed is the misunderstanding of the derivation of organic economic
inflation
6-More Reasons Deflation Is A Bigger Threat
Previously,
Mish Shedlock discussed Dr. Lacy Hunt's views on inflation, or rather why deflation remains
a more significant threat.
Inflation is a lagging indicator. Low inflation occurred after each of the past four
recessions. The average lag was almost fifteen quarters from the end of each. (See Table
Below)
Productivity rebounds in recoveries and vigorously so in the aftermath of deep
recessions . The pattern in productivity is quite apparent after the deep recessions ending
in 1949, 1958, and 1982 (Table 2 Below). Productivity rebounded by an average of 4.8% in
the year after each of these recessions. Unit labor costs remained unchanged as the rise in
productivity held them down.
Restoration of supply chains will be disinflationary . Low-cost producers in Asia and
elsewhere could not deliver as much product into the United States and other relatively
higher-cost countries. Such allowed U.S. producers to gain market share. As immunizations
increase, supply chains will gradually get restored, removing that benefit.
Accelerated technological advancement will lower costs . Another restraint on inflation
is that the pandemic significantly accelerated the implementation of technology. The sharp
shift will serve as a restraint on inflation. Much of the technology substitutes machines
for people.
Eye-popping economic growth numbers vastly overstate the presumed significance of their
result . Many businesses failed in the recession of 2020, much more so than usual.
Furthermore, survivors and new firms will take over that market share, which gets reflected
in GDP. However, the costs of the failures won't be.
The two main structural impediments to traditional U.S. and global economic growth are
massive debt overhang and deteriorating demographics, both having worsened as a consequence
of 2020.
To summarize, the long-term risk to current outlooks remains the "3-Ds:"
Deflationary Trends
Demographics; and,
Debt
Conclusion
With this in mind, the debt problem remains a massive risk. If rates rise, the negative
impact on an indebted economy quickly depresses activity. More importantly, the decline in
monetary velocity shows deflation is a persistent threat.
"It is hard to overstate the degree to which psychology drives an economy's shift to
deflation. When the prevailing economic mood in a nation changes from optimism to pessimism,
participants change. Creditors, debtors, investors, producers, and consumers all change their
primary orientation from expansion to conservation.
Creditors become more conservative, and slow their lending.
Potential debtors become more conservative, and borrow less or not at all.
Investors become more conservative, they commit less money to debt investments.
Producers become more conservative and reduce expansion plans.
Consumers become more conservative, and save more and spend less.
These behaviors reduce the velocity of money, which puts downward pressure on prices.
Money velocity has already been slowing for years, a classic warning sign that deflation is
impending. Now, thanks to the virus-related lockdowns, money velocity has begun to collapse.
As widespread pessimism takes hold, expect it to fall even further."
There are no real options for the Federal Reserve unless they are willing to allow the
system to reset painfully.
Unfortunately, we now have a decade of experience of watching monetary experiments only
succeed in creating a massive "wealth gap."
Most telling is the current economists' inability to realize the problem is trying to "cure
a debt problem with more debt."
In conclusion, the Keynesian view that "more money in people's pockets" will drive up
consumer spending, with a boost to GDP being the result, has been wrong. It hasn't happened in
40 years.
Unfortunately, deflation remains the most significant threat as permanent growth doesn't
come from an artificial stimulus.
bikepath999 2 hours ago
Title is 100% wrong! It's artificial growth (money printing) that is the inflation!
Organic growth thru increased production can actually lead to deflation!
OldNewB 2 hours ago
Exactly. Inflation can be the reduction in the rate of deflation due to productivity
increases.
bikepath999 2 hours ago
Transitory is just the new little catch phrase to have you chasing after your own tail
rather than skinning alive a central banker or politician
dead hobo 2 hours ago (Edited)
Transitory was Janet Yellen's favorite word for years. It was her catch phrase like
Bernanke's was 'The benefits outweigh the costs'. Total blather in both cases.
In both cases, it was muppet-speak for 'p*ss off'. But it sounded oh so intelligent and
the media lapped it up.
About the above article ... Economics, as commonly applied by sales folk, teachers,
experts, and pundits is theology, not science. One credibility trick is to quote an expert
who quoted another expert. Like above. How can you argue against this depth?
Misesmissesme 2 hours ago (Edited)
They are somewhat correct on the technical definition of inflation. However,
hyper-inflation does not care about any of that. It only needs a government willing to
print and a populace that has lost faith in the currency. We know the gov and the Fed are
game. It's just a matter of time until the masses lose faith in the dollar.
OldNewB 2 hours ago (Edited) remove link
Devaluing the fiat by printing to infinity has nothing to do with growth.
Printing IS inflation. Where it shows up is another matter.
Whether it results in higher prices is a function of behavior between buyers and sellers
of assets, products and services.
-- ALIEN -- 2 hours ago (Edited) remove link
International Energy Agency said GLOBAL PEAK OIL PRODUCTION for all liquids happened in
2018.
NO economic growth is possible without growing the energy supply, so 2% predicted growth
is BS,
unless other countries contract by 2+%.
Quia Possum 2 hours ago
We're beyond the point of pulling the rip cord.
Some ZH writer had an excellent analogy to a hot air balloon on fire. Up to a height X,
you can jump off safely. Up to a height Y you can jump off and survive with some broken
bones, but you're going to have to muster some courage to do that. But once you pass that
height you're dead whether you jump or stay in the balloon all the way.
The price of energy is growing. and that means inflation is accelerating, but it will
probably take the form of stagflation...
Stagflation is characterized by slow
economic growth and relatively high unemployment -- or economic stagnation -- which is at the same time
accompanied by rising prices (i.e. inflation). Stagflation can also be alternatively defined as a
period of inflation combined with a decline in gross domestic product (GDP). See also Stagflation - Wikipedia
Stagflation led to the emergence of the Misery index . This index, which is
the simple sum of the inflation rate and unemployment rate, served as a tool to show just how
badly people were feeling when stagflation hit the economy.
Under neoclassic economic doctrine stagflation was long believed to be impossible. This
pseudoscience demonstrated in the Phillips Curve portrayed
macroeconomic policy as a trade-off between unemployment and inflation.
Excellent analysis. I would add one point as a result of your conclusion. Older
populations with declining birth rates and slower population, depress household, business and
public investment. The contracting effect on investment is highly deflationary and overwhelms
the impact of inflation due to the smaller labor force. This condition is plainly evident in
Japan and Europe. Moreover, this pattern will be increasingly apparent in the US .
The Transitory Boat
The transitory boat is a small one. Powell and Yellen have to say that no matter what they
believe.
Rosenberg, Hunt, and I are in the small boat.
And if you want another reason to be in that boat with us, then think about what happens
when asset bubbles burst. It won't be inflationary, that's for sure.
Meanwhile, "I just say buy the gold," Rosenberg said. "Gold has 1/5 of the volatility that
bitcoin has."
Let us preface our inflation note with one of our favorite quotes:
"World War II was transitory"
– GMM
Inflation has eroded my purchasing power in my transitory life. Bring back the $.35 Big Mac,
which was only about 20% of the minimum wage. Now? About 40-50%... Enough to spark a
revolution?
By Rebecca Elliott and Collin Eaton Updated Aug. 26, 2020 4:11 pm ET
Refineries, petrochemical facilities and ports along the Gulf Coast were closing as
Hurricane Laura barreled toward the Texas-Louisiana border.
The hurricane strengthened to a Category 4 storm Wednesday, with sustained winds of 140
miles an hour, according to an afternoon update from the National Hurricane Center. It is
projected to unleash a storm surge as high as 20 feet along portions of the Louisiana coast
with as much as 15 inches of rainfall.
Inflation doesn't really matters, what only matters is the one big question: "How much bonds
does the one market member with unlimited funds buy?".
And the time the FED was able to rise more than .25% is in the rear mirror – when they
hike now, inflation or not, all these zombie companies and zombie banks will fail and no lawyer
in the world will be able to clean up the chaos after all these insolvency filings.
They have to talk the way out of this inflation. They have to talk until it stops, or
longer. They can't hike. They can perhaps hike again when most of the debt is inflated away
– a period with 10+% inflation and 1% bond interrest.
And yes, they can buy litterally any bond dumped onto the market – shown this in March
last year when they stopped the corona crash in an action of one week.
I think most non-investment-banks are zombies at the moment, and more than 20% of all
companies. They all will fail in less than 1 year when we would have realistic interrest rates.
On the dirty end, this would mean 10%+ for all this junk out there – even mighty EXXON
will be downgraded to B fast.
In old times the FED rates would be more than 5% now with these inflation numbers. Nobody
can pay this these days.
And now in the USA – look for how much social justice and social security laws you'll
get. The FED has to provide cover for all of them.
We in Europe will do this, too. New green deal, new CO2 taxes, better social security
– the ECB already has said they will swallow everything dumped on the market.
So, oil 100$ the next years – but some kind of strange dollars buying less then they
used to.
Eulen , your 2cents = 1 Dollar . Everything you say is correct . Weird is the only word for
what is happening in the financial world . I was in my first year of college when Paul Volcker
hiked interest rates into double digits so I have a benchmark to measure against . This is not
going to end well . Take care .
REPLY
There are also Bagdad Bobs from IEA " "World oil supply is expected to grow at a faster rate
in 2022, with the US driving gains of 1.6 million bpd from producers outside the OPEC alliance.
"
All factors that Stokman sites does not exclude bond rate remaining withing this yea max-min
band for the rest of the year. You never know how long Fed will continue to buy bonds to suppress
the yield.
The last "dead chicken bounce" of 10 year bond caught many people unprepared and
surprised.
The Fed's destructive money-pumping has many victims, but chief among these is the Wall
Street financial narrative itself.
It emits not a whiff about the patent absurdity of the Fed's monthly purchase of $120
billion of treasury and GSE debt under current circumstances; and treats with complete respect
and seriousness the juvenile word game known as "thinking about thinking about tapering" by
which the clowns in the Eccles Building fearfully attempt to placate the liquidity-intoxicated
speculators on Wall Street.
So it's not surprising that today's 5.0% CPI reading was made inoperative within minutes
after the BLS release by a chorus of financial pundits gumming about "base effects" and
ridiculing outliers like soaring used car prices (up 29.7% YoY), which, of course, Bloomberg
reporters never see the inside of anyway.
Then again, that's why we look at the two-year stacked CAGRs, which smooth the ups and downs
of the worst lockdown months last spring; and also why we use the 16% trimmed mean CPI, which
eliminates the highest 8% and lowest 8% of items in the overall CPI each month (both sets of
deleted outliers are different each month).
In the present instance, therefore, off-setting the used car prices in the highest 8% of
items during May is the -5.0% YoY drop in health insurance costs (if you believe that BLS
whopper) and the -5.3% drop in sporting event prices, which, of course, have been largely zero
since last April.
In any event, the 16% trimmed mean CPI for May was up by 4.7% annualized versus the April
number and was higher by 2.62% on YoY basis.
Still, the more salient point is that on a two-year stacked basis the plain old CPI -- used
car prices and all -- leaves not a scintilla of doubt: Consumer inflation is accelerating and
rapidly.
During the last eight months the growth rate for the two year stack has risen from 1.48% to
2.55% per annum. And we don't recall a word in May 2019 about that year's reading being
particularly deflationary. It was actually up 1.83% from May 2018.
Per Annum CPI Increase, Two-Year Stack:
October 2020: 1.48%;
November 2020: 1.59%;
December 2020: 1.78%;
January 2021: 1.92%;
February 2021: 1.99%;
March 2021: 2.07%;
April 2021: 2.23%;
May 2021: 2.55%.
Still, according to the Fed apologists there's nothing troubling about the above because the
Fed is now only trying to hit its 2.00% inflation target "averaged over time".
Let's see. Here are the CPI growth rates going back to May 2014. It turns out you have to
average back seven years before you have a shortfall from the 2.00% target!
CPI Increase per Annum To May 2021 From:
May 2018, 3-Yr, average: 2.31%;
May 2017, 4-Yr. average: 2.42%;
May 2016, 5-Yr. average: 2.31%;
May 2015, 6-Yr. Average:2.10%;
May 2014, 7-Yr. Average: 1.81%
You get the scam. These mendacious fools will just keep averaging back in time until the get
a number that's a tad under 2.00%, smack their lips loudly and then pronounce the current
inflation to be "transitory".
And they will also toss out any inflation index that undercuts their MOAAR inflation mantra
-- like all of the data reported above!
So we will say it again : The CPI is a highly imperfect general price measure owing to its
one-sided treatment of quality (hedonic) improvements, wherein some reported prices are
adjusted downward for improved product features like airbags and more powerful PCs, put few
prices are adjusted upward for the junkie toys, towels, kitchenware, appliances and furniture
that comes out of China.
But with the 8% highest and 8% lowest prices dropped out monthly to filter out the short-run
noise, the 16% trimmed mean version of the CPI at least purports to be a fixed basket price
index, not a variable weight deflator like the Fed's beloved PCE deflator.
In short, the 16% trimmed mean CPI puts paid to the "transitory" scam. Come hell or high
water, this serviceable inflation measure has been rising at 2.00% per annum since the year
2000, and even more than that during the 1990s.
Thus, during the 112 months since the Fed formally adopted inflation targeting in January
2012, it has risen by 2.03% per annum and by 2.15% per annum since January 2000.
Equally significantly, there have been only a handful of times during the 256 monthly
readings since January 2000 when the year-over-year measure dropped materially below 2.00%.
YoY Change, 16% Trimmed Mean CPI, 2000-2021
For want of doubt, here is the Fed's preferred short-ruler -- -the core PCE (personal
consumption expenditure deflator less food and energy). And the Fed's case for its insane
money-pumping essentially boils down to the dueling information covered by the red bars above
and the purple bars below.
As it happens, the one-year change in the core PCE deflator is 3.1% and the stacked two-year
gain is 1.99% per annum. That latter is apparently not close enough to 2.00% for government
work, meaning that the Fed needs to get more years into its average.
Even then, you have to be trained in the medieval theology of counting angels on the head of
a pin to ascertain the purported earth-shaking "shortfall" from target. Compared to April 2021,
here are the multi-year CAGRs on an April-to-April basis:
2019-2021: 1.99%;
2018-2021: 1.89%;
2017-2021: 1.92%;
2016-2012: 1.86%:
2015-2021:1.82%
That's right. For the five year-pairs shown above, the average CAGR for the core PCE
deflator was 1.90%. It seems that "lowflation" amounts to that which you need a magnifying
glass to ascertain -- 10 basis points of shortfall.
Of course, our monetary bean counters are not done "averaging", either. If you go back to
January 2012 when the Fed officially adopted inflation targeting, the core PCE deflator is up
by 1.69% per annum, and since January 2000 it has risen by 1.75% per annum.
So there you have it. For want of 25-31 basis points of annual inflation -- -averaging back
to the beginning of the current century -- you have a camarilla of central bankers giving deer
in the headlights an altogether new meaning. That is to say, they are apparently not even
thinking about thinking about tapering their massive bond-buying fraud owing to the barely
detectable differences between purple and red bars of these dueling charts.
As we said a few days back, would that they had applied the 25th Amendment to the Federal
Reserve Board.
These sick puppies are in urgent need of palliative care.
YoY Change In Core PCE Deflator, 2000-2021
They are also in need of a dose of realism, and on that score there are three figures in the
May CPI report which tell you all you need to know. To wit, compared to May 2020, durable goods
prices were up by 10.3%, nondurables were higher by 7.4% and services less energy gained
2.9%.
In fact, in the recent history of these three figures lays a stinging refutation of the
entire "lowflation" scam promulgated by the Fed money printers and their acolytes and shills on
Wall Street and in Washington, too.
On this matter, the Donald was right, even if by accident or for the wrong reasons. What we
are referring to, of course, is the "Shina" factor.
Beijing's form of state-controlled printing press capitalism has systematically drivendown
the cost of manufactured goods and especially durables by, in effect, draining the rice paddies
of China's great interior and herding its latent industrial work force into spanking new
factories which paid wages less than meager. And CapEx costs were rock bottom, too, owing to
$50 trillion of central bank-fueled domestic debt and the greatest cheap capital-driven
malinvestment spree in human history.
The result was an intense, multi-decade long deflation of manufactured goods as the high
labor costs embodied in US and European manufacturers were steadily squeezed out of global
prices levels as production shifted to China and its East Asian supply chain.
That impact is patently obvious in the composition of the CPI among the three components
which were flashing warning lights in today's inflation report.
Composition of CPI By Major Components, 2000-2021
In the first place, the core of domestic inflation lies in the 58.8% weight of the CPI
consisting of mainly domestically supplied services. The 2.9% YoY gain reported for May for CPI
services less energy was essentially par for the course.
That is, during the last 21 years (since January 2000) this component (black line) has risen
by 2.71% per annum, and since January 2012 it has gained a similar 2.63% per annum.
Needless to say, if there is any part of the inflation rate that the Fed can most powerfully
impact, it is domestically supplied services like health care, education, housing,
entertainment, travel and foods services. So where's the "lowflation" in that part of the CPI
basket?
Alas, we don't have lowflation in services at all, but a stubborn 2.6%-3.0% upward price
drift in domestic service components which account for nearly three-fifths of the household
budget.
By contrast, the durable goods component (brown line) accounts for 11.1% of the CPI, and
it's been an anchor to the windward for more than two decades. As of May 2021, prices were
still 8% below their January 2000 level.
The truth is, the alleged lowflation on the top line CPI has been heavily attributable to
the deflationary durable goods sector, but, alas, that era is apparently over. The Chinese rice
paddies have been drained on a one-time basis and its labor force is now actually shrinking,
while the Donald's ill-timed tariff barriers have forced production to move to higher cost
venues, albeit not necessary the USA of A.
Either way, the anchor to the windward is largely gone , meaning that rising durable goods
prices going forward will no-longer weigh as heavily on the CPI.
It should be further noted that during the past two-decades nondurable prices have also
held-down the CPI top line -- again in large part owing to the "Shina" factor and downward
pressures from cheap apparel, footwear, home furnishings and the like.
During the past 21 years, the nondurables component (yellow line) of the CPI rose by 1.99%
per annum, which is as close as you please to the target, but was also on anchor on the overall
CPI top-line ( purple line) which increased by 2.19% per annum.
Alas, during the period since January 2012, nondurables rose by just 0.63% per annum owing
to flat-lining energy and commodity prices, thereby pulling the overall CPI down to 1.80% per
annum, where it too fell awry of the Fed's sacred 2.00% target.
But here's the thing. A smattering of surging nondurable goods prices in the May 2021 report
are a stark reminder that the times they are a changin'.
On a YoY basis, these components suggest that "lowflation" in durables may have passed its
sell-by date and that the 7.4% YoY gain in nondurables overall may be lifting, not suppressing,
the CPI top-line going forward.
YoY Change In Major Nondurables Components:
Energy commodities: +54.5%;
Apparel: +5.6%;
Home furnishings and supplies: +3.7%;
Footwear: +7.1%;
Food away from home: +4.0%
Household furnishings and operations: +4.6%.
In sum, the chart above captures the one-time history of the Fed's phony "lowflation"
narrative -- an aberrant condition that is now fading fast. Sooner or latter they will run out
of excuses and back inflation reports to average down. And that, in turn, means tapering of the
Fed's great bond-buying fraud -- the lynch pin of the greatest bond and stock bubble in
recorded history.
Do we think that will trigger the greatest financial asset value collapse in modern
times?
Why, yes, we do! play_arrow
wareco 4 hours ago remove link
Seriously? David Stockman? This guy has been perpetually wrong for the last 4 years, at
least. In June, 2017, he was calling for the S&P to fall to 1600. Never happened. In
October 2019, he loudly proclaimed that everyone should get out of the "casino". S&P up
40% since then. He has as much credibility as that self-promoter, Harry Dent, who has been
calling for gold to drop to $700 since 2012.
Sound of the Suburbs 8 hours ago (Edited) remove link
Stage one – The markets are rising.
Look at all that wealth we are creating.
Stage two – It's a bubble.
That wealth is going to disappear.
Stage three – Oh cor blimey! I remember now, this is what happened last time
At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
The use of neoclassical economics, and the belief in free markets, made them think that
inflated asset prices represented real wealth.
1929 – Wakey, wakey time
The use of neoclassical economics, and the belief in free markets, made them think that
inflated asset prices represented real wealth, but it didn't.
It didn't then, and it doesn't now.
Putting a new wrapper around old economics did fool global elites.
You'd have to get up pretty early in the morning to catch me out.
E5 9 hours ago
Not going to happen.
No one is buying.
No one is raising salaries.
Inflation is a stalled plane.
Everyone is waiting.
Self fulfilling prophecy. Mainstreet is waiting on their inheritance from dead Boomers.
The only thing that will save America. Money being spent and Cuban Missile Crisis not
happening under Boomers.
"... The dynamics show how much the municipal-bond market has been swept up in the global push into higher yield assets as central banks worldwide hold interest rates low to stoke the economic recovery. ..."
"... That's fueled a surge in debt sales by corporations and governments battered by virus lockdowns. And for the state and local government debt market, it has revived the years-long rally in junk bonds that was only temporarily derailed by the coronavirus lockdowns. ..."
"... So far this year, government agencies across the U.S. have sold more than $6.5 billion of bonds that can only be marketed to institutional investors able to bear the risk, driving such issuance toward the biggest year on record, according to data compiled by Bloomberg. ..."
With the economy rebounding swiftly from the pandemic, interest rates on high-yield state
and local government securities have tumbled to the lowest in over two decades. Cash is pouring
into mutual funds focused on the junk-rated debt so quickly that money managers are fighting to
get in on new deals. And prices have rallied, driving high-yield bonds to their biggest run of
outperformance since 2014.
The demand is so strong that a California agency sold 35-year bonds for the development of a
senior-living community at a yield of 4.43%, about two-and-a-half percentage points less than
bankers initially anticipated. The price went on to surge 8% in secondary trading.
"We couldn't think of a better time to come to market," said Sarkis Garabedian, an
investment banker at Ziegler, the underwriter on the bonds. He said the firm hadn't seen such
interest in a transaction for a new senior living campus since they started tracking the
metrics in the 1980s. "We really hit the sweet spot here."
Recent bond sales have raised money for an ethanol production facility in North Dakota, a
bevy of charter schools, and a youth-sports complex in Arizona. American Samoa, a junk-rated
territory, is tapping the market for the first time since 2018. And the owner of a plant that
recycles rice waste into fiberboard may sell more debt even though it has already been driven
to default.
The dynamics show how much the municipal-bond market has been swept up in the global push
into higher yield assets as central banks worldwide hold interest rates low to stoke the
economic recovery.
That's fueled a surge in debt sales by corporations and governments battered by virus
lockdowns. And for the state and local government debt market, it has revived the years-long
rally in junk bonds that was only temporarily derailed by the coronavirus lockdowns.
So far this year, government agencies across the U.S. have sold more than $6.5 billion of
bonds that can only be marketed to institutional investors able to bear the risk, driving such
issuance toward the biggest year on record, according to data compiled by Bloomberg.
May CPI is expected at 8:30 a.m. ET Thursday. It is unclear to me why the 10-year Treasury yield fell below the key 1.5% Wednesday.
Was it short-covering? if so what triggered it? If predictions are true it might jump up on Jun 10, 2021 because you can't have Headline
CPI 4.7% and the 10-year Treasury yield 1.5%. That's the theatre of absurd.
Rent, owners' equivalent rent and medical care services collectively are 50% of the core CPI basket.
Notable quotes:
"... Headline CPI is expected to jump 4.7% year-over-year, the highest rate since sky high energy prices spiked inflation readings in the fall of 2008. ..."
"... "I am worried about rent and owners' equivalent rent because it should go up. It had decelerated," she said. Shelter is more than 30% of CPI , and rent costs have bottomed in some cities, Swonk added. "The issue is it could have longer legs and keep overall inflation measures buoyed more than people expect." ..."
...The consensus forecast for the core consumer price index, which excludes food and energy, is 3.5% on a year-over-year basis,
according to Dow Jones. That's the fastest annual pace in 28 years.
Economists expect both core and headline CPI rose by 0.5% in May. Headline CPI is expected to jump 4.7% year-over-year, the highest
rate since sky high energy prices spiked inflation readings in the fall of 2008.
... ... ...
"I am worried about rent and owners' equivalent rent because it should go up. It had decelerated," she said. Shelter is more
than 30% of CPI , and rent costs have bottomed in some cities, Swonk added. "The issue is it could have longer legs and keep
overall inflation measures buoyed more than people expect."
"... As bubbles peak, they combine objective signs of excess" prices rising much faster than earnings can justify" with subjective signs of mania, such as frenzied trading and borrowing. ..."
"... My research on the 10 biggest bubbles of the past century, from the US stock market in 1929 to Chinese shares in 2015, shows that prices typically rise 100 per cent in the year before the peak, with much of the gain packed into the climactic last months. That finding is closely in line with bubble studies from academics at Harvard and others. ..."
"... By those standards, there are at least five current bubblets. They include the cryptocurrency market for bitcoin and ethereum; clean energy stocks, including some of the biggest names in electric vehicles; small cap stocks, including many of the hottest pandemic stories; a basket of tech stocks that lack earnings, which is also chock-a-block with famous brands; and special purpose acquisition companies (Spacs) , which allow investors a new way to buy into private firms before they go public. ..."
"... The historical bubbles in my study did suffer midcourse setbacks on the way up, but typically those corrections were around 25 per cent and never more than 35 per cent. Beyond that point" a 35 per cent drop" the bubbles in my sample became monophasic, or stuck on a one-way downhill path. ..."
"... It is important to remember that a bubble is often a good idea gone too far. In the early 2000s, the conventional wisdom was that the dotcom bubble had fuelled mainly junk companies with business plans barely worth the napkins they were written on. Later, researchers found that, compared with other bubbles, those in the tech sector produce many start-ups that fail but also help launch major innovations. For every few dozen dotcom flame-outs, there was a giant survivor such as Google or Amazon that would go on to make the economy more productive. ..."
As bubbles peak,
they combine objective signs of excess" prices rising much faster than earnings can justify"
with subjective signs of mania, such as frenzied trading and borrowing.
To some the entire US
stock market looks bubbly given its dizzying run-up, but earnings growth has also been
extraordinarily strong through the pandemic. Beneath the surface, however, sectors of the
market from green tech to cryptocurrency show tell-tale bubble signs.
My research on the 10 biggest bubbles of the past century, from the US stock market in 1929
to Chinese shares in 2015, shows that prices typically rise 100 per cent in the year before the
peak, with much of the gain packed into the climactic last months. That finding is closely in
line with bubble studies from academics at Harvard and others.
By those standards, there are at least five current bubblets. They include the
cryptocurrency market for bitcoin and ethereum; clean energy stocks, including some of the
biggest names in electric vehicles; small cap stocks, including many of the hottest pandemic
stories; a basket of tech stocks that lack earnings, which is also chock-a-block with famous
brands; and special purpose acquisition
companies (Spacs) , which allow investors a new way to buy into private firms before they
go public.
Each of these bubblets is captured in an index that rose in the last year by around 100 per
cent, often much more, to a peak value between $500bn and $2.5tn. Day traders and other newbies
rushed in, a common symptom of late stage market manias. Now these bubbles are faltering, as
they so often do, in response to increases in long-term interest rates. What's next?
The historical bubbles in my study did suffer midcourse setbacks on the way up, but
typically those corrections were around 25 per cent and never more than 35 per cent. Beyond
that point" a 35 per cent drop" the bubbles in my sample became monophasic, or stuck on a
one-way downhill path.
For the median case, the bottom was found 70 per cent below the peak, and came just over two
years after the peak. Except for the index of small-cap pandemic stocks, the other four bubble
candidates have all experienced drops of at least 35 per cent, but also of no more than 50 per
cent (in the case of ethereum). In other words, they are not likely to resume inflating any
time soon, and they are still far from the typical bottom.
There is one new factor that could upset this historical pattern. Despite the rise in
long-term interest rates, there is plenty of liquidity sloshing around the markets, with
central banks committed to easy money as never before. The risks though are skewed to the
downside.
It is important to remember that a bubble is often a good idea gone too far. In the early
2000s, the conventional wisdom was that the dotcom bubble had fuelled mainly junk companies
with business plans barely worth the napkins they were written on. Later, researchers found
that, compared with other bubbles, those in the tech sector produce many start-ups that fail
but also help launch major innovations. For every few dozen dotcom flame-outs, there was a
giant survivor such as Google or Amazon that would go on to make the economy more
productive.
"... Just in time for Pride Month, a new exchange traded fund aims to connect with LGBTQ investors. ..."
"... LGBTQ Loyalty Holdings partners with Harris Poll to annually survey 150,000 self-identifying LGBTQ constituents across the U.S. for their views about a company's brand awareness, brand image, brand loyalty and how the firm supports the community. As noted in its prospectus , 25% of the index's weighting is derived from that survey data. ..."
Just in time for Pride Month, a new exchange traded fund aims to connect with LGBTQ investors. Two previous efforts failed to
attract enough assets.
The fund, LGBTQ + ESG100 ETF LGBT,
, launched in late May, is a passively managed, large-cap index fund that holds the top 100 U.S. companies that most align with
the LGBTQ community.
In 2019, two LGBTQ-focused ETFs were delisted: ALPS Workplace Equality Portfolio ETF and InsightShares LGBT Employment Equality
ETFs. Like this new fund, both were mostly U.S. large-cap, passive index ETFs comprising companies that received high or perfect
marks for workplace equality in the Human Rights Campaign Corporate Equality
Index , a benchmark for corporate LGBTQ policies.
The first ETF stuck around for five years, but the second barely made it two years, even though it was launched with much fanfare
by UBS. Neither gained many assets.
Bobby Blair, CEO and founder of LGBTQ Loyalty Holdings, which launched the fund with issuer ProcureAM, says community input on
holdings makes this fund different.
LGBTQ Loyalty Holdings partners with Harris Poll to annually survey 150,000 self-identifying LGBTQ constituents across the U.S.
for their views about a company's brand awareness, brand image, brand loyalty and how the firm supports the community. As noted in
its prospectus
, 25% of the index's weighting is derived from that survey data.
... the LGBTQ + ESG100 has an annual expense ratio of 0.75%.
David Milliken and Kate Holton Sat, June 5, 2021, 4:01 AM
...Hundreds of billions of dollars could flow into the coffers of governments left
cash-strapped by the COVID-19 pandemic after the Group of Seven (G7) advanced economies agreed
to back a minimum global corporate tax rate of at least 15%.
Facebook said it expected it would have to pay more tax, in more countries, as a result of
the deal, which comes after eight years of talks that gained fresh impetus in recent months
after proposals from U.S. President Joe Biden's new administration.
"G7 finance ministers have reached a historic agreement to reform the global tax system to
make it fit for the global digital age," British finance minister Rishi Sunak said after
chairing a two-day meeting in London.
The meeting, hosted at an ornate 19th-century mansion near Buckingham Palace in central
London, was the first time finance ministers have met face-to-face since the start of the
pandemic.
U.S. Treasury Secretary Janet Yellen said the "significant, unprecedented commitment" would
end what she called a race to the bottom on global taxation. German finance minister Olaf Scholz said the deal was "bad news for tax havens around the
world". Yellen also saw the G7 meeting as marking a return to multilateralism under Biden and a
contrast to the approach of U.S. President Donald Trump, who alienated many U.S. allies. "What I've seen during my time at this G7 is deep collaboration and a desire to coordinate
and address a much broader range of global problems," she said.
Ministers also agreed to move towards making companies declare their environmental impact in
a more standard way so investors can decided more easily whether to fund them, a key goal for
Britain.
... ... ...
Key details remain to be negotiated over the coming months. Saturday's agreement says only
"the largest and most profitable multinational enterprises" would be affected.
... ... ...
The G7 includes the United States, Japan, Germany, Britain, France, Italy and
Canada.
... Average hourly earnings for workers in leisure and hospitality rose to $18.09 in May,
the highest ever and up 5% from January alone, according to Labor Department data released on
Friday. Pay rose even faster for workers in non-manager roles, who saw earnings rise by 7.2%
from January, far outpacing any other sector.
That higher pay could be a sign that companies are lifting wages as they seek to draw people
back to work after more than a year at home. Some businesses are struggling to keep up with
higher demand as more consumers, now fully vaccinated, get back to flying, staying in hotels
and dining indoors. Job gains in leisure and hospitality this year have so far outpaced gains
in other sectors.
But it is too soon to know whether the boost will be enough to help speed up hiring at a
time when many workers are still facing other obstacles, including health concerns and having
to care for children and other relatives.
"The fact of the matter is, the pandemic is still going on," said Daniel Zhao, a senior
economist for Glassdoor. "The economy is running ahead of where we are from a public health
situation."
Some 2.5 million people said they were prevented from looking for work in May because of the
pandemic, according to the Labor Department.
... ... ...
Employment in leisure and hospitality is still in a deep hole when compared with pre-pandemic
levels. The industry added 292,000 jobs in May, with about two-thirds of that hiring happening
in restaurants and bars. But overall employment is still down 2.5 million jobs, or 15% from
pre-pandemic levels, more than any other industry.
... ... ...
Some people who previously worked at hotels or restaurants moved on to other types of jobs
during the pandemic, such as packaging goods at a warehouse, and it's too soon to know whether
they will switch back as more of the economy reopens, said Zhao.
...About half of states are putting an early end to a $300 federal supplement to weekly
unemployment benefits, winding them down as soon as June 12. The supplement expires nationwide
on Sept. 6.
(Reporting by Jonnelle Marte and Ann Saphir; Editing by Chizu Nomiyama and Jonathan
Oatis)
"Over the past five years, the S&P 500 stock index has more than doubled. For the past
10 years, it has nearly quadrupled," says Orman. "If you have left your portfolios on
autopilot, that could likely mean that you now own more stock than you intend to, or
should."
Left to their own devices, your increasingly valuable stocks may have started to account for
an even larger portion of your account
... ... ...
Orman cites a recent analysis from Fidelity Investments on the retirement plans the company
handles. Fidelity estimates about 20% of savers own more stock than they'd recommend for
someone of their age.
Whereas climate change issues are the presumptive reasons behind the latest wave of investor revolts at the oil and gas giants,
lurking beneath the surface is a growing sense of apprehension about Big Oil's strategy and failure to generate adequate returns for
shareholders in recent decades.
The naked truth is that Exxon and its cohorts have severely underperformed the broader market over the last two decades in terms of
total returns to shareholders, implying the sector's woes are long-term and strategic rather than short-term and cyclical.
Chronic underperformance
XOM
Source: CNN Money
Big Oil's underperformance relative to the market is clearly evident whether you are looking at 2-year, 5-year, 10-year, or even
20-year timespans.
For instance, since 2015, Exxon shares have returned a -2.5% compound annual loss based on share prices and dividends, a far cry
from the average annual gain of +14.4% by the
S&P 500
over the timeframe.
Over the past two decades, Exxon's compound annual return has clocked in at +4.2%, still considerably lower than the broad market
benchmark's return of +7.1%.
... ... ...
Exxon is hardly alone, with none of its peers, including Chevron,
Royal Dutch Shell
(NYSE:RDS.A),
BP
Inc.
(NYSE:BP), and
Total
(NYSE:TOT) coming close to matching the returns by
the broader share market over the past decade.
In fact, on an inflation-adjusted U.S. dollar basis, returns by Exxon, Shell, and BP have been negative over the past five years, a
period which coincided with the biggest bull market in the history of the stock market.
The renewable energy conundrum
You cannot blame the oil majors for continuing to engage in a lot of hand-wringing at a time when investors are demanding they pump
less oil and transition to cleaner energy.
For the oil majors, successfully transitioning to green energy companies is not going to be a walk in the park because these
companies have to ride two horses.
That's the case because the majority are already battling dwindling cash flows which means they cannot afford to gamble with
whatever little is left. Oil prices have been on a downtrend since 2014, a situation that has only worsened during the pandemic.
Oil and gas firms are still grappling with the best way to presently use dwindling cash flows; in effect, they are still weighing
whether it's worthwhile to at least partially reinvent themselves as renewables businesses while also determining which low-carbon
energy markets offer the most attractive future returns.
Most renewable ventures, like solar and wind projects, tend to churn out cash flows akin to annuities for several decades after
initial up-front capital expenditure with generally low price risk as opposed to their current models with faster payback but high
oil price risk. With the need to generate quick shareholder returns, some fossil fuel companies have actually been scaling back
their clean energy investments.
Energy companies are also faced with another conundrum: Diminishing returns from their clean energy investments.
A
paper
published in Science Direct
last August says that dramatic reductions in the cost of wind and solar have been leading to an even
bigger reduction in revenue inflows leading to falling profits. This is particularly true for wind energy as later deployments of
wind usually have lower market value than earlier ones due to wind energy revenue declining more rapidly than cost reductions. Solar
is more resilient, with technological progress approximately balancing out the revenue degradation, which perhaps explains why
solar
stocks have gone ballistic.
Adding wind and solar to our grid tends to reduce electricity prices during peak generation times: Indeed, electricity prices in
California can come down to zero during long sunny durations. This was not a problem for early deployments but is becoming a major
concern as renewables increasingly play a bigger part in our electricity generation mix.
But, ultimately, Big Oil will have to take the plunge and engage in drastic internal restructuring and product cycle transitions
even as activists like Engine No.1 promise to continue turning the screw. As Charlie Penner of Engine No.1 has told
FT
, the
energy transition is happening faster than expected and has undermined Big Oil's assumptions about long-term demand for its oil.
"The bots' mission: To deliver restaurant meals cheaply and efficiently, another leap in
the way food comes to our doors and our tables." The semiautonomous vehicles were
engineered by Kiwibot, a company started in 2017 to game-change the food delivery
landscape...
In May, Kiwibot sent a 10-robot fleet to Miami as part of a nationwide pilot program
funded by the Knight Foundation. The program is driven to understand how residents and
consumers will interact with this type of technology, especially as the trend of robot
servers grows around the country.
And though Broward County is of interest to Kiwibot, Miami-Dade County officials jumped
on board, agreeing to launch robots around neighborhoods such as Brickell, downtown Miami and
several others, in the next couple of weeks...
"Our program is completely focused on the residents of Miami-Dade County and the way
they interact with this new technology. Whether it's interacting directly or just sharing
the space with the delivery bots,"
said Carlos Cruz-Casas, with the county's Department of Transportation...
Remote supervisors use real-time GPS tracking to monitor the robots. Four cameras are
placed on the front, back and sides of the vehicle, which the supervisors can view on a
computer screen. [A spokesperson says later in the article "there is always a remote and
in-field team looking for the robot."] If crossing the street is necessary, the robot
will need a person nearby to ensure there is no harm to cars or pedestrians. The plan is to
allow deliveries up to a mile and a half away so robots can make it to their destinations in
30 minutes or less.
Earlier Kiwi tested its sidewalk-travelling robots around the University of California at
Berkeley, where
at least one of its robots burst into flames . But the Sun-Sentinel reports that "In
about six months, at least 16 restaurants came on board making nearly 70,000
deliveries...
"Kiwibot now offers their robotic delivery services in other markets such as Los Angeles
and Santa Monica by working with the Shopify app to connect businesses that want to employ
their robots." But while delivery fees are normally $3, this new Knight Foundation grant "is
making it possible for Miami-Dade County restaurants to sign on for free."
A video
shows the reactions the sidewalk robots are getting from pedestrians on a sidewalk, a dog
on a leash, and at least one potential restaurant customer looking forward to no longer
having to tip human food-delivery workers.
...Analysts at Goldman Sachs""in October""ran the numbers on the stock market impact of
previous capital-gains tax hikes. While there is only a modest impact on the stock market as a
whole, momentum stocks usually get socked before they are levied, they found. That makes
sense""investors logically are more motivated to sell the stocks where they would save the most
by avoiding higher capital-gains taxes.
The last time capital-gains taxes were hiked, in 2013, the wealthiest households sold 1% of
their equity assets, the Goldman analysts found. According to the
Federal Reserve's distributional financial account data , the top 1% held $17.79 trillion
of equities and mutual funds in the fourth quarter of 2020""so a 1% selling of stocks this time
would be $178 billion. (The most recent Internal Revenue Service breakdown, from 2018, found
that millionaires accounted for just over 500,000 filers or about 0.4% of the total.)
"... As I argued three weeks ago, this sentiment pattern suggests that the market may remain in a fairly narrow range for the next several months. ..."
"... be on the lookout for when the market timers remain bullish in the face of declines, or bearish in the wake of rallies. That will indicate that a bigger decline or rally is in store. ..."
"... In the meantime, the market timers' behavior suggests both market rallies and declines will be subdued. That's good news to the extent you were worried that a major new bear market is about to begin, but bad news if you were hoping for a more sustained rally. ..."
This quick jumping onto and off of the bullish and bearish bandwagons has become the new
normal, as you can see from the table below.
... ... ...
As I argued three weeks ago, this sentiment pattern suggests that the market may remain
in a fairly narrow range for the next several months. The contrarian bet is that the
market will finally break out of that trading range whenever the market timers stubbornly hold
onto their sentiment beliefs in the face of the market moving in the opposite direction.
That is, be on the lookout for when the market timers remain bullish in the face of
declines, or bearish in the wake of rallies. That will indicate that a bigger decline or rally
is in store.
In the meantime, the market timers' behavior suggests both market rallies and declines
will be subdued. That's good news to the extent you were worried that a major new bear market
is about to begin, but bad news if you were hoping for a more sustained rally.
... ... ...
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks
investment newsletters that pay a flat fee to be audited. He can be reached at [email protected] .
Job gains in May were led by leisure and hospitality, with the sector adding 292,000 jobs.
Payrolls grew by
559,000 last month, the Labor Department reported Friday, up from a revised 278,000 in
April, which marked a sharp drop from March's figure.
The labor recovery has slowed from earlier in the year -- in March, the economy added
785,000 jobs
... The labor-force participation rate, the share of adults working or looking for work,
edged slightly lower in May to 61.6%, down from 63.3% in February 2020.
Republicans, always eager to snatch the bread from the mouths of the poor, are blaming
unemployment benefits for the reluctance of workers to return to jobs. In some red states,
they already are snatching it.
But more men are returning to work than are women. Doesn't that prove that unemployment
benefits are not holding back former workers?
I'll bet more women will return to work in September, after schools start up in-person
classes.
William Lamb
Republican turn a blind on helping people, except themselves. They would rather have one
being a slave and get pay less then nothing with little perks in making less then high
quality item that will still have defects, even if we pride our workmanship that is suppose
to equal to none. It would like being in 1950s, when there was not much world competition,
when world economy was still recovering from WW2.
I guessed Republican want American to continue working by low paying wages so they can
enrich themselves, and show that America can still produce things with slave wages.
johm moore
Most of the jobs are insufficient to support a reasonable quality of life. A job today is
about like a half a job pre-NAFTA and the job export process in terms of the quality of life
that it supports.
Bryson Marsh
If UI was holding back employment, then why are we adding so many low wage jobs? The missing
jobs are in *middle income* sectors.
David Chait
I wouldn't call people returning to work "new" jobs, that just seems disingenuous.
rich ullsmith
Asset prices rise when the jobs report is lukewarm. Thank you, Federal Reserve. May I have
another.
Sam Trotter
It should be made mandatory to publish the offered wage/rate. I see so many fake jobs posted
on LinkedIn with no description of bill rate for contract positions or Base+Bonus for
Full-Time roles. Too many mass scam messages.
Analysts said other factors are driving lower yields, including a weaker dollar, which has
lifted demand for Treasurys from foreign investors. Foreign investors tend to hold more
Treasurys when the dollar declines and reduces the costs of protecting against swings in
currencies.
That is a counterintuitive response , because rising inflation erodes the value of
Treasuries' payouts. And the data did indicate stronger inflation: Excluding volatile food and
energy costs, prices rose 0.7% in May. That was the second-highest monthly increase in consumer
prices since the early 1980s, behind April's 0.8% rise. Compared with last year, when the
global economy was mired in a pandemic-driven slowdown, headline consumer prices rose at
a 5% pace . (Excluding food and energy, they rose 3.8%.)
The market's moves could be muted because investors are betting that central bankers are
going to stick with their view that most of the strength in consumer prices will pass after a
potentially bumpy reopening period and keep policy easy.
That doesn't mean Treasuries have much room to rally more from here.
The Fed's meeting next week may be the first test. If central-bank officials talk about
starting to remove accommodation earlier than expected, that could send yields higher. In fact,
strategists from TD Securities decided to take a bearish view on the 10-year note on Thursday,
after yields fell below 1.5% earlier this week. They argued that continued economic momentum
and stronger inflation could lead central-bank officials to take a more upbeat tone on the
economy than investors expect at their meeting on June 15 and 16.
The percentage of people quitting their jobs, meanwhile, also rose to a record 2.8% among
private-sector workers. That's a full percentage point higher than a year ago, when the
so-called quits rate fell to a seven-year low.
...A recent study by Bank of America, for example, found that job switchers earned an extra
13% in wages from their new positions. That's a big chunk of money.
...Normally people who quit their jobs are ineligible for unemployment benefits, but they
can get an exemption in many states for health, safety or child-care reasons.
About half of the states, all led by Republican governors, plan to stop giving out the
federal benefit by early July to push people back into the labor force. Economists will be
watching closely to see how many people go back to work.
Wood, who became the face of the outsized rally in technology stocks such as Zoom Video
Communications Inc and electric vehicle maker Tesla Inc during the coronavirus pandemic last
year, said that falling lumber and copper prices signal that the market is "beginning to see
signs that the risks are overblown" from inflation.
...Wood, whose ARK Innovation ETF was the top-performing actively managed U.S. equity fund
tracked by Morningstar last year, has seen her performance stagnate along with the slowdown in
growth stocks. Her flagship fund is down nearly 28% from its early February high.
A short-term period of slightly higher inflation wouldn't be memorable, but an extended run
of inflation above 3% can be problematic. Social Security Is Your Best Inflation Hedge; you need
to maximize it.
Social Security checks represent about a third of income for all retirees.
Among elderly recipients, those checks represent half of their retirement income for married
couples and 70% for singles.
A primary residence, if you own a house and it is fully paid off, also gave some minimal
inflation protection.
Another factor is that once people actually get into retirement, ,
their spending generally decreases so much that they're spending less overall, even accounting
for inflation.
While seniors can't directly affect the inflation rate,
there are ways to minimize the shadow it casts over their retirement.
Reducing housing costs, for instance, is a step in the right direction. Trading in a larger
home for a smaller one, even if the mortgage is paid off, reduces the monthly outflow for
property taxes, utilities, homeowners insurance, and maintenance.
Another smart move is adding investments to your portfolio that are likely to increase in
value as inflation rises.
The media is buzzing with claims of an "Economic Boom" in 2021. While the economy will most
certainly grow in 2021, the question is how much is already "baked in?"
"The economy has entered a period of supercharged growth. Instead of fizzling, it could
potentially remain stronger than it was during the pre-pandemic era into 2023.
Economists now expect the second quarter to grow at a pace of 10%, and they expect growth
for 2021 to be north of 6.5%. In the past decade, only a few quarters gross domestic product
growing at even 3%."
The premise is that strong "pent up" demand will sustain the economic recovery over the next
few years.
However, since market lows in 2020, the market surge has not only recouped all of those
losses but has rocketed to all-time highs on expectations of surging earnings growth.
"Vaccines and herd immunity continue to bring COVID cases down, and the economic reopening
continues to kick into a higher gear. Such is what the data is starting to show. Across
economic metrics, from the gross domestic product ( GDP ) to retail sales and job growth, boom
conditions are evident ."
She is correct in her statement. However, there is a difference between an "economic boom"
and a "recovery." As shown in the chart of GDP growth below, the U.S. has already experienced a
very sharp "economic recovery" from the recessionary lows. (I have included estimates for the
rest of 2020, which shows a return to trend growth.)
The following chart shows the economic recovery against the massive dumps of liquidity
pumped into the economy. (Estimates run through the end of 2021 using economist's
assumptions.)
Can't Recoup Losses
Certain areas of the economy, like airlines, hotels, and cruise ships, have yet to recover
to pre-pandemic levels. However, those industries only make up a relatively small amount of
overall economic activity. Furthermore, these industries will continue to struggle for some
time as individuals will not take "two vacations" this year since they missed last year. That
activity is now forever lost.
Yes, the economy will recover most likely to pre-pandemic levels this year due to stimulus
injections, but as
discussed previously , what then?
"The biggest problem with more stimulus is the increase in the debt required to fund it.
There is no historical precedent, anywhere globally, that shows increased debt levels lead to
more robust economic growth rates or prosperity. Since 1980, the overall increase in debt has
surged to levels that currently usurp the entirety of economic growth. With economic growth
rates now at the lowest levels on record, the change in debt continues to divert more tax
dollars away from productive investments into the service of debt and social welfare."
Just as it is with investing, getting "back to even" is not the same thing as "organic
growth."
"In calculus, the second derivative , or the second-order derivative , of a function f is
the derivative of the derivative of f." – Wikipedia.
In English, the "second derivative" measures how the rate of change of a quantity is itself
changing. Since we measure GDP growth on an annual rate of change basis, the larger the economy
grows, the lower the rate of change will be. Here is a simplistic example go GDP growth:
In year 1, GDP = $1. In the second year, GDP grows to $2. The annual rate of change is
100%. However, in year 3, even though the economy grows to $3, the annual rate of change
falls to just 50%.
Given the long-term historical correlation between economic growth, corporate earnings, and
annualized returns, the reversion to trend growth has implications for investors. As Liz
notes:
"Using three broad ranges for GDP growth historically, the lowest range (when the economy
is barely growing or in recession) is accompanied by the highest annualized stock market
performance. GDP is only slightly back into positive territory on an annualized basis.
However, the strong growth expected in the second quarter will push GDP into the highest
zone. At that level, stocks have historically posted a negative annualized return."
The reason is that once economic growth reaches higher levels, stocks have climbed to levels
incorporating those expectations. In other words, when things are as "good as they can get,"
stocks begin to reprice for slower future growth rates.
That is the phase we are at currently.
How Much Pent Up Demand Is There Anyway
The main driver of the expected recovery from a "recessionary" low stems from the question
of how much "pent up" demand currently exists?
If we look at durable goods as an example, such would suggest that much of the demand for
long-lasting products got pulled forward by consumers over the last 12-months.
Of course, if we broaden that measure to retails sales which make up ~40% of the personal
consumption expenditures (PCE) index , we see much the same.
Given PCE, which comprises nearly 70% of GDP, has already recovered much of pandemic-related
decline, how much "pent up" demand remains.
However, wage growth outside of personal transfer payments (i.e., stimulus) hasn't
recovered. It is impossible to sustain higher rates of economic growth without wage growth.
Importantly, as we saw in January and February following the $900 billion stimulus bill
passage, there was a short-lived surge of activity. However, once individuals spent the money,
activity quickly faded. We saw the same with retail sales in April following the American
Rescue Plan, which sent out $1400 checks.
After the $1400 checks get spent, what will be the driver for continued consumption at
previous rates? Further, given the impact of a larger economy (as it recovers), the rate of
change will decline markedly in the months to come.
Earnings Growth Inflection
"Earnings growth has a high correlation to stock market performance, but with time lags
that are less well-understood. We are about halfway through the first quarter S&P 500
earnings season and so far, the results are exceptionally strong." – Liz Ann
Sonders
That is correct, and given the high correlation between earnings and market returns, we come
back to the same question. Has the advance in the market accounted for the rebound in earnings?
More importantly, what happens when that growth reverses?
"Relative to last year's second-quarter plunge of nearly -31% year-over-year, expectations
are that S&P 500 earnings will be up more than 46% in this year's first quarter. The
second quarter will boast a whopping 60% increase. Such should be the inflection point in
terms of the year-over-year growth rate." – Liz Ann Sonders
The problem is the S&P rose to levels that earnings growth will have difficulty
supporting, particularly as the stimulus fades from the system. As with economic growth, the
2nd derivative of earnings growth is now a headwind for the markets.
Notably, the outsized growth of the market reflects repetitive interventions into the
financial markets by the Fed. Those interventions detached financial asset growth from their
long-term correlation to GDP growth, where corporate revenue comes from. Historically, when the
S&P
500 becomes separated from economic growth, a reversion occurred.
Currently, analysts are expecting earnings to surge well above economic growth rates.
However, the flaw in the analysis is the assumption earnings growth will continue its current
trend.
While there will be an economic recovery to pre-pandemic levels, a recovery is very
different from an expansion.
As Liz concludes:
"Optimism is extremely elevated. Such is certainly justified by stock market behavior over
the past year and recent economic releases. But some curbing of enthusiasm may be warranted
given the history of the stock market as an uncanny 'sniffer-outer' of economic inflection
points."
As she goes on to point out, this is not a time for FOMO-driven investment decision-making.
The reality is that the supports that drove the economic recovery will not support an ongoing
economic expansion. One is self-sustaining organic growth from productive activity, and the
other is not.
The risk of disappointment is high. And so are the costs of being "wilfully blind" to the
dangers.
Yes, inflation is rising, and retirees must now consider repositioning not just their
short-term safe-haven investments (we'll talk more about that in part two) but their entire
portfolio as well (which we'll focus on here). Well that, conveniently enough, is the subject
(and title) of a paper soon to be published in the Journal of Portfolio Management that was
co-authored by Campbell Harvey, a professor at Duke University, and several of his colleagues
affiliated with Man Group. What more, Harvey and his co-authors found that no individual equity
sector, including the energy sector, offers significant protection against high and rising
inflation.
... here's what Harvey and his co-authors discovered after researching eight periods of
inflation dating back to 1925: Neither equities nor bonds performed well in real terms during
the inflationary periods studied. Real being the nominal rate of return minus the rate of
inflation.
... ... ...
TIPS
"Treasury Inflation-Protected Securities (TIPS) are robust when inflation rises, giving them
the benefit of generating similar real returns in inflationary and noninflationary regimes,
both of which are positive," the authors wrote.
In fact, TIPS had a 2% annualized real return during the most recent five periods of
inflation.
But what looks promising in a research paper might not work in reality given the current
yield on TIPS (0.872% as of June 2, 2021). The low yield means that TIPS are a "really super
expensive" inflation hedge going forward, said Harvey.
"It means that you're going to get a negative return in noninflationary periods," he said.
"So yes, they provide the protection, but they're an expensive way to get that protection."
Commodities
"Traded commodities" have historically performed best during high and rising inflation. In
fact, traded commodities have a "perfect track record" of generating positive real returns
during the eight U.S. periods studied, averaging an annualized 14% real return.
Now investors might not be able to trade commodities in the same manner as institutional
investors using futures, but they can invest in ETFs that invest in a broad basket of
commodities, said Harvey.
Other assets
Residential real estate on average holds its value during inflationary times, though not
nearly as well as commodities. Collectibles such as art (7%), wine (5%) and stamps (9%) have
strong real returns during inflationary periods, as well.
And while some suggest adding bitcoin to a diversified portfolio as an inflation protection
asset, caution is warranted given that bitcoin is untested with only eight years of quality
data -- over a period that lacks a single inflationary period, the authors wrote. "It's not
just untested," said Harvey. "It's too volatile."
Gold is also too volatile as a reliable hedge against inflation. Harvey noted, for instance,
that the performance of gold since 1975 is largely driven by a single year, 1979, when gold
dramatically appreciated in value. "And that makes the average look really good," he said.
Harvey also said his number one dynamic strategy for inflationary times is changing the
sector exposures in your portfolio. With this strategy, you would allocate a greater portion of
your assets to sectors that have historically performed well during inflationary periods, such
as medical equipment, and less if anything at all to sectors that have performed poorly during
inflationary periods, such as consumer durables and retail. "You can naturally rebalance your
portfolio to be a little more defensive," he said. "And that can be done by any investor."
Harvey and his co-authors also found active equity factors generally hold their own during
inflation surges with "quality stocks" having a small positive real return and "value stocks"
having a small negative return.
Dynamic strategies are "active" strategies that involve monthly rebalancing of portfolios,
according to Harvey. In contrast, passive strategies require minimal or no rebalancing; for
example, holding an S&P 500 index fund.
Active equity factor investing uses frequent rebalancing to take bets that deviate from the
investment weights implied by a passive market portfolio. These bets seek to produce returns
over and above the passive market portfolio, said Harvey.
In Harvey's study, quality is defined as a combination of profitability, growth and safety
and value is defined with traditional metrics such as the book-to-price ratio.
Is now the time to reposition your portfolio?
According to Harvey, inflation surging from 2% to more than 5% is bad for stocks and bonds.
We're not there yet; the current rate of inflation is 4.2%. But we are getting close to the
"red zone" and now would be a good time to "rethink the posturing of your portfolio," Harvey
said. "So even if it doesn't occur, it doesn't matter. If the risk is high enough, you take
some actions, you're basically buying some insurance."
And being proactive is the key. "So, at least right now, it's better to have the discussion
now than when it's too late; when we're already in the surge and the asset prices have already
dropped," said Harvey.
Remember too that what you hedge is "unexpected" inflation, Harvey said. "What you really
are concerned with is unexpected inflation or a surprise in inflation. We call it an economic
shock."
But not a transitory shock. That won't have any effect on asset prices. "You need to
consider long-term inflation," he said.
And that place to look for that is in the break-even inflation (BEI) rate reflected in
TIPS and nominal Treasurys. The BEI is the weighted average of inflation expectations over the
life of the bond. And changes in the BEI have the advantage of reflecting changes in long-term
or permanent inflation expectations. Presently the BEI is 2.44%. "Anything that is a long-term
measure of inflation is going to have the maximum reflection in the asset prices," he said.
As for the current inflationary environment, Harvey said it's a mix of transitory and not-so
transitory elements. Lumber prices are up but likely not permanently. The rising prices of
other goods and services, however, may not be transitory. "It's obviously difficult to dissect
this," he said. "But it's really important for people that are running a portfolio draw that
distinction."
US government bonds rallied on Friday following a weaker-than-expected reading on American
job growth for the month of May. But a key report on consumer price inflation will provide a
fresh test for investors. Consumer prices rose at its fastest pace in more a decade in the 12
months to April, but analysts project that it has picked up even more since then, raising fears
that the economy is overheating. Economists surveyed by Bloomberg expect the year on year
inflation rate to have jumped to 4.7 per cent in May in figures to be released by the
Department of Labor on Thursday, compared with 4.2 per cent in April.
It looks like this surge is suitable, especially in energy... That spells troubles for
the US economy which is based on cheap energy.
Higher prices for commodities are flowing through to more companies and consumers, making it
harder for central bankers to ignore them
...The world hasn't seen such across-the-board commodity-price increases since the beginning
of the global financial crisis, and before that, the 1970s. Lumber, iron ore and
copper have hit records . Corn, soybeans and wheat have jumped to their
highest levels in eight years . Oil recently reached
a two-year high .
At current metal prices, Rio Tinto PLC, BHP Group Ltd. , Anglo American PLC and Glencore PLC could this year generate a
combined $140 billion in earnings before interest, taxes, depreciation and amortization,
according to Royal Bank of Canada. That compares with $44 billion in 2015, when metals prices
were at or near lows.
However, in Russia, a commodity exporter, surging commodity prices also are driving up
inflation. While Russia's international reserves hit $600.9 billion in May, the highest ever,
its central bank increased its benchmark interest rate by 0.5 percentage point to 5% in April.
It said it would consider further increases, citing "pro-inflationary risks generated by price
movements in global commodity markets."
"We think that the inflation pressure in Russia is not transitory, not temporary,"
Russia's central-bank governor Elvira Nabiullina told CNBC in a recent interview.
...Nicolas Peter, chief financial officer of BMW AG , said in May that it expects
an impact of 500 million euros, equivalent to about $608 million, from prices for raw
materials. Increased steel prices have added about $515 to the cost of an average U.S. light
vehicle, according to Calum MacRae, an auto analyst at GlobalData.
Like most central banks, the US Federal Reserve has been forced to ask why more than a
decade of ultra-loose monetary policy has had such lacklustre economic results.
The Fed's data are misleading because they assume the US is the middle-class nation it has
ceased to be.
Until it uses data that reflect the nation as it is, the Fed will no more get America back
to shared prosperity than someone using a map of New Amsterdam will find the pond in Central
Park.
"If we ended up with a slightly higher interest-rate environment it would actually be a plus
for society's point of view and the Fed's point of view," she told Bloomberg.
"We've been fighting inflation that's too low and interest rates that are too low now for a
decade," she said. "We want them to go back to" a normal environment, "and if this helps a
little bit to alleviate things then that's not a bad thing -- that's a good thing."
Biden Admin proposing elimination of IDC expensing and percentage depletion, among other tax
preferences.
Elimination of IDC expensing will affect US shale.
Percentage depletion only affects small producers. We can make it without percentage
depletion. Will just result in us paying more income tax. But lower 48 onshore conventional
production in US is below 2 million barrels per day and slowly falling. Hopefully we will be
permitted to continue to produce oil for the many uses of it besides light transport.
As long as Biden doesn't try to sell these as "Big Oil Tax breaks" I'm not going to
complain.
I think elimination of these tax preference items will lower US production, which will
increase oil prices. US is historically the only major producer that has desired low oil
prices. That is because we are still a net importer of crude oil.
Now that Trump is gone, it appears US also is not too concerned about oil prices.
What a turnaround from this time, last year. We had just reactivated our wells at the end of
May, 2020, after oil had went negative on April 20.
Yesterday WTI closed around $69.50.
President Biden could turn out to be very good for small conventional lower 48 onshore
producers. He just needs to recognize that our oil is still needed, and will still be needed
for decades.
I will keep beating my drum. Stripper well oil is small footprint. Existing source. Very low
methane emissions from upstream operations. Employs the highest number of persons per BO.
Employs largely rural populace. Owned by small business. Family owned. Pays a lot in local
taxes. Is very low decline. Predictable. Uses the smallest amount of materials, such as
plastics and steel. I can go on, but won't.
Stripper well doesn't need "tax breaks" either, if it is afforded a strong, stable oil
price. In my view, $60-70 WTI won't kill the consumer.
But, I heard on Bloomberg radio yesterday that the Reddit investors are beginning to pour
into oil and grains. So, worried about volatility.
Only about 1/5-1/6 of voters in the very rural counties (25K or less in population) votes
for Biden. Yet his policies appear to be a boon for those populations.
Here's to $5+ corn, $14+ soybeans, $6+ wheat, $6+ milo and $65+ WTI! Keeping prices there
would really solidify a part of the US that is really struggling.
I suspect I might be the only person still posting here that lives in an oil and grain
producing region. There just aren't many of us left.
Labor will be our huge problem. Maybe strong and stable commodity prices could bring some
people back, or keep some of our young people here?
Thank goodness for the people from Mexico and Central America. Without them, rural USA would
be in really big trouble. SHALLOW SAND IGNORED
06/05/2021 at 10:48 am
Dennis.
I will add, if rural is in big trouble, I believe the entire USA is in big trouble.
I have never seen the labor shortages that I am seeing today in my community.
I know there are many efforts to radically change how our country's food supply is produced.
But, like energy transition, those will take decades.
It is not attractive to most to live in rural locations. Very, very difficult psychological
and emotional transition for those that try to move from urban/suburban to rural. I have seen
it first hand. We cannot keep doctors for that reason, for example. There are almost no
attorneys here under the age of 60. Management of our factories has mostly been moved, because
it can be due to technology, and because management doesn't want to live here.
Most in the factories here are being hired in at $16-19 per hour, and will be over $20 soon
after. Most work at least 10 hours of overtime a week.
But we have a very high percentage of young adults in the rural areas struggling with hard
drug dependency. Meth is the big one, and it is easier for a 20 year old to get meth than to
get a beer in most rural areas.
Our country needs to do so much better across the board on hard drug dependency. One of the
many reasons being to fill all of these job openings. Of course, there are more important ones
than that.
I bet if hard drug dependency was completely eliminated, over 90% of child abuse and neglect
court cases would also be wiped out. That is the most important reason we need to do
better.
Just in time for Pride Month, a new exchange traded fund aims to connect with LGBTQ investors. Two previous efforts failed to
attract enough assets.
The fund, LGBTQ + ESG100 ETF LGBT,
+0.91%
, launched in late May, is a passively managed, large-cap index fund that holds the top 100 U.S. companies that most align with
the LGBTQ community.
In 2019, two LGBTQ-focused ETFs were delisted: ALPS Workplace Equality Portfolio ETF and InsightShares LGBT Employment Equality
ETFs. Like this new fund, both were mostly U.S. large-cap, passive index ETFs comprising companies that received high or perfect
marks for workplace equality in the Human Rights Campaign Corporate Equality
Index , a benchmark for corporate LGBTQ policies.
The first ETF stuck around for five years, but the second barely made it two years, even though it was launched with much fanfare
by UBS. Neither gained many assets.
Bobby Blair, CEO and founder of LGBTQ Loyalty Holdings, which launched the fund with issuer ProcureAM, says community input on
holdings makes this fund different.
LGBTQ Loyalty Holdings partners with Harris Poll to annually survey 150,000 self-identifying LGBTQ constituents across the U.S.
for their views about a company's brand awareness, brand image, brand loyalty and how the firm supports the community. As noted in
its prospectus
, 25% of the index's weighting is derived from that survey data.
... the LGBTQ + ESG100 has an annual expense ratio of 0.75%.
As bubbles peak,
they combine objective signs of excess" prices rising much faster than earnings can justify"
with subjective signs of mania, such as frenzied trading and borrowing. To some the entire US
stock market looks bubbly given its dizzying run-up, but earnings growth has also been
extraordinarily strong through the pandemic. Beneath the surface, however, sectors of the
market from green tech to cryptocurrency show tell-tale bubble signs.
My research on the 10 biggest bubbles of the past century, from the US stock market in 1929
to Chinese shares in 2015, shows that prices typically rise 100 per cent in the year before the
peak, with much of the gain packed into the climactic last months. That finding is closely in
line with bubble studies from academics at Harvard and others.
By those standards, there are at least five current bubblets. They include the
cryptocurrency market for bitcoin and ethereum; clean energy stocks, including some of the
biggest names in electric vehicles; small cap stocks, including many of the hottest pandemic
stories; a basket of tech stocks that lack earnings, which is also chock-a-block with famous
brands; and special purpose acquisition
companies (Spacs) , which allow investors a new way to buy into private firms before they
go public.
Each of these bubblets is captured in an index that rose in the last year by around 100 per
cent, often much more, to a peak value between $500bn and $2.5tn. Day traders and other newbies
rushed in, a common symptom of late stage market manias. Now these bubbles are faltering, as
they so often do, in response to increases in long-term interest rates. What's next?
The historical bubbles in my study did suffer midcourse setbacks on the way up, but
typically those corrections were around 25 per cent and never more than 35 per cent. Beyond
that point" a 35 per cent drop" the bubbles in my sample became monophasic, or stuck on a
one-way downhill path.
For the median case, the bottom was found 70 per cent below the peak, and came just over two
years after the peak. Except for the index of small-cap pandemic stocks, the other four bubble
candidates have all experienced drops of at least 35 per cent, but also of no more than 50 per
cent (in the case of ethereum). In other words, they are not likely to resume inflating any
time soon, and they are still far from the typical bottom.
There is one new factor that could upset this historical pattern. Despite the rise in
long-term interest rates, there is plenty of liquidity sloshing around the markets, with
central banks committed to easy money as never before. The risks though are skewed to the
downside.
It is important to remember that a bubble is often a good idea gone too far. In the early
2000s, the conventional wisdom was that the dotcom bubble had fuelled mainly junk companies
with business plans barely worth the napkins they were written on. Later, researchers found
that, compared with other bubbles, those in the tech sector produce many start-ups that fail
but also help launch major innovations. For every few dozen dotcom flame-outs, there was a
giant survivor such as Google or Amazon that would go on to make the economy more
productive.
... Average hourly earnings for workers in leisure and hospitality rose to $18.09 in May,
the highest ever and up 5% from January alone, according to Labor Department data released on
Friday. Pay rose even faster for workers in non-manager roles, who saw earnings rise by 7.2%
from January, far outpacing any other sector.
That higher pay could be a sign that companies are lifting wages as they seek to draw people
back to work after more than a year at home. Some businesses are struggling to keep up with
higher demand as more consumers, now fully vaccinated, get back to flying, staying in hotels
and dining indoors. Job gains in leisure and hospitality this year have so far outpaced gains
in other sectors.
But it is too soon to know whether the boost will be enough to help speed up hiring at a
time when many workers are still facing other obstacles, including health concerns and having
to care for children and other relatives.
"The fact of the matter is, the pandemic is still going on," said Daniel Zhao, a senior
economist for Glassdoor. "The economy is running ahead of where we are from a public health
situation."
Some 2.5 million people said they were prevented from looking for work in May because of the
pandemic, according to the Labor Department.
... ... ...
Employment in leisure and hospitality is still in a deep hole when compared with pre-pandemic
levels. The industry added 292,000 jobs in May, with about two-thirds of that hiring happening
in restaurants and bars. But overall employment is still down 2.5 million jobs, or 15% from
pre-pandemic levels, more than any other industry.
... ... ...
Some people who previously worked at hotels or restaurants moved on to other types of jobs
during the pandemic, such as packaging goods at a warehouse, and it's too soon to know whether
they will switch back as more of the economy reopens, said Zhao.
...About half of states are putting an early end to a $300 federal supplement to weekly
unemployment benefits, winding them down as soon as June 12. The supplement expires nationwide
on Sept. 6.
(Reporting by Jonnelle Marte and Ann Saphir; Editing by Chizu Nomiyama and Jonathan
Oatis)
"The bots' mission: To deliver restaurant meals cheaply and efficiently, another leap in
the way food comes to our doors and our tables." The semiautonomous vehicles were
engineered by Kiwibot, a company started in 2017 to game-change the food delivery
landscape...
In May, Kiwibot sent a 10-robot fleet to Miami as part of a nationwide pilot program
funded by the Knight Foundation. The program is driven to understand how residents and
consumers will interact with this type of technology, especially as the trend of robot
servers grows around the country.
And though Broward County is of interest to Kiwibot, Miami-Dade County officials jumped
on board, agreeing to launch robots around neighborhoods such as Brickell, downtown Miami and
several others, in the next couple of weeks...
"Our program is completely focused on the residents of Miami-Dade County and the way
they interact with this new technology. Whether it's interacting directly or just sharing
the space with the delivery bots,"
said Carlos Cruz-Casas, with the county's Department of Transportation...
Remote supervisors use real-time GPS tracking to monitor the robots. Four cameras are
placed on the front, back and sides of the vehicle, which the supervisors can view on a
computer screen. [A spokesperson says later in the article "there is always a remote and
in-field team looking for the robot."] If crossing the street is necessary, the robot
will need a person nearby to ensure there is no harm to cars or pedestrians. The plan is to
allow deliveries up to a mile and a half away so robots can make it to their destinations in
30 minutes or less.
Earlier Kiwi tested its sidewalk-travelling robots around the University of California at
Berkeley, where
at least one of its robots burst into flames . But the Sun-Sentinel reports that "In
about six months, at least 16 restaurants came on board making nearly 70,000
deliveries...
"Kiwibot now offers their robotic delivery services in other markets such as Los Angeles
and Santa Monica by working with the Shopify app to connect businesses that want to employ
their robots." But while delivery fees are normally $3, this new Knight Foundation grant "is
making it possible for Miami-Dade County restaurants to sign on for free."
A video
shows the reactions the sidewalk robots are getting from pedestrians on a sidewalk, a dog
on a leash, and at least one potential restaurant customer looking forward to no longer
having to tip human food-delivery workers.
Whereas climate change issues are the presumptive reasons behind the latest wave of investor revolts at the oil and gas giants,
lurking beneath the surface is a growing sense of apprehension about Big Oil's strategy and failure to generate adequate returns for
shareholders in recent decades.
The naked truth is that Exxon and its cohorts have severely underperformed the broader market over the last two decades in terms of
total returns to shareholders, implying the sector's woes are long-term and strategic rather than short-term and cyclical.
Chronic underperformance
XOM
Source: CNN Money
Big Oil's underperformance relative to the market is clearly evident whether you are looking at 2-year, 5-year, 10-year, or even
20-year timespans.
For instance, since 2015, Exxon shares have returned a -2.5% compound annual loss based on share prices and dividends, a far cry
from the average annual gain of +14.4% by the
S&P 500
over the timeframe.
Over the past two decades, Exxon's compound annual return has clocked in at +4.2%, still considerably lower than the broad market
benchmark's return of +7.1%.
... ... ...
Exxon is hardly alone, with none of its peers, including Chevron,
Royal Dutch Shell
(NYSE:RDS.A),
BP
Inc.
(NYSE:BP), and
Total
(NYSE:TOT) coming close to matching the returns by
the broader share market over the past decade.
In fact, on an inflation-adjusted U.S. dollar basis, returns by Exxon, Shell, and BP have been negative over the past five years, a
period which coincided with the biggest bull market in the history of the stock market.
The renewable energy conundrum
You cannot blame the oil majors for continuing to engage in a lot of hand-wringing at a time when investors are demanding they pump
less oil and transition to cleaner energy.
For the oil majors, successfully transitioning to green energy companies is not going to be a walk in the park because these
companies have to ride two horses.
That's the case because the majority are already battling dwindling cash flows which means they cannot afford to gamble with
whatever little is left. Oil prices have been on a downtrend since 2014, a situation that has only worsened during the pandemic.
Oil and gas firms are still grappling with the best way to presently use dwindling cash flows; in effect, they are still weighing
whether it's worthwhile to at least partially reinvent themselves as renewables businesses while also determining which low-carbon
energy markets offer the most attractive future returns.
Most renewable ventures, like solar and wind projects, tend to churn out cash flows akin to annuities for several decades after
initial up-front capital expenditure with generally low price risk as opposed to their current models with faster payback but high
oil price risk. With the need to generate quick shareholder returns, some fossil fuel companies have actually been scaling back
their clean energy investments.
Energy companies are also faced with another conundrum: Diminishing returns from their clean energy investments.
A
paper
published in Science Direct
last August says that dramatic reductions in the cost of wind and solar have been leading to an even
bigger reduction in revenue inflows leading to falling profits. This is particularly true for wind energy as later deployments of
wind usually have lower market value than earlier ones due to wind energy revenue declining more rapidly than cost reductions. Solar
is more resilient, with technological progress approximately balancing out the revenue degradation, which perhaps explains why
solar
stocks have gone ballistic.
Adding wind and solar to our grid tends to reduce electricity prices during peak generation times: Indeed, electricity prices in
California can come down to zero during long sunny durations. This was not a problem for early deployments but is becoming a major
concern as renewables increasingly play a bigger part in our electricity generation mix.
But, ultimately, Big Oil will have to take the plunge and engage in drastic internal restructuring and product cycle transitions
even as activists like Engine No.1 promise to continue turning the screw. As Charlie Penner of Engine No.1 has told
FT
, the
energy transition is happening faster than expected and has undermined Big Oil's assumptions about long-term demand for its oil.
...Analysts at Goldman Sachs""in October""ran the numbers on the stock market impact of
previous capital-gains tax hikes. While there is only a modest impact on the stock market as a
whole, momentum stocks usually get socked before they are levied, they found. That makes
sense""investors logically are more motivated to sell the stocks where they would save the most
by avoiding higher capital-gains taxes.
The last time capital-gains taxes were hiked, in 2013, the wealthiest households sold 1% of
their equity assets, the Goldman analysts found. According to the
Federal Reserve's distributional financial account data , the top 1% held $17.79 trillion
of equities and mutual funds in the fourth quarter of 2020""so a 1% selling of stocks this time
would be $178 billion. (The most recent Internal Revenue Service breakdown, from 2018, found
that millionaires accounted for just over 500,000 filers or about 0.4% of the total.)
This quick jumping onto and off of the bullish and bearish bandwagons has become the new
normal, as you can see from the table below.
... ... ...
As I argued three weeks ago, this sentiment pattern suggests that the market may remain
in a fairly narrow range for the next several months. The contrarian bet is that the market
will finally break out of that trading range whenever the market timers stubbornly hold onto
their sentiment beliefs in the face of the market moving in the opposite direction. That is, be
on the lookout for when the market timers remain bullish in the face of declines, or bearish in
the wake of rallies. That will indicate that a bigger decline or rally is in store.
In the meantime, the market timers' behavior suggests both market rallies and declines
will be subdued. That's good news to the extent you were worried that a major new bear market
is about to begin, but bad news if you were hoping for a more sustained rally.
... ... ...
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks
investment newsletters that pay a flat fee to be audited. He can be reached at [email protected] .Continue
Reading
Canadian economist Mario Seccareccia, recipient of this year's John Kenneth Galbraith
Prize in Economics, says it's time to reconsider the idea of full employment. He spoke to Lynn
Parramore of the Institute for New
Economic Thinking about why 2021 offers a rare opportunity to rebalance the economy in
favor of Main Street.
Once upon a time – not so long ago, really – unemployment was not a thing.
In agricultural societies, even capitalistic ones, most people worked on the land. A smaller
number worked in villages and towns – shoemakers and carpenters and so on. Some might go
back and forth from the countryside to the town, depending on the availability of work. If your
work in town building houses dried up, you might come back to the country for the harvest.
Economist Mario Seccareccia, who loves history, notes that before the Industrial Revolution,
it was unthinkable that someone ready and able to work had no job to do.
Questions: If unemployment was once unknown, why do we accept it now?
Where did unemployment come from?
In those pre-Industrial Revolution times, there were paupers, mostly people who could not
work for some reason such as a disability. These were deemed deserving of charity. A small
number of paupers were considered deviants and treated harshly, perhaps made to labor in public
work-houses under vile conditions.
Seccareccia notes that early classical economists like Adam Smith and David Ricardo
recognized that able-bodied people could experience temporary joblessness, but not the
long-term variety. The word "unemployment" only became widely used in the nineteenth century.
As cities grew and manufacturing took off, people living in cities and towns grew apart.
Movement between the two places grew less fluid. The agricultural sector of the economy was
shrinking.
At first, if you lost your factory job, you could still probably pick up something in the
countryside to tide you over. But if you had grown up in the city, as more and more people did,
you might not know how to do rural work. By the late nineteenth century, most city dwellers
could no longer count on falling back on agricultural work during hard times.
Karl Marx noted that England's enclosure movement, which gained momentum as early as the
seventeenth century, had made things hard for agricultural workers as wealthy landowners
grabbed up the rights to common lands that workers had traditionally been allowed to use and
were a vital part of their sustenance. Uprooting peasants from the land and traditional ways of
life, Marx observed, created an "industrial reserve army" – basically a whole bunch of
people wanting to work but unable to find a job during times when industrialists held back
investment or when machines took over certain jobs.
Marx saw that this new kind of unemployment was a feature of capitalism, not a bug. Still, a
lot of mainstream bourgeois economists thought that the market would somehow sort things out
and eventually provide enough job openings to prevent mass unemployment.
It didn't turn out that way. Exhibit A: The Great Depression.
Especially after World War I, many later economists, most notably John Maynard Keynes,
warned that high rates of unemployment were getting to be the norm in the twentieth century.
Keynes predicted that a lot of people would go on being jobless unless the government did
something. This was very bad for society.
Keynes emphasized that full employment was never going to just happen on its own. Mainstream
economists thought that if wages fell enough, full employment would eventually prevail. Keynes
disputed that. As wages fell, demand contracted even further, leading to even less business
investment and so forth in a never-ending cycle. No, capitalism, with its business cycles led
to involuntary unemployment, according to Keynes.
Seccareccia observes that economist Michał Kalecki agreed that the government could
make policies to help more people stay employed at a decent wage, but there was just one
problem: wealthy capitalists weren't going to have it. They would oppose state-supported
systems to hold demand up so that fear of unemployment checked workers' demands for better pay
and improved work conditions.
For a while, after World War II, the capitalists were on the defense. The Great Depression
and the Communist threat got western countries spooked enough to go along with Keynes's
argument that governments should try to encourage employment by doing things like creating big
projects for people to work on. Safety nets were created to keep folks from falling into
poverty. The goal of full employment gained popularity and many more workers joined unions.
Capitalists v. Full Employment
Economists have bandied about various definitions of what full employment ought to look
like, explains Seccareccia: "A well-known definition came from William Beveridge, who said that
what you wanted was as many jobs open as people looking for them – or even more jobs
because every person can't take every type of job."
In the mid-twentieth century, with the economy doing well, neoclassical economists like
Milton Friedman started to push back against the idea of full employment. He discouraged the
use of fiscal and monetary policy to support employment, arguing that attempts to push down
unemployment beyond what he insisted was its "natural" rate in the economy would simply lead to
inflation.
In the 1960s, some of what Friedman warned about did actually happen. Employment was low and
prices started to go up mildly, particularly during the Vietnam War era. However, the biggest
boost to the credibility of Milton Friedman came with the OPEC cartel oil-price hikes of the
1970s that pushed the inflation rate to double-digit levels while simultaneously pushing up
unemployment. So, in the '70s, western countries started backing off from encouraging full
employment and maintaining strong safety nets. Proponents of the new neoliberal framework were
in favor of cutting safety nets, shedding government jobs, and leaving it to the market to
decide how much unemployment there would be. They said that it had to be this way to keep
inflation from rising, even though the cause of that high inflation of the '70s had nothing to
do with high public spending and excessive money creation that Friedman and his friends talked
about.
Seccareccia points to proof that the neoclassical logic didn't hold up. In the two decades
before the Global Financial Crisis of 2007-8, the rate of unemployment went down, but inflation
didn't go up. That proved that the neoclassical economists were wrong. But unfortunately,
policymakers didn't really digest this before the Great Recession hit. So, they bungled the
response badly by putting the brake on public spending too quickly because of fears of
excessive budget deficits and potentially higher future inflation that never materialized. They
kept insisting that the employment level would return to that "natural" state Friedman had
talked about if they just left things to the market.
"But it didn't work out that way," says Seccareccia. "Unemployment skyrocketed and it took a
decade to return to pre-crisis levels.
Which brings us to the COVID-19 crisis.
A Crisis Is a Terrible Thing to Waste
Seccareccia says that we have to understand the difference between the current situation and
the Global Financial Crisis. This time, it really is different.
"The earlier crisis started in the financial sector and spread to the real economy," he
explains. "But in 2020, when the Coronavirus emerged, the financial and industrial sectors got
hammered at the same time." This meant that people in both sectors stopped spending. Households
couldn't spend even if they wanted to because traveling, dining out, and other activities were
off-limits. Businesses cut investment as uncertainty loomed and exports declined due to
restrictions at borders. Unless you were Home Depot or an e-commerce company, you couldn't sell
anything.
The COVID-19 crisis also saw workers pulled out of activities thought to be too high risk
for spreading the virus. Across the country, non-essential workers were sent home and told to
stay there. Most, especially in sectors like leisure and hospitality,
can't do their work from home . A lot of these people lost their wages, and because most of
them were low-wage to begin with, they could least afford the hit. Many were only able to
maintain their incomes through government unemployment insurance. Businesses, meanwhile, were
kept afloat with subsidies.
Seccareccia notes that unemployment had an interesting twist in the pandemic because it was
both the problem and the initial cure for the health crisis. Unemployment kept the virus from
circulating. It saved lives.
Fast-forward to late spring, 2021. As America and other western countries seek to put the
pandemic behind them, the economy is opening back up. Employers are wanting to hire, and they
are even competing with each other for workers. But many job seekers are waiting to go back to
work. There are a lot of reasons why: caregiving for kids is still a huge burden, and people
are still worried about getting sick. Transit routes have been disrupted making it harder for
people to get to work. It's also possible that some workers may be resisting jobs on offer
which come with low pay and inadequate benefits.
Employers have started complaining they can't find workers and blame the social safety net
as the problem. Some employers, like those in the hospitality industry, are offering higher pay
to lure workers back.
Just as Kalecki predicted, the wealthy capitalists are getting uneasy. The Chamber of
Commerce, for example, has pushed the U.S. to stop expanded unemployment insurance benefits so
that people will be forced to return to low-wage jobs. Some Republican-dominated states have
jumped on board with this idea. Economist Larry Summers, for his part, is warning about
inflation and telling the Federal Reserve to raise interest rates so that wages don't go up. He
complains that when he walks outside,
all he sees are people eager to fill job vacancies . It's unclear where he was living when
he said that, or which people he is talking about.
Others argue that expanded unemployment insurance isn't the problem, but the crappy jobs on
offer. Seccareccia believes that it's a good thing if employers raise their wages, even if that
means a little bit of inflation.
Rising inequality, he emphasizes, is unsustainable in a healthy society, and it's about time
ordinary people had a little power to improve their lot. "When employers are worried about
people quitting," he says, "that's when you know you're getting close to full employment. And
in a capitalist society, it's an extremely rare situation when the number of quits begins to
exceed the number of new hires as an economy nears the peak of a business cycle."
In Seccareccia's view, "there's a balancing act between workers 'fearing the sack' and
employers 'fearing the quit.'" He observes that capitalists are very good at making sure that
the former situation is more common, and they've been spectacularly successful in the last 40
years. "This is why you have flat wages and runaway inequality," says Seccareccia.
"Productivity goes up but the workers don't share in it." Profits pile up at the top.
Right now, inflation has been creeping up in some areas. In a couple of sectors, like used
cars, it's rising a lot. The question is, beyond a couple of unique cases, what will happen to
inflation overall? And will be temporary? A lot of economists think that inflation will be
short-lived and will not get very high, so it's nothing to get excited about. Some economists,
like Antonella Palumbo, think the
worry about inflation is overdone . She notes that with unemployment still high and vast
numbers of people who formerly worked but are still out of the labor force, the ranks of the
famous reserve army of unemployed are still huge. As the economy restarts, all kinds of
short-run bottlenecks are cropping up, but that reserve army is not going anywhere fast and
will continue to limit wage increases.
Seccareccia points out that wealthy capitalists trying to stop workers from getting paid
better and conservatives complaining about laziness fail to mention that meanwhile, the stock
market is soaring, making the rich richer. Plus, the housing market is booming because the more
affluent people lucky enough to have kept their jobs over the pandemic now have extra money
saved to spend on big-ticket items. "Is it really fair," he asks, "to complain about a few
hundred dollars a week received by those at the bottom of the economic ladder? Especially how
much the economy is already titled in favor of the haves?"
So, what exactly should the government do about unemployment? Should it do anything at all?
For Seccareccia's part, he thinks this is a perfect time to reconsider the idea of full
employment, which has been so long abandoned by policymakers in favor of some "natural"
unemployment rate. "Policymakers need to understand why COVID may offer a chance not seen since
the end of WWII," he says. "We could actually make the economy fairer for ordinary people."
> So, what exactly should the government do about unemployment?
My favoured solution, and that of other readers of this blog, I suspect, is the Job
Guarantee as promoted by MMT.
Because a well designed job guarantee would provide a floor on wages and benefits, the
private sector would be forced to match it at the very least. But as has been pointed out on
this blog many times before, Kalecki's point that full employment would remove employers
ability to effectively threaten workers with the sack, means that it will be very difficult
politically to see it implemented.
Next week I start my 2nd year of pandemic triggered unemployment after I was terminated
without cause. On June 26th my extended UI benefits will be halted by TX Governor Greg Abbot.
Okay.
In a year of applying for new positions I have managed to get exactly 1 phone interview
after a 40 year career in technology development, ending up with almost 24 years at IBM. In
my last year with them I received both a performance bonus and a salary hike. But I'm now
over 60 and have been unemployed longer than 3 months so that's probably fairly typical
experience. Okay.
The path to full employment is probably going to require the creation of new opportunities
in a still contracting economic system. It's not impossible if you're focused on the goal.
Here's my shortlist of policy initiatives that could dramatically and quickly grow the number
of available jobs, particularly for the under employed younger people who are paying off
student loans.
Dramatically increase social security and medicare eligibility/benefits to convince older
workers to leave the workforce.
Expand paid family leave and vacation policies to align with other industrialized nations in
order to require businesses to hire to cover needed absences.
Drop the number of hours that define full time work to allow more workers to get full
benefits.
Yeah, I'd like to be considered for another good paying job in a still viable industry. I
spent decades developing skills that are still relevant and valuable. But I'm old and I'm
expensive because I have expectations based on my own employment history that 40 years of
neoliberal policies have rendered obsolete. Okay.
I'm close enough to retirement and lucky enough in my ability to save and plan that this
won't wreck us. I try to imagine my pandemic inspired involuntary retirement as an
opportunity to become a labor rights activist. It helps.
My situation is virtually the same, although in academia as research scientist at major US
university, with last 6 years as invited scientist at German research institute. Returned to
US to the nightmare of Trump at 63, but fully (and naively) intending to continue working.
I've lost count of how many job applications I've tendered, with only one interview in two
years, then COVID. Now resigned to the fact that work for me from here on out will be
different. I continue to write papers with colleagues at university to maintain a reputation
in my field. Now recognize that people take one look at my CV, and think: "Old! Expensive!"
-- but the truth is I would be willing to work for little just to stay active in a field
applying expertise I've spent decades acquiring. I've since met many, many seniors in the
same boat: trained professionals with lots of experience who still want to work (and, in my
case, need at least some income).
But at least I had a career. I can't imagine the hopelessness of people 35-40 years my
junior, with huge debt from college, grad school, and unable to find a decent job.
Something must change. The situation as it exists is unsustainable. One bright light seems
to be increasing recognition of the way the economy actually functions, the role of public
spending, and the real limits to growth, prosperity.
Appreciate your commiseration Rolf. I expect there is an army of people like us who are in
this situation or about to be.
Fwiw (maybe not much), I'm actively trying to get hired full time at the food coop near my
house. The workers there are represented by a union and get full insurance benefits including
dental with a 40 hour work week. The Vt minimum wage of $11.75/hr doesn't matter as much as
those insurance benefits do; we're still in that 5 year gap between age 60 and age 65 where
you are on your own if you need healthcare.
And I've pretty much decided to laugh off Beaux Jivin's campaign promise to drop the
medicare eligibility age to 60 etc. It's abandoned along with many other campaign promises.
Okay.
Thanks, A/S, for your kind words. Yes, benefits are key. I really am increasingly worried
that Biden, and the Democratic Party in general, don't seem the grasp the fact that the GOP
is absolutely committed to recovering control of Congress and the White House by *any* means
necessary. Biden in particular seems to entertain the notion that he can bring the right wing
to his way of thinking by conciliation, negotiation, compromise, and good performance. But
the GOP is not interested in Dem's performance or compromise -- McConnell has made this quite
clear. So Dems have an opportunity to make significant history, a true course correction, but
only this once. To pursue "bipartisanship" with a party that has no interest in compromise is
hugely naïve -- I can't imagine Biden is that foolish, except that he did begin his
campaign with the promise that "nothing would fundamentally change".
The food coop gig sounds like a good, sound shot -- all the best to you.
Fellow army member, age 61. Lucky to have health care via spouse but definitely not enough
wealth to retire. Two interviews in last two years, both in retrospect clearly designed to
fill out an interview field when preferred (much younger) hire had already been identified.
The canard about atrophied skills might apply in the occasional instance but IMO is just more
bullsh1t in defense of existing social order.
Dem obliviousness to the reality all around us is truly horrifying. I used to argue that
the big sort would result in fenced "progressive" enclaves in which all parties – those
inside and those outside – would be thrilled to not have to interact with each other.
But it's clear to me now that progressives don't need physical separation to avoid seeing
what they don't want to; they are completely able to not see the world right in front of
them.
I guess I should include this post script regarding my IBM termination:
After I'd been unemployed for about 90 days I was contacted by a recruiter working on
behalf of IBM and my former managers. They were looking for people with exactly my skills and
experience to come back to work at IBM as temporary contractors. I agreed to a short phone
interview to learn more about the opportunity.
Once the recruiter verified my experience and contacts at IBM, I managed to confirm that
they expected to bring me back on at about 80% of my former salary. With no benefits and zero
job security. I laughed out loud at this acknowledgment of their duplicity but agreed to let
myself be considered and provided a resume. Never heard back which is probably okay.
Amateur Socialist, Rolf and Left in Wisconsin -- I take my hat off to all of you. Work
left both my partner and me a number of years ago, and we quickly learned that we had aged
out of the market and were useless to society as we thought of it. Fortunately, we relatively
quickly became eligible for Medicare, which even in its steadily diminishing state was (and
is) a significant help.
Good luck to all of you, and A/S, please let us know the outcome of your pursuit of the
job with benefits at your local Food Co-op.
I think your experience demonstrates the problem with defining full Employment as, "anyone
who wants a job has one". Using this definition, the simple way to get the economy to FE then
is to just make all the jobs so terrible and low paying that no one wants them. You dont need
a job, and you dont want just any old crappy job. You want one similiar to your old one, If
that doesnt exist anymore, one would reasonably say you dont want a job, since what you want
doesn't exist, hence we're at full employment
All of this is to say, we shouldnt necessarily just encourage the government to get us to
FE. Capitalists by themselves are quite capable of getting us there, as I'd argue they did in
the 19th century. Its government interventions like minimum wage and basic safety protocols
that keep us from reaching FE since that's what makes people actually want a job
it was unthinkable that someone ready and able to work had no job to do.
I think there is a conflation of the language terms bandied
about–work-v-jobs-v-employment are all couched in the concept of a Consumption Based
Economy. I am tired of this.
weeding the garden is work–unless I'm paying you then it becomes a job. In both
instances, however, you are employed in the endeavor. This is grooming behavior using
language, imo, and needs to stop.
I think this muddle is a componant of the current 'Jobs Discussion".
Covid has rattled generations coming out of Displacements following the very unequal GFC,
and an undefined(maybe) examination of Meaning and Place within the current state of the
world and the Economy that has been chosen to fulfill the needs of that Economy (Societal and
Personal). More Intuitive than cognitive to many.
Selling Plastic bric-a-brac for the Man, to make the rent in an endless cycle, may have
lost its cache' subconsciously, to the 'common man' in this time of apparent Climate Crises
et al.
There is still plenty to do, and little time for Idleness( itself a "reward' promoted as a
'something' by the Consumptive Economy).
"Proponents of the new neoliberal framework were in favor of cutting safety nets, shedding
government jobs, and leaving it to the market to decide how much unemployment there would be.
They said that it had to be this way to keep inflation from rising,"
"The market" – that's the first con people have to get over. There is.no "the
market" like there it is something like nature.
It's system of intentional, changeable human decisions backed by beliefs and emotions of all
kinds now matter how many theories or quantifications occur. And a corporate beuracracy is
still a beuracracy.
And actually this neoliberal thinking of letting some imaginary entity "the market"
"decide" (we should be lughing at this silliness!) to keep people unemployed to avoid
"inflation" only makes sense if it actually meant to signify "avoid inflation of the
population."
The modern police force is a consequence of idle and unemployed city dwellers. Idled
workers don't just sit down and die from malnutrition. Instead, they roam around looking for
food, or opportunities that would lead to procuring food. Hungry, impoverished mobs are never
a good idea: Ask Czar Nicholas, Kaiser Wilhelm, or the French aristocrats of the 1780's
(rather, interrogate their ghosts) how idle, hungry crowds furthered their reigns. For all
that, look to the unrest of the 1930's in the US.
Given this reality–that unemployed and starving people refuse to sit down and die
peacefully–what will happen as automation starts to rob routine jobs? Already we are
seeing robots prowling the Walmart aisles, driverless vehicles delivering pizzas, and
self-checkout lines in big box stores. We who work are losing the war on unemployment, which
leads to a question: Who is the winner?
Almost as an afterthought, one wonders how much in contributions to Social Security and
Medicare have been lost because of automation. Robots don't pay taxes.
After the achievement of the 40-hour workweek, paid vacations, and other labor
concessions, many influential figures believed that egalitarian access to leisure would
only increase in the 20th century. Among them was economist John Maynard Keynes, who
forecast in 1930 that labor-saving technologies might lead to a 15-hour workweek when his
grandchildren came of age. Indeed, he titles his essay, "Economic Possibility for our
Grandchildren."
The benefits of labour-saving technologies have mostly been taken as money instead of time
and by doing so the capitalist class kept power thereby leading to them getting the
lions-share of the benefits of the labour-saving techologies.
The political class could, and still can, side with people and decide that labour-saving
technologies is to be taken out as reduced amount of hours spent working for someone else. As
is the politcal class have bought the 'lump of labour'-fallacy-fallcy hook, line and sinker
so what we see is increased pension-age etc
I tried out retirement for a few months. I'm 62 and got SS and a very small pension. It's
not enough so I went back – temping. The jobs I can get as a paralegal/admin person
don't pay a lot but there seem to be quite a few of them based on companies that are merging
or have merged and have a huge mess to clean up. So they hire you for a few months to slog
through chaos and fix it. Then on to the next one. I'll keep doing this until I can move to a
cheaper part of the U.S. Remote helps in that if I don't have a Zoom interview they can't
tell how old I am. I feel for everyone who can't even get tedious work. If my SS was higher I
would stop working. If my salary had matched that of the male co-workers that had the exact
same job as me, my pension would be higher. Retiring in America for many people is part
nomadic as you have to move out of your area to survive after you leave your regular job, or
it gets rid of you and the other part is being extremely frugal. Woohoo what a life after
over 40 years of helping companies make money.
Yes a totally true statement. For it to be higher I would have had to wait until almost 67
to take it. It will go up a tad from my additional employment – maybe. Anyway it's a
mostly a set amount. I make as a temp in 2 weeks (take home) what I get in SS once per month.
If I make over about $19k annually while taking the SS, the US gov will begin to reduce the
SS payment.
Social Security takes the highest 40 quarters (10 years) of your earnings to calculate
your benefit. If your current work results in higher numbers than are being used currently,
the higher numbers will be used and your benefit will increase.
I tried to reply to your question – yes it is a true statement. What I wrote
additionally may have been moderated out for some reason so I won't repeat it. It only
mentioned dollar amounts and the US gov so maybe that was bad – not sure!
Victoria H
and I thank you for that.
But I think you, and I will 'work' until we die–
What does work mean?
noun. exertion or effort directed to produce or accomplish something; labor; toil. productive
or operative activity. employment, as in some form of industry, especially as a means of
earning one's livelihood: to look for work. the result of exertion, labor, or activity; a
deed or performance.
Work | Definition of Work at Dictionary.comhttps://www.dictionary.com › browse
› work
I am personally familiar with what you are going through and My wife is there right
now.
I waited till full retirement at 66 to collect–not being able to leave 2k on the
table(diff btwn 62 and 66 for me). I cannot describe the amount of effort and gyration I
needed to extend to achieve that– which may explain why I am the only one in my
'Friend Circle' to actually accomplish it.
Trigger Warning
I thought the coup de grace was when I had to sign up for–and Pay For, with cash,
Quarterly–Medicare without a SS check to have it automatically deducted from. Because
of my birthday I needed to pony up about 5 months worth of premiums(but i had 3 months to
save up for the next Q pymt). I doubt you've ever been curbed at the end of a physical
altercation, but that is what it felt like to me. Best think about all that.
Good news–do your own taxes for your enlightenment and you will see that the SS Income
Worksheet provides a path to structuring your Income to counter-balance additional
Income.
Discalimer–I am in no way an Acc'tant or Tax Man or even giving Advice. I am a
Carpenter–but Written Instructions are Written Instructions and Numbers are Numbers and
I made a paid living following both–so it's understandable enough to give you some
options to ponder.
And to Rolf/AmSoc and all the others -- IMNSHO(the first ever time I have used this
phrase) the most dispiriting element about 'Retirement' in America is the Stranding of So
Many Valuable Assets embodied in the Retired when the world desperatly needs "All Hands On
Deck" to resist the Man Made Extinction looming.
the most dispiriting element about 'Retirement' in America is the Stranding of So Many
Valuable Assets embodied in the Retired when the world desperately needs "All Hands On
Deck" to resist the Man Made Extinction looming.
These are true words, Rod. I think catastrophic changes (no hyperbole) lie ahead, for
which there is little precedent. Many make absurdly blithe assumptions, thinking they
won't be affected, or that wealth will insulate them. This is arrogant folly, and we will
need everyone to row in the same direction.
The man who owns the Heating and Air Conditioning company I have been using for the last
decade lives in the neighborhood and is 88 years old. After his brother had health problems,
and the young nephew he employed left for greener pastures,he now does pretty much all the
work himself, and let me tell you, he knows his stuff. I know I should have a back-up in
mind, just in case, but so far, haven't found anyone else I can trust.
Well said. I took retirement at 62 for several reasons,number 1 being i didn't believe it
would be around long enough to pay me back.
"All hands on deck" is imo exactly what is needed,but the mostly planned divisiveness
(fake right vs fake left aka RepubliCons vs Dumbocrats) will help ensure that never occurs,to
someone's benefit.
Just think how many people would quit working, or enter self-employment, if they weren't
dependent on employer providedmedical insurance. I don't know the answer/estimate; it would
have to be a large number, enough to significantly raise wages across the board.
Retiring in America for many people is part nomadic
This observation made me remember a critical scene from the excellent oscar winner last
year, Nomadland . Frances McDormand's character meets a friend who explains why she
took to the road: "Five hundred forty dollars a month from Social Security. After working non
stop for over 40 years. How am I supposed to live on that".
I'm paraphrasing possibly badly from memory; it's a very short scene that isn't really
pursued farther in the script. But I do remember thinking "Aha! This is the root cause of all
this misery and despair "
We moved to southern Vermont from Texas just prior to the pandemic believing we had
relocated to a cheaper part of the US as you also mentioned. But Vermont's strong public
health track record during the pandemic has unleashed a huge real estate boom here so who
knows We may end up priced out of Vermont eventually too.
Real estate is still relatively cheap in Texas (at least around Houston), with the caveat
that Republicans don't always keep the power on or the water pressure up in the middle of
winter.
Unfortunately our place was in the Austin exurb of Bastrop. Which is now part of the
Austin insane real estate boom. And yes Houston can be cheap but only if you don't mind
living near a refinery. Or in the path of many future hurricanes. Hard pass.
I keep seeing references to "flat wages." While it's technically true, I suspect it's
enormously deceptive.
Yes, we have flat wages. But the cost of necessities that add little or no value to
people's lives but which they're FORCED to pay for have shot up far, far beyond the pace of
inflation. Think medical care, housing and education, to name just three, all of which are
somehow ignored or slighted in official inflation stats.
Right now the best transition is for the government to regulate capitalism in the
direction the future (sustainability) dictates. The problem with regulating capitalism is
that most capitalists think it is already too regulated; taxes are too high, etc. They are on
the edge of revolution themselves. And regulated capitalism is almost an oxymoron to most
Americans. It's just business as usual to a European because they have better social spending
and blablablah. The statistic I remember is that the EU spends about 45% of its revenue on
social stuff; the US spends a little less than 35%. The problem, as I see it, is this: If we
in the US do not achieve adequate social spending we create the perfect breeding ground for
exploitation of the environment. People will be desperate for a job – any job. Which
will not only cause worse CO2 problems, it will poison off, or starve off, many many species
now living on the edge. We will further pollute the oceans and waterways. And we will not
only stick with our sick and poisonous agricultural practices, we will exponentiate them
– precluding all efforts to fix these unsustainable things. Capitalism as we have known
it must change. So, even the great idea of capitalism must adapt to reality. Somebody please
tell Larry. At this point "inflation" is an absolutely meaningless word. It would be a very
good thing if we followed Eisenhower's advice to LBJ and began to create social structures
that are fair to all of society – to the capitalists whose current mandate of voracious
profiteering is clearly unsustainable, as well as to "labor" – as we see it evolving
– and now, most importantly, we must include the rights of the planet itself and all of
our fellow travelers. We won't last very long if we kill them all off and trash the Earth.
The race to the bottom that all privateering capitalism eventually creates is the most absurd
thing in the history of civilization.
A good start would be breaking up all of the ubiquitous monopolies/monopsonies/cartels,
that have taken over every sector of the economy, from food processing to entertainment to
banking to manufacturing to politics to (ad infinitum/nauseum).
I went to Firehouse Subs yesterday there was a whiteboard inside on a table, facing into
the restaurant, that said they were hiring and offered starting pay of $9.00 for crew members
and $12.00 for shift managers.
Just inside the door, facing out, was a whiteboard offering starting pay of $11.00 for
crew members and $14.00 for shift managers. Seems like they're getting the message.
As an aside, I'd like to give props to Firehouse Subs for using pressed paper clam boxes
and paper bags.
For the past several months, Morgan Stanley's fundamental analysts have been turning
increasingly bearish on stocks, with the pessimistic sentiment plateauing
earlier this week when chief equity strategist Michael Wilson said that there is far too
much optimism in the market, and that while earnings are slowly rising, forward PE multiples
are far too high and are set to slide, with "the de-rating about 75% to go or an approximate
15% decline in P/Es from here." As a result, in Wilson's view - which is rapidly emerging as
the most bearish on Wall Street - " earnings revisions will not be able to offset that
de-rating, leaving the overall market vulnerable to a 10-15 % correction over the next 6
months."
It now appears that Morgan Stanley's fundamental bearishness has spilled over into the
bank's technical analyst team and as the bank's chief Euro equity Strategist Matthew Garman
writes, for only the fifth time in over 30 years, each of Morgan Stanley's five market timing
indicators are giving a sell signal at the same time.
Not only that, but the bank's Combined Market Timing Indicator - which has been in sell
territory since March - just hit a new all time high of 1.19, surpassing the previous record
high seen in June-2007, right around the time of the first great quant crash and before the
market collapsed.
According to Garman, the only time equities have risen after a "Full House" Sell Signal was
in Feb 17, shortly after the Shanghai Accord kicked in to prevent a global recession. The other
previous occasions where there was a "Full House" Sell Signal were Mar-90, May-92, Jun-07.
According to MS, "in the 6M post the initial Full House Sell Signal, MSCI Europe has fallen on
average 6% ."
So with every in house risk indicator screaming sell, does that mean that Morgan Stanley
will have the balls to tell its clients to sell? Why of course not, because in this market
where stuff like the AMC, GameStop and Bed Bath squeezes force analysts to admit they no longer
have any idea what's going on...
... Morgan Stanley is keeping the hope and assuming that the current period will be similar
to 2017 - the only other time when a massive sell signal did not result in a market plunge.
Back in 2017, we remained constructive despite the signal given i) strong EPS growth, ii)
an early cycle environment, iii) EU inflows, iv) low sentiment and v) a rise in M&A.
Sentiment metrics may look more elevated than in 2017, but many of those factors remain in
place today. While we see a trickier risk-reward for equities globally, we maintain our view
that there is a compelling case for Europe to outperform global peers.
Yet even Morgan Stanley is forced to admit that while Defensives may just scrape by after a
record sell signal, cyclicals are about to be hammered. The next chart shows the relative
performance of Cyclicals versus Defensives after a Full House Sell Signal on. As MS notes,
"perhaps unsurprisingly, given the poor performance at the market level, Cyclicals have
struggled. In the 6M post the four initial Full House Sell Signals, Cyclicals have
underperformed Defensives on average 12%, and this drops to -15% looking at any day
when the MTIs have all said sell at the same time."
This was true even in 2017 when equity markets rose: "we previously cited similarities with
the 2017 Full House Sell Signal as reasons to not get overly cautious on equity markets in
aggregate at this moment in time. After the February-2017 Full House Sell Signal, MSCI Europe
continued to rise pretty consistently through the rest of the year. However, despite strong
performance from the market in aggregate, the performance of Cyclicals versus Defensives was
much poorer. Between February and June 2017 Cyclicals underperformed Defensives by 6%."
It's not just the bank's sell signal that is prompting concerns about the future returns of
cyclicals: Borrowing a page from our own warnings (see "
China's Credit Impulse Just Turned Negative, Unleashing Global Deflationary Shockwave "),
Morgan Stanley looks at "a number of China data points which are giving warning signs" first
and foremost the collapse in China's credit impulse, to wit:
While credit tightening has been front-loaded in 1H21, as outlined here, our economists
remain constructive on China's growth recovery. Having said that, a number of Chinese data
points do suggest the Cyclical bounce looks overextended. China's credit impulse has just
turned negative, and historically this has provided a lead indicator for the year-on-year
performance of European Cyclicals (Exhibit 5). Similarly, the relative performance of Cyclicals
versus Defensives has closely tracked moves in Chinese 10Y bond yields, which are now at their
lowest levels since September 2020, standing in sharp contrast to the performance of
Cyclicals.
Putting it all together, readers have to ask themselves if what is coming will be an analog
of the one and only episode on history when the market did not plunge after all Morgan Stanley
market timing indicators hit a sell (and were at an all time high), or will this case be
similar to Mar-90, May-92, Jun-07 when the outcome was anything but a happy ending.
The annual rate of inflation in the eurozone rose in May to hit the European Central Bank's
target for the first time since late 2018, as energy prices surged in response to a
strengthening recovery in the global economy.
"... LTO drilling locations are diminishing faster and faster. Look for massive consolidation as E&P companies can only grow through M&A. ..."
"... The energy transition will be painful and longer than anticipated. Criminalization of an industry that embodies national security and that gives the "haves" a competitive advantage in favor of hopes and prayers is folly and irresponsible. ..."
"... A few years ago I heard Chinese venture capitalist speak at the Aspen Institute. He claimed that democracy is not a form of government but instead a religion. He gave the example that in Nigeria, the US is concerned about human rights while the Chinese could care less who dies in Nigeria as long as they can get the oil. He also stated that the Chinese only care about how they can feed, shelter, move, and run their economy and human rights are not remotely introduced into their paradigm. Something to think about. ..."
Ovi, great work as usual .My POV is that it is GOM that is the major factor in the comeback
, not "shale plays " that are supposedly going to be the saviors of Industrial civilisation .
Confirms my argument ( and of many others )that shale is all juiced out . Better to lower
expectations from LTO for the future .
REPLYOVI IGNORED HOLE IN HEAD IGNORED
05/30/2021 at 1:40 pm
Ovi, great work as usual .My POV is that it is GOM that is the major factor in the
comeback , not "shale plays " that are supposedly going to be the saviors of Industrial
civilisation . Confirms my argument ( and of many others )that shale is all juiced out . Better
to lower expectations from LTO for the future .
REPLY OVI IGNORED
05/30/2021 at 5:00 pm
Thanks HH
I know the general opinion seems to be that the shale plays are finished. Looking at the
data that is in the post doesn't confirm, at this time, that shale is overblown. Let's look at
the two states at the top of the post, Texas and NM and the onshore L48 first chart.
Looking at the Texas increase from January to March one gets 4,745 – 4,661 = 84
kb/d or 42 kb/d/mth. Looking at NM from November to March, one gets 1,155 – 1,112 = 43 or 11 kb/d/mth. The total being 53 kb/d/mth.
Looking at the total onshore L48 increase from January to March, one gets 8,861 –
8,814 = 47 or a net of 23.5 kb/d/mth. So within the onshore lower 48 there is 30 kb/d/mth of
decline.
I would not bet much on my two month or four month analysis, but I think we will need to
monitor what is happening in Texas and NM for another six months to get a better idea of what
is happening in the Permian. The price of oil will be the determining/critical factor.
I know the general opinion seems to be that the shale plays are finished. Looking at the
data that is in the post doesn't confirm, at this time, that shale is overblown. Let's look at
the two states at the top of the post, Texas and NM and the onshore L48 first chart.
Looking at the Texas increase from January to March one gets 4,745 – 4,661 = 84 kb/d
or 42 kb/d/mth.
Looking at NM from November to March, one gets 1,155 – 1,112 = 43 or 11 kb/d/mth.
The total being 53 kb/d/mth.
Looking at the total onshore L48 increase from January to March, one gets 8,861 –
8,814 = 47 or a net of 23.5 kb/d/mth. So within the onshore lower 48 there is 30 kb/d/mth of
decline.
I would not bet much on my two month or four month analysis, but I think we will need to
monitor what is happening in Texas and NM for another six months to get a better idea of what
is happening in the Permian. The price of oil will be the determining/critical factor.
LTO drilling locations are diminishing faster and faster. Look for massive consolidation as
E&P companies can only grow through M&A. Many companies have drilling inventories of
less than four years. The LTO revolution is over as we knew it and the number of E&P
companies will shrink dramatically. There will be minimal growth and much less than 75kbd per
month.
The energy transition will be painful and longer than anticipated. Criminalization of an
industry that embodies national security and that gives the "haves" a competitive advantage in
favor of hopes and prayers is folly and irresponsible.
China will bury us as they try to capture as much of the hydrocarbon as they can knowing
that energy equals power.
A few years ago I heard Chinese venture capitalist speak at the Aspen
Institute. He claimed that democracy is not a form of government but instead a religion. He
gave the example that in Nigeria, the US is concerned about human rights while the Chinese could
care less who dies in Nigeria as long as they can get the oil. He also stated that the Chinese
only care about how they can feed, shelter, move, and run their economy and human rights are
not remotely introduced into their paradigm. Something to think about.
Investments in real estate, commodities and gold can help offset higher inflation, wealth
manager say.
Real estate, for instance, can gain value amid inflation, while property owners can increase
rent on tenants. Real estate investment trusts have also offered attractive returns in prior
periods of rising inflation.
Commodities historically do well when the U.S. dollar is weak, and higher inflation tends to
push the greenback lower.
"Inflation is inevitable, especially with the amount of money the government is spending,"
says Patrick Healey, founder and president of Caliber Financial Partners, a financial planning
firm. "From a financial standpoint, you do need to have some hedges in your portfolio."
...Materials and energy companies stand to benefit from higher commodities prices, while
higher interest rates tend to help financial stocks with higher profit margins.
the OMB expects slower growth in the long run. It projects gross domestic product growth
running slightly over 2% on average annually between fiscal 2022 and 2031, while the
nonpartisan Congressional Budget Office pegs growth at less than 2% on average over the same
window. Either growth rate is anemic, making more "broadly shared prosperity" unlikely as
well.
...
It may be that raising federal spending turns out to be a winning formula for Democrats in
2022. Then again, it may not. Especially since Mr. Biden would hike taxes high enough to eat up
more GDP than in any 10-year period in American history, according
to the American Action Forum's Gordon Gray. The spending binge would also increase the nation's
public debt to 117% of GDP""greater than the previous record GDP percentage that Washington
clocked in the year after World War II.
Recent polling suggests the Democrats' approach may not help them in the midterms.
... Democrats may be counting on Republicans to emphasize "culture war" issues rather than
deliver a focused, principled attack on the president's orgy of spending and tax increases.
This isn't to suggest issues like defunding the police, critical race theory and border
security are unimportant. But in 2022, as in most years, the economy will likely be the real
congressional battleground. The sooner Republicans recognize that, the better.
Mr. Rove helped organize the political-action committee American Crossroads and is author of
"The Triumph of William McKinley" (Simon & Schuster, 2015).
I don't believe policies matter any more. In 2020, democrats secured a permanent upper hand
for themselves which is mail-in ballots.
Kenneth Johnson
WSJ headline---"Yes, It's Still The Economy, Stew ped"
If....by the summer of 2022....inflation is 4%+....we're in a recession....and
unemployment is 6%+....the Democrats will lose the midterms....I hope.
If none of those things is true....they may 'dodge a bullet'.
Any other opinions?
Ron Hoelscher
They have lost the culture war and do not seem to realize it.
As far as spending, when an economy evolves to have very few people controlling the 90% of
the economy then the governing party must resort to handouts to the 90% to stay in power.
I think the Romans called it "bread and circuses." Trump was the circus, now people want
some bread.
Ovi, refer Iranian oilfields . I have always said that Iran is producing and selling all the
oil it wants to sell or can sell . The regime has outlived 10 US administrations and 6 US
presidents inspite of sanctions . They are having to sell at a discount but at the end of the
day the oil flows . Just some road bumps and a zig zag route . I doubt they have a lot of spare
capacity .If and when the sanctions are lifted all what is " unofficial " will become "
official " . As to OPEC or OPEC+ that they are close to capacity viewpoint is more prevailing
by the day .
Current around of stimulus has run it's coarse. I look for jobs numbers and inflation
numbers to soften over next few months. Which means more QE and lower interest rates for
longer. Higher stock prices.
But for the real economy. We pulled 5 years worth of GDP forward. Unless governments are
prepared to spend even more on a monthly and yearly basis going forward than they did since
March 2020 until now. And put more money into the hands of average people. We roll over first
then fall off a cliff economically. Private banks just aren't going to create the money via
loan creation in volume needed to offset or match what the government has done over past year.
So without further massive stimulus we get massive credit contraction.
With the debt burden not just public debt but private debt hanging over the economy we
likely never return to pre-pandemic levels of Global GDP
Price action for oil is still bullish but that can change in a hurry when jobs and inflation
data turn soft. HOLE IN HEAD IGNORED
05/31/2021 at 2:00 pm
HHH, " With the debt burden not just public debt but private debt hanging over the economy
we likely never return to pre-pandemic levels of Global GDP " . Been parroting this from a long
time but few want to admit that
the BAU is over . Life is(was) a party and all parties must end .
LONDON (Reuters) - Cryptocurrencies such as bitcoin are a "farce" and a symptom of bubbles forming in financial markets, Amundi
chief investment officer Pascal Blanque said on Thursday.
Bitcoin, trading at around $39,364, fell 35% last month after China doubled down on efforts to prevent speculative and financial
risks by cracking down on mining and trading of the largest cryptocurrency.
Speaking at a news conference, Blanque described the crypto currency as a "farce," adding that it was a symptom of the bubbles
forming in markets.
If you buy food or gas like everyone else, you already have a profound understanding of how
inflation can consume your budget.
The latest official inflation tally showed a jaw-dropping 3.4 per cent increase in the cost
of living in April compared with a year earlier.
That's not to say runaway inflation is inevitable. The Bank of Canada has vowed to use its
monetary bag of tricks to keep it under control. Also, if you draw income from a defined
benefit pension (DB), Canada Pension Plan (CPP) or Old Age Security (OAS), benefits are
automatically tied to inflation.
Canadians who invest through a defined contribution pension (DC), or through a self-directed
registered retirement savings plan (RRSP) or tax-free savings account aren't so lucky. But
there are steps you can take in your investment portfolio to hedge against a rapid increase in
the cost of living. The objective of a hedge is to add protection without sacrificing return
potential. Here are four ways to put that protection in your portfolio.
1. Commodity equities
Equity markets generally advance with inflation (to a point), so it's good to stay invested
and diversified across sector and geographic lines. But some equities actually contribute more
to - and benefit more from - inflation. Commodities like crude oil, lumber, grain and metals
have taken the lead. That means bigger profits for commodity producers.
You can invest in specific commodities on the futures market through exchange-traded funds
(ETFs), or purchase shares in commodity-producing companies directly or through ETFs and mutual
funds.
2. Real estate
Real estate is another equity asset class already contributing to - and benefitting from -
inflation. Home owners are reaping rewards from soaring residential real estate prices but
there are many ways to diversify real estate holdings into other real estate subsectors through
real estate investment trusts. REITs are companies that own and operate residential, commercial
and industrial real estate that generate income from rents and capital gains through price
appreciation.
3. Short-term fixed income
Proper portfolio diversification includes safe fixed income, such as government bonds.
Dedicating a significant portion to fixed income in a portfolio will cushion it from volatility
on the equity side. How much of your portfolio should be dedicated to fixed income depends on
your tolerance for risk and how soon you need the cash.
It's hard to make that argument right now when yields are near rock-bottom lows, so it's
best to bite the bullet for now and keep your fixed income in short-term maturities to take
advantage of higher yields if inflation pushes interest rates up. A typical one-year guaranteed
investment certificate (GIC), for example, pays about one per cent (well below the current
inflation rate).
You can also hedge fixed income with inflation-adjusted products such as annuities or real
return bonds, but the added cost of that protection could eat into overall returns if inflation
does not become a problem.
4. Fixed-rate mortgage
Variable-rate mortgages are now available at about one per cent. While it might be tempting
for homeowners to borrow money for (close to) nothing, a rapid rise in mortgage rates could
translate into hundreds of dollars added to a monthly household budget or tens of thousands of
dollars over the course of the mortgage.
Five-year fixed rates are available at two per cent. That means you will pay two per cent no
matter what inflation does to mortgage rates in the next five years.
If you aren't already locked in, think about locking in now.
Scorpion 16 April, 2021 I am not surprised either that ARK bought COIN. She is a gambler not an
investor. Most of her investment is in overvalued, overhyped stocks they can't just keep going
up.
Lou 18 May, 2021 Until recently she was loaded up with Tesla - as much as 10% of the ARKK
portfolio - which accounted for a good part of its stellar performance (note that she had TSLA
in some of the other ARK funds. Not sure any of these other choices are going to give her ETFs
the ride TSLA gave them. Reply 2 Rene 7 May, 2021 Any one that invest in Bitcoin ,dogecoin,
Coin etc, must have his brain fall of pot or must have so much money like the Tesla Ceo, that
they can gamble for ever in a Casino, with that kind of money, i too will invest in Tin air,
and artificial money because Y cannot invest money sufficient to go broke in 10 life times.
that is very easy I don't need to expect any return in my investment.
Theo the Cat 19 May, 2021 I would never buy ARKK's stocks, but I am definitely watching and
eating popcorn. Alex 27 April, 2021 ARK is losing steam. People start to realize ARK can't
survive in a bear market
Theo the Cat 19 April, 2021 Ark is gonna turn into Titanic.
Rock 25 May, 2021 no one cares what ARK invests in... unless you want to lose money Reply 2
Cybercraig 25 April, 2021 I may end up selling ARK.G for a loss to balance next year's taxes.
Yech! Reply 5 4 Mighty Lion 19 May, 2021 Why is the reporting about ARK so sexist? Every single
article I've ever seen starts "Cathie Wood's ARK ETFs ... (such and such) ..." If it was
managed by a man, they would just say "ARK ETFs ... (etc). Reply 2 FlorinS 4 hours ago How can
we trust Cathie Wood ? Only few days ago she predicted that Bitcoin may reach $500,000.
Money quote from comments: "When news of this proposed standard came out, I read the actual
standard because I wanted to see if it really was that bad. Things were reported like, "Saying
an answer is 'wrong' is racist. There is no right and wrong in math, just shades of truth."
These kinds of things are worrisome. So I read a good chunk of the proposal, and I couldn't
find anything like that. Instead, I found their point was that anyone has the capability of
learning math, and so we should be teaching it to everyone. If people aren't learning it, then
that's a problem with our teaching methods.
Not sure Google and Apple will be happy. Clearly programming languages are racists as almost
all of them were created by white guys and they disproportionally punish poor coders...
A plan to reimagine math instruction for 6 million California students has become
ensnared in equity and fairness issues -- with critics saying proposed guidelines will hold
back gifted students and supporters saying it will, over time, give all kindergartners through
12th-graders a better chance to excel. From a report: The proposed new guidelines aim to
accelerate achievement while making mathematical understanding more accessible and valuable to
as many students as possible, including those shut out from high-level math in the past because
they had been "tracked" in lower level classes. The guidelines call on educators generally to
keep all students in the same courses until their junior year in high school, when they can
choose advanced subjects, including calculus, statistics and other forms of data
science.
Although still a draft, the Mathematics Framework achieved a milestone Wednesday, earning
approval from the state's Instructional Quality Commission. The members of that body moved the
framework along, approving numerous recommendations that a writing team is expected to
incorporate. The commission told writers to remove a document that had become a point of
contention for critics. It described its goals as calling out systemic racism in mathematics,
while helping educators create more inclusive, successful classrooms. Critics said it
needlessly injected race into the study of math. The state Board of Education is scheduled to
have the final say in November.
When news of this proposed standard came out, I read the actual standard because I wanted to
see if it really was that bad. Things were reported like, "Saying an answer is 'wrong' is
racist. There is no right and wrong in math, just shades of truth." These kinds of things are
worrisome.
So I read a good chunk of the proposal, and I couldn't find anything like that. Instead, I
found their point was that anyone has the capability of learning math, and so we should be
teaching it to everyone. If people aren't learning it, then that's a problem with our teaching
methods.
I also found that instead of getting rid of calculus, they are suggesting that you learn
calculus as a Junior or Senior in high school. This seems fine to me.
Does the curriculum for grades 1-10 have the appropriate foundational education for kids in
grades 11-12 to actually succeed in a calculus class? Because if not, then the notion that any
significant portion of juniors and seniors will be able take a calculus class is just a
fantasy. Re:
That is the goal, but I am not enough of an expert to know whether they reached their goal
or not. Re:
Reading (mostly skimming) through chapter 8 (about grades 9-12), a couple things stick
out:
First off, they define three different possible "pathways" for grades 9-10, which seems
completely in opposition to goal of a "common ninth- and tenth- grade experience." It sounds
like they envision that some high schools will only provide a single pathway while others will
provide multiple ones -- but it seems incredibly obvious that that's going to put students on
different tracks.
in 40 years since I did it. (I have been helping my kids.)
Which is a problem, because the world has changed with the advent of computers.
So they work on quite difficult symbolic integrations. But absolutely nothing on numerical
methods (and getting the rounding errors correct) which is far more useful in the modern
world.
For non-specialist students, there is almost nothing on how to really build a spreadsheet
model. That again is a far more useful skill than any calculus or more advanced algebra.
And then Re: I can't believe this
white supremacy I doubt they could get AP Calculus to work. It's going to have to be an
easier version of pre Calculus. Because of how they schedule the classes today, some kids take
summer courses so that they can get the prerequisites in time. Keeping everyone at the same
slow pace is painful for the stronger students. I'm wondering if they are having trouble
finding teachers who are qualified to teach math. Kumon The ones
whose parents can send them to Kumon or Russian Math after school, will have the capacity.
Those who cant even if they were smart enough for the accelerated program under current system
wont. With any law follow the money- see who will make money from this. Re:I can't believe
this white supremacy (
Score: 4 , Insightful) by CrappySnackPlane ( 7852536 ) on Monday May 31,
2021 @04:14PM ( #61440460 )
Which planet did you go to school on?
Here on Earth, here's how "everyone learns calculus in 11th grade" works:
The entire class has to stop and wait for the kids who are genuinely overwhelmed - be it
because they're smart-but-poor-and-hungry or, you know, because they're just fucking
dumb , both types exist, it doesn't matter - to catch up, because the teacher's job
rests on whether 79% or 80% of their students score a passing grade on the statewide
achiev^H^H^H^H^H^H (whoops, can't have achievements, that's ableist) "performance" tests. The
teacher, being a rational creature who understands how to make sure their family's bread
remains buttered, spends the bulk of their time helping along little Jethro and Barbie.
The bright kids are left bored out of their minds, and the "solution" presented by these
absolute shitstains is to suggest the bright kids do after-school activities if they want to
actually learn. Like, that's great for the 1% who genuinely love math the way some kids
love music or acting or sports, but what about the 25% or so who are really gifted at math and
would like to do more with it, but aren't so passionate about it that they want to give up more
of their precious dwindling free time to pursue it? What about the 50% who aren't necessarily
great at math but could certainly learn a lot more if the class wasn't being stopped every two
minutes to re-re-remind little Goobclot that "x" was actually a number, not just a letter?
Look, I absolutely agree that it's bad to write kids off as dumb. But Harrison
Bergeron is not included in the "Utopian Literature of the 20th Century" curriculum for a
reason. There's a flipside, and none of these "one size fits all" proposals does anything to
convince me that the proponents have actually seriously considered the other side of the coin.
Reply to This Parent Share FlagRe:I can't believe this
white supremacy (
Score: 2 ) by systemd-anonymousd ( 6652324 ) on Monday May 31,
2021 @06:26PM ( #61440894 )
My local school district is removing all AP math courses because they believe a disparity in
race in the students represents racism, and/or they just don't want to have to look at the
situation. I know the precursors to this sort of racist policy when I see it, and documents
that espouse a trifecta of equity, inclusivity, and diversity are fully intended to pull crabs
back down into the boiling bucket. Re:final countdown (
Score: 2 ) by gweihir ( 88907
) on Monday May 31, 2021 @05:31PM ( #61440734 )
Next step is mandatory lobotomies for smarter kids or something like it. Because they
obviously violate the dumber ones by setting an example the dumber ones can never hope to
reach. See also "Harrison Bergeron" by Kurt Vonnegut.
Reply to This Parent Share
"The consumer-price index rose at a remarkable 4.2%," says your editorial, "Powell
Gets His Inflation Wish" (May 13). Remarkable, yes, but our current inflation problem is
far worse than that 4.2%, which is bad enough. The real issue is what is happening in 2021. We
need to realize that for the first four months of this year, the seasonally-adjusted
consumer-price index is rising at an annual rate of 6.2%. Without the seasonal adjustments, it
is rising at 7.8%. Meanwhile, house prices are inflating at 12%.
We are paying the inevitable price for the Federal Reserve's monetization of government debt
and mortgages. As for whether this is "transitory," we may paraphrase J.M. Keynes: In the long
run, everything is transitory. But now it is high time for the Fed to begin reducing its debt
purchases, and to stop buying mortgages.
Skill shortages, wage pressures and "hawseholes flash with cash" is is a pretty questionable
consideration (mostly neoliberal mythology). It is typical for WSJ not to touch controversial topics
connected with the deterioration of global neoliberal empire centered in Washington and rampant money printing by Fed, which
increases the level of debt to Japanese's level. They also are buying bonds to keep rate under check which is kind of
counterfeiting money.
So we should expect US stock market to emulate Japanese's stock market. Under
neoliberalism there can be no wage pressures as war of labor was won by financial oligarchy which
institutes neo-feudal regime of wage slavery. One of the key methods is import of foreign workers
to undermine wages in the USA. And neoliberalism is a trap, creating "Welcome to the hotel California" situation.
Automation and robotization puts further pressure on workers in the USA, especially low skill jobs (in some restaurants
waiters are replaced by robots). In many large grocery shots, Wall Mart, etc automatic cashiers machines now are common.
That increase theft but saving on casheer job partially compensate for that. In back office cash and check counting is also
automated using machines.
The key issue here might be the status of dollar as world reserve currency... That allows the USA to
export inflation. If dollar dominance will be shaken inflation chickens will come to roost.
Inflation is here already, and in the long run there is a lot of upward
pressure on prices. But between now and then lies a big question for investors and the
economy: Is the Federal Reserve right to think that the price rises we're seeing now are
temporary and will abate by next year?
Some at the Fed are already having vague doubts, starting to talk about when to
discuss removing some of their extraordinary stimulus even as they continue to push the idea
that inflation is likely to fall back of its own accord.
... ... ..
Inflation expectations can become self-fulfilling, and are watched closely by the Fed.
One-year consumer inflation expectations reached 4.6% in May, according to the University of
Michigan survey, the highest since the China commodity boom of 2011.
Jeffrey P
It is important to not underestimate market sentiment and expectations in such matters
because sometimes in economics, the expectation can be strong enough to become a
self-fulfilling prediction even when other indicators recede or normally wouldn't be a
driver.
Jeffrey Whyatt
I wonder how COLAs in wages, pensions, social security, etc. will impact inflation when these
kick in. Think most occur automatically on a given contractual date. Might add fuel to the
fire.
BRANDON JAMES
Just look at the prices for all the things they exclude from the CPI and other indices of
inflation.
stephen rollins
How do you tell when the Treasury Sec. and Fed Chair are lying about inflation? When you open
your eyes in the morning and the Sun rises in the East.
RICHARD TANKSLEY
It seems wise not to overlook the upcoming problems that we might have with China which which
have the potential to create even more inflation. Lots of tensions are still around and
frankly we should seriously dent US imports from there over the Wuhan virus.
BRUCE MONTGOMERY
Economists are good at dissecting the past, but terrible at forecasting the future.
ROBERT BAILEY
They predicted 12 out of the last 3 recessions
stephen rollins
Yes, and non economists do even worse. Look at the Japanese stock market. About 37K in
1990, cratered, and still only at 28 today. Thats over 30 years, folks.
RODNEY EVERSON
Definition of a "Positive Carry Trade": Borrowing money at an interest rate and investing it
at a higher rate to earn the difference.
Banks do this with deposits, for example, borrowing money from savers and investing it in
higher-yielding loans.
Bond traders typically do it by purchasing longer maturities at, say, three percent and
financing them in the repo market at a rate now close to zero.
The main risk to such a trade is that the higher-yielding investment loses value while
holding it. The bank loan goes bad, or the long bond falls in value while holding it.
Today the Federal Reserve is running the largest positive carry trade in history,
borrowing trillions of dollars from the banking system and paying them 1/10 of one percent on
the loans while using the money to buy trillions of bonds and mortgages for its
portfolio.
If they raise short rates today, the banks will want more than 1/10 of a percent while,
simultaneously, bond prices will crater. Anyone see a conflict here?
RODNEY EVERSON
There seems to be universal agreement that inflation is underway today. The disagreement is
three-part: 1) It will be transitory and we will return to low levels; 2) It will not be
transitory and we are facing steadily rising prices for the foreseeable future; 3) Not only
will it not be transitory, but it will begin to escalate rapidly with the Fed proving unable
or even unwilling to control it, resulting in a hyperinflation.
The bond market is clearly betting on scenario #1, as is the Fed.
And yet the government is spending like the proverbial drunken sailor and the Fed has now
abandoned the banking system's fractional reserve mechanism that Volcker employed to bring
the 1970's inflation back under control. The result, to my mind, is that the U.S.
Government's finances now closely approximate those of Venezuela and Zimbabwe in the recent
past while the Fed has relinquished the tools that would ordinarily be used to yield a
different result than those countries experienced.
C Cook
Economics and politics.
The story describes reality well. Economics is just fuzzy theory now, neither I nor 99% of
America can sort it out. MMT... Print money forever and it doesn't matter?
Politics is clear. History has shown that new administrations lose the House at the first
mid-term. If that happens next year, the entire woke/green/leftist agenda goes down in
flames. Pelosi is back to being a pedestrian member of the House.
To avoid history, DNC will attempt to spend our grandchildren's future to buy every vote
available. Free everything, all the time. No need to work, study, or even get out of bed
before noon. Infrastructure is code for pay off Unions to get workers to vote, shake down
companies who want construction contracts to donate to DNC.
Equity market is watching. Bond market is watching. Likely, they realize that the only
reality is the massive damage to the US which will result from the DNC wanting to keep Nancy
happy.
James Cornelio
Unexplored in this article is the issue of what CAN the Fed do if there is unacceptable
inflationary pressures. To think that it could reduce its $100+ billion monthly purchases in
debt let alone raise interest rates by any serious amount is to forget that we are a nation
awash in debt and that any move by the Fed to do either would result in a 'taper tantrum' the
likes of which will cause all previous tantrums to look like nothing more than naughty
child's play.
William Mackey
The poster child for inflation has to be in the retail housing market. Fixer Uppers that went
begging for a buyer two years ago are the subject of bidding wars today. Biden is pouring
trillions into an emergency that is not there.
DANIEL PETROSINI
The Fed is now just another political entity. They are justifying the ridiculous
increase in money supply with the 'temporary' argument. It is critical to note, they have
always been late. This will not end well.
jennifer raineri
So right. And everyone is just whistling through the graveyard.
Ivaylo Ivanov
One possibility is that households spend some of their savings but continue to save more
than before in case of future trouble, while higher prices make people think twice about
splashing out.
When people see prices rising across the board they spend and hoard, they don't
save, especially when savings accounts interest rates are 0%.
CHING CHANG TSAI
In my opinion, anyone with common sense knows that inflation is here. Everything is more
expensive than before with a significant difference that draws buyer's attention. Even my
home value appreciates about 20% more than the value in 2020, estimated by the local
government. Thanks to my senior age that helped me to limit the raise to 10%. I protested in
vain due to local taxing authority had hard data on hand to dispute my protest.
I accept the reality except that FED said this inflation is "transitory." I can hardly
wait till next year to see my home value will depreciate back to my 2020 property value. I
hope FED will not "lie" on this subject.
David Weisz
I accept the reality except that FED said this inflation is "transitory."
The Fed description is accurate... it's just whether the transition is to
lower inflation or to runaway inflation.
Shares of Flywire, a company that helps organizations accept foreign-currency payments,
debuted on the Nasdaq on Wednesday at $34 apiece, up from their $24 IPO price. They rose about
4% on their first day of trading, giving the Boston-based fintech a roughly $3.5 billion
valuation by day's end. As a private company, Flywire was last valued at $1 billion after a
round of funding in early 2020, according to a PitchBook estimate.
Founded in 2009 under the name peerTransfer by Spanish serial entrepreneur Iker Marcaide,
Flywire originally aimed to make it easier for international students to pay U.S. tuition
without incurring foreign currency fees that could range from 3% to 5%. Flywire has since
expanded its services, enabling some 2,250 clients including universities, hospitals, travel
providers and businesses to accept payments in more than 130 currencies. It acquired Palo Alto
healthcare payments startup Simplee in February 2020. Despite the turmoil of last year, Flywire
processed $7.5 billion in payment volume and signed up 400 new customers while retaining 97% of
existing customers.
Mr. Dale, that's not entirely accurate. Obviously, the value of the cash deteriorates as
inflation progresses, but once inflation is underway interest rates, particularly short-term
rates, typically escalate. Often in the past, the short rate has gone well above the
inflation rate and people holding money market funds do quite well, ending up earning more
than the inflation rate and able to take advantage of depressed prices in bonds and even
stocks later on.
But if we get a hyperinflation, (and to be fair you did specify "runaway inflation") which
isn't out of the question given the Fed's actions, short term rates won't likely reach the
level required to make cash a good alternative. At that point, real assets, possibly some
stocks, or holding cash denominated in another currency become the only reasonable protection
from your savings losing significant value. Cryptocurrencies could also pan out, although
there's a huge risk that they do not, and that's despite what inflation does.
C Cook
You cannot eat gold and crypto is a house of cards. Short term, only cash holds up, and even
then inflation eats it away slowly.
Longer term, I believe only place to hide is the mega-cap global franchise stocks. They
can dodge government policies and can move assets to where they live better.
jennifer raineri
How can inflation progress if everything crashes? I believe the horrible mess we've gotten
into is going to produce horrific results. The financial crisis was the result of
deregulation. What's next will be global and will be due to the sheer stupidity of the
reaction to Covid. Throw politics in there too.
I accept the reality except that FED said this inflation is "transitory."
The Fed description is accurate... it's just whether the transition is to
lower inflation or to runaway inflation.
Jim McCreary
The biggest single factor that will drive long-term inflation is the absence of downward
price pressure from new Chinese market entrants. Cutthroat pricing from China is the ONLY
reason the West has been able to get away with Money-Printing Gone Wild for the past 20 years
without triggering runaway inflation.
There are no new Chinese entrants because the Chinese are now all in in the world economy.
The existing Chinese competitors are seeing their costs go UP, not down, because they have
fully employed the Chinese population, and have to pay up in order to get and keep
workers.
So, without any more downward price pressure from China, this latest round of
Money-Printing Gone Wild is showing up as price inflation, and will continue to do so.
Batten down the hatches! Stagflation and then runaway inflation are coming!
The "Everything Bubble" has jumped from hyperbole to literal truth in just a couple of
years, as more and more assets enter "crazy expensive/extremely reckless" territory. The latest
addition to the list is collateralized loan obligations (CLOs), which are created when a bank
lends money to a less-than-creditworthy company and then bundles that loan with a bunch of
similar loans into bonds for sale to yield-starved pension funds and bond funds.
There's a legitimate place in the market for this kind of security, as long as everyone
understands the risks. But in financial bubbles, banks' insatiable hunger for fees combines
with bond buyers' desperate need for income to cloud everyone's judgment. Lending standards
slip, bond quality declines, credit rating agencies look the other way to keep the deals
flowing, and buyers keep buying because they have no choice.
Record year
So far this year, issuance of new CLOs is on pace to easily exceed 2018's record.
Part of this surge is, like so much else, catch-up from last year's nationwide lockdown. But
most is just your typical out-of-control financing fueled by way too much new currency being
dumped into the banking system.
So how can bonds made up of below-investment-grade paper be investment grade? Through the
magic of securitization. As the Wall
Street Journal recently quoted CitiGroup:
Because CLOs' loan holdings are diversified, the bonds can achieve higher credit ratings
than the underlying loans, making them popular among institutions restricted to
investment-grade debt, such as banks and insurers.
Meanwhile, the combination of a recovering economy and lots of lenders willing to finance
pretty much anything is improving the prospects of financially challenged companies. Fewer of
them are defaulting, which increases the confidence of the people buying CLO bonds. Moody's
Investors Service now expects the trailing 12-month default rate on CLOs to fall to 3.9% by the
year-end, from 7.5% in March. And a growing number of firms are now being reviewed by rating
agencies to have their CLOs upgraded.
Meanwhile, spreads relative to risk-free paper are shrinking:
Sounds promising, right? And, alas, also familiar. Here's how CDOs, the previous bubble's
version of CLOs, worked just before the bottom fell out in 2008:
https://www.youtube.com/embed/3hG4X5iTK8M
Perpetual motion machine
Once they really get going, asset-backed securities like CDOs and CLOs take on a kind of
perpetual-motion-machine vibe in which easy money begets even easier money. To the extremely
credulous, such a system looks capable of spinning right along forever. Unfortunately, this
perception tends to become widespread just as some crucial cog in the machine is about to
break.
Which cog will it be? Candidates abound. Interest rates might rise, stocks might tank, the
government might realize its policies are stoking instability and try to "taper." Some crazy
geopolitical thing might happen (DO NOT look closely at Palestine, Ukraine, or Taiwan). It
doesn't matter which breaks first, as long as one eventually does.
Then the perpetual motion machine shifts into reverse, with rising defaults causing lower
CLO bond ratings causing mass sales by panicked institutions. And so on, until whoever had the
guts to short this market cashes out with epic gains. 11,429 31 NEVER
Detective Miller 2 hours ago
When there's nothing left there's always war.
Misesmissesme 2 hours ago
The institutions buying these instruments have no risk. They know they'll be bailed out
because they're too big to fail. Risk is all on the little guy who'll have to pay for the
bailouts.
NotApplicable PREMIUM 36 minutes ago
Powell and his magic checkbook.
Justus D. Barnes 2 hours ago (Edited)
Which war? Biblical or one of the escalating hot spots?
What if the Fed fought inflation my lowering the cost of electricity? Instead of
subsidies just increase the supply? They are printing billions why not see to it that we
double our energy production with nuclear power plants? If the cost of electricity was
halved that would instantly boost everyone's disposable income while making our
manufacturing more competitive.
Angelo Misterioso 56 minutes ago remove link
This is about the 5's derivation of this concept - going all the way back through, CDO
Squared, CRE CDO's, CDO's and CBO's before that... the hi grade CDO's were 200 to 1
levered...
just pure greed by the street and the regulators were the C students in math
class...
radical-extremist 1 hour ago
When homeowners in Stockton California began to discover the magical mystery of
Adjustable Rate Mortgages and couldn't afford to pay another $600 a month for their "dream
home" - the bottom began to fall out.
When unprofitable ghost companies, of which there are thousands, start defaulting on
their cheap loans - that's the sign. Which companies, where? No one's sure.
el_buffer 2 hours ago
I need to get my money out of this country before they rape me for yet another friggin
bailout.
Tanner798 1 hour ago
Keep in mind: most of the leveraged loans these CLOs are made up of are all floating
rate. If the Fed increases interest rates to combat inflation, the companies borrowing from
leveraged loans will no longer be able to afford their interest payments. The only reason
why the default rate is so low is due to the originators rolling these companies into
larger leveraged loans so they don't default. Rating agencies look the other way and
deteriorate the covanents to allow this to happen.
Ajax_USB_Port_Repair_Service_ 1 hour ago
Which state pension funds fare buying CLO's? My guess is the blue states.
Interesting Times In The UK 52 minutes ago
The Big Short is an excellent film, just as pertinent today ... as it was 13 years
ago.
Can't wait to watch the sequel ..
Portal 2 hours ago
Rampant speculation always precedes a collapse.
ThanksIwillHaveAnother 41 minutes ago (Edited)
I love how Wall Street constantly invents new words. In this case these are Junk
Bonds.
Calm has descended across one of the most influential markets for all investors: government
bonds. Investors fearing a rolling interest rate shock unfolding in 2021 with the potential for
puncturing high-flying equities, housing and highly indebted economies have been breathing
easier of late.
Courtesy of central banks' sustained presence in bond markets, this year's rise in market
borrowing costs has not triggered a bigger shock, At least for now.
Looks like this guys somewhat understands the problems with neoliberalism, but still is captured by neoliberal ideology.
Notable quotes:
"... That all seems awfully quaint today. Pensions disappeared for private-sector employees years ago. Most community banks were gobbled up by one of the mega-banks in the 1990s -- today five banks control 50 percent of the commercial banking industry, which itself mushroomed to the point where finance enjoys about 25 percent of all corporate profits. Union membership fell by 50 percent. ..."
"... Ninety-four percent of the jobs created between 2005 and 2015 were temp or contractor jobs without benefits; people working multiple gigs to make ends meet is increasingly the norm. Real wages have been flat or even declining. The chances that an American born in 1990 will earn more than their parents are down to 50 percent; for Americans born in 1940 the same figure was 92 percent. ..."
"... Thanks to Milton Friedman, Jack Welch, and other corporate titans, the goals of large companies began to change in the 1970s and early 1980s. The notion they espoused -- that a company exists only to maximize its share price -- became gospel in business schools and boardrooms around the country. Companies were pushed to adopt shareholder value as their sole measuring stick. ..."
"... Simultaneously, the major banks grew and evolved as Depression-era regulations separating consumer lending and investment banking were abolished. Financial deregulation started under Ronald Reagan in 1980 and culminated in the Financial Services Modernization Act of 1999 under Bill Clinton that really set the banks loose. The securities industry grew 500 percent as a share of GDP between 1980 and the 2000s while ordinary bank deposits shrank from 70 percent to 50 percent. Financial products multiplied as even Main Street companies were driven to pursue financial engineering to manage their affairs. GE, my dad's old company and once a beacon of manufacturing, became the fifth biggest financial institution in the country by 2007. ..."
The logic of the meritocracy is leading us to ruin, because we arc collectively primed to ignore the voices of the millions getting
pushed into economic distress by the grinding wheels of automation and innovation. We figure they're complaining or suffering because
they're losers.
We need to break free of this logic of the marketplace before it's too late.
[Neoliberalism] had decimated the economies and cultures of these regions and were set to do the same to many others.
In response, American lives and families are falling apart. Ram- pant financial stress is the new normal. We are in the third
or fourth inning of the greatest economic shift in the history of mankind, and no one seems to be talking about it or doing anything
in response.
The Great Displacement didn't arrive overnight. It has been building for decades as the economy and labor market changed in response
to improving technology, financialization, changing corporate norms, and globalization. In the 1970s, when my parents worked at GE
and Blue Cross Blue Shield in upstate New York, their companies provided generous pensions and expected them to stay for decades.
Community banks were boring businesses that lent money to local companies for a modest return. Over 20 percent of workers were unionized.
Some economic problems existed -- growth was uneven and infla- tion periodically high. But income inequality was low, jobs provided
benefits, and Main Street businesses were the drivers of the economy. There were only three television networks, and in my house
we watched them on a TV with an antenna that we fiddled with to make the picture clearer.
That all seems awfully quaint today. Pensions disappeared for private-sector employees years ago. Most community banks were
gobbled up by one of the mega-banks in the 1990s -- today five banks control 50 percent of the commercial banking industry, which
itself mushroomed to the point where finance enjoys about 25 percent of all corporate profits. Union membership fell by 50 percent.
Ninety-four percent of the jobs created between 2005 and 2015 were temp or contractor jobs without benefits; people working
multiple gigs to make ends meet is increasingly the norm. Real wages have been flat or even declining. The chances that an American
born in 1990 will earn more than their parents are down to 50 percent; for Americans born in 1940 the same figure was 92 percent.
Thanks to Milton Friedman, Jack Welch, and other corporate titans, the goals of large companies began to change in the 1970s
and early 1980s. The notion they espoused -- that a company exists only to maximize its share price -- became gospel in business
schools and boardrooms around the country. Companies were pushed to adopt shareholder value as their sole measuring stick.
Hostile takeovers, shareholder lawsuits, and later activist hedge funds served as prompts to ensure that managers were committed
to profitability at all costs. On the flip side, CF.Os were granted stock options for the first time that wedded their individual
gain to the company's share price. The ratio of CF.O to worker pay rose from 20 to 1 in 1965 to 271 to 1 in 2016. Benefits were streamlined
and reduced and the relationship between company and employee weakened to become more transactional.
Simultaneously, the major banks grew and evolved as Depression-era regulations separating consumer lending and investment
banking were abolished. Financial deregulation started under Ronald Reagan in 1980 and culminated in the Financial Services Modernization
Act of 1999 under Bill Clinton that really set the banks loose. The securities industry grew 500 percent as a share of GDP between
1980 and the 2000s while ordinary bank deposits shrank from 70 percent to 50 percent. Financial products multiplied as even Main
Street companies were driven to pursue financial engineering to manage their affairs. GE, my dad's old company and once a beacon
of manufacturing, became the fifth biggest financial institution in the country by 2007.
It's hard to be in the year 2018 and not hear about the endless studies alarming the general public about coming labor automation.
But what Yang provides in this book is two key things: automation has already been ravaging the country which has led to the great
political polarization of today, and second, an actual vision into what happens when people lose jobs, and it definitely is a
lightning strike of "oh crap"
I found this book relatively impressive and frightening. Yang, a former lawyer, entrepreneur, and non-profit leader, writes
showing with inarguable data that when companies automate work and use new software, communities die, drug use increases, suicide
increases, and crime skyrockets. The new jobs created go to big cities, the surviving talent leaves, and the remaining people
lose hope and descend into madness. (as a student of psychology, this is not surprising)
He starts by painting the picture of the average American and how fragile they are economically. He deconstructs the labor
predictions and how technology is going to ravage it. He discusses the future of work. He explains what has happened in technology
and why it's suddenly a huge threat. He shows what this means: economic inequality rises, the people have less power, the voice
of democracy is diminished, no one owns stocks, people get poorer etc. He shows that talent is leaving small towns, money is concentrating
to big cities faster. He shows what happens when those other cities die (bad things), and then how the people react when they
have no income (really bad things). He shows how retraining doesn't work and college is failing us. We don't invest in vocational
skills, and our youth is underemployed pushed into freelance work making minimal pay. He shows how no one trusts the institutions
anymore.
Then he discusses solutions with a focus on Universal Basic Income. I was a skeptic of the idea until I read this book. You
literally walk away with this burning desire to prevent a Mad Max esque civil war, and its hard to argue with him. We don't have
much time and our bloated micromanaged welfare programs cannot sustain.
This is a very short book, almost an essay -- 136 pages. It was published in October 2004, four years before financial crisis of
2008, which put the first nail in the coffin of neoliberalism. It addresses the cultural politics of neo-liberalism ("the
Great Deception")
Notable quotes:
"... By now, we've all heard about the shocking redistribution of wealth that's occurred during the last thirty years, and particularly during the last decade. But economic changes like this don't occur in a vacuum; they're always linked to politics. ..."
"... Ultimately, The Twilight of Equality? not only reveals how the highly successful rhetorical maneuvers of neoliberalism have functioned ..."
"... The titles of her four chapters--Downsizing Democracy, The Incredible Shrinking Public, Equality, Inc., Love AND Money--summarize her argument. ..."
"... Her target is neoliberalism, which she sees as a broadly controlling corporate agenda which seeks world domination, privatization of governmental decision-making, and marginalization of unions, low-income people, racial and sexual minorities while presenting to the public a benign and inclusive facade. ..."
"... Neo-liberalism seeks to upwardly distribute money, power, and status, she writes, while progressive movements seek to downwardly distribute money, power, and status. The unity of the downwardly distribution advocates should match the unity of the upwardly distribution advocates in order to be effective, she writes. ..."
"... "There is nothing stable or inevitable in the alliances supporting neoliberal agendas in the U.S. and globally," she writes. "The alliances linking neoliberal global economics, and conservative and right-wing domestic politics, and the culture wars are provisional--and fading...." ..."
"... For example, she discusses neoliberal attempts to be "multicultural," but points out that economic resources are constantly redistributed upward. Neoliberal politics, she argues, has only reinforced and increased the divide between economic and social political issues. ..."
"... Because neoliberal politicians wish to save neoliberalism by reforming it, she argues that proposing alternate visions and ideas have been blocked. ..."
By now, we've all heard about the shocking redistribution of wealth that's occurred during the last thirty years, and
particularly during the last decade. But economic changes like this don't occur in a vacuum; they're always linked to politics.
The Twilight of Equality? searches out these links through an analysis of the politics of the 1990s, the decade when
neoliberalism-free market economics-became gospel.
After a brilliant historical examination of how racial and gender inequities were woven into the very theoretical underpinnings
of the neoliberal model of the state, Duggan shows how these inequities play out today. In a series of political case studies,
Duggan reveals how neoliberal goals have been pursued, demonstrating that progressive arguments that separate identity politics and
economic policy, cultural politics and affairs of state, can only fail.
Ultimately, The Twilight of Equality? not only reveals how the highly successful rhetorical maneuvers of neoliberalism have
functioned but, more importantly, it shows a way to revitalize and unify progressive politics in the U.S. today.
Mona Cohen 5.0 out of 5 stars A Critique of Neoliberalism and the Divided Resistance to It July 3, 2006
Lisa Duggan is intensely interested in American politics, and has found political life in the United States to have been "such
a wild ride, offering moments of of dizzying hope along with long stretches of political depression." She is grateful for "many
ideas about political depression, and how to survive it," and she has written a excellent short book that helps make sense of
many widely divergent political trends.
Her book is well-summarized by its concluding paragraph, which I am breaking up into additional paragraphs for greater
clarity:
"Now at this moment of danger and opportunity, the progressive left is mobilizing against neoliberalism and possible new or
continuing wars.
"These mobilizations might become sites for factional struggles over the disciplining of troops, in the name of unity at a
time of crisis and necessity. But such efforts will fail; the troops will not be disciplined, and the disciplinarians will be
left to their bitterness.
"Or, we might find ways of think, speaking, writing and acting that are engaged and curious about "other people's" struggles
for social justice, that are respectfully affiliative and dialogic rather than pedagogical, that that look for the hopeful spots
to expand upon, and that revel in the pleasure of political life.
"For it is pleasure AND collective caretaking, love AND the egalitarian circulation of money--allied to clear and hard-headed
political analysis offered generously--that will create the space for a progressive politics that might both imagine and
create...something worth living for."
The titles of her four chapters--Downsizing Democracy, The Incredible Shrinking Public, Equality, Inc., Love AND
Money--summarize her argument.
She expected upon her high school graduation in 1972, she writes, that "active and expanding social movements seemed capable
of ameliorating conditions of injustice and inequality, poverty, war and imperialism....I had no idea I was not perched at a
great beginning, but rather at a denouement, as the possibilities for progressive social change encountered daunting historical
setbacks beginning in 1972...."
Her target is neoliberalism, which she sees as a broadly controlling corporate agenda which seeks world domination,
privatization of governmental decision-making, and marginalization of unions, low-income people, racial and sexual minorities
while presenting to the public a benign and inclusive facade.
Neo-liberalism seeks to upwardly distribute money, power, and status, she writes, while progressive movements seek to
downwardly distribute money, power, and status. The unity of the downwardly distribution advocates should match the unity of the
upwardly distribution advocates in order to be effective, she writes.
Her belief is that all groups threatened by the neoliberal paradigm should unite against it, but such unity is threatened by
endless differences of perspectives. By minutely analyzing many of the differences, and expanding understanding of diverse
perspectives, she tries to remove them as obstacles towards people and organizations working together to achieve both unique and
common aims.
This is good book for those interested in the history and current significance of numerous progressive ideological arguments.
It is a good book for organizers of umbrella organizations and elected officials who work with diverse social movements. By
articulating points of difference, the author depersonalizes them and aids in overcoming them.
Those who are interested in electoral strategies, however, will be disappointed. The interrelationship between neoliberalism
as a governing ideology and neoliberalism as a political strategy is not discussed here. It is my view that greater and more
focused and inclusive political organizing has the potential to win over a good number of the those who see support of
neoliberalism's policy initiatives as a base-broadening tactic more than as a sacred cause.
"There is nothing stable or inevitable in the alliances supporting neoliberal agendas in the U.S. and globally," she
writes. "The alliances linking neoliberal global economics, and conservative and right-wing domestic politics, and the culture
wars are provisional--and fading...."
Reading this book adds to one's understanding of labels, and political and intellectual distinctions. It has too much jargon
for my taste, but not so much as to be impenetrable. It is an excellent summarization and synthesis of the goals, ideologies, and
histories of numerous social movements, both famous and obscure.
Duggan
articulately connects social and economic issues to each other, arguing that neoliberal
politics have divided the two when in actuality, they cannot be separated from one another.
In the introduction, Duggan argues that politics have become neoliberal - while politics
operate under the guise of promoting social change or social stability, in reality, she argues,
politicians have failed to make the connection between economic and social/cultural issues. She
uses historical background to prove the claim that economic and social issues can be separated
from each other is false.
For example, she discusses neoliberal attempts to be "multicultural," but points out that
economic resources are constantly redistributed upward. Neoliberal politics, she argues, has
only reinforced and increased the divide between economic and social political issues.
After the introduction, Duggan focuses on a specific topic in each chapter: downsizing
democracy, the incredible shrinking public, equality, and love and money. In the first chapter
(downsizing democracy), she argues that through violent imperial assertion in the Middle East,
budget cuts in social services, and disillusionments in political divides, "capitalists could
actually bring down capitalism" (p. 2).
Because neoliberal politicians wish to save neoliberalism by reforming it, she argues that
proposing alternate visions and ideas have been blocked. Duggan provides historical background
that help the reader connect early nineteenth century U.S. legislation (regarding voting rights
and slavery) to perpetuated institutional prejudices.
CLOs have become a $760 billion market, accounting for 70% of new leveraged loan purchases
last year, according to Citi.
... Just six nonfinancial, junk-rated companies defaulted during the first quarter of this
year, according to Moody's Investors Service -- the lowest level since 2018. The ratings agency
expects the trailing 12-month default rate to fall to 3.9% by the end of December, from 7.5% in
March.
... The combination has analysts and investors expecting a banner year for CLO issuance.
Bank of America
projects sales to total around $360 billion this year, including refinancings, while Citibank
expects around $290 billion. Both figures would surpass 2018's all-time high.
... Critics say CLOs allow companies to borrow more than they can support, exposing
investors to losses in a downturn. A wave of leveraged loan downgrades
hit CLO managers last year , causing some portfolios to surpass limits on low-rated
holdings or breach collateral tests.
... Some CLO tranches haven't traded consistently, wrote KKR analysts in a recent note, a
sign that there could be some fragility lurking underneath the market's surface.
"Despite the high volume of activity, we do not believe that liquidity across the [CLO]
market has been uniform and as robust as it may seem," they wrote.
The read question is when this will happen. So far this year the yield of 10 year bond fluctuate in a rather narrow band. It
does not steadily increases...
Some tried to downplay concern by pointing out that the gains resulted from the "base effect" of comparing current prices with
the artificially depressed "Covid lockdown" prices of March and April of last year. But that ignores the more alarming trend of near-term
price acceleration.
According to the Bureau of Labor Statistics, in every month this year, the month-over-month change in prices has been greater
than the change in the previous month.
In April prices jumped .8% from March, versus an expected gain of just .2%. Clearly, if this trend continues, or even fails to
dramatically reverse, we could be looking at inflation well north of 5 or 6 percent for the calendar year. That would create a big
problem.
Despite Federal Reserve officials' recent assurances that the inflation problem is "transitory," many investors are concluding
that the central bank will have to deal with this problem by tightening monetary policy far sooner than had been expected. This would
make sense if the Fed cared about restraining inflation or, more importantly, had the power to do anything to stop it. In truth,
we are sailing into these waters with little ability to alter speed or course, and we will be wholly at the mercy of the waves we
have spent a generation creating.
The Commerce Department on Friday reported that
consumer spending rose 0.5% in April from a month earlier, which, coming after March's government stimulus-check-fueled surge,
was impressive. The gain was driven by a 1.1% increase in spending on services""an indication of how, with
Covid-19 cases dropping
and
vaccination rates rising , consumers are shifting their behavior. Spending on goods actually declined, with the weakness concentrated
in spending on nondurable goods such as groceries and cleaning products.
But a closer look at April's overall gain indicates it was mainly driven by price increases. By the Commerce Department's measure,
which is the Federal Reserve's preferred gauge of inflation, consumer prices rose 0.6% in April from March, putting them 3.6% above
their year-earlier level. As a result, real, or inflation-adjusted spending declined. Core prices, which exclude the often volatile
food and energy categories to better capture inflation's underlying trend, were up 0.7% from March, and 3.1% on the year. The Fed's
inflation goal is 2%, though it has said it
will tolerate higher readings than that for some time.
Some tried to downplay concern by pointing out that the gains resulted from the "base
effect" of comparing current prices with the artificially depressed "Covid lockdown" prices of
March and April of last year. But that ignores the more alarming trend of near-term price
acceleration.
According to the Bureau of Labor Statistics, in every month this year, the month-over-month
change in prices has been greater than the change in the previous month.
In April prices jumped .8% from March, versus an expected gain of just .2%. Clearly, if this
trend continues, or even fails to dramatically reverse, we could be looking at inflation well
north of 5 or 6 percent for the calendar year. That would create a big problem.
Despite Federal Reserve officials' recent assurances that the inflation problem is
"transitory," many investors are concluding that the central bank will have to deal with this
problem by tightening monetary policy far sooner than had been expected. This would make sense
if the Fed cared about restraining inflation or, more importantly, had the power to do anything
to stop it. In truth, we are sailing into these waters with little ability to alter speed or
course, and we will be wholly at the mercy of the waves we have spent a generation
creating.
According to BofA's latest Flows Show, this week's EPFR data revealed a broad defensive retrenchment, culminating with the largest
inflow to cash since Apr'20 & largest inflow to gold in 16 weeks ($2.6bn); and while broad inflows to equities continue ($512bn YTD)
& largest inflow to Europe since Feb'18 ($2.8bn); we just experienced the largest 3-week outflow from tech since Mar'19 ($1.5bn)
as well as the largest outflow from banks since Jun'20 ($0.6bn).
Refinitiv confirms this,
reporting this morning that "global money market funds saw huge inflows" amounting to no less than $53.2 billion, the highest
in four weeks, in the week ended May 26 amid caution that quickening inflation could alter the direction of U.S. monetary policy
and shake up asset markets.
Despite the massive flows into the safety of money market, Refinitiv also finds that global equity funds attracted solid inflows
of $8.84 billion, a 46% increase over the previous week, as stocks rallied somewhat after U.S. Federal Reserve officials reaffirmed
a dovish monetary policy stance: U.S. equity funds received $2.87 billion, while European equity funds and Asian equity funds obtained
$2.47 billion and $1 billion, respectively.
Where the EPFR and Refinitiv data diverge is when it comes to tech. Contrary to the EPFR observation, Refinitiv reports that tech
funds attracted inflows worth $546 million after three straight weeks of outflows, while financial sector funds faced their first
outflow in 16 weeks, hit by a decline in bond yields.
y_arrow
Pausebreak 6 hours ago
"Refinitiv's analysis of 23,865 emerging-market funds showed equity funds had net outflows worth $463 million, while bond
funds had inflows worth $420 million after outflows in the previous week."
Mary Beth
11 months ago Vanguard eliminated the 30% limitation on investments in non-investment grade
bonds today . Any indication of how far they will go to increase returns?
Prices for the building blocks of the economy have surged over the past year. Oil, copper, corn and gasoline futures all cost
about twice what they did a year ago, when much of the world was locked down to fight the spread of the deadly coronavirus. Lumber
has more than tripled.
Not sure its adding anything which hasn't been said already but to look at the same thing in a different way:
2, or if you look at it 'sideways' 3, main interwoven factors drive inflation:
Access to money to spend - That can be wage/earnings increases or access to cheap debt. That ups demand & prices follow.
Devaluation of the currency - Pushes up raw material imports & prices follow.
What curbs inflation?:
High taxation
High interest rates
High unemployment
And if anyone can point to any Western Democracy currently willing to implement any one, never mind all three, of those
controls a lot of folk will probably be pretty surprised.
Michael Matus
Commodities prices are not the problem. They are high now because of a short-term surge in demand and supply chain issues. All
should be worked out by this time next year.
The long-term structural problem could be wages. If inflation shows up in wages through wage increases through a multitude
of industries then there will be a problem,....... a major one.
Having all these people on the Dole from the government didn't help things Joe!
But like all Presidents that came after HW Bush all you care about is getting re-elected. Doling out is a great way even if
its at the cost of the country.
The FED as been intervening in the markets for so long that they have no tools left for the next crisis.
The FED painted themselves into a corner and the Stimulus that was not needed left them no Escape.
Michael Brown
"Having all these people on the Dole from the government didn't help things Joe!"
What about raising the minimum wage, and Joe commanding that all workers for federal contractors be paid $15 per hour or more?
You think that could be inflationary?
Michael Matus
I would have to agree with yoiu Michael. I should have mentioned that, thank you for reminding me. However, the main problem with
all the sources trhat I have out on the street and their are mnay. Is WAGE growth. As far as a national mimum wage there is none.
Altough there probably will be now. Most states pay as high or higher than what the Federal Government was proposing.
90% of government contractors make at least $15.00 an hour anyway. The VAST majority of the problem is enhanced unemployment
insurance. The 3 month averge of wage groth ending in March was 3.4%. If it hits > 4.0% that will be bad.
Michael Brown
Excellent points, Michael. The list of government actions instigating inflation would be long indeed.
Michael Matus
Unfortunately, Michael, I would have to Wholeheartedly agree with you, Have a Good Weekend!
JOSEPH MICHAEL
Serious, severe inflationary problems are here, they are just starting, and they are going to get much worse.
Brian Kearns
eh.
best to give corporations a large tax cut
so the can buy back stock
Bill Hestir
I will interested to see if new car prices, lumber prices, new home prices, gasoline prices, and food prices will ever go back
down to pre-pandemic levels.
If not, with all the new anti-business taxes and reluctance of out-of-work laborers to go back to work, how will businesses
not be forced to raise their wages and increase the price of their products even higher than they are today?
At what point, therefore, will the Fed end their "inflation is transitory" farce and raise interest rates?
Deirdre Hood
Food prices, regardless of when inflation ends, will not go down/return to 'normal'.
Supply lines are squeezed (NO ONE can hire reliable transport drivers), low supply of workers, plus factor in a bad
year for wheat, and it turns into the perfect storm for commercial bakers.
Judy Neuwirth
Inflation is just getting started. Cho Bi-Den's hyper-regulated economy is only three months old and already it's 1976 all over
again!
Jim Chapman
Now Judy, it's just "transitory" inflation as per Yellen, Powell and Buyden. You really must stick with the narrative, and remember,
Adam Smith's scurrilous "Invisible Hand" is a ultra-right wing conservative myth. So we are not supposed to believe our lying
eyes.
The U.S. is woefully unprepared to handle "the electrification of everything," as Amy Myers
Jaffe, a research professor at Tufts University's Fletcher School, describes the drive to
electrify transportation and buildings and parts of industry in The Wall Street
Journal .
Increased electrification in all sectors will need huge investments in the electric grid, in
battery storage to back up renewable power generation, in charging points for EVs, and in
technologies such as green hydrogen to help those technologies to reach maturity and cost
efficiency enough to start replacing fossil fuels.
When considering a fund's volatility, an investor may find it difficult to decide which fund
will provide the optimal risk-reward combination. Many websites provide various volatility
measures for mutual funds free of charge; however, it can be hard to know not only what the
figures mean but also how to analyze them.
Furthermore, the relationship between these figures is not always obvious. Read on to learn
about the four most common volatility measures and how they are
applied in the type of risk analysis based on modern portfolio theory.
The relationship between portfolio returns and risk can be represented by the efficient
frontier, a curve that is a part of modern portfolio theory.
Another way to measure risk is standard deviation, which reports a fund's volatility,
indicating the tendency of the returns to rise or fall drastically in a short period of
time.
Beta, another useful statistical measure, compares the volatility (or risk) of a fund to
its index or benchmark.
The R-squared of a fund shows investors if the beta of a mutual fund is measured against
an appropriate benchmark.
Alpha measures how much, if any, extra risk helped the fund outperform its corresponding
benchmark.
Optimal Portfolio Theory and Mutual Funds
One examination of the relationship between portfolio returns and risk is the efficient
frontier , a curve that is a part of the modern portfolio theory. The curve forms from a
graph plotting return and risk indicated by volatility, which is represented by the standard
deviation . According to the modern portfolio theory, funds lying on the curve are yielding
the maximum return possible, given the amount of volatility.
As standard deviation increases, so does the return. Once expected returns of a portfolio
reach a certain level, an investor must take on a large amount of volatility for a small
increase in return. Obviously, portfolios with a risk/return relationship plotted
far below the curve are not optimal since the investor is taking on a large amount of
instability for a small return. To determine if the proposed fund has an optimal return for the
amount of volatility acquired, an investor needs to do an analysis of the fund's standard
deviation.
Modern portfolio theory and volatility are not the only means investors use to analyze the
risk caused by many different factors in the market. And things like risk tolerance and investment
strategy affect how an investor views his or her exposure to risk. Here are four other
measures.
https://637ee757112ba46fe0c09f00b0574098.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
1. Standard Deviation
As with many statistical measures, the calculation for standard deviation can be
intimidating, but because the number is extremely useful for those who know how to use it,
there are many free mutual fund screening services that
provide the standard deviations of funds.
The standard deviation essentially reports a fund's volatility, which indicates the tendency
of the returns to rise or fall drastically in a short period of time. A volatile security is
also considered a higher risk because its performance may change quickly in either direction at
any moment. The standard deviation of a fund measures this risk by measuring the degree to
which the fund fluctuates in relation to its mean return .
A fund with a consistent four-year return of 3%, for example, would have a mean, or average,
of 3%. The standard deviation for this fund would then be zero because the fund's return in any
given year does not differ from its four-year mean of 3%. On the other hand, a fund that in
each of the last four years returned -5%, 17%, 2%, and 30% would have a mean return of 11%.
This fund would also exhibit a high standard deviation because each year, the return of the
fund differs from the mean return. This fund is, therefore, riskier because it fluctuates
widely between negative and positive returns within a short period.
Remember, because volatility is only one indicator of the risk affecting a security, a
stable past performance of a fund is not necessarily a guarantee of future stability. Since
unforeseen market factors can influence the volatility, a fund with a standard deviation close
or equal to zero this year may behave differently the following year.
To determine how well a fund is maximizing the return received for its volatility, you can
compare the fund to another with a similar investment strategy and similar returns. The fund
with the lower standard deviation would be more optimal because it is maximizing the return
received for the amount of risk acquired. Consider the following graph:
With the S&P
500 Fund B, the investor would be acquiring a larger amount of volatility risk than
necessary to achieve the same returns as Fund A. Fund A would provide the investor with the
optimal risk/return relationship.
2. Beta
While standard deviation determines the volatility of a fund according to the disparity of
its returns over a period of time, beta , another useful statistical measure,
compares the volatility (or risk) of a fund to its index or benchmark . A fund with a beta very
close to one means the fund's performance closely matches the index or benchmark. A beta
greater than one indicates greater volatility than the overall market, and a beta less than one
indicates less volatility than the benchmark.
If, for example, a fund has a beta of 1.05 in relation to the S&P 500, the fund has been
moving 5% more than the index. Therefore, if the S&P 500 increased by 15%, the fund would
be expected to increase by 15.75%. On the other hand, a fund with a beta of 2.4 would be
expected to move 2.4 times more than its corresponding index. So if the S&P 500 moved 10%,
the fund would be expected to rise 24%, and if the S&P 500 declined 10%, the fund would be
expected to lose 24%.
Investors expecting the market to be bullish may choose funds exhibiting
high betas, which increase investors' chances of beating the market. If an investor expects the
market to be bearish in the near future, the funds
with betas less than one are a good choice because they would be expected to decline less in
value than the index. For example, if a fund had a beta of 0.5, and the S&P 500 declined by
6%, the fund would be expected to decline only 3%.
Beta by itself is limited and can be skewed due to factors other than the market risk affecting the fund's
volatility.
3. R-Squared
The R-squared of a fund shows investors if
the beta of a mutual fund is measured against an appropriate benchmark. Measuring the
correlation of a fund's movements to that of an index , R-squared describes the level of
association between the fund's volatility and market risk, or, more specifically, the degree to
which a fund's volatility is a result of the day-to-day fluctuations experienced by the overall
market.
R-squared values range between 0 and 100, where 0 represents the least correlation, and 100
represents full correlation. If a fund's beta has an R-squared value close to 100, the beta of
the fund should be trusted. On the other hand, an R-squared value close to 0 indicates the beta
is not particularly useful because the fund is being compared against an inappropriate
benchmark.
If, for example, a bond fund was judged against the
S&P 500, the R-squared value would be very low. A bond index such as the Bloomberg Barclays
US Aggregate Bond Index would be a much more appropriate benchmark for a bond fund so that the
resulting R-squared value would be higher. Obviously, the risks apparent in the stock market
are different than those associated with the bond market . Therefore, if the beta
for a bond were calculated using a stock index, the beta would not be trustworthy.
An inappropriate benchmark will skew more than just beta. Alpha is calculated using beta, so if the
R-squared value of a fund is low, it is also wise not to trust the figure given for alpha.
We'll go through an example in the next section.
4. Alpha
Up to this point, we have learned how to examine figures measuring risk posed by volatility,
but how do we measure the extra return rewarded to you for taking on the risk posed by factors
other than market volatility? Enter alpha, which measures how much if any of this extra risk
helped the fund outperform its corresponding
benchmark. Using beta, alpha's computation compares the fund's performance to that of the
benchmark's risk-adjusted returns and
establishes if the fund outperformed the market, given the same amount of risk.
For example, if a fund has an alpha of one, it means that the fund outperformed the
benchmark by 1%. Negative alphas are bad in that they indicate the fund underperformed for the
amount of extra, fund-specific risk the fund's investors undertook.
The Bottom Line
This explanation of these four statistical measures provides you with the basic knowledge
for using them to apply the premise of the optimal portfolio theory, which uses volatility to
establish risk and offers a guideline for determining how much of a fund's volatility carries a
higher potential for return. These figures can be difficult to understand, so if you use them,
it is important to know what they mean.
These calculations only work within one type of risk analysis . If you are
deciding on buying mutual funds, it is important to be aware of factors other than volatility
that affect and indicate the risk posed by mutual funds.
The price of the benchmark 10-year Treasury inflation-protected security logged its biggest
one-day decline in a month. Shares of real-estate investment trusts slid the most since
January. Commodities were generally flat but dropped the following day.
The three asset classes have vacillated since, but their initial moves showed the unexpected
ways that markets can behave when inflation is rising, especially when many are already
expensive by historical measures.
This week, investors will gain greater insight into the inflation picture when the Commerce
Department updates the Federal Reserve's preferred inflation gauge, the
personal-consumption-expenditures price index. They will also track earnings from the likes of
Dollar General Corp. ,
Costco Wholesale
Corp. and Salesforce.com Inc.
The stakes are high for investors. Inflation dents the value of traditional government and
corporate bonds because it reduces the purchasing power of their fixed interest payments. But
it can also hurt stocks, analysts say, by pushing up interest rates and increasing input costs
for companies.
From early 1973 through last December, stocks have delivered positive inflation-adjusted
returns in 90% of rolling 12-month periods that occurred when inflation""as measured by the
consumer-price index""was below 3% and rising, according to research by Sean Markowicz, a
strategist at Schroders, the U.K. asset-management firm. But that fell to only 48% of the
periods when inflation was above 3% and rising.
A recent report from the Labor Department showed that the
consumer-price index jumped 4.2% in April from a year earlier, up from 2.6% in March. Even
excluding volatile food and energy prices, it was up 3% from a year earlier, blowing past
analysts' expectations for a 2.3% gain.
Analysts say that there are plenty of reasons why inflation won't be able to maintain that
pace for long. The latest year-over-year numbers were inflated by comparisons to deeply
depressed prices from the early days of the pandemic. They were also supported by supply
bottlenecks that many view as fixable and robust consumer demand that could dissipate once
households have spent government stimulus checks.
... ... ...
By comparison, the S&P GSCI Commodity Total Return Index delivered positive
inflation-adjusted returns in 83% of the high and rising inflation periods. "Commodities are a
source of input costs for companies and they're also a key component of the inflation index,
which by definition you're trying to hedge," said Mr. Markowicz.
At the same time, commodities are among the most volatile of all asset classes and can be
influenced by an array of idiosyncratic factors.
Charles Goodhart, the economist from the Bank of England, has just written an important book
arguing that worldwide demographic changes are going to result in a couple of decades of high
inflation. See Charles Goodhart, The Great Democratic Reversal: Ageing Societies, Waning
Inequality, and an Inflation Revival. Maybe the Journal could find someone to review it.
Maybe Ms. Yellen should read it.
(Douglas Levene)
Bruce Fegley
This article is naive, if not ridiculous, for several reasons. I name a few.
1st - the stock market is the best hedge against inflation over a long time period -
years, not daily, weekly, or quarterly. Especially with dividend reinvesting and with an
automatic buying plan like the DRIP plans offered by many companies at no or very low
cost.
2nd - Individuals can buy US government I-series savings bonds at NO COST directly from
the US Treasury, and while they do not completely hedge against inflation, they offer good
interest rates that beat bank interest and are completely insured.
3rd - Toyota and perhaps other car companies offer notes with higher interest than banks
but not FDIC insured. About 1.5% now.
One does not have to blow money away on bitcoin or hold gold, which is taxed as a
collectible and has assay fees on the front and back ends of any buy/sell transaction unless
one is buying coins which have a markup to begin with.
Theo Walker
Started buying I-bonds this month. The rates are great! Easily the best safe investment right
now.
Bryson Marsh
... why would you buy TIPS? The spread is a farce after all.
PHILIP NICHOLAS
Inflation is always sticky . In other words all the prices do not go down . Wages that are
increased , usually stay . Companies sense a new level they can pass on to consumers . And
the Government damage to energy prices will influence prices .
Bryson Marsh
Memory costs, data plans, and televisions are all examples that clearly demonstrate secular
price declines despite periodic increases.
Charles D
"Inflation Forces Investors to Scramble for Solutions"
Hundreds of millions of Americans are going to suffer as the Federal Government
inflates the national debt away over the next 10 to 15 years. Investors will figure it out,
but the little guy will get crushed once again. Oh well, we get the government we deserve.
They are all substantially down, one year from now; except Copper and financials which are
flat.
What does that say about the economy & inflation in one year?
Paul Smith
I am under the impression that the Social Security COLA is based on a September to September
comparison of the CPI-U. That is to say, for example, September 2020 CPI-U vs. September 2021
CPI-U. Is this not correct?
We have had inflation over over the past decade or so. As measured by the CPI-U, it has
hovered around 2 percent. Not a big deal to the Fed's economists. Cumulatively, however, it
adds up.
I have been retired for 16 years. Inflation has eroded the purchasing power of my fixed
pension by 25.5. Mercifully, I have other resources to make up the loss, but for people on a
fixed pension, so-called mild inflation can wreck it over time.
James Webb
Paul, one of the lower estimates for 2022:
"The Kiplinger Letter is forecasting that the annual cost-of-living adjustment for Social
Security benefits for 2022 will be 4.5%, the biggest jump since 2008, when benefits rose
5.8%. That would also be higher than the 3% adjustment The Kiplinger Letter predicted earlier
this year."
From SocialSecurity dot gov:
"To determine the COLA, the average CPI-W for the third calendar quarter of the most
recent year a COLA was determined is compared to the average CPI-W for the third calendar
quarter of the current year. The resulting percentage increase, if any, represents the
percentage that will be used to increase Social Security benefits beginning for December of
the current year. "
So the predicted 4.5-4.7% increase for 2022 will take effect December 31 this year.
Of course the calculation is not completed yet....
James Robertson
The Fed's inflation calculations have become increasingly "fuzzy" since the Boskin Commission
in 1995. The CPI ignores housing, food, and energy. Healthcare gets weighted at 3 percent,
though it accounts for 18 percent of expenditures. "Hedonic quality adjustment" is another
knob the Fed turns to "control" inflation. Inflation calculated by comparing the price of a
basket of goods this year to a basket of goods last year runs quite a bit higher than the
CPI; even higher if you include food, shelter, and energy in that basket.
James Webb
What's in the CPI?
-Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full service meals,
snacks)
-Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom
furniture)
-Clothes (men's shirts and sweaters, women's dresses, jewelry)
-Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)
-Medical Care (prescription drugs and medical supplies, physicians' services, eyeglasses and
eye care, hospital services)
-Recreation (televisions, toys, pets and pet products, sports equipment, admissions)
-Education and Communication (college tuition, postage, telephone services, computer software
and accessories)
-Other Goods and Services (tobacco and smoking products, haircuts and other personal
services, funeral expenses)
Tim Adams
The core CPI which the Fed uses excludes food and energy. The Consumer price index which is
used for things like social security adjustments does not. These very similar but different
uses of the same acronym just adds to the confusion.
Industrial production rose 0.7% in April over the previous month, less than expected,
partly because manufacturing output growth slowed as auto companies struggled to get
parts for new cars.
While industrial production was up 16.5 percent from its level in April 2020 (the trough of
the pandemic), it was still 2.7 percent below its pre-pandemic (February 2020) level.
Capacity utilization for the industrial sector rose to 74.9 percent, but some 4.7
percentage points below its long-run (1972–2020) average.
Retail sales also stalled in April and, excluding food and fuel, sales fell 1.5%.
Taiwan is now becoming an obstacle to the American Empire's own imperial agenda.
For now, the solution being found is to force Samsung (South
Korea) to build a chip factory in the USA. But South Korea can only pay for others' sins
up to a point. There will come a time the USA will have to choose which one to lose: the
entire Korean Peninsula or Taiwan. My bet is they'll throw Taiwan under the bus long before
South Korea even starts to crack.
"... there's a growing sense that the forces behind the recovery will eventually feed through to higher prices if left unchecked. One harbinger could be the rally in commodities, with a key index of raw materials this month jumping to a five-year high. ..."
"... "If the stimulus continues, at some point it will become inflationary," said Sanjiv Bhatia, the chief investment officer at Pembroke Emerging Markets in London. "At some point, we believe it will become a problem." ..."
The prospect of tighter monetary conditions in emerging markets still hasn't changed the
overall calculus for many investors, with behemoths including Pacific Investment Management Co.
and BlackRock Inc. focusing on the growth story instead. Developing-nation inflation remains
near a record low, with the economic rebound making assets look "increasingly interesting,"
according to Dan Ivascyn, Pimco's group chief investment officer in Newport Beach,
California.
Yet there's a growing sense that the forces behind the recovery will eventually feed
through to higher prices if left unchecked. One harbinger could be the rally in commodities,
with a key index of raw materials this month jumping to a five-year high.
"If the stimulus continues, at some point it will become inflationary," said Sanjiv
Bhatia, the chief investment officer at Pembroke Emerging Markets in London. "At some point, we
believe it will become a problem."
For now, assurances from the Federal Reserve that inflation in the U.S. is unlikely to get
out of control have supported the bulls. The Fed appears in no rush to raise interest rates, a
move that would siphon capital out of emerging economies currently enjoying the windfall from
U.S. stimulus.
That major central banks currently view inflation as transitory should boost
developing-nation currencies as a whole, according to Henrik Gullberg, a London-based macro
strategist at Coex Partners Ltd.
MSCI Inc.'s emerging-market currency index has climbed to a record high, while the benchmark
equity gauge just posted its biggest two-day rally in almost two weeks amid a rally in energy
and technology shares. On Friday, risk assets got further support when U.S. job growth data
significantly undershot forecasts.
"On the one hand, the valuations of growth stocks look meaningfully less demanding after
recent underperformance coupled with earnings upgrades," said Kate Moore, the head of thematic
strategy at BlackRock in New York. "On the other, rising inflationary pressures from the broad
economic restart and low inventories should be supportive of cyclicals and commodity
producers."
The French version of Michael Lewis' book The Big Short is intitled Le casse du
siècle , which literally means the "heist of the century." This idea is
interesting, as going short can be regarded as finding the weak points of the financial system
and hacking into it.
However, that game is not easy.
Firstly, because "there is a difference between knowing the path and walking the path," as
Morpheus said to Neo. Indeed, even if many people seem to understand problems and to see the
answers, most of them will never dare to act. It is true for investors aware of heavy
speculation on capital markets, but also for so-called political leaders noting that the
trajectory of public debt is unsustainable. Many know what is going wrong, but how many of them
will try to do something about it?
The second difficulty is that the greatest trick Wall Street ever pulled was convincing the
world that an asset would never go down. Which means that even if one is willing to take a
stand against the financial system, there is still a high probability that he or she will ake
the wrong bet because of that misperception of risk.
There are a lot of things that can be learnt from past crises, and especially from the
events of 2007-2008. Today, most people in finance (apart from TikTok investors?) know that
investors like Dr Michael Burry or Steve Eisman made huge profits thanks to credit default
swaps on mortgage-backed securities or on collateralized debt obligations. But does it mean
that such a trade could easily be replicated?
The answer is "no" as going short on housing securitized debt before 2007 required to agree
to keep paying a premium while waiting for an event that never happened before. In fact,
everyone laughed at CDS buyers, as betting against the US residential market was seen as the
stupidest thing ever. In other words, it is not something that the average Joe would do, and
people should bear in mind that Burry even had to prevent Scion Capital's investors from taking
their money back as his scenario was regarded as pure madness.
The second problem was that investors willing to short the housing bubble had to properly
identify the source of hidden risks in the system. This problem could be summarized by what I
call "the Hubler paradox" (see The Great
Wall and the Big Short ).
Howie Hubler was a trader at Morgan Stanley, famous for making the second largest trading
loss in history. And it was all the more ironical as his analysis on RMBS securities was 90%
right. As he realized that many households would default on their mortgage everywhere in the
country, he decided to short risky BB tranches of CDOs while buying AAA tranches which were
supposed to be "risk-free."
The problem is that financial crises occur because risk was underestimated. Said
differently, they occur because of excessive concentration on assets bearing hidden risks. That
is what happened with AAA securities of RMBS or CDOs. The fact that many people suddenly
realized that those tranches were riskier than previously thought put the whole system in a
corner, with too many persons willing the leave the room at the same time using a small exit
door. The outcome was a massive spike of credit default swaps.
Meanwhile, part of the risk of BB tranches was already priced in. That does not mean that
their valuation did not drop after 2007, but the overall impact was less severe than for
so-called AAA securities.
Note that the mortgage delinquency rate peak was around 10% in 2009, meaning that most loans
were not affected by payment issues. Somehow the crisis may have never happened if upper
tranches had been rated AA instead of AAA.
How can we explain such a collective failure? We do know the answer thanks to decades of
academic research: herding behavior and positive feedback loops leading to severe imbalances on
capital markets, such as over concentration and increasing short volatility positions.
To summarize, opportunistic players had better focus on hidden sources of risks rather than
obvious sources of risks. Betting against obvious sources of risks can be profitable, but
assets embedding hidden sources of risks offer the best risk-to-return profile (i.e. the most
convex behavior).
Red Queens Narratives
A simple look at social media shows you that today almost everyone is able to identify
sources of risk in the system. And some people are even willing to bet against things like
Tesla, Peloton, ARK, bitcoin, dogecoin or whatsoever. Those are probably smart moves. But they
are also obvious sources of risk. They are at best the BB tranches of current capital markets.
So, what is the equivalent of AAA tranches?
I already answered that question in a previous post (see To
Be Passive Is to Let Others Decide for You ). Today, I believe that the biggest risk is the
excessive concentration on US equities, and especially on exchange-traded funds tracking large
cap indices.
For the past years, most fund managers have increased their exposure to the S&P 500 or
to the Nasdaq, mainly by being overweight on mega caps like Apple, Microsoft, Amazon, Alphabet
or Facebook. Worse, many participants have gone passive, buying tons of shares of large cap
ETFs such as SPY or QQQ.
In 2021, Apple or Amazon are regarded as risk-free names. Indeed, everyone knows that those
companies are unlikely to go bankrupt anytime soon. And since everyone loves them, then what
could possibly go wrong? Well, that is precisely what the story of securitized debt obligations
taught us. Once again, "the greatest trick the devil ever pulled was convincing the world he
didn't exist."
During the mid-2000's, most households did not default on their mortgage. However, some
defaults occur and one of the biggest crises ever occurred because most investors thought that
AAA tranches were risk-free.
Even if FAANGs are unlikely to fail, misperception of risk is tricky and dangerous.
Valuations are so stretched that there is no margin safety in case of serious bad news.
Besides, what will happen if everyone suddenly realizes that the time has come to reduce the
exposure to US mega caps? Will the market be able to absorb selling flows from ETFs and active
fund whatever their size?
Of course, people will answer that such a scenario is highly unlikely. That there will
always be a bid if people start to sell. To address that objection, I have already mentioned
that interesting Twitter thread on the absence of liquidity in the market when people start to
panic (see @FadingRallies ).
However, anyone willing to short SPY or QQQ must be ready to pay premium and/or to face
margin calls as long as it takes before something ugly occurs. And yes, it may seem crazy. But
somehow, such trade could be worth it.
Betting on a 25% drop of Apple's shares before July 16th would cost you a premium of 0.25%
of the share price. Meanwhile, the same bet on Tesla would cost 1.58% of the share price.
Despite that difference, most people would prefer to go short on Tesla rather than on Apple.
Probably, because there are obviously more fundamental reasons to bet against Tesla. And
perhaps also because investment professionals are fed up with Elon Musk while being indifferent
to Tim Cook. But we must never forget that "it's not personal, it's strictly business." What is
more, obvious risks lead to more expensive protections, and thus less convexity (i.e.
suboptimal strategies).
This entire post is not an investment recommendation. But it is interesting to bear in mind
that most people naturally underestimate the occurrence of extreme events. From a statistical
perspective, participants believe in Gaussian distributions, while asset prices are distributed
following power-tailed functions. The subprime crisis was an event that was supposed to happen
once in the universe lifetime according to securitization specialists, while it only took a few
years before the whole thing blew up.
Therefore, everyone is free to believe that US large caps will never crash. After all, this
is what it takes for a new "heist of the century," or at least of the past fifteen years. Once
you realize that, it will probably be too late to act.
Remember what Verbal Kint added about the devil at the end of The Usual Suspects ?
"... Mark Carbana, U.S. rates strategist at Bank of America, still expects U.S. rates to rise further especially if there is a strong reading for the Fed's preferred measure of inflation, personal consumption expenditures, due out next Friday. ..."
"... He expects Treasury yields to rise in the second half of the year ..."
In the U.S., inflation readings have been strong and the minutes of the last Fed meeting
released Wednesday showed there had been
some discussion about slowing bond purchases -- also known as taper talk.
... Mark Carbana, U.S. rates strategist at Bank of America, still expects U.S. rates to
rise further especially if there is a strong reading for the Fed's preferred measure of
inflation, personal consumption expenditures, due out next Friday. "Uncertainty around
inflation is the highest it has been in decades," he said, particularly around whether recent
high readings are temporary or due to changes in the underlying economy. He expects
Treasury yields to rise in the second half of the year , pushed higher by rises in yields
on inflation-protected Treasurys as the Fed starts to talk more seriously about tapering its
bond purchases.
For April 2021 the official Current Unadjusted U-6 unemployment rate was 9.9% down from 10.9%
in March, and 11.6% in February, January was 12.0%. It was also 11.6% October "" December 2020.
But It was 18.3% in June, 20.7% in May, and 22.4% in April. It is still well above the 8.9% of
March 2020 when unemployment rates started jumping drastically due to massive shutdowns due to
the Coronavirus.
Initial Jobless Claims tumbled (positively) to their lowest since the pandemic lockdowns
began, adding just 406k Americans last week (well below the 425k expected). This is still
double the pre-pandemic norms
y_arrow 1
Truthtellers 11 hours ago (Edited) remove link
Companies laid off an additional 400K people last week and they actually think we are
dumb enough to believe there is a labor shortage? That line of crap is obviously just a
ploy to get employee's to accept lower salaries.
I'll believe there is a labor shortage after 16 million jobs have been added and the
weekly initial claims number is zero.
Until then, I guess if you have a "labor shortage" you better get that pay up.
AJAX-2 13 hours ago (Edited)
Another 400K+ applying for 1st time unemployment benefits and yet they piss on my leg,
tell me it's raining, while proclaiming there is a labor shortage. Bu!!****.
PerilouseTimes 9 hours ago
Close to a million people a week were signing up for unemployment for a year and
unemployment has been extended. Wouldn't that mean at least 40 million Americans are on
unemployment not to mention all the people on welfare and disability? I think the number is
closer to 100 million Americans on the government dole and that doesn't count all the
worthless government jobs out there.
Normal 12 hours ago remove link
I'm on unemployment except California seems to have quit paying people on unemployment.
I tried every-which-way to contact them but there is no way in hell to get through to a
live person. I went and typed in how to speak with a real person at the EDD, and hundreds
of people have posted that they haven't been paid in 12 weeks. I spoke with their Cal-Jobs
representative and she said that many people haven't been paid since March of last year. I
think they are forcing the so-called unemployed to their Cal-Jobs site by not paying
them.
ay_arrow
NEOSERF 13 hours ago
Worst month during the GFC appears to be about 650K...we are only 50% below that....with
21 states preparing to end the extension, things will be fantastic in these numbers shortly
if not the real world...waiting for all the cold/flu season coughing and cold weather in
November...
As the credit strategist continues, "while it is easy to blame transitory factors, these
were surely all known about before the last several data prints and could have been factored
into forecasts. That they weren't suggests that the transitory forces are more powerful than
economists imagined or that there is more widespread inflation than they previously believed.
"
To be sure, all such "˜surprise' indices always mean revert so the inflation one will
as well. However as Reid concludes, "the fact that we're seeing an overwhelming positive beat
on US inflation surprises in recent times must surely reduce the confidence to some degree of
those expecting it to be transitory. "
Archegos' prime brokers initially attempted to try and avoid a market panic by coordinating
their sales of the massive blocks of shares their had accumulated on behalf of Archegos via a
complicated series of swap arrangements. But when Goldman Sachs and Morgan Stanley broke ranks
and opted to be the first out the door, Credit Suisse, which had the biggest exposure to
Archegos, was ultimately left with more than half of the $10 billion+ in losses that banks were
stuck with (while Hwang reportedly lost his entire 11-figure fortune).
Right now, it's not exactly clear what laws prosecutors suspect Archegos and the prime
brokers of breaking.
While authorities haven't accused Archegos or its banks of breaking any laws in their
dealings, the episode has drawn public criticism from regulators, as well as some inquiries
behind the scenes from watchdogs around the world. The implosion shows Wall Street has grown
too complacent about potential threats building up in the economy, Michael Hsu, the new
acting chief of the Office of the Comptroller of the Currency, said last week.
But the DoJ isn't the only agency poking around: Investigations are ongoing across the
globe.
The Securities and Exchange Commission launched a preliminary investigation into Hwang in
March, a person familiar with the matter said at the time. The agency has since explored how
to increase transparency for the types of derivative bets that sank the firm.
And in the U.K., the Prudential Regulation Authority has been asking firms including
Credit Suisse, Nomura and UBS Group AG to hand over information related to their lending to
Archegos, people familiar with the matter have said.
While investigators will undoubtedly focus on what happened, some believe that the real
concerns lie in current vulnerabilities in the world of equity finance. The team at Risky
Finance recently calculated that some $3 trillion in hidden Archegos-style exposure is out
there in the market, just waiting to explode if stocks sell off.
...
It should serve as a warning. 14 years ago, obscure corners of banking businesses became
hotbeds of regulatory arbitrage, speculation and leverage. The contagion of US subprime brought
the financial system to its knees. Now, after years of low or negative interest rates, equity
finance may have become a similar hotbed.
Inflation fears already roiled the market this week with the Nasdaq falling nearly 2%, but
one hedge fund founder is sounding the alarm over a potential 20% collapse that could be
sparked by the Federal Reserve signaling an end to accommodative pandemic-era monetary policy
later this year.
Satori Fund founder Dan Niles recently told Yahoo Finance that this week's
hotter-than-anticipated inflation data coupled with other central banks around the world
already coming off their easy money policies will likely corner the Fed into tapering its
accommodative policies sooner than expected.
"If you've got food prices, energy prices, shelter prices moving up as rapidly as they are,
the Fed's not going to have any choice," he said, predicting that the Fed could signal the
beginning of a move to wind down its monthly $120 billion a month pace of asset purchases by
this summer. "They can say what they want, but this reminds me to some degree of them saying
back in 2007 that the subprime crisis was well contained. Obviously it wasn't."
I can understand the frustrations and rage of certain folks.
If you're a worker on an oil rig, a truck driver, a policeman, or some such jobs, there's
bound to be moments when you're angry as hell. So, even though such people say crazy things
once a while, I can understand where they're coming from. They need to blow off steam.
But the professor class? These lowlife parasites sit on their asses and talk shi*. They
produce nothing and make a living by spreading nonsense. And yet, they act like they are
soooooooooo angry with the way of the world. If they really care about the world, why hide in
their academic enclaves?
Academia needs a cultural revolution, a real kind, not the bogus 'woke' kind made up of
teachers' pets.
Can it be wage driven inflation, when there is mass unemployment of the scale that we
observer. That's a stupid idea. Commodites driven inflation is possible as oil if probably past
its peak, but for now production continued at plato level and cars are getting slightly more
economical, espcially passenger car, where hybrids reached 40 miles er gallon.
Notable quotes:
"... The prospect of a rebound to 2% yields on the world's benchmark bond is alive and well. ..."
The prospect of a rebound to 2% yields on the world's benchmark bond is alive and
well.
Treasury-market bears found a deeper message within Friday's weak employment report that's
emboldened a view that inflationary pressures are on the rise, and could boost rates to levels
not seen since 2019. For Mark Holman at TwentyFour Asset Management, the sub-par April labor
reading indicated companies will need to lift wages to entice people back into the labor force;
he's expecting a break of 2% on the 10-year this year.
That level has come to symbolize a return to pre-pandemic normalcy in both markets and the
economy. The wild ride in markets on Friday suggests Holman likely has company in his views.
Ten-year yields initially plunged to a more than two-month low of 1.46%, then reversed to end
the day at 1.58%. Meanwhile, a key market proxy of inflation expectations surged to a level
last seen in 2013.
(Bloomberg) -- Senator Elizabeth Warren ripped the Federal Reserve for its oversight of
Credit Suisse Group AG in the run-up to Archegos Capital Management's implosion, arguing the
regulator badly blundered when it freed the bank from heightened monitoring.
Warren pointed out at a Tuesday Senate hearing that the Fed knew Credit Suisse had problems
estimating its potential trading losses because the agency had flagged the Swiss bank over that
issue in its 2019 stress tests. She questioned why Credit Suisse, under the watch of Fed Vice
Chairman for Supervision Randal Quarles, was among foreign banks released last year from
oversight by the Large Institution Supervision Coordinating Committee, which keeps tabs on
lenders that pose the greatest risk to the U.S. financial system.
"So you now agree that you made the wrong decision to weaken supervision?" the Massachusetts
Democrat asked Quarles, who was testifying before the Senate Banking Committee.
"We did not weaken supervision," he responded, saying the shrinking U.S. footprint of Credit
Suisse and other foreign banks prompted the Fed's decision. Quarles further argued that the
billions of dollars in losses that Credit Suisse suffered in relation to Archegos -- trader
Bill Hwang's family office -- weren't a result of faulty Fed oversight.
"The losses you are referring to didn't occur in the United States," he said.
Warren scoffed at the idea that missteps involving overseas lenders don't lead to U.S.
consequences. She reminded Quarles his term as vice chairman ends in five months, and said,
"our financial system will be safer when you are gone."
The University of Michigan consumer confidence index fell to 82.8 in May, from 88.3 in
April. More importantly, the current conditions index slumped to 90.8, from 97.2 and the
expectations index declined to 77.6, from 82.7.
Hard data also questions the strength of the recovery. April retail sales were flat, with
clothing down 5.1%, general merchandise store sales fell 4.9%, leisure & sporting goods
down 3.6% with food & drink services up just by 3%.
United States industrial production was also almost flat in April, rising just 0.4%
month-on-month in April pushed by a 4% slump in motor vehicle production. You may think this is
not that bad until you see that industrial capacity utilization came at 74.7% in April,
significantly below the pre-pandemic levels.
Employment also questions the "strong recovery" thesis. Non-farm employment is still down
8.2 million, or 5.4 percent, from pre-pandemic level yet gross domestic product is likely to
how a full recovery in the second quarter.
These figures are important because they come after trillions of dollars of so-called
stimulus and the entire thesis of the V-shaped recovery comes from a view that consumption is
going to soar. Reality shows otherwise. In fact, reality shows that retail sales showed an
artificial bump due to the wrongly called stimulus checks only to return to stagnation.
The rise in inflation further questions the idea of a consumption boom, certainly for the
middle class. Why? If we look at the 4.2% rise in consumer price index in April includes a 25%
increase in energy, a 12% increase in utility prices, a 5.6% increase in transportation
services, a 2.2% in medical services etc. As consumers perceive a higher rise in prices,
especially in those essential goods and services that we purchase every day, consumption
decisions become more prudent and propensity to save rises. This is something that we have seen
in numerous countries. In Japan, years of "official" messages about the risk of deflation
clashed with citizens' perception of cost of living, and tendency to save increased, rightly
so. Citizens are not stupid, and you can tell them that there is no inflation or that it is
transitory, but they feel the rise in cost of living and react accordingly.
Two things should concern us. First, the weakness of the recovery in the middle of the
largest fiscal and monetary stimulus seen in decades, and second, the short and diminishing
effect of these programs. A two trillion stimulus package creates a very short-term impact that
lasts less than five months.
1 play_arrow
Onthebeach6 1 hour ago
Stolen election, Marxist takeover, BLM burning, looting and murdering, defund the
police, cancel culture, corrupt MSM and big tech, Critical race theory tearing down western
civilisation and the constitution torn up.
What a time to be alive!
Stimulus is mainly theft by the elites but it has a secondary purpose to keep the
consumer passive until the regime has consolidated its position.
Consumers should be a lot more than just unhappy.
Lordflin 1 hour ago remove link
So called stimulus is just a payoff to cronies and special interest... with a token toss
of a few coins out the window to the people as the curtained carriage barrels past and on
down the road...
lambda PREMIUM 34 minutes ago
I have seen this happening before my eyes in Africa about 20 years ago. Some rich
"elect" with heavily armed guards was throwing coins from a truck and the villagers were
busy collecting them off the mud while chanting "long live" for the guy.
HorseBuggy 1 hour ago
Before the pandemic a lot of people slaved away for pay that barely covered their basic
needs.
All of a sudden they are not going to the slave work, they are getting better money than
when they were slaving and being abused and now you are telling them go back to slave away
or else!
It could be very depressing for a lot of people and to make matters a lot worse, a lot
of people became very political in everything and workplaces are full of tension.
Helg Saracen 10 minutes ago
The situation is similar not only in the United States. Now in developed countries it is
almost everywhere something like this. It's just that Americans are still surprised by this
(unlike the rest, not "special"). An old friend of mine had a small restaurant chain. Due
to the hysteria around the covids, he is now virtually bankrupt (not yet bankrupt, but
close to it). And he is not alone in such a situation. He had to fire most of the workers,
waiters. No profit, no jobs. There are no new and old jobs - people simply have no money
for a normal existence. Everything is very simple.
May beyes, but may there is will the Last Hurrah move up...
Even if the S&P 500 stays flat for the rest of 2021, this year would mark its third
consecutive year of double-digit gains. The index has only one such three-year period since
the dot-com bubble burst in 2000.
This week, LPL Research analyst Jeff Buchbinder said investors should expect stock market
gains to
slow significantly in the second half of 2021 as inflationary pressures and rising interest
rates weigh on investor sentiment.
Over the last decade or so, Sci-Hub, often referred to as "The Pirate Bay of Science,"
has been giving free access to a huge database of scientific papers that would otherwise be
locked behind a paywall.
Unsurprisingly, the website has been the target of multiple lawsuits, as well as an
investigation from the United States Department of Justice. The site's Twitter account was
also
recently suspended under Twitter's counterfeit policy, and its founder, Alexandra
Elbakyan, reported that the FBI
gained access to her Apple accounts .
Now, Redditors from a subreddit called DataHoarder, which is aimed at archiving
knowledge in the digital space, have come together to try to save the numerous papers
available on the website. In a
post on May 13 , the moderators of r/DataHoarder, stated that "it's time we sent Elsevier
and the USDOJ a clearer message about the fate of Sci-Hub and open science.
We are the library, we do not get silenced, we do not shut down our computers, and we
are many." This will be no easy task. Sci-Hub is home to over 85 million papers, totaling a
staggering 77TB of data . The group of Redditors is currently recruiting for its archiving
efforts and its stated goal is to have approximately 8,500 individuals torrenting the papers
in order to download the entire library. Once that task is complete, the Redditors aim to
release all of the downloaded data via a new "uncensorable" open-source website.
"... "Consider hiring me to do your assignment,"ť reads a bid from one auction site. "I work fast, pay close attention to the instructions, and deliver a plagiarism-free paper."ť ..."
"... ... For the final exam, Mr. Johnson, a course coordinator, said he used a computer program that generated a unique set of questions for each student. Those questions quickly showed up on a for-profit homework website that helped him to identify who posted them. ..."
"... About 200 students were caught cheating -- one-fourth of the class. Overall, cases of academic dishonesty more than doubled in the 2019-20 academic year at NC State, with the biggest uptick as students made the transition to online learning, according to the school. ..."
"... Surprised that the use of apps like Photomath and mathway weren't mentioned. Students can just take a photo of a math problem, specify the directions and copy the steps. ..."
"... I've taugh at the high school and college level. I recently taught engineering at a NC high school. Within a couple months of Zoom teaching, I realized that cheating was rampant. I had numerous blatant examples of straight copy-and-paste cheating. ..."
"... The colleges have been cheating students for decades selling worthless programs and false information to students at exorbitant rates. So who is surprised that the students learned to cheat themselves. ..."
"... What the article needs to cover is the enormous amount of cheating done on SATs, GREs, LSATs, etc. to get into prestigious universities -- especially by prospective students who'll be here on an F1 visa. ..."
"... Such cheating is legendary among some cultures but the PC crowd won't want to hear about that, will they. We need their electronics and their widgets and such best not to rock that boat. P ..."
A year of
remote learning has spurred an eruption of cheating among students, from grade school to college. With many students isolated
at home over the past year""and with a mass of online services at their disposal""academic dishonesty has never been so easy.
Websites that allow students to submit questions for expert answers have gained millions of new users over the past year. A newer
breed of site allows students to put up their own classwork for auction.
"Consider hiring me to do your assignment,"ť reads a bid from one auction site. "I work fast, pay close attention to the instructions,
and deliver a plagiarism-free paper."ť
... For the final exam, Mr. Johnson, a course coordinator, said he used a computer program that generated a unique set of questions
for each student. Those questions quickly showed up on a for-profit homework website that helped him to identify who posted them.
About 200 students were caught cheating""one-fourth of the class. Overall, cases of academic dishonesty more than doubled in the
2019-20 academic year at NC State, with the biggest uptick as students made the transition to online learning, according to the school.
Texas A&M University had a 50% increase in cheating allegations in the fall from a year earlier, with one incident involving 193
students self-reporting academic misconduct to receive lighter punishment after faculty members caught on, a university official
said. The University of Pennsylvania saw cheating case investigations grow 71% in the 2019-20 academic year, school data shows.
Dozens of cadets at the
U.S. Military Academy at West Point were caught cheating on an online calculus exam last year, sharing answers with each other
from home. The school said in April it was ending a policy that protected cadets who admitted honor code violations from being kicked
out.
... ... ...
In February, auction website homeworkforyou.com featured one student post looking for someone willing to do weekly school assignments,
exams and a project for a business class at York College in Queens, N.Y., over a two-month span. The winning bidder would also need
to pose as the student and respond to classmates in a group assignment. The student specified that an "A"ť was the desired outcome,
and that the "willing to pay"ť fee was $465.
By the next day, 29 bids had come in. The average was $479.41.
... Other popular websites that students use to get help""by submitting a question for an expert to quickly answer, or by searching
a database of previous answers""include Chegg and Brainly,
which said they have seen a big increase in users during the pandemic.
Mr. Piwnik said world-wide users grew to 350 million monthly in 2020, from about 200 million in 2019. The basic service is free,
while a $24 annual subscription is ad-free and gives access to premium features.
Chegg, a publicly held company based in Santa Clara, Calif., prides itself on a willingness to help institutions determine the
identities of those who cheat. It allows educators to report copyright information found on the site. The company saw total net revenue
of $644.3 million in 2020, a 57% increase year over year. Subscribers hit a record 6.6 million, up 67%.
A year of
remote learning has spurred an eruption of cheating among students, from grade school to college. With many students isolated
at home over the past year and with a mass of online services at their disposal academic dishonesty has never been so easy.
Websites that allow students to submit questions for expert answers have gained millions of new users over the past year. A newer
breed of site allows students to put up their own classwork for auction.
"Consider hiring me to do your assignment,"ť reads a bid from one auction site. "I work fast, pay close attention to the instructions,
and deliver a plagiarism-free paper."ť
... For the final exam, Mr. Johnson, a course coordinator, said he used a computer program that generated a unique set of questions
for each student. Those questions quickly showed up on a for-profit homework website that helped him to identify who posted them.
About 200 students were caught cheating -- one-fourth of the class. Overall, cases of academic dishonesty more than doubled in the
2019-20 academic year at NC State, with the biggest uptick as students made the transition to online learning, according to the school.
Texas A&M University had a 50% increase in cheating allegations in the fall from a year earlier, with one incident involving 193
students self-reporting academic misconduct to receive lighter punishment after faculty members caught on, a university official
said. The University of Pennsylvania saw cheating case investigations grow 71% in the 2019-20 academic year, school data shows.
Dozens of cadets at the
U.S. Military Academy at West Point were caught cheating on an online calculus exam last year, sharing answers with each other
from home. The school said in April it was ending a policy that protected cadets who admitted honor code violations from being kicked
out.
... ... ...
In February, auction website homeworkforyou.com featured one student post looking for someone willing to do weekly school assignments,
exams and a project for a business class at York College in Queens, N.Y., over a two-month span. The winning bidder would also need
to pose as the student and respond to classmates in a group assignment. The student specified that an "A"ť was the desired outcome,
and that the "willing to pay"ť fee was $465.
By the next day, 29 bids had come in. The average was $479.41.
... Other popular websites that students use to get help "by submitting a question for an expert to quickly answer, or by searching
a database of previous answers" include Chegg and Brainly,
which said they have seen a big increase in users during the pandemic.
Mr. Piwnik said world-wide users grew to 350 million monthly in 2020, from about 200 million in 2019. The basic service is free,
while a $24 annual subscription is ad-free and gives access to premium features.
Chegg, a publicly held company based in Santa Clara, Calif., prides itself on a willingness to help institutions determine the
identities of those who cheat. It allows educators to report copyright information found on the site. The company saw total net revenue
of $644.3 million in 2020, a 57% increase year over year. Subscribers hit a record 6.6 million, up 67%.
Colleges administrators and professors ban speakers with opinions that differ from their narratives, pull books they don't like
and can claim to be 'racist', and hire based solely on ethnic background.
But. the are SHOCKED when student cheat the system.
S 18 minutes ago
Surprised that the use of apps like Photomath and mathway weren't mentioned. Students can just take a photo of a math
problem, specify the directions and copy the steps.
Unfortunately for the students, the apps will solve problems in peculiar ways that stand out to the teacher. I've never had
so many students cheat of quizzes or tests. With most of them fully virtual even still, or home often because of hybrid, it's
almost impossible to get fairly produced student work. E
SUBSCRIBER 40 minutes ago
Lazy, lazy test makers. Write new questions (and please check them through a simple search first to make sure the answer
isn't readily available), timed testing, and assume the test takers all have full access to the internet. Stop assuming the
test taking conditions haven't changed. They have.
SUBSCRIBER 44 minutes ago
Back in the 1980's when I went to College there was a big uproar over Cliff Notes. Students copying word for word... But it
was known you could buy test questions, hire note takers for class, buy essays. The Frat boys had a well developed system! J
SUBSCRIBER 1 hour ago (Edited)
The cheating isn't limited to students.
Look at how our Congressional representatives behave in office!
Look at how career bureaucrats behave!
is it any wonder that cheating is so rampant? honesty and integrity are for suckers.
why worry about your conscience? there is no Deity, there is no higher moral law. All ethics are relative. As long as I get
ahead, what's the big deal?
There's no afterlife anyway, so what do I have to worry about? G
SUBSCRIBER 1 hour ago
Maybe they're studying to be our future national-level political leaders. G
SUBSCRIBER 1 hour ago
Call me old-fashioned, naive or worse but I always saw homework or studying for an exam as the mental counterpart to
physical exercise.
Sure, you can cheat.
But you cheat yourself in the long term when you don't develop the intellectual "muscles" that you need to compete and
succeed in adult life.
And you or your parents paid good money to get that degree and you bypassed four or more years of earning potential by
attending school.
Sounds like a pretty poor tradeoff to me. B
SUBSCRIBER 1 hour ago (Edited)
I've taugh at the high school and college level. I recently taught engineering at a NC high school. Within a couple
months of Zoom teaching, I realized that cheating was rampant. I had numerous blatant examples of straight copy-and-paste
cheating.
I confronted each student and most of them either played dumb, or denied it. I separately showed them each the website and
documents they stole from and told them this was their one and only freebie. A few parents confronted me but after showing
them the evidence they either dropped it or confronted their own child. A few parents thanked me for holding their kid
accountable, but most just complained or dropped it altogether.
After a couple more months of it continuing, and not getting enough support from the administrators, I quit, without yet
having secured a new job. I'll say this, it's worse than you think, and your child likely does it too, or knows of those who
do. It's become acceptable to them bc of pressure to get into college. M
SUBSCRIBER 1 hour ago
It is not new. Twenty-five years ago, my wife, a ranked academic, was given a paper supposedly written by one of her
students. She recognized it because she typed it after I wrote it ten years before.
When she confronted the student he admitted to buying it from a paper mill. Apparently the prof I wrote it for sold
his "collection" on retirement. Sadly, even then, the student got little more than a slap on the wrist once outed.
SUBSCRIBER 1 hour ago
The colleges have been cheating students for decades selling worthless programs and false information to students at
exorbitant rates. So who is surprised that the students learned to cheat themselves. M
SUBSCRIBER 1 hour ago
This is just a manifestation of the bankruptcy of our education system. Let's face it, for most students from
kindergarteners to PhD post grads, it is not about gaining knowledge, learning how to think or even mastering skills. It is
about checking blocks to build a resume. What does a diploma really mean? A checked block.
The system has known and participated in this for decades. What does it really matter how that block got checked?
SUBSCRIBER 1 hour ago
What the article needs to cover is the enormous amount of cheating done on SATs, GREs, LSATs, etc. to get into
prestigious universities -- especially by prospective students who'll be here on an F1 visa.
Such cheating is legendary among some cultures but the PC crowd won't want to hear about that, will they. We need
their electronics and their widgets and such best not to rock that boat. P
SUBSCRIBER 1 hour ago
I'm a lecturer at a Canadian university and am quite troubled by the use of textbook publisher's test banks in exam prep.
Students easily find the keys on line. Some students have stopped attending class. They know what will be on the exam. Of
course they learn nothing. Admin, faculty and students love the easy inflated grades. Academic wheels turn but there is no
learning. It's not a student problem, it's a bone lazy faculty problem. I write my own exams but many refuse. E
SUBSCRIBER 1 hour ago
Wonderful. Just what I want. Doctors, lawyers, accountants, engineers, urban planners, nurses, mechanics, dentists, and
other professionals who need to cheat to graduate.
SUBSCRIBER 1 hour ago
Hey you forgot another sizable group that will provide US with 'professionals' of questionable quality the AA crowd
that gets placed into universities based upon what?
How can one ignore all the noise in the media to focus on the crux of the situation,
implications, and the future outcomes?
One can only understand the impact of events better and envision the future by exploring
plausible scenarios and identifying signals which over time will enable one to size up the
probabilities of outcomes.
INTERNATIONAL -- MONETARY IMPERIALISM
Geopolitical relationships are frosty & flammable. All the narratives can be summed up
into a few SCENARIOS:
DECOUPLING. Two spheres of influence & supply chains. China & Russia led and
the Five Eyes led. Germany/EU?
WAR. The dollar empire launching a war against China &/or Russia. Iran?
The probabilities of these scenarios will be defined by the following SIGNALS:
NS2. Is Nord Stream 2 completed by September? If yes, a major geopolitical
victory for Russia. If the U$A can thwart this project then it still has the power and will
to shape Europe. If, on the other hand, Germany & Russia resists U$A's pressure and
complete the pipeline to operate, that would be an act of defiance unprecedented in postwar
history. This is the biggest clash between Russia and the United States since the end of
World War II. Let's see if European countries are less subservient to Washington.
De-DOLLARIZATION. China, Russia and other nations moving away from the US$ and trading
in their respective national currencies.
SANCTIONS. More sanctions from the dollar empire against China, Russia, Iran,
Germany... Counter sanctions, retaliations... impact on the global economy...
Any new scenarios & signals? What probabilities would one assign to various scenarios?
What will be the construct of scenarios and signals at the national level?
The Dollar Empire likes to initiate a conflict during Olympics when they are held in its
adversaries:
"... With its narrow focus on inflation expectations, the Fed seems to be fighting the last battle. Just because the Fed hasn't faced big trade-offs in recent decades doesn't mean trade-offs aren't coming or that they no longer exist. ..."
"... The long-term risks from asset bubbles and fiscal dominance dwarf the short-term risk of putting the brakes on a booming economy in 2022. ..."
Clinging to an emergency policy after the emergency has passed, Chairman Powell courts
asset bubbles.
...With its narrow focus on inflation expectations, the Fed seems to be fighting the
last battle. Just because the Fed hasn't faced big trade-offs in recent decades doesn't mean
trade-offs aren't coming or that they no longer exist.
Chairman Jerome Powell needs to recognize the likelihood of future political pressures on
the Fed and stop enabling fiscal and market excesses.
The long-term risks from asset bubbles and fiscal dominance dwarf the short-term risk of
putting the brakes on a booming economy in 2022.
Mr. Broda is a partner at Duquesne Family Office LLC, where Mr. Druckenmiller is
chairman and CEO.
Stefan Hofrichter, head of global economics and strategy at German fund management giant Allianz Global Investors, put
together a 10-point checklist for bubbles that he says was inspired by Charles Kindleberger, the author of the 1978 classic,
"Manias, Panics, and Crashes." In the table below, you can see what that list is, as well as the color-coded rating he
assigned to them.
At the end of April, the S&P 500
SPX,
0.20%
traded
at a cyclically adjusted price-earnings ratio of 37, a level not seen since the dot-com bubble of 1998, and the Nasdaq
Composite
COMP,
0.59%
was
at an even more-staggering 55. (European, Japanese and Asian equities, by contrast, are trading at or below their long-term
valuation multiples.) And he doesn't agree that the valuations are justified by low bond yields. "Low real yields have
historically typically implied rather low multiples, since low yields point to a slow-growth environment and a higher risk
of recession," says Hofrichter. "Monetary policy over the decades has lifted investors' risk appetite to extremes, powering
the run-up in equities," he says.
Also on the bubble list is that multiple asset classes are overvalued, noting that the term premium for longer-dated
sovereign bonds remains around 100 basis points below the long-term average. Another sign of bubbles is that they tend to
occur alongside the perception of a new era, which clearly is the case now with artificial intelligence. Ultra-easy
monetary policy, the advent of new financial instruments like special-purpose acquisition companies and cryptocurrencies,
and what he calls "overtrading" -- exponential price movements and signs of above-average risk taking -- also are
illustrative of bubbles.
So with all these bubble signs, isn't it a time to sell? "History has shown that bubbles only burst once central banks
start to hike rates or take other steps to rein in their 'easy money' policies." Until the Fed starts tapering its bond
purchases, "we think there is a reasonable chance that U.S. equities will continue bubbling up further. As a result, we
stay nervously 'risk on' for now, gravitating towards risk assets. And we have a bias for value stocks, which are trading
at a multidecade discount to growth stocks," he says.
Tim Duy, chief U.S. economist at SGH Macro Advisors, analyzed the wave of comments from Federal Reserve officials,
including Vice Chair Richard Clarida. "Notice how slowly the Fed is moving in the tapering direction, mixing in talking
about tapering with policy still being in a good place and not seeing substantial progress 'just yet.' This is by design.
It's enough that if you are watching for it and you know what to look for, you see the subtle shift but not enough to be
any kind of game-changer," he said. Duy expects the formal pivot toward tapering to be announced at the Jackson Hole, Wyo.
conference in August, with the actual reductions starting in the first quarter of 2022, or possibly the final quarter of
2021.
Fed Vice Chair for Supervision Randal Quarles has two speeches, the first on insurance regulation and the second on the
economic outlook.
The chief executives of Wall Street banks -- including Bank of America
BAC,
0.37%
,
Goldman
Sachs
GS,
1.01%
and
JPMorgan Chase
JPM,
0.35%
--
will testify in front of the Senate Banking Committee on the topic of oversight.
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Amazon
AMZN,
0.48%
struck
a deal to buy studio MGM for $8.45 billion, with Amazon saying the purchase rationale was the "treasure trove of IP in the
deep catalog that we plan to reimagine."
Dick's Sporting Goods
DKS,
14.98%
jumped
8% after hiking its earnings outlook. Zscaler
ZS,
12.18%
rose
11%, after the cybersecurity company's quarterly results and higher full-year outlook breezed past Wall Street
expectations. Retailer Nordstrom
JWN,
-5.54%
fell
5%, after reporting a wider loss than forecast.
After the close, graphics chip maker Nvidia
NVDA,
0.24%
,
database
software maker Snowflake
SNOW,
2.21%
and
identity management company Okta
OKTA,
1.07%
release
their latest numbers.
Need to Know starts early and is updated until the opening bell, but
sign
up here
to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Federal Reserve officials seem to be having some success in calming investor fears over inflation --- a chart from
Deutsche Bank illustrates why that was a tall task.
More On MarketWatch
Steven Goldstein is based in London and responsible for MarketWatch's coverage of financial markets in Europe, with a
particular focus on global macro and commodities. Previously, he was Washington bureau chief, directing MarketWatch's
economic, political and regulatory coverage. Follow Steve on Twitter: @MKTWgoldstein.
Grantham thinks we are in a big, multi-asset market bubble and there is going to be a monstrous crash. Grantham lays out his
overvaluation argument in a video I made with him in February. There are two issues I wish I had pushed him harder on then: the
difficulty of getting out of the market without missing years of gains, and why, if he has mastered the art of identifying and
dodging bubbles, the equity funds at GMO (the asset manager he founded more than 40 years ago, where he still serves as a
strategist) have not beaten their benchmarks convincingly.
expand_more
remove
Zola.22
A popover with more user information
34 MINUTES AGO
if you try to time the market, you must be skillful or lucky at least two times -- when you exit,
and when you re-enter. The risk of missing out on the early bull runs is also very great, so that
you might miss out on the best part of the gains.
As for me, I am sticking with my game plan, which has two guiding principles: (1) "it is better to
buy a wonderful company at fair prices, than a fair company at wonderful prices" (Buffet); and (2)
invest in stocks only what will not cost you sleep at nights during times of market turbulence, but
keep that much invested at all times (the Economist).
A popover with more user information
42 MINUTES AGO
Wasn't the whole point of QE to (1) increase bank reserves, thereby encouraging banks to make loans; and (2) reduce
interest rates, thereby encouraging borrowers to take loans to fund profitable investments and private consumption?
Before the pandemic, isn't it true that banks that received QE reserves largely did not use them to support increased
lending? If so, pre-pandemic QE would have meant the following outcomes: banks' balance sheets remained almost the same
(they swapped securities for reserves); central banks had larger balance sheets (they have acquired more assets and
issued more bank reserves); and no one else became any the richer or poorer. What effects did this scenario have?
In this round of QE, however, I understand that US banks have made additional loans because of their QE reserves, and
also the Fed has purchased securities from non-bank sellers. That must mean that the Fed has a larger balance sheet
(more securities, more bank reserves issued, and less funds because of purchases from non-bank sellers); banks have
larger balance sheets (more reserves, more loans owed to them, and more deposits owed to depositors); their borrowers
have loans that they can use to invest or consume and corresponding obligations; and non-bank sellers have bank deposits
that they can use to invest. This round of QE has thus increased M2 (more deposits owed or used by non-bank sellers and
borrowers) and bank debt owed by borrowers.
A popover with more user information
2 HOURS AGO
(Edited)
Grantham's claim that you could have pulled out of the market in 1928 is very misleading. To make money you would have had
to remain in cash for a DECADE. Many folks lost their shirt by 'correctly' anticipating the initial crash, but then jumped
back into a bear market that went even further south.
(From JK Galbraith's history of the 1929 crash, which is an astonishingly entertaining read and perhaps highly timely)
A popover with more user information
4 HOURS AGO
(Edited)
QE is a market-distorting mechanism, used by Central Banks to "manage" interest rates (straightforward) and Money Supply
(harder).
Managing Money Supply is difficult because of the number of variables that impact how much new money is created when the
Central Bank buys govt. debt securities and issues reserves in exchange.
If the govt. debt securities are purchased from a lending bank, creating more reserves that can be used to make loans, the
crucial question is whether the bank will actually increase its credit portfolio, or whether it is more concerned about
maintaining its reserve ratio? If it does increase lending, then which sectors of the economy will it lend to - consumer,
manufacturing, technology, real estate or financial (i.e. hedge funds)? Is there demand for new loans? The limitations on
QE through lending banks were laid bare in the 2010 - 2016 timeframe, when European banks were more focused on repairing
their balance sheets and reserve ratios, than extending new credit.
By contrast, when a Central Bank purchases govt. debt securities from a non-bank holder, there is a dual-impact that causes
the substitution of govt. securities in favor of other asset classes. First, the reduction in yields makes other asset
classes more attractive and second, the shrinking pool of govt. debt securities forces re-allocation of capital into other
asset classes. Which of these two variables has a greater impact is hard to say, as it depends on the asset re-allocation
decisions of tens of thousands of portfolio managers, working within the framework of investment parameters for hundreds of
thousands of investment funds.
Ultimately, the asset re-alloction away from govt. debt securities will inflate the value of asset classes all the way down
the risk spectrum, creating a bubble of value inflation in each successive risk-asset class until a new equilibrium is
established. This triggers the so-called "wealth effect", where investors borrow against, or liquidate, unexpected
investment gains, creating an increase in aggregate demand.
QE's impact on Money Supply is (relatively) easy to understand, but devilishly hard to quantify.
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Risk adjusted returns. How many individuals are invested in bonds? Not very many because there is essentially no return.
This means there is a very high concentration in the riskiest assets.
Also Mr. Armstrong individual investors have finite lives. If I am 70 and we experience a market that has no return for 12
years (1999-2011) and there is a 20-40% drawdown within that and I do not have any surplus income to reinvest in the market
as it goes down should I just always stay 100% invested. Money managers have to take all of this into consideration and
determine their allocations accordingly. Arm chair quarterbacking is quite easy.
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(Edited)
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You are wrong on bonds. Bonds have been great risk adjusted payers.
If you bought 30yr treasuries in 2000, you made almost 8% per annum for 2 decades with zero
risk.
Not bad. The S&P would only be slightly better.
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The riskless return on 30 years bought in 2000 is 6,5 %, not 8 %.
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The nature of the goal you are pursuing is critical to how you assess Grantham's arguments. If your goal is to beat the
performance of a benchmark index over a give period of time, then you very likely reject them.
However, if you seek to achieve long-term accumulation or (even more so), decumulation goals, then you are likely to agree
with Grantham's fundamental point that avoiding losses is more important than taking a lot of risk in overvalued markets to
eek out the last few points of return.
The math is clear: You start with 100. The market loses 25%, and you are at 75. To return to 100 you need a return of 33%.
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I like the article and it makes sense. Problem is that you could find someone with Jeremy's view (but
not commanding the same respect, I agree) each year for the past 10 years. I know people who have yet
to enter the market since 2009 and have yet to buy a house, waiting for the dip. And they kind of
missed the dip last year with equities and it didn't quite amount to a dip with house prices.
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Someone correct me if I'm wrong but
QE = money printing. Shouldn't take fancy empirical studies or mathematical models to figure out that
money printing depresses the value of cash and inflates the value of assets relative to cash.
I'm also very skeptical of the claim that QE puts too much money in "public" hands. What is meant by
the public? Sure, there were government handouts and unemployment benefits, that I would consider
public. But there were also equally if not larger massive government bailouts to large multinational
corporations and legislative pork to bureaucratic government entities. I don't really consider those
"public".
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So in other words, QE does cause inflation, but because the money only lands in the hands of the rich,
it is just assets the rich hold that have seen inflation?
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Student of ideas
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On QE it matters whether the bonds are purchased from banks or from non banks. If they were on the
balance sheet of JPM and are not replaced then there is no effect on broad money measures like M2. JPM
has simply exchanged a long maturity asset (bonds) for a short maturity asset (reserves at the Fed).
Both are government liabilities. If Pimco sells bonds to the Fed it gets a new deposit at JPM which
JPM balances by making a new reserve at the Fed. M2 is the sum of cash and bank deposits so it has
risen. Monetarist theory suggests that Pimco may use that deposit to buy something else, driving up
asset prices. In the first case JPM may not do anything else.
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Anders K
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QE certainly leads to a "hot potato" effect, but you can't just talk about "the public". QE cash ends
up with asset managers, but not households. So the inflation it leads to is with financial asset
prices, not goods and services. The BoE has written papers in the past about the linkage of the former
to the latter (a "wealth effect") but I think they've retreated from that now.
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The majority of money at Asset Managers belongs eventually to households though. Either the
PM at the AM will have to rebalance the portfolio - by buying more other bonds (bidding up th
prices) or the client can withdraw some cash and spend it on goods.
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(Edited)
Over the past 15 months thought I was a financial genius, until I realized that everything has gone
up. I guess its better to be lucky rather than smart.
On the other hand I am worried. Common sense tells me that the higher the market goes, the bigger the
eventual crash that will be. But there appears to be a disconnect between Fed (and other Central
Banks) outlook and the high levels of both the real estate and stock markets.
In that respect I agree with Larry Summers. There is too much money sloshing around in the system and
the Fed and other Central Banks should tap the breaks. You only need to look at the ridiculous prices
that Real Estate and Stocks have achieved to realize that the market is telegraphing two possible
scenarios: either the economy is going to grow at an an astounding rate going forward, or there's a
good possibility that inflation will be a big problem in the not to distant future.
I don't know which will happen (I suspect the latter) but sooner or later the market is going to turn
from euphoria to hysteria.
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You forgot one other possibility; that the market is pricing in low inflation, secular
stagnation, and persistently low discount rates. The reason why the CAPE index is high
relative to "historic averages" does not need to be to do with euphoria, hysteria or bubbles
and could instead be everything to do with fundamentals. These fundamentals may turn out to
be wrong, but I think it would be wrong to call this a bubble even in retrospect.
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Maybe "the market" doesn't folollow an economic logic but individual investors just
rely on gut feeling?
Retail investors just join the party,thinking stocks can only go up. Most asset
managers I talk to just tell me that debt is so high that CBs cannot raise policy
rates ever again. Should long-term rates (=market rates) rise regardless, then CBs
would control the yield curve. With interest rates on bonds thus capped at negative
real rates,equities markets might never fall again.
Sure consumer inflation might rise at some point, possibly even to compensate for
the vagaries of the printing press. But the not so independent central bankers may
still prefer letting inflation rip over bringing about a colossal recession.
Maybe that's why asset prices will keep rising.
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Moneybags
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The market is in a funny place as long as dividends are exceeding bond yields (before buybacks) That
said, owning real assets in a time of excessive money printing and rising inflation is a better place
than following a purist's inclination to sell up and own cash.
The whole talk about bubbles should be addressed to the Fed in the first instance.
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On QE, isn't it the case that Pimco's clients only have cash to the extent that the Treasuries were
purchased from Pimco and not from the Fed? And wouldn't that not be the case as much if there had
been significant new issuance from the Fed? And has there not in fact been such significant new
issuance?
I thought the whole point of QE is that it is "sterilised" in this way so as not to spike CPI. Which
would certainly appear to have worked. Which then leads on to: if the above is the correct
explanation of QE, why has CPI been flat on its back until v recently?
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The difficulty in identify bubbles is because economists today make no distinction between values &
prices.
The classical economists like Ricardo had a labour theory of value to explain prices.
Individual commodities were assumed to have a natural price based upon their actual labour time,
direct & indirect, that went into their production. Market prices driven by supply & demand oscillated
around these natural prices.
But Ricardo accepted Say's Law & rejected the general glut theory supported by the likes of Malthus,
who greatly influenced Keynes.
For Ricardo there could only be over & under production at commodity/industry level.
The general glut theorists understood that the circulation of capital could be disrupted; that supply
did not automatically create its own demand.
Ricardo understood there were problems with his labour theory of value though.
It meant that there couldn't be an exchange of equivalents for profits to be made; workers must be
paid less than the value they created (hence the Ricardian socialist school).
It also couldn't explain why the price of fine wine aged in oak would sell at a higher price than wine
that hadn't been matured.
The LTV had to be corrected or rejected.
The neo-classicals embraced marginalism & prices are supposedly explained by prices.
Problem is there's no way to identify bubbles.
Rather awkwardly for the capitalists Marx solved the problem with the classical LTV.
He explained that as well as commodities having labour values based upon their concrete labour time,
the tendency for the rate of profit to equalise gives commodities 'prices of production'.
That only in aggregate do market prices equal aggregate prices of production which equal their labour
value equivalents, & that this is only across the business cycle.
It will only be by chance that a commodity sells for its labour value equivalent, supply & demand
market prices will oscillate around their 'prices of production'.
They go to market to see how much of society's finite labour time they can claim.
None of this explains asset price bubbles though, but it provides the foundation.
By accepting the role of the market in forming 'natural prices' that are not tied to an individual
commodity's labour time, we can see that a credit system, by separating the act of purchase from
paying, permits leverage, & so aggregate market prices inflating above their value equivalent.
A credit/debt fuelled asset price bubble.
Historically the credit system could only leverage so far as the value of the national currency was
tied to a fixed weight of gold (which takes a set amount of labour time to produce).
Too much token or credit money resulted in gold flight.
Central banks had to intervene to maintain the value of their money, & so pop the bubbles.
Since 1971 they haven't had to do this.
Rather they have been complicit in their creation & now do all they can to stop them deflating.
In otherwords, they continue to push market prices above their values.
The big question is how long they can deny the law of value?
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It's plagiarism if you don't cite your source:
The Value of Everything: Making and Taking in the Global Economy
Book by Mariana Mazzucato
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Trutheludes
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(Edited)
On Jeremy Grantham
Often successful genius is a flash in the pan.
Intelligence is a function of times; times pass, and it joins mediocrity. Jeremy Grantham has had his
day and should call it a day.
Success is random but passes on as planned intelligence. Spectacular failures too happen in spite of
intelligent planning – funds run by Nobel Laureates failed, for example.
In fact, most great men in history were geniuses and failed eventually.
Truth is, myriad forces at work are just too formidable for human intelligence to comprehend and
control.
Remain humble and aim small. You will be successful. Buy index ETFs, don't quit; markets might fall
but will rise again. And when you will look back years later, you will see a rising trajectory, albeit
broken at several places.
.
On QE
"In Pimco's clients' balance sheet, a deposit of $100 is substituted for the Treasuries -- with which
they can buy riskier assets."
But was not that $100 already there, with which they bought Treasuries in the first place? They bought
Treasuries and then sold them; they paid $100 and got them back. Where is the new money – except for
small buying/selling profit?
So, I am sorry QE does not add to money with the public. Fed has only bought Treasuries in a
circuitous way and monetized the government deficits by proxy.
Fed buying Treasuries lowers the rates, which might not happen because investors would demand higher
yields. Fed's acceptance of paltry yields pushes the interest rates down.
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PS. By the way Robert, I read reviews of Mandelbrot's The (Mis)Behaviour of Markets: A Fractal
View of Risk, Ruin and Reward. It is a very formidable and humbling book. It is on my buy list.
Thanks for recommending it.
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James Peach
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A bank making a profit does not lead to new money, except where it distributes retained
earnings to shareholders in the form of new deposits.
On your point about QE, I think you're right, the new deposits were already created when the
bank bought the treasuries, which predates the FED's QE operation. But the second question
is: would the bank have purchased these USTs if it did not anticipate a QE operation. If the
answer to that question is no, then you can make a reasonable argument that the QE operation
did lead to an increase in broad money/M2.
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Enter the Winter
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Without clear specification of counterfactuals, none of this talk about whether a
particular operation "does" or "does not" "create money" means anything to me at
all.
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high rate tax payer
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selling out and then repurchasing also has transactional costs which are not insignificant once you
count in capital gains tax on the gains.
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Danmalin
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What is the purpose of QE?
According to the ECB website it is 'to put downward pressure on the term structure of interest rates'.
The BoE website states that 'the aim of QE is simple: by creating this 'new' money, we aim to boost
spending and investment in the economy'.
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FKN
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8 HOURS AGO
There is almost no industry with as much transparency on performance and comparability than asset
management. There is also no industry with as much evidence of LACK of skill in delivering performance
that exceeds benchmarks:
Yet the industry thrives and practitioners make vast fortunes in the process of destroying value.
GMO is a case in point. The performance on the US equity factsheet that you highlight shows that the
portfolio has underperformed 9 out of the last 10 years.
The benchmark free allocation fund that you highlight has returned 4.2% (!) per year over the last
years and is basically a macro hedge fund with 17% in equity long/short strategies, 43% in
"alternative" strategies and its largest position is 20% EM; i.e. it is not representative of an asset
allocation fund at all. Their Global Asset Allocation Strategy has underperformed 9 out of the last
years with the only annual period of outperformance being in 2011.
Yet year in, year out Jeremy Grantham and many like him, get to expound their views as if they are
gurus to be listened to and emulated and cash their multi-million dollar paychecks.
Every investor should thank their lucky stars for John Bogle and Vanguard for changing the whole
nature of the business by not only educating and offering investors the passive alternative but in the
process lowering active fees across the industry.
I think journalists who give active managers, selling unrealisable dreams, the forum, do their readers
a huge disservice.
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Maybe the real treasure was the fees they collected on the way.
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8 HOURS AGO
Dr Lacy Hunt is ex deputy chair of the Texas Fed and an expert on Federal Reserve policy. He has
written extensively on the difference between QE and "true MMT" ( which is effectively helicopter
money) which in turn requires making Fed reserves legal tender and that in turn requires a change to
the Fed Reserve Act.
His argument, explained in detail midway through the Q1 2020 quarterly report, appears to conflict
with the "QE puts money in the public's pockets " argument the FT appears to be making?
I would welcome your comment on Hunt's line of reasoning? Clearly M2 has indeed increased dramatically
but has been offset by falling velocity.
https://hoisington.com/pdf/HIM2021Q1NP.pdf
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(Edited)
It isn't, however, difficult to identify a badly overpriced market. It is extremely easy in
retrospect and it is easy in real time. If you graph them, they look like Himalayan peaks coming
out of the plateau.
if I look at the first chart I see an unmistakable himalayan peak emerging in 2014. Yet selling out in
2014 and sitting at the sidelines for now 7 years and counting wasn't the best move. Case in point:
it's not that easy to time the market.
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RE QE: shocking, in a way, that it is unclear how a policy avidly pursued by the major Central Banks
actually works, or indeed is supposed to work. It is not sold as a policy designed to bid up existing
assets but Central Banks can't determine what assets the private sector chooses to buy. or force them
to invest in the creation of new assets.
On the Money supply it is more useful to look at the asset side of the Balance sheet. In the EA we
can see that most of the growth in bank assets is via the purchase of Government bonds,while the
growth in spending to the private sector has been modest and is slowing. So QE is not monetary
financing but pretty close to it as its main function is to help reduce the cost of servicing Govt
debt.
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(Edited)
Reflecting on the prior two cycles for what's to come is a losing strategy (especially mean
reversion). Study the 1950s and the Bretton Woods Accord - shifting monetary policy frameworks will
break down a lot of correlations from the prior cycles.
As for QE:
the treasury is
auctioning debt almost daily..bid to cover ratios on 42-week bills consistently exceed 3. The Fed is
literally buying treasury securities at their theoretical peak. This isn't QE anymore - this is debt
monetization. Treasury is using these funds to pump the "lower end" of the income distribution in the
form of direct deposits, enhanced unemployment and tax breaks.
Is this inflationary? Not yet. Household savings are incredibly high. The supply side is the problem.
But what did anyone expect to happen when decoupling from China?
What happens to the DXY when the FED stops its asset purchases? Historically - higher yields equals
higher dollar. Will this hold given the extraordinary debasement?
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QE was intended to work bottom down from Central Banks, Banks, Corporations and finally end up in
consumer's hands.
If central banks bought bonds from commercial banks, funds available for lending increased for the
latter.
Now, commercial banks lent to corporations with the intention to increase capital spending in an easy
financial conditions environment.
Subsequently corporations drove the funds to buybacks and dividends therefore inflating stock prices.
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JM2845
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If you're going to use this logic to promote sloshiness, you need to consider what happens when the
treasury issues bills or bonds. A second after JPM sells treasuries to the Fed, 2 seconds after it
bought them from Pimco, it buys $100 worth of treasury bills issued by the US treasury. If you apply
this framework, you should look at all operations that change banking sector liquidity, not just the
parts that suit your argument.
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ArioMike
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9 HOURS AGO
Delighted you keep talking to Jeremy, Robert.
I don't like whiskey (or whisky), and my bed is one I cannot hide under. But over December and January
in my largest retirement fund, where I have SAA discretion (I view it as strategic
risk
allocation,
rather than asset) I sold lots of equity and am now over 50% cash and linkers. It can be done.
I have never done/supported TAA over my investment career, and view my decision as an asset owner one,
not an investment manager one.
Which leads me to offer an answer to the two issues you wish you had pressed him on. It has
historically been good practice for asset owner clients to mandate close to zero cash in a mandate.
Most managers are rubbish at market timing (see my TAA comment above), and it is foolish to give them
rope to hang the client's portfolio with. And it is hard for asset owners to have the skills (and
organisational flexibility) to tilt towards (say) value when they think "value risk" vs "growth risk"
is underpriced.
Very few investment managers are incented to make the big calls we are talking about. The asset owners
with the necessary time horizon are the only ones who can do it. (Or they need to identify the skill
of the few JGs that exist and appoint them for long enough to harvest the fruits of those skills). And
in fact these guys are not investment managers (who manage portfolios), rather they are strategic risk
managers.
Happy to elaborate offline, Robert. Quite a few of your FT colleagues know who I am...
PS The world is in a BNPL Ponzi scheme, debt is the politician's friend, and there are few guardrails
there. Central banks are probably fighting the last war (inflation), and not rearming to prevent the
next one (correlated, big, risk crystallizations). Think Archegos and friends...The best global Risk
Mitigation effort is the Paris Agreement, and implementation there is not exactly in high gear.
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Marc
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I tend to agree with Jeremy as well but my move has been more along the lines of 15% cash and
"safe" stocks. So, for example, I would be curious to know why you wouldn't think that a name
say like Nestle, which gives you a 2.5% dividend yield in a country with negative rates
wouldn't"t be more appealing than holding cash? Even during the GFC, when it had a run of 50%
in the previous 2 years to its peak, it only went down c20% and was back near its previous
peak within 2 years. It also feels like this time around, with no visibility on yields
anywhere already being programmed into the medium term, a turn to these kind of value stocks
with sustainable dividends will be more immediate and that these types of stocks may suffer
even less than after the GFC.
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I have a similar strategy, in that I have created a cash pool which is sufficiently
large to cover my outgoings over the next 5 years, though I am reluctant to invest
in a single dividend yielding stock. Warren Buffet provides a strong rationale for
why an index is preferable to single stocks (
https://www.cnbc.com/2020/05/22/warren-buffett-most-people-shouldnt-pick-single-stocks.html
).
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Why does Buffet himself holds individual stocks rather than indexes ?
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You are prudent and of course also technically correct. Also, agree it is a giant ponzi
scheme.
However, curious to know your thoughts as to why you believe the Fed would allow the S&P to
fall by a large margin (say >20%), triggering contagions?
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ArioMike
I have found much comfort in your comment as I thought that I am so dumb for holding 70% in
cash, no literally, cash. And the point about getting "shot", well, I made an email and told
them I will underperform but their capital is safe.
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I agree that Fed might lose the control: much depends on the continuation of the status of
the dollar as the main reserve currency. If this position continue to weaken all beta are
off.
What would happen to the financial system if the Fed stopped printing massive amounts of
money for stimulus and debt service? Williams explains,
" You could see financial implosion by preventing liquidity being put into the system. The
system needs liquidity (freshly created dollars) to function. Without that liquidity, you
would see more of an economic implosion than you have already seen. In fact, I will contend
that the headline pandemic numbers have actually been a lot worse than they have been
reporting. It also means we are not recovering quite as quickly. The Fed needs to keep the
banking system afloat. They want to keep the economy afloat. All that requires a tremendous
influx of liquidity in these difficult times."
So, is the choice inflation or implosion? Williams says, "That's the choice, and I think we
are going to have a combination of both of them. .."
" I think we are eventually headed into a hyperinflationary economic collapse. It's not
that we haven't been in an economic collapse already, we are coming back some now. . . . The
Fed has been creating money at a pace that has never been seen before. You are basically up
75% (in money creation) year over year. This is unprecedented. Normally, it might be up 1% or
2% year over year. The exploding money supply will lead to inflation. I am not saying we are
going to get to 75% inflation -- yet, but you are getting up to the 4% or 5% range, and you
are soon going to be seeing 10% range year over year. . . . The Fed has lost control of
inflation. "
And remember, when the Fed has to admit the official inflation rate is 10%, John Williams
says, "When they have to admit the inflation rate is 10%, my number is going to be up to around
15% or higher. My number rides on top of their number."
Right now, the Shadowstat.com inflation rate is above 11%. That's if it were calculated the
way it was before 1980 when the government started using accounting gimmicks to make inflation
look less than it really is. The Shadowstats.com number cuts out all the accounting gimmicks
and is the true inflation rate that most Americans are seeing right now, not the "official"
4.25% recently reported.
Williams says the best way to fight the inflation that is already here is to buy tangible
assets. Williams says,
"Canned food is a tangible asset, and you can use it for barter if you have to. . . .
Physical gold and silver is the best way to protect your buying power over time."
Gold may be a bit expensive for most, but silver is still relatively cheap. Williams says,
"Everything is going to go up in price."
When will the worst inflation be hitting America? Williams predicts,
"I am looking down the road, and in early 2022, I am looking for something close to a
hyperinflationary circumstance and effectively a collapsed economy."
Join Greg Hunter of USAWatchdog.com as he goes One-on-One with John Williams, founder of
ShadowStats.com.
2 play_arrow 1
Nikki Alexis 7 minutes ago
John Williams warning about hyperinflation is like Peter Schitt telling me stocks are
going to crash. It's coming, it's coming! Boy crying wolf.
Cautiously Pessimistic 59 minutes ago
Accounting Gimmicks. Election Gimmicks. Gender Gimmicks. Science Gimmicks. Rule of Law
Gimmicks.
America has become one big fun house of gimmicks.
Time for a RESET.
NoDebt 54 minutes ago remove link
Yeah, the Reset Gimmick. Where they fundamentally transform themselves into a permanent
position of power. Never mind that they'll kill millions to achieve it.
Samual Vimes 47 minutes ago (Edited)
What about gutting primary dealers by buying T bills directly ?
Doyle Lonnegan to Johnny "Hooker" Kelly in the movie The Sting: "Your boss is quite the
card player Mr. Kelly. How does he do it?"
Kelly to Lonnegan: "He cheats."
philipat 2 days ago
It's appropriate that the entirely useless ex-PM Cameron got taken by this guy and tried
to use his influence to access free money for him from The Treasury as an "advisor"..He
didn't get any.
The Fed never had control, just s bunch of shysters running a long term hybrid ponzi
scheme.
Lordflin 54 minutes ago (Edited)
The Fed is losing control...
I suppose that is true... as the function has been to drain the people's wealth into the
coffers of the few...
The Real Satoshi 29 minutes ago remove link
Sad that Greg Hunter got kicked off youtube.
gregga777 12 minutes ago (Edited)
He is in great company, though. Anyone who offends the Marxist narratives (Politically
Correct, Multicultural, Affirmative Action, Diversity, Feminist, LGBTQQ, etc.) gets kicked
off YouTube.
pmc 36 minutes ago (Edited) remove link
...As Kissinger said "The illegal we do immediately; the unconstitutional takes a little
longer."
A growing economy has helped lift oil prices 31% this year.
Jesse Felder was cited in MarketWatch's
Call
of the Day
for his opinion that energy is the neglected sector of the stock market even though it has been outperforming other
sectors since last fall. (You can read Felder's entire posting
here
.)
He pointed out that energy stocks make up a smaller percentage of the S&P 500
SPX,
1.31%
than
they did 20 years ago. Looking at numbers provided by FactSet, it appears Felder expressed this phenomenon mildly. As of the
close on May 19, the S&P 500 energy sector made up 2.85% of the index's market capitalization, down from 6.95% 20 years earlier.
The collapse in crude oil prices from the summer of 2014 through February 2016 was enough to push some energy companies out of the
S&P 500 -- their market values had declined too much to remain in the benchmark large-cap index. And the worst point of the COVID-19
crisis for financial markets even led to forward-month oil futures contracts falling below zero in April 2020. (The price of West
Texas crude oil per continuous forward contract
CL00,
-1.93%
was
up 31% for 2021 to $63.35 on May 19, according to FactSet.)
The S&P 500 now includes only 23 energy stocks. Our look at the sector will be broadened to the 63 energy companies in the S&P
Composite 1500 Index
SP1500,
1.19%
,
which
is made up of the S&P 500, the S&P 400 Mid Cap Index
MID,
0.52%
and
the S&P Small Cap 600 Index
SML,
0.25%
.
Here's how the 11 sectors of the S&P 1500 have performed this year through May 19 and also since the end of 2019 and since the end
of 2015:
Trump represented a FACTION
of the establishment. Which one? He did their bidding and in the process alienated other
factions. The other factions worked together to get him replaced. There are factions within
neocons, neoliberals and establishment. It is a nuanced and complex structure, not
monolithic. It is misleading to state, "he publicly broke away from the American oligarchy's
class interests".
Trump's biggest MISTAKE was that he didn't build a good sounding board of advisors. He
surrounded himself with his family members and believed his orders will be implemented like a
corporate president. Jared Kushner is a Bilderberg. So Trump was connected to the global
syndicate and part of the swamp.
The unipolar order ended in 2014/15 and the multipolar order is establishing. The U$A or
NATO can't launch a foreign war like they did in Libya. Russia and China have warned the
Financial Empire and defined the redlines. This is the reason behind Trump not launching a
new major foreign war. Will Biden launch a new war? However, Trump did launch hybrid wars in
Venezuela, Bolivia, Belarus,... Trump didn't break from FOREIGN adventures.
During Trump's term:
– How many bombs were dropped?
– How much new DEBT was created?
– How much did the money supply increase by?
– What happened to the trade deficit?
The account of the 3 months of the Biden team is this: bad employment numbers, retail
spending flattening, inflation galloping in many sectors, a border crisis, rockets and
explosions in the Middle East, and, above all else, a week of shocking gas shortages all over
the Eastern seaboard. So really, this poor performance can only be better. But could it have
been worse? hardly. They bungled everything they touched, and did not touch that needs to be
addressed. Namely, lockdowns, masks, distancing: scores of published scientific studies
informs that these are completely futile. They should be lifted. And the Fauci-CDC-SAGE (UK)
- official pro-pseudoscience cabal should be fired everywhere. Real science and undistorted
statistics should inform people, so they understands that they were duped for a year by the
media controlled by Democrats-liberals. Even the WSJ infects people with numerous,
ill-written articles on Covid, which is a shame from this medium.
The market is getting wobbly. The high flyers (Tesla, Bitcoin, Lumber) are down Bigly, the
VIX is increasing, Tech is weak, commoditires are showing signs of weakness while PMs are
showing strength. Every day that exit door looks a little smaller.
Silenus 2 hours ago (Edited)
The stock markets have kept reaching all time highs even though economic activity is well
below where it was in 2019. There is large-scale unemployment, supply chain problems, worker
unrest etc. In other words, there is no reason that stock markets should be at all time
highs.
The only reason for these valuations is hopium combined with easy money policy, i.e.
speculation.
A crash is definitely possible, and if not a crash, then long-term, grinding
stagnation.
Weihan 2 hours ago remove link
Optimism, pessimism, schmepticism. WHO CARES?! None of this matters because there are NO
markets! There is only central bank manipulation and corruption. Whatever outcome they want,
they will get.
Rentier88 2 hours ago (Edited)
"Peak Wall Street Optimism Is Now Behind Us: It's All Downhill From Here"
Never underestimate all the stupid people who speculate (since it isn't investing) these
days, robinhood fools come to mind.
CthulhuNoLivesMatter 4 hours ago (Edited) remove link
You are supposed to invest in things you understand and have confidence in.
Where should I invest my money according to the ZH posters?
drjd 4 hours ago
Yourself.
CthulhuNoLivesMatter 3 hours ago
I'm working on myself right now. Doing intermittent fasting. Also been doing some self
work involving applying stoic philosophy to my life.
If anything, the relative performance of the U.S. stock market's various style and sectors
suggests the bull market will stay alive and well for at least a few more months. This cheery
forecast is at odds with the widespread opinion that value stocks' relative strength is an
early warning signal of market weakness.
Who Bought the $4.7 Trillion of Treasury Securities Added Since March 2020 to the
Incredibly Spiking US National Debt?by Wolf Richter • May 17, 2021 •
119 CommentsThe Fed did. Nearly everyone did. Even China nibbled again. Here's who
holds that monstrous $28.1 trillion US National Debt.By Wolf Richter for WOLF STREET .
The US national debt has been decades in the making, was then further fired up when the tax
cuts took effect in 2018 during the Good Times. But starting in March 2020, it became the
Incredibly Spiking US National Debt. Since that moment 15 months ago, it spiked by $4.7
trillion, to $28.14 trillion, amounting to 128% of GDP in current dollars:
But who bought this $4.7 trillion in new
debt?
We can piece this together through the first quarter in terms of the categories of holders:
Foreign buyers as per the Treasury International Capital data,
released this afternoon by the Treasury Department; the purchases by the Fed as per its weekly
balance sheet; the purchases by the US banks as per the Federal Reserve Board of Governors bank
balance-sheet data; and the purchases by US government entities, such as US government pension
funds, as per the Treasury Department's data on Treasury securities.
Foreign creditors of
the US.
Japan , the largest foreign creditor of the US, dumped $18 billion of US Treasuries in
March, reducing its stash to $1.24 trillion. Since March 2020, its holdings dropped by $32
billion.
China had been gradually reducing its holdings over the past few years, but then late last
year started adding to them again. In March, its holdings ticked down for the first time in
months, by $4 billion, bringing its holdings to $1.1 trillion. Since March 2020, it added $9
billion:
But Japan's and China's importance as creditors to the US has been diminishing because the
US debt has ballooned. In March, their combined share (green line) fell to 8.3%, the lowest in
many years:
All foreign holders combined dumped $70 billion in Treasury securities in March, bringing
their holdings to $7.028 trillion (blue line, left scale). But this was still up by $79 billion
from March 2020.
These foreign holders include foreign central banks, foreign government entities, and
foreign private-sector entities such as companies, banks, bond funds, and individuals. Despite
the increase of their holdings since March 2020, their share of the Incredibly Spiking US
National Debt fell to 25.0%, the lowest since 2007 (red line, right scale):
After Japan & China, the 10 biggest foreign holders include tax havens where US
corporations have mailbox entities where some of their Treasury holdings are registered. But
Germany and Mexico, with which the US has massive trade deficits, are in 17th and 24th place.
The percentages indicate the change from March 2020. Note the percentage increase of India's
holdings:
US government funds hit record, but share of total debt drops further.
US government pension funds for federal civilian employees, pension funds for the US
military, the US
Social Security Trust Fund , and other federal government funds bought on net $5 billion of
Treasury securities in Q1 and $98 billion since March 2020, bringing their holdings to a record
of $6.11 trillion (blue line, left scale).
But that increase was outrun by the Incredibly Spiking US National Debt, and their share of
total US debt dropped to 21.8%, the lowest since dirt was young, and down from a share of 45%
in 2008 (red line, right scale):
Federal Reserve goes hog-wild: monetization of
the US debt.
The Fed bought on net $243 billion of Treasury securities in Q1 and $2.44 trillion since it
began the bailouts of the financial markets in March 2020. Over this period through March 31,
it has more than doubled its holdings of Treasuries to $4.94 trillion (blue line, left scale).
It now holds a record of 17.6% of the Incredibly Spiking US National Debt (red line, right
scale):
US Banks pile them up.
US commercial banks bought on net $28 billion in Treasury securities in Q1 and $267 billion
since March 2020, bringing the total to a record $1.24 trillion, according to Federal Reserve
data on bank balance sheets. They now hold 4.4% of the Incredibly Spiking US National
Debt:
Other US entities & individuals
So far, we covered the net purchases by all foreign-registered holders, by the Fed, by US
government funds, and by US banks. What's unaccounted for: US individuals and institutions
other than the Fed, the banks, and the government. These include bond funds, private-sector,
state, and municipal pension funds, insurers, US corporations, hedge funds (they use Treasuries
in complex leveraged trades), private equity firms that need to park billions in "dry powder,"
etc.
These US entities hold the remainder of Incredibly Spiking US National Debt. Their holdings
surged by $149 billion in Q4 and by $2.35 trillion since March 2020, to a record $8.76 trillion
(blue line, left scale). This raised their share of the total debt to 31.2% (red line, right
scale), making these US individuals and institutions combined the largest holder of that
monstrous mountain of debt:
The Incredibly Spiking US National Debt and who
holds it, all in one monstrous pile:
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get
why – but want to support the site? You can donate. I appreciate it immensely. Click on
the beer and iced-tea mug to find out how:
'Everybody wants to have asset prices forever going up and the cost of financing to be next to nothing,' Kerry Killinger says.
Like many other banks, Washington Mutual rode the wave of low-interest rates to grow its mortgage business during the housing boom
of the early 2000s. During Kerry Killinger's time as CEO, WaMu grew to have more than $300 billion in assets.
But when the subprime bubble burst, the bank's fortunes quickly turned. In September 2008, at the height of the financial crisis,
Killinger was forced out by the company's board, and ultimately the bank was seized by federal regulators. It still stands as the
largest bank failure in U.S. history.
In their new book, "Nothing Is Too Big to Fail: How the Last Financial Crisis Informs Today," Kerry Killinger and his wife Linda,
who previously served as the vice chair of the Federal Home Loan Bank of Des Moines, explore WaMu's failure, the government's
response to the last crisis and where there is growing risk in today's econom
...
In
the book, the Killingers raise concerns about asset bubbles they believe are forming in a wide range of asset classes, including
stocks, art and luxury items -- and housing. MarketWatch spoke with Kerry and Linda Killinger about the book, the Federal Reserve and
how to avoid another global financial crisis like the 2008 meltdown.
...
Linda Killinger:
I wanted to write a book about this because it was such an unusual, crazy experience. Back in the '80s I
was a partner in an international accounting firm, and the regulators would call me in to do plans for banks that were failing in
that time. I noticed that the regulators would do everything they could to help a bank get liquidity, or to help save a bank that
had not been consumed in crime or problems. But in this crisis of 2008, it just seemed like nobody wanted to help community banks.
In fact, they just did the opposite. They really went after them. I thought it was important to write about the difference and how
important it is to help community banks in a crisis like this.
Kerry Killinger:
My focus was more on public policy -- about being sure we learned all the lessons we possibly can. I've
become very concerned that some of the policies currently being adopted by the Federal Reserve and the regulators in government may
be leading us to a new financial crisis.
'Some of the policies currently being adopted by the Federal Reserve and the regulators in government may be leading us to a
new financial crisis.'
-- Kerry Killinger
MW
: In your book, you explain that you see another bubble forming in residential real-estate -- just one of the many asset
bubbles you warn about. What do you believe caused the last housing bubble that led to the Great Recession and how does it compare
to what's going on now?
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Kerry Killinger:
We've lived through a lot of housing cycles in our careers, and including the big bubble that that was
created in the early 2000s. The housing bubble was primarily caused in the early 2000s by the Fed keeping the fed funds rate below
the rate of inflation for several years. They did that in 2000 through 2003, and that lowered mortgage payments so low and led to
housing prices increasing because housing affordability was good with very low mortgage payments. That caused housing prices to rise
much more quickly than the rate of inflation.
From 2000 to 2006 nationally housing prices rose about 83%. Over that same period, the rate of inflation was up about 20%. So a huge
increase faster than the rate of inflation, and over the long run, housing prices ought to rise at about the rate of inflation,
which was about 2% a year or so. Clearly it was a speculative period where prices were rising too quickly, and speculators and
investors increasingly jumped on board.
To help fuel it, underwriting standards were reduced by Fannie and Freddie, the FHA, VA, Wall Street, bank portfolio lenders, and
all that. Then on top of that we had this growth of subprime lending. Keeping rates so low for so long was the most important
driving force in my opinion.
[Today] the similarities are that the Fed has pursued this policy of ultra-low interest rates with the fed funds rates.
Increasingly, the Fed is keeping mortgage rates at an artificially low level for 30-year fixed rates by purchasing assets in their
own portfolio, including mortgage-backed securities and an increasing array of guarantees that the Fed has done as part of its
policies to fight an economic downturn.
Those actions have led to what I'm calling ultra-low mortgage payments, and that naturally led to a surge in housing prices. Since
2015 housing prices nationally were up about 36% -- more than three times the rate of inflation over that period.
Another similarity is we're seeing speculators and investors jumping in. This go-around it's large entities wanting to buy tracts of
homes to use as rental housing. So the non-owner-occupied part of the market, which is the investor side, has gone up from 31.9% to
34.4% in the past year. We're getting a repeat of speculation coming in at this stage with investors coming in in a major way.
Now, subprime lending is not the same factor it was the last go-around fortunately, but we do know that there's an increasing amount
of subprime lending going on by the FHA, VA and some of the government enterprises. On the good news side, I think underwriting
standards have remained better, much better, than they were in the last go-around. But my caution is underwriting standards are all
based on housing prices that are, I believe, inflated because of these ultra-low-interest mortgage rates.
MW:
You wrote about how, in your view, the Fed's response last time around exacerbated the financial crisis. And just now,
you spoke about how the Fed is contributing to the rise in home prices. So what role do you think the Fed should play in addressing
the bubble that you argue is forming now?
Kerry Killinger:
This go around I think the Fed has learned that it needs to provide plenty of liquidity to keep from
having a crisis. My concern is I think the Fed has gotten hooked on these expansive policies of ultra-low interest rates, asset
guarantees, asset purchases and flooding the system with liquidity for a long period of time. And those policies are very
appropriate for helping get an economy out of a recession in order to get things stabilized, but their use over extended periods of
time always leads to an escalation in inflation and the creation of asset bubbles.
'The Fed has gotten hooked on these expansive policies of ultra-low interest rates, asset guarantees, asset purchases and
flooding the system with liquidity for a long period of time.'
-- Kerry Killinger
They are caught in a conundrum now. The policies that were appropriate to help get us beyond COVID-19 -- the longer they keep using
those same policies, I think they just keep inflating these bubbles. And it will be very difficult to manage them down in an orderly
manner. All assets go through these kinds of ups and downs -- the key is how do we manage them in a way that doesn't cause immediate
implosion, like they did in 2008? The longer they allow these bubbles to keep growing, the bigger challenge they're going to have
at some point in the future.
MW:
You're both strong proponents of community banks and have argued that they should play an important role in the
mortgage industry. But following the Great Recession, many banks have reduced or eliminated their mortgage businesses, citing the
steep cost of regulation, and non-bank mortgage companies have risen up to fill that void. Should the federal government make it
easier for community banks to lend mortgages, and how should it go about doing so?
Linda Killinger:
Well, it depends. I think, if it looks like a bank, it smells like a bank and does mortgages like a bank,
it should be regulated like a bank. Unless there's some incredible service that they provide that banks don't provide -- otherwise,
they're doing the same thing as community banks but they're not being regulated.
The problem with that is things are going pretty well right now because they're selling mostly to Fannie and Freddie. Fannie and
Freddie's guidelines are pretty good right now, but at any point in time [non-banks] could couple up with unregulated hedge funds or
other entities from Wall Street and start securitizing loans themselves, lowering standards and trying to attract more people.
Especially if the Congress and the new president want to have more affordable housing, it depends on what they do when they want to
push for more. There needs to be more affordable housing, but it shouldn't be handled in the way that it was last time. Last time
they had Fannie Mae in the 90s saying well 33% of your loan should be [low- and middle-income (LMI)] loans, and by 2008 it was 60%
should be LMI. So there's a tremendous pressure on Fannie and Freddie from Congress and the other regulators to really crank out
more LMI lending. We really have to be careful about how we do that in the future. Community banks should be involved because they
know how to do it right.
MW:
When the COVID-19 pandemic began, federal lawmakers and regulators were quick to roll out forbearance options to
homeowners who suddenly lost income as a result of the economic shock. A year later, many homeowners are still not making their
monthly mortgage payments and are in forbearance. With the foreclosure moratorium still in place, homeowners aren't yet at risk of
losing their homes, but that possibility lingers. What should we be doing right now to stave off another foreclosure crisis?
Linda Killinger:
During the crisis in 2007, when it started to collapse, Kerry put together a $3 billion fund [at WaMu] to
help subprime borrowers stay in their homes. He lowered the payments, and he lowered the amount that was owed, so it was manageable
and they could stay in their home. I think that's a responsibility of banks to do that. It's going to be hard when the forbearance
goes away -- unless banks and organizations are willing to really write down the principal or lower the payments just to help people
a little bit more.
Kerry Killinger:
Over the long run you are far better off to do everything you can to keep somebody in a home, if they can
possibly afford it. And the last route you want to have to go through is foreclosure, because the costs are painful for everybody
involved. We always used to try to do anything possible to keep people into the homes as long as we possibly can, and I think that
is a very positive thing what the government and everyone did when COVID hit. Some of those solutions are very appropriate for the
short term when you've got a crisis going on, but I think over time they need to be brought back to a more normal environment in
which you will always have a small percentage of homes that will have to go through foreclosure. They were just the wrong home for
the wrong people at the wrong time.
People don't even think about that anymore, but home prices will fall again in some markets for some reason. Given the rapid
escalation we have seen in the last five years, especially in the last 12 months, these are unsustainable price increases that will
be subject to some kind of correction when interest rates start to return to more normal levels. Probably one of the more
controversial things I'll say here is if you assume that we're going to have about a 2% inflation rate and a GDP growing over the
long term at about 2% to 2.5%, then mortgage interest rates on 30-year fixed-rate mortgages should be more in the 4.5% to 5% range.
MW:
Do you think consumers are willing to stomach mortgage rates at that level, after so many years in which mortgage rates
have remained so low?
Kerry Killinger:
Look, all of us want to have the good times roll. Everybody wants to have asset prices forever going up
and the cost of financing to be next to nothing. That's something that a lot of people wish for. We're just putting the warnings out
that seldom do things go up forever. Right now you have borrowing costs substantially below the rate of inflation and way below
historic norms, and that's unlikely to last forever.
I don't know if it's a matter of whether the consumers like it or not, but equilibrium would be closer to 4.5% to 5% on long-term
mortgages. I just put out there that if that happens, for whatever reason, the affordability of housing will become much more
stressed and mortgage payments will grow. That will have a tendency to put downward pressure on home prices. I don't think we're
likely to repeat the problems that hit in 2008 because I think the Fed is smart enough now not to pull liquidity to a point that
causes a downward spiral. But you could certainly see a period over several years of some downward pressure on prices as
affordability becomes more difficult because of rising monthly mortgage payments.
'Right now you have borrowing costs substantially below the rate of inflation and way below historic norms, and that's
unlikely to last forever.'
-- Kerry Killinger
MW:
What else about the market and the economy right now is a source of concern to you?
Kerry Killinger:
I do think that the economy is both stabilized and now back into a strong growth mode, and I think we're
going to see very strong economic activity for the balance of this year and into next year. Inflation is picking up and will be
higher than what many think at this point. Businesses are telling me that they are having more price increases today than they have
had in the last decade. So I think the concern about inflation is real.
And these growing asset bubbles just continue to escalate to the point to where the assets are selling well above reasonable
estimates of intrinsic value. That always presents a certain amount of risk. And finally, we're seeing more and more speculative
products and speculators in the market -- not necessarily just in housing.
Look at certain parts of the stock market
DJIA,
-0.36%
SPX,
-0.40%
.
Look
at bitcoin
BTCUSD,
-4.31%
.
Look
at SPACs. Look at NFTs. I can just go through a litany of assets that have risen in price very, very dramatically. Whenever you have
a combination of rapidly rising price and increasing speculative activity, you have to raise the red flags. Are bubbles being
created here?
Linda Killinger:
Yes, and are pension plans buying some of those bubble products?
Kerry Killinger:
A fair bit of that build-up of buyers for those single-family homes are pension plans doing it directly to
have that asset category. Because with the Fed keeping interest rates artificially low, they can't afford to put into riskless
assets like Treasury securities. They have to keep searching out yields. One of them is increasingly into residential real estate.
Inflation fears already roiled the market this week with the Nasdaq falling nearly 2%, but
one hedge fund founder is sounding the alarm over a potential 20% collapse that could be
sparked by the Federal Reserve signaling an end to accommodative pandemic-era monetary policy
later this year.
Satori Fund founder Dan Niles recently told Yahoo Finance that this week's
hotter-than-anticipated inflation data coupled with other central banks around the world
already coming off their easy money policies will likely corner the Fed into tapering its
accommodative policies sooner than expected.
"If you've got food prices, energy prices, shelter prices moving up as rapidly as they are,
the Fed's not going to have any choice," he said, predicting that the Fed could signal the
beginning of a move to wind down its monthly $120 billion a month pace of asset purchases by
this summer. "They can say what they want, but this reminds me to some degree of them saying
back in 2007 that the subprime crisis was well contained. Obviously it wasn't."
For their part,
Fed officials have remained adamant that a rise in inflation is to be expected as a
transitory reality of the economy reopening from the pandemic lockdown. The latest print
from the Bureau of Labor Statistics out this week , however, may have spooked investors
when it showed consumer prices for the month of April rose at their fastest annual pace since
2008. That inflation metric, which is different than the Fed's
preferred Personal Consumption Expenditures (PCE) index , jumped to a 4.2% rise over the
last 12 months. The Fed has already signaled it would be comfortable staying accommodative even
if inflation in the recovery shoots past 2% as measured by its preferred metric.
In the US, this translates to a growth environment where GDP will be 3pp above its
pre-COVID-19 path by end-2022 and underlying core PCE inflation (adjusted for base effects)
rises above 2%Y from March 2022. The Fed, which is now aiming for inflation averaging 2%Y and
maximum employment, should remain accommodative. Our chief US economist Ellen Zentner expects
the Fed to signal its intention to taper asset purchases at the September FOMC meeting, to
announce it in March 2022 and to start tapering from April 2022 . On our forecasts, rate hikes
begin in 3Q23, after inflation remains at or above 2%Y for some time and the labour market
reaches maximum employment.
What are the risks to this story? Most obvious is the emergence of new COVID-19 variants
that resist vaccines. However, I have argued that the biggest threat to this cycle is an
overshoot in US core PCE inflation beyond the Fed's implicit 2.5%Y threshold – a serious
concern, in my view, which could emerge from mid-2022 onwards .
Portal 4 hours ago
LMFAO!!!
You sent manufacturing and industry to China.
There is no "red hot recovery.". Just a long descent into fascism and communist
poverty.
Newpuritan 4 hours ago
The "red hot recovery." they are hoping for is replacing all efficient energy production
with inefficient "green" energy. The costs will be astronomical but are hoped to offset the
Boomer generation retirement period.
Iskiab 2 hours ago (Edited)
Yea, all these forecasting models are garbage. They're all based on a faulty assumption
that trends continue so the growth we see now will continue, plus things will revert back to
the trend line. Junk in, junk out.
A more realistic assessment would be there was a bump from reopening, but costs have
increased. It will be impossible to get back to the old growth trend line, and expect the low
growth of the last 20 years to continue from hereon out. The stimulus will help a bit but not
much, most of the stimulus was misallocated.
JH2020 3 hours ago (Edited)
It's the sycophants of the Wall Street/government confidence game, dropping words that,
hopefully, lead to buying securities, not selling, though, perversely, any negative truths
result in the assumption there will be a new flood of free money, from the Fed, driving
margin debt even more vertical, such that one needs a second page for the chart, or a more
drastic log scale. (In this economy so red hot interests rates need to be kept near zero, for
the remainder of the century, and near daily reassurance the Fed will accommodate anything
and everything, whatsoever, anytime a sector gets some heartburn, or a red candlestick gets
too large.)
Red hot = FOMO bait.
The "red not" verbiage is comical, reminds me of Hollywood sycophants, that write reviews
of some pretend person, some degenerate nobody, "In an unparalleled display of performing
brilliance, in this worthy sequel to A Couple Hours of Brains Splattered All Over the Wall,
and which only proves his sheer genius, the way he flared his nostrils, while driving in the
chase scene, that went two times around the entire city perimeter, in the ongoing
lanes...".
ebworthen 4 hours ago
"Red hot global recovery"? ROFLMAO!
That isn't recovery, it is money printing, inflation, and rabid speculation.
hugin-o-munin 4 hours ago (Edited)
Who do these people think they can fool?
This was about the dumbest article by a bank in a long while. Pushing a contrarian lie too
hard reveals it quicker than keeping quiet. Someone should remind Morgan Stanley of this age
old truth. Real inflation is destroying the USD right now. Ignoring it and pretending
otherwise will only accelerate the fall into hyper inflation.
J J Pettigrew 3 hours ago
A little inflation is good for you.
What's a little? 2.5%? For ten years....a flat chart of 2.5% each year... .looks like
nothing happened....just 28% off the value of the dollar...thats all.
Sound of the Suburbs 2 hours ago
How does anything really work?
I don't know, I use neoclassical economics.
Everyone tries to kill growth by making the same mistakes as Japan.
Japan led the way and everyone followed.
At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
Why did they think private debt wouldn't be a problem after 2008?
Probably the same reason they didn't notice it building up before 2008.
The economics of globalisation has always had an Achilles' heel.
The 1920s roared with debt based consumption and speculation until it all tipped over into
the debt deflation of the Great Depression. No one realised the problems that were building
up in the economy as they used an economics that doesn't look at debt, neoclassical
economics.
Not considering private debt is the Achilles' heel of neoclassical economics.
That explains it.
"We cannot solve our problems with the same thinking we used when we created them." Albert
Einstein.
Who do you think you are?
This is what we are going to do, whether you like it or not.
He must be one of those populists.
Einstein was right of course, but you know what neoliberals are like.
Anyone that doesn't go along with their ideas must be a populist.
Sound of the Suburbs 2 hours ago (Edited) remove link
Not considering private debt is the Achilles' heel of neoclassical economics.
Weak analysis. The fundamental factor is the price for energy, not some trivia like used cars
and trucks. Teh second dot com bubble will deflate but it is unclear when and whether this is a
crash or gradual deplation of worthless junk stocks which enjoyed "profitless" IPOs.
With rising energy prices it is more difficult to keep interpreting high CPI numbers as
temporary. But like in the past the USA will fight the rise in energy prices tools and nail. With
the full power of their global neoliberal empire.
... prices for used cars and trucks jumped 10 per cent in April alone, accounting for a
large slice of the gains in the overall index.
"It looks like Wall Street is climbing the wall of worry," said Gregory Perdon, co-chief
investment officer at private bank Arbuthnot Latham. "The bears are constantly looking for
signs that the world is going to end. They come up with all the potential excuses. The reality
is that the only question that matters is whether the reopening is going OK or not.
... Notably, while 10-year US yields did rise on Wednesday after the inflation data release,
they did not hit new highs.
Inflation is back. The U.S. consumer-price index
surged to a 13-year high of 4.2% in April, official data showed Wednesday. The eurozone's
figure is a weaker 1.6%, but still a two-year high. The global bond market isn't panicking yet.
The pandemic led many distressed companies to slash prices in 2020. Investors always knew that,
as the economy reopened, some year-over-year increases would be huge.
The prices of most products
haven't changed much . CPI gyrations are mostly down to a few items particularly affected
by lockdowns and travel restrictions, such as airfares and restaurant prices, as well as
commodities. Excluding food and energy, U.S. inflation in April was just 3%.
... Over the past few decades, for example, CPI figures
have mostly been the results of a concatenation of "temporary" trends in different sectors
-- the costs of education and healthcare rose nonstop, while the prices of many goods
continuously fell. It was different in the 1970s, when an idiosyncratic squeeze in the supply
of oil fueled an inflationary spiral that pushed all costs up.
Investors Double Down on Stocks, Pushing Margin Debt to Record : Chasing bigger gains, some
have exposed themselves to potentially devastating losses through riskier plays, such as
concentrated positions
and trading options.
In my youth I worked as a very junior financial reporter and I have a continuing interest.
While markets are crashing around the world there is a commodities boom, particularly in
copper and critical minerals needed for green energy like cobalt, manganese, tin and rare
earths.
China was an exporter but is now the worlds biggest importer. These resources are actually
finite.
The markets are agog at the price of iron ore. While the US wastes trillions of borrowed
money and blood in the desert sands of the Middle East on behalf of the bandit state, China
builds and produces goods for export.
The US has lost the trade war, but no one ever wins a trade war. It's the last man
standing. Uncle Shmuel is looking punch drunk. While the tribal cabal running the US is drunk
with power.
Because the US has gone bankrupt and owes China the national debt the elite cabal seem
hell bent on war with China as an exit to the financial quagmire they have created.
Once upon a time last year, there was the EV startup hype-boom that found its way to the
SPAC hype-boom, and the two combined and generated miraculously swift and spectacular results;
and their collapse has been equally swift and spectacular.
And they're joined by the IPO hype-boom stocks, including the spectacularly hyped highflyers
that got shot down, such as Zoom (-49% from peak), Coinbase (-29%), or Airbnb (-35%), and
they're in turn joined by the ARK Innovation ETF (-34%). This whole thing has come unglued.
The EV SPAC boom-and-bust is reflected in the WOLF STREET EV SPAC Index, which has collapsed
by 57% since its peak on February 17. The index tracks seven EV-related companies that have
gone public via a merger with a SPAC: Nikola, QuantumScape (batteries for EVs), Canoo,
Lordstown Motors, Romeo Power (batteries for EVs), XL Fleet (EV drive systems for fleets), and
Lucid Motors. Since February 17, these seven stocks combined have shed $35 billion in value,
which they should have never had in the first place. Easy come, easy go, except when it's your
money (data via YCharts ):
...Ms. Wood's "disruptive innovation" jargon may be somewhat novel. What her investors are
experiencing isn't. Fund managers like Gerald Tsai in the 1960s who rode Polaroid and Xerox to
stardom or various dot-com visionaries in the late 1990s wound up doing poorly for clients who
discovered them after they became hotshots. The culprit is unrealistic expectations and
reversion to the mean for the bubbly sectors that got them there. Analyst Meb Faber points out
that not one of the five Morningstar "fund managers of the decade" through 2010 even managed to
beat the market in the next 10 years. The best of the bunch, Bruce Berkowitz's Fairholme Fund,
became the worst.
...As Peter Schiff put it, CPI is a lie . Grant used the
evolution of the toothbrush into its electric form as an example. How do you measure the clear
quality improvements in the toothbrush? The government uses hedonics to measure these changes,
but as Grant pointed out, this is "inexact and not really a science."
Grant believes that the economy can only tolerate 2.5% real rates. If that is breached, he
thinks the Fed will have to resort to yield-curve control. If it does actually try to shrink
its balance sheet and sell bonds, it will drive bond yields even higher. Fed bond-buying is the
only thing propping up the bond market right now.
In fact, the Fed is propping up the entire economy. There is a sense that the Fed will
always step in and save the markets. As a result, we have bubbles everywhere, from the stock
market, to real estate, to cryptocurrency.
"These are strange and oppressive markers of financial markets that have lost moorings of
valuation," Grant said.
I think the astounding complacency toward, or indifference of, the evident excesses in our
monetary and fiscal affairs I think the lack of concern about those things is perhaps the
most striking inflationary augur I know of."
Meanwhile, the Fed continues to create money. M1 annual growth is 350%; M2 is growing at
approximately 28%.
"Never before have we had monetary peacetime growth this fast," Grant said.
"Tell me who cares."
Grant said central bankers like Powell are guilty of hubris. They suffer from the delusion
that they can actually control everything. Grant called the Fed "un-self-aware."
Despite Jay Powell's credentials, he knows nothing about the past and believes he knows
everything about the future."
Grant talked about gold ,
saying it is an investment in "monetary disorder."
To me, gold isn't a hedge against monetary disorder. It's an investment in monetary
disorder, which is what we have. We have floating-rate currencies. We have manipulated
exchange rates. We have manipulated interest rates. When the cycle turns, people will want
gold and silver, and they will want something tangible ."
"If everyone sees it, is it still a bubble?" That was a great question I got over the
weekend. As a "contrarian" investor, it is usually when "everyone" is talking about an event;
it doesn't happen.
"To appreciate how widespread current concern about a bubble is, consider the accompanying
chart of data from Google Trends. It plots the relative frequency of Google searches based on
the term 'stock market bubble.' Notice that this frequency has recently jumped to a
far-higher level than at any other point over the last five years."
What Is A Bubble?
"My confidence is rising quite rapidly that this is, in fact, becoming the fourth 'real
McCoy' bubble of my investment career. The great bubbles can go on a long time and inflict a
lot of pain, but at least I think we know now that we're in one." – Jeremy Grantham
What is the definition of a bubble? According to Investopedia:
"A bubble is a market cycle that is characterized by the rapid escalation of market value,
particularly in the price of assets. Typically, what creates a bubble is a surge in asset
prices driven by exuberant market behavior. During a bubble, assets typically trade at a
price that greatly exceeds the asset's intrinsic value. Rather, the price does not align with
the fundamentals of the asset. "
This definition is suitable for our discussion; there are three components of a "bubble."
The first two,
price and valuation, are readily dismissed during the inflation phase. Jeremy Grantham once
produced the following chart of 40-years of price bubbles in the markets. During the inflation
phase, each was readily dismissed under the guise "this time is different."
We are interested in the "third" component of "bubbles," which is investor
psychology.
"It's the swings of psychology that get people into the biggest trouble. Especially since
investors' emotions invariably swing in the wrong direction at the wrong time. When things
are going well people become greedy and enthusiastic. When times are troubled, people become
fearful and reticent. That's just the wrong thing to do. It's important to control fear and
greed."
Currently, it's difficult for investors to become any more enthusiastic about market
returns. ( The RIAPro Fear/Greed Index
compiles measures of equity allocation and market sentiment. The index level is not a component
of the measure that runs from 0 to 100. The current reading is 99.9, which is a historical
record.)
Such is an interesting juxtaposition. On the one hand, there is a rising recognition of a
"bubble," but investors are unwilling to reduce "equity risk" for "fear of missing out or
F.O.M.O." Such was a point noted explicitly by Mark:
"Rather than responding by taking some chips off the table, however, many began freely
admitting a bubble formed. They no longer tried to justify higher prices on fundamentals.
Rather, they justified it instead in terms of the market's momentum. Prices should keep going
up as FOMO seduces more investors to jump on the bandwagon."
I know. The discussion of "valuations" is an old-fashioned idea relegated to investors of an
older era. Such was evident in the pushback on Charlie Munger's comments about Bitcoin
recently:
" While Munger has never been a bitcoin advocate, his dislike crystalized into something
close to hatred. Looking back over the past 52 weeks, the reason for Munger's anger becomes
apparent with Berkshire rising only 50.5% against bitcoin's more than 500% gain." –
Coindesk
In 1999, when Buffett spoke out against "Dot.com" stocks, he got dismissed with a similar
ire of "investing with Warren Buffett is like driving 'Dad's old Pontiac.'"
Today, young investors are not interested in the "pearls of wisdom" from experienced
investors. Today, they are "out of touch," with the market's "new reality."
"The big benefit of TikTok is it allows users to dole out and obtain information in short,
easily digestible video bites, also called TikToks. And that can make unfamiliar, complex
topics, such as personal finance and investing, more palatable to a younger audience.
That advice runs the gamut, from general information about home buying or retirement
savings to specific stock picks and investment ideas. Rob Shields, a 22-year-old, self-taught
options trader who has more than 163,000 followers on TikTok, posts TikToks under the
username stock_genius on topics such as popular stocks to watch, how to find good stocks, and
basic trading strategies." – WSJ:
Of course, the problem with information doled out by 22-year olds is they were 10-year olds
during the last "bear market." Given the lack of experience of investing during such a market,
as opposed to Warren Buffett who has survived several, is the eventual destruction of
capital.
Plenty Of Analogies
"There is no shortage of current analogies, of course. Take Dogecoin, created as a joke
with no fundamental value. As a
recent Wall Street Journal article outlined , the Dogecoin 'serves no purpose and, unlike
Bitcoin, faces no limit on the number of coins that exist.'
Yet investors flock to it, for no other apparent reason than its sharp rise. Billy Markus,
the co-creator of dogecoin, said to the Wall Street Journal, 'This is absurd. I haven't seen
anything like it. It's one of those things that once it starts going up, it might keep going
up.'" – Mark Hulbert
That exuberance shows up with professionals as well. As of the end of April, the National
Association Of Investment Managers asset allocation was 103%.
As Dana Lyons noted previously:
" Regardless of the investment acumen of any group (we think it is very high among NAAIM
members), once the collective investment opinion or posture becomes too one-sided, it can be
an indication that some market action may be necessary to correct such consensus. "
Give Me More
Of course, margin debt, which is the epitome of " speculative appetite," soared in recent
months.
As stated, "bubbles are about psychology," which the annual rate of change of leverage
shows.
Another form of leverage that doesn't show up in margin debt is ETF's structured to multiply
market returns. These funds have seen record inflows in recent months.
With margin debt reaching levels not seen since the peak of the last cyclical bull market
cycle, it should raise some concerns about sustainability. It is NOT the level of leverage that
is the problem as leverage increases buying power as markets are rising. The unwinding of this
leverage is critically dangerous in the market as the acceleration of "margin calls" leads to a
vicious downward spiral.
Importantly, this chart does not mean that a massive market correction is imminent. I t does
suggest that leverage, and speculative risk-taking, are likely much further advanced than
currently recognized.
Pushing Extremes
Prices are ultimately affected by physics. Moving averages, trend lines, etc., all exert a
gravitational pull on prices in both the short and long term. Like a rubber band, when prices
get stretched too far in one direction, they have always eventually "reverted to the mean" in
the most brutal of manners.
The chart below shows the long-term chart of the S&P 500 broken down by several
measures: 2 and 3-standard deviations, valuations, relative strength, and deviations from the
3-year moving average. It is worth noting that both standard deviations and distance from the
3-year moving average are at a record.
During the last 120-years, overvaluation and extreme deviations NEVER got resolved by
markets going sideways.
The only missing ingredient for such a correction currently is simply a catalyst to put
"fear" into an overly complacent marketplace. Anything from economic disruption, a
credit-related crisis, or an unexpected exogenous shock could start the "panic for the
exits."
Conclusion
There is more than adequate evidence a "bubble" exists in markets once again. However, as
Mark noted in his commentary:
'I have no idea whether the stock market is actually forming a bubble that's about to
break. But I do know that many bulls are fooling themselves when they think a bubble can't
happen when there is such widespread concern. In fact, one of the distinguishing
characteristics of a bubble is just that."
However, he concludes with the most important statement:
"It's important for all of us to be aware of this bubble psychology, but especially if
you're a retiree or a near-retiree. That's because, in that case, your investment horizon is
far shorter than for those who are younger. Therefore, you are less able to recover from the
deflation of a market bubble."
Read that statement again.
Millennials are quick to dismiss the "Boomers" in the financial markets today for "not
getting it."
No, we get it. We have just been around long enough to know how these things eventually
end.
Consumers are picking up on the rise of inflation, and the Fed, which has been trying to
heat up inflation, is pleased. The Fed watches "inflation expectations" carefully. The minutes
from the March FOMC meeting mention "inflation expectations" 12 times.
The New York Fed's Survey of Consumer
Expectations for April, released today, showed that median inflation expectations for one
year from now rose to 3.4%, matching the prior highs in 2013 (the surveys began in June
2013).
But wait the median earnings growth expectations 12 months from now was only 2.1%, and
remains near the low end of the spectrum, a sign that consumers are grappling with consumer
price inflation outrunning earnings growth. The whoppers were in the major specific
categories.
History repeats and the repetition is coming with some minor variations.
Notable quotes:
"... "Corporate bond rates have been rising steadily since May. Yellen is not doing what Greenspan did in 2004." ..."
"... There isn't much of a difference between signaling tighter money to a market that is skeptical of Fed forecasts and actually tightening. ..."
"... While at 5.0 percent, the unemployment rate is not extraordinarily high, most other measures of the labor market are near recession levels. The percentage of the workforce that is involuntarily working part-time is near the highs reached following the 2001 recession. The average and median duration of unemployment spells are also near recession highs. And the percentage of workers who feel confident enough to quit their jobs without another job lined up remains near the low points reached in 2002. ..."
"... While wage growth has edged up somewhat in recent months by some measures, it is still well below a rate that is consistent with the Fed's inflation target. Hourly wages have risen at a 2.7 percent rate over the last year. If there is just 1.5 percent productivity growth, this would be consistent with a rate of inflation of 1.2 percent. ..."
"... One positive point in today's action is the Fed's commitment in its statement to allow future rate hikes to be guided by the data, rather than locking in a path towards "normalization" as was effectively done in 2004. ..."
Washington, D.C.- Dean Baker, economist and a co-director of the Center for Economic and Policy Research (CEPR) issued the
following statement in response to the Federal Reserve's decision regarding interest rates:
"The Fed's decision to raise interest rates today is an unfortunate move in the wrong direction. In setting interest rate policy
the Fed must decide whether the economy is at risk of having too few or too many jobs, with the latter being determined by the
extent to which its current rate of job creation may lead to inflation. It is difficult to see how the evidence would lead the
Fed to conclude that the greater risk at the moment is too many jobs.
"While at 5.0 percent, the unemployment rate is not extraordinarily high, most other measures of the labor market are near
recession levels. The percentage of the workforce that is involuntarily working part-time is near the highs reached following
the 2001 recession. The average and median duration of unemployment spells are also near recession highs. And the percentage of
workers who feel confident enough to quit their jobs without another job lined up remains near the low points reached in 2002.
"If we look at employment rates rather than unemployment, the percentage of prime-age workers (ages 25-54) with jobs is still
down by almost three full percentage points from the pre-recession peak and by more than four full percentage points from the
peak hit in 2000. This does not look like a strong labor market.
"On the other side, there is virtually no basis for concerns about the risk of inflation in the current data. The most recent
data show that the core personal consumption expenditure deflator targeted by the Fed increased at just a 1.2 percent annual rate
over the last three months, down slightly from the 1.3 percent rate over the last year. This means that the Fed should be concerned
about being below its inflation target, not above it.
"While wage growth has edged up somewhat in recent months by some measures, it is still well below a rate that is consistent
with the Fed's inflation target. Hourly wages have risen at a 2.7 percent rate over the last year. If there is just 1.5 percent
productivity growth, this would be consistent with a rate of inflation of 1.2 percent.
"Furthermore, it is important to recognize that workers took a large hit to their wages in the downturn, with a shift of more
than four percentage points of national income from wages to profits. In principle, workers can restore their share of national
income (the equivalent of an 8 percent wage gain), but the Fed would have to be prepared to allow wage growth to substantially
outpace prices for a period of time. If the Fed acts to prevent workers from getting this bargaining power, it will effectively
lock in place this upward redistribution. Needless to say, workers at the middle and bottom of the wage distribution can expect
to see the biggest hit in this scenario.
"One positive point in today's action is the Fed's commitment in its statement to allow future rate hikes to be guided
by the data, rather than locking in a path towards "normalization" as was effectively done in 2004. If it is the case that
the economy is not strong enough to justify rate hikes, then the hike today may be the last one for some period of time. It will
be important for the Fed to carefully assess the data as it makes its decision on interest rates at future meetings.
"Recent economic data suggest that today's move was a mistake. Hopefully the Fed will not compound this mistake with more unwarranted
rate hikes in the future."
RC AKA Darryl, Ron said in reply to Peter K....
I like Dean Baker. Unlike the Fed, Dean Baker is a class warrior on the side of the wage class. He makes the point about the
path to normalization being critical that I have been discussing for quite a while. Let's hope this Fed knows better than Greenspan/Bernanke
in 2004-2006. THANKS!
likbez said in reply to RC AKA Darryl, Ron...
Very true !
pgl said in reply to RC AKA Darryl, Ron...
"Longer-term bond rates barely moved, showing that there was very little news." This interest rate rose from 4.45% to 5.46%
already. So the damage was already done:
"... This interest rate rose from 4.45% to 5.46% already..."
Exactly! Corporate bond rates have been rising steadily since May. Yellen is not doing what Greenspan did in 2004. Yellen's
Fed waited until the bond rate lifted off on its own (and maybe with some help from policy communications) before they raised
the FFR.
So far, there is no sign of their making a fatal error. They are not fighting class warfare for wage class either, but they
seem intent on not screwing the pooch in the way that Greenspan and Bernanke did. No double dip thank you and hold the nuts.
"... "It's just unbelievable that central banks are actively encouraging this." ..."
"... Good point. Many times we look at charts and say WTF but once you normalize to inflation, maybe this is not as bad as originally it appeared ..."
"... reminds me of an abusive husband telling his beaten wife, "See what you made me do!" ..."
"... Hussman says the right way to do that is to look at margin debt to GDP ration, which is a record. GDP is doubling rate is about every 20 years now at nominal 3.5% ..."
"... That description applies to most Wall Streeters and banksters, whose titanic egos are amazing given the fact that most are parasites that contribute less than a woodlouse to society. Still, I dread the coming US debt collapse discussed in this website, which I would term a debt explosion as all of the bubbles start to pop and so many debtors and former creditors (like lessors, banks, etc.) become publicly known to be legally insolvent. ..."
"... I have invested carefully but we will all lose much or most of our savings. ..."
"... It is very irritating to think of the trillions that the banksters' deceptively named, "Federal" Reserve has been transferring to its ultra-rich owners for decades. They will probably even avoid most taxation again. ..."
Exactly. It is way more scary than even Wolf's charts suggest because there are so many
layers of leverage stacked on top of each other.
People taking out margin debt on stock portfolios that they bought by re-mortgaging their
bubbled houses to buy stocks with record corporate debt, collaterised (if at all) with bubble
assets, at record valuations driven itself by leverage etc etc
It's just unbelievable that central banks are actively encouraging this.
The amount of margin debt is not a WTF amount if you use the prices-double each 11 year
rule of thumb.
This 11 year period is strikingly accurate if you take the price of the New York Times
since 1900 (I have a booklet with frontpages of each year and discovered this when looking at
the selling prices). Having said that, the current 800B is the same as the previous inflation corrected peaks
of 2009 and around 1999.
So yes, Wolf is 100% correct with the prediction on what is coming. It is just not a WTF
amount but a history-repeats-itself moment
"normalize to inflationary, maybe not as bad as originally it appeared"
I know what you mean, but then the (major) problem is that the inflation itself shouldn't be viewed as "normal". Kinda reminds me of a gvt program defending doubled budget over 8 yrs because of
"inflation" when in point of fact it is likely that G printing/policy has *created* the
inflation in the first place (to help fund the program now pointing at inflation).
Also, reminds me of an abusive husband telling his beaten wife, "See what you made me
do!"
Hussman says the right way to do that is to look at margin debt to GDP ration, which is a record. GDP is doubling rate is about
every 20 years now at nominal 3.5%
That description applies to most Wall Streeters and banksters, whose titanic egos are
amazing given the fact that most are parasites that contribute less than a woodlouse to
society. Still, I dread the coming US debt collapse discussed in this website, which I would
term a debt explosion as all of the bubbles start to pop and so many debtors and former
creditors (like lessors, banks, etc.) become publicly known to be legally insolvent.
It is unfortunate that it may happen at the worst possible time, when we face an adversary
worse and more powerful than the Soviet Union or Nazi Germany ever was. I have invested
carefully but we will all lose much or most of our savings.
It is very irritating to think of
the trillions that the banksters' deceptively named, "Federal" Reserve has been transferring
to its ultra-rich owners for decades. They will probably even avoid most taxation again.
I do not like to even think how many Americans will wind up. Remember the saying "There
but for the grace of god, go I." Many of us will be saying that a lot in the coming years if
we are very fortunate.
"Generalized Anxiety Disorder (GAD) is characterized by persistent and excessive worry
about a number of different things. People with GAD may anticipate disaster and may be overly
concerned [...]. Individuals with GAD find it difficult to control their worry. They may
worry more than seems warranted about actual events or may expect the worst even when there
is no apparent reason for concern."
Seems like the perfect profile for an [CIA] operative. ;)
"... The CPI is calculated by analyzing the price of a "basket of goods." The makeup of that basket has a big impact on the final CPI number. According to WolfStreet , 10.9% of the CPI is based on durable goods (computers, automobiles, appliances, etc.). Nondurable goods (primarily food and energy) make up 26.6% of CPI. Services account for the remaining 62.5% of the basket. This includes rent, healthcare, cellphone service etc.) ..."
"... The things the government includes and excludes from the basket can make a profound difference in that final CPI number. Back in 1998, the government significantly revised the CPI metrics. Even the Bureau of Labor Statistics (BLS) admitted the changes were "sweeping." ..."
"... In 1998, the BLS followed the recommendations of the Boskin Commission. It was appointed by the Senate in 1995. Initially called the "Advisory Commission to Study the Consumer Price Index," its job was to study possible bias in the computation of the CPI. Unsurprisingly, it determined that the index overstated inflation " by about 1.1% per year in 1996 and about 1.3% prior to 1996. The 1998 changes to CPI were meant to address this "issue." ..."
"... As Peter pointed out, there is a lot of geometric weighting, substitution and hedonics built into the calculation. The government can basically create an index that outputs whatever it wants. ..."
"... Peter said there is a bit of irony in government officials and central bankers constantly complaining about "not enough inflation." ..."
"... They're the ones that are cooking the books to pretend that inflation is lower than it really is. Because what they're really trying to do is get the go-ahead to produce more inflation, which is printing money." ..."
"... And there are other things that hide inflation. For instance, shrinking packaging so there is less product sold at the same price, or substituting lower quality ingredients, or requiring consumers to assemble items themselves. ..."
"... They find different ways to lower the quality and not increase the price, and I'm sure that the government is not picking up on any of that. If the quality improves, yeah, yeah, they calculate that. But they probably ignore all the circumstances where the quality is diminished." ..."
"... The bottom line is we can't trust CPI to tell us the truth about inflation. ..."
And we're seeing rising prices all over the place, from the grocery store to the gas station. Even
the government numbers flash
warning signs . But as Peter Schiff explains in this clip from an interview with Jay Martin, it's probably even worse than we
realize because the government cooks the numbers when it calculates CPI.
The monthly rises in CPI
through the first quarter show an upward trend. The CPI in January was up 0.3%. It was up 0.4% in February. And now it's up 0.6%
in March. That totals a 1.013% increase in Q1 alone. The question is does this really reflect the truth about inflation? Peter doesn't
think it does.
The government always makes changes to their methods of measuring things, whether it's GDP, or inflation, or unemployment.
And they always tweak the numbers to produce a better result as a report card. "
Imagine if students in a school had the ability to change the metrics by which they were graded or the methodology the teacher
used to calculate their grades.
Would it surprise anybody that all of a sudden they started getting more As and Bs and fewer Cs and Ds? The government always
wants to make the good stuff better, like economic growth, and the bad stuff better, like unemployment or inflation. So, they
want to find ways to make those numbers little and the good numbers big."
The CPI is calculated by analyzing
the price of a "basket of goods." The makeup of that basket has a big impact on the final CPI number. According to WolfStreet , 10.9%
of the CPI is based on durable goods (computers, automobiles, appliances, etc.). Nondurable goods (primarily food and energy) make
up 26.6% of CPI. Services account for the remaining 62.5% of the basket. This includes rent, healthcare, cellphone service etc.)
The things the government includes and excludes from the basket can make a profound difference in that final CPI number. Back in 1998, the government significantly revised the CPI metrics. Even
the Bureau of Labor Statistics
(BLS) admitted the changes were "sweeping."
According to the BLS, periodic changes to the CPI calculation are necessary because "consumers change their preferences or new
products and services emerge. During these occasions, the Bureau reexamines the CPI item structure, which is the classification scheme
of the CPI market basket. The item structure is a central feature of the CPI program and many CPI processes depend on it."
In 1998, the BLS followed the recommendations of the Boskin Commission. It was appointed by the Senate in 1995. Initially called
the "Advisory Commission to Study the Consumer Price Index," its job was to study possible bias in the computation of the CPI. Unsurprisingly,
it determined that the index overstated inflation " by about 1.1% per year in 1996 and about 1.3% prior to 1996. The 1998 changes
to CPI were meant to address this "issue."
As Peter pointed out, there is a lot of geometric weighting, substitution and hedonics built into the calculation. The government
can basically create an index that outputs whatever it wants.
I think this period of "Oh wow! We have low inflation!' It's not a coincidence that it followed this major revision into how
we calculate it."
Peter said there is a bit of irony in government officials and central bankers constantly complaining about "not enough inflation."
They're the ones that are cooking the books to pretend that inflation is lower than it really is. Because what they're really
trying to do is get the go-ahead to produce more inflation, which is printing money."
Peter said the CPI will never reveal the true extent of rising prices.
And there are other things that hide inflation. For instance, shrinking packaging so there is less product sold at the same price,
or substituting lower quality ingredients, or requiring consumers to assemble items themselves.
They find different ways to lower the quality and not increase the price, and I'm sure that the government is not picking up
on any of that. If the quality improves, yeah, yeah, they calculate that. But they probably ignore all the circumstances where
the quality is diminished."
The bottom line is we can't trust CPI to tell us the truth about inflation.
"... "In a highly inflationary environment, we like the auto parts space with its unique ability to pass-through higher costs to customers given the non-discretionary nature of the category," says Goldman Sachs analyst Kate McShane. "For instance, in 2019, telegraphed prices increases to offset cost pressures arising from tariffs provided an incremental benefit to same-store sales growth and most auto parts retailers cited between 150-300 basis points of tariff-related inflation." ..."
The investment thesis is pretty straightforward. With mobility across the country picking up (see chart below) as people get vaccinated,
cars will likely need more maintenance. That leaves auto parts retailers such as O'Reilly (
ORLY ), Genuine Parts Company (
GPC ), AutoZone (
AZO ) and Advance Auto Parts (
AAP ) in the enviable position of being able
to pass inflation in everything from tires to car wax on to consumers and then post strong profits.
"In a highly inflationary environment, we like the auto parts space with its unique ability to pass-through higher costs to
customers given the non-discretionary nature of the category," says Goldman Sachs analyst Kate McShane. "For instance, in 2019, telegraphed
prices increases to offset cost pressures arising from tariffs provided an incremental benefit to same-store sales growth and most
auto parts retailers cited between 150-300 basis points of tariff-related inflation."
McShane rounds out her bullish thesis on auto parts retailers by noting the main sector plays sport price-to-earnings multiples
below historical averages. Of the four aforementioned auto parts retailers, AutoZone has the lowest forward price-to-earnings multiple
of 18.7 times, according to Yahoo Finance
Plus data .
Mobility is back on the move higher as people get vaccinated for COVID-19.
As for which name McShane is most bullish on, that award goes to Advance Auto Parts in the wake of a recent analyst day. McShane
made the rare Wall Street move of upgrading her rating on Advance Auto Parts to Buy from Sell.
"Our double tier upgrade " from Sell to Buy " is predicated upon
(1) Advance Auto Parts improving profit and loss dynamics with 2-4% same-store sales per annum and 230-450 basis points of margin
expansion by 2023;
(2) cyclical recovery in do-it-for-me, where Advance Auto Parts has greater exposure vs peers;
(3) a finally improving do-it-yourself story as its new private label and loyalty program appears to be resonating with customers;
(4) improved capital allocation to shareholders;
(5) the ability of the auto parts space to pass-through inflation; and
(6) valuation that looks appealing vs history, especially in light of improving macro and company specific dynamics,"
Signs of inflation are picking up, with a mounting number of consumer-facing companies
warning in recent days that supply shortages and logistical logjams may force them to raise
prices.
Tight inventories of materials as varied as semiconductors, steel, lumber and cotton are
showing up in survey data, with manufacturers in Europe and the U.S. this week flagging record
backlogs and higher input prices as they scramble to replenish stockpiles and keep up with
accelerating consumer demand.
As commodities become increasingly expensive, whether faster inflation proves transitory --
or not -- is the biggest question for policy makers and markets. Rising prices and the
potential for a response from central banks topped the list of concerns for money managers
surveyed by Bank of America Corp.
Many economists and central bankers, from the Federal Reserve on down, maintain that price
gains are temporary and will be curbed by forces such as virus worries and unemployment.
Investors remain skeptical, with businesses including Nestle SA and Colgate-Palmolive Co.
already announcing they’ll need to raise prices.
U.S. Treasury Secretary Janet Yellen, a former Fed chair, entered the debate on Tuesday when
she ruffled markets with the observation that rates will likely rise as government spending
ramps up. She later clarified she was neither predicting nor recommending an increase.
The Bloomberg Commodity Spot Index, which tracks 23 raw materials, has risen to its highest
level in almost a decade. That has pushed a gauge of global manufacturing output prices to its
highest point since 2009, and U.S. producer prices to levels not seen since 2008, according to
data from JPMorgan Chase & Co. and IHS Markit. JPMorgan analysts also estimate non-food and
energy import prices in the biggest economies rose almost 4% in the first quarter, the most in
three years.
“Risk clearly leans to the upside in the current
environment,†said John Mothersole, pricing and purchasing research director at IHS
Markit. “The surge in commodity prices over the past year now guarantees
higher goods-price inflation this summer.â€
The epicenters of work-from-home show the biggest drops in office occupancy rates, according
to Kastle’s “Back to Work Barometer†at the
end of April: in San Francisco, the occupancy rate was at 14.8% of the pre-Pandemic level, in
New York City at 16.2%, and in San Jose at 18.0%.
... ... ...
A survey by Accenture of 400 North American financial-services companies found that 80% of
the executives would like for workers to spend four or five days in the office post-Pandemic.
Many of them think that working at home makes training younger employees more difficult and is
hurting company culture.
But employees are looking for flexibility, now that they have proven that they can be
productive at home.
“You’ve seen the senior executives sitting in their
office and there’s nobody behind them,†Laurie McGraw, head of
Accenture’s capital markets industry team in North America, told
Bloomberg . “And then you see the entry-level folks starved for
in-person interaction because they need to be coached on a more regular basis. And then
there’s the vast middle that’s content to be
home.â€
The work-from-home year 2020 generated record profits for banks, proving that work-from-home
can be managed, and many employees question the need to commute every day. According to Rob
Dicks, Accenture’s talent and organization head for capital markets,
employees are likely to push back against a full-time return.
Despite whatever executives would like, the reality of the cost-cutting aspects of working
from home has already set in. According to Accenture’s survey, of the same
executives:
Nearly two-thirds expect to cut their office footprint by 11% to 40% over the next nine
months.
Over half are planning to relocate employees to new lower-cost locations.
9% said they’ll close their headquarters in a major market.
Financial firms have been all over the place with their plans.
Goldman Sachs, in an internal memo seen by
Bloomberg , told its US employees that they should be prepared to report to the office by
June 14, according to an internal memo seen by Bloomberg.
Vanguard Group, which employs about 17,300 people, is planning a hybrid model for most of
its staff, with many employees able to work from home on Mondays and Fridays.
Bridgewater Associates is going for the hybrid model as well and will allow their employees
to work from home at least part of the time.
Deutsche Bank, which employs about 8,000 people in the US, is planning to let its staff work
from home for up to three days a week. Separately, the bank had said that it wanted to reduce
its office foot print to cut costs.
Deutsche Bank is offering “flexibility†as an inducement for
hiring and retention. A survey had found that 90% of its employees wanted the opportunity to
work from home at least part of the time after the Pandemic. Office space will be reconfigured
to accommodate the hybrid model.
JPMorgan Chase told its employees in a
memo to report back to the office by early July on a “consistent
rotational schedule†that would allow staff some flexibility.
Money managers who’ve spent the bulk of their careers profiting from
deflationary trends need to quickly switch gears or risk an “inflation
shock†to their portfolios, warns JPMorgan Chase & Co. chief global markets
strategist Marko Kolanovic.
“Many of today’s investment managers have never
experienced a rise in yields, commodities, value stocks, or inflation in any meaningful
way,†Kolanovic wrote in a report Wednesday. “A significant
shift of allocations towards growth, ESG and low volatility styles over the past decade, all of
which have negative correlation to inflation, left most portfolios vulnerable.â€
After staging a powerful rally since November amid vaccine rollouts and government stimulus,
bets tied to inflation -- rising Treasury yields, cyclical stocks and small-caps, to name a few
-- have taken pause in recent weeks. While that has sparked debate over how long the trend will
persist, Kolanovic urged clients to adjust to the new regime amid the reopening of the global
economy.
“Given the still high unemployment, and a decade of inflation undershoot,
central banks will likely tolerate higher inflation and see it as temporary,†he
wrote. “The question that matters the most is if asset managers will make a
significant change in allocations to express an increased probability of a more persistent
inflation.â€
The way Kolanovic sees it, as data continue to point to higher prices of goods and services,
investors will be forced to shift from low-volatility plays to value stocks, while increasing
allocations to direct inflation hedges such as commodities. That trend is likely to persist in
the second half of the year, he wrote.
Based on JPMorgan’s data, professional investors have yet to fully
embrace the reflation trade. Take equities, for instance. Both computer-driven traders and
hedge funds now hold stocks at levels below historical averages.
“Portfolio managers likely will not take chances and will reposition
portfolios,†Kolanovic wrote. “The interplay of low market
liquidity, systematic and macro/fundamental flows, the sheer size of financial assets that need
to be rotated or hedges for inflation put on, may cause outsized impact on inflationary and
reflationary themes over the next year.â€
And if it doesn't last after the stimmies are gone, dealers will sit on massively
overpriced collateral, which could get messy. By Wolf Richter for WOLF STREET .
This has been going on for months: Used-vehicle prices spiking from jaw-dropper to
jaw-dropper, and just when I thought prices couldn't possibly spike further, they do.
Prices of used vehicles that were sold at auctions around the US in April spiked by 8.3%
from March, by 20% year-to-date, by 54% from April 2020, and by 40% from April 2019, according
to the Used Vehicle Value Index released today by Manheim, the largest auto auction operator in
the US and a unit of Cox Automotive. All heck has broken loose in the used vehicle market:
The price spike has now completely blown by the prior record spike over the 13-month period
through September 2009, which included the cash-for-clunkers program that removed a whole
generation of serviceable older vehicles from the market.
Curiously, the St. Louis Fed says used car prices have been pretty much flat for the last
25 years. While the last year of data shows a notable jump in prices, it's apparently been
bludgeoned a little with some old fashioned hedonic quality adjustments.
I'll help you out since I've been covering this for years. So here is the correct link
that explains it all, new vehicle CPI and used vehicle CPI (which is what you cited), plus
"hedonic quality adjustments."
I can see how the supply for these auctions will be tight for some time given that
business travel and the resulting car rental usage is way down. In addition, I would expect a
lot of corporate car purchasing is down considerably as many sales reps have worked remotely
which stalled corporate car purchasing schedules.
Messrs. Levy and Bordo allude to the sharp drop in the velocity of M2 after the 2007-09
crisis. The actual decline is startling. In the first quarter of 2007 M2 velocity was 1.99, by
the first quarter of 2020 it had fallen almost continually to 1.38. In other words, the money
stock went from turning over twice a year to under 1.4 times a year. This is the primary reason
for the very low inflation over the period.
Because of the Covid lockdowns, M2 fell even further to 1.13 by the fourth quarter of 2020.
As the authors point out, conditions are much different today than in 2007-20 because of
boosted bank reserves, households with substantial savings ready to spend and commercial banks
in good shape and eager to lend. Unless an economy-wide lockdown occurs, these are very good
reasons to believe the velocity of money will increase significantly, just as the 27% surge in
M2 since the outbreak of the pandemic works its way through the economy.
This is a prescription for major inflation, perhaps 4%-5% in the next two years. When people
say "no way," I remind them that in the early 1980s hardly anyone believed that interest rates
would ever return to 1950s levels. While many individuals prefer to trend forecast, never
underestimate how inflation (and interest rates) can swing back and forth in ways that
amaze.
Em. Prof. Stephen Happel
Arizona State University
Tempe, Ariz.
Messrs. Levy and Bordo might have made an equally compelling case about the Fed being in
total denial about the more troubling risk: that its policies have been contributing to a
global asset-price and credit-market bubble.
By maintaining ultralow interest rates and by continuing to expand its balance by $120
billion a month, even when the economy could soon be overheating and U.S. equity valuations are
close to their all-time highs, the Fed risks further inflating the asset-price bubble. By so
doing, it is heightening the chances of a hard economic landing when the Fed is eventually
forced to slam on the monetary-policy brakes to meet its inflation objective.
Desmond Lachman
American Enterprise Institute
Washington
Why did the money supply hardly budge in 2008, whereas now it's steadily increasing? The
answer is that during the financial crisis the Fed conducted a radical experiment: It paid
banks not to lend. By design, quantitative easing shored up banks' balance sheets while
interest on excess reserves prevented the newly created money from circulating.
In March 2020, the Fed slashed interest on excess reserves from 1.60% to 0.10%. The benefits
of sitting on funds is much smaller, which is why lending has increased.
Messrs. Levy and Bordo emphasize structural factors in the U.S. economy, such as housing and
trade. These matter, but not nearly so much as policy. Inflationary pressures will continue if
the Fed's asset purchases increase the broader money supply. But this depends on whether the
Fed raises interest on excess reserves to prepandemic levels.
For better or worse, interest on excess reserves is now a crucial policy tool. We can't
understand inflation without it.
SUBSCRIBER 3 hours ago Yellen and the Fed are currently repeating one of the most disturbing
episodes of U.S. economic history. It happened during the 1940s following the conclusion of
WWII.
The Fed is riding a tiger by the tail and will likely have great difficulty extricating
itself from a torrid monetary experiment that is reaching its limits. The U.S. M4 money supply
rose an alarming 24% in March alone from a year earlier whereas M1 rose 37%. Notwithstanding
these shocking numbers the Fed continues to buy $120bn of bonds each month and the total amount
of money in circulation is exploding at an unprecedented 40% rate.
Professor William Barnett of the Center for Financial Stability in New York explained that
today's financial collusion between the Fed and the Treasury is much like the 1940s when the
Fed served as a fiscal agent for Democratic administrations. The chaotic aftermath? By mid-1947
the rate of inflation exceeded 17% per year - destroying low income households.
(Cont.)
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Yellen and the Fed are currently repeating one of the most disturbing episodes of U.S.
economic history. It happened during the 1940s following the conclusion of WWII.
The Fed is riding a tiger by the tail and will likely have great difficulty extricating
itself from a torrid monetary experiment that is reaching its limits. The U.S. M4 money
supply rose an alarming 24% in March alone from a year earlier whereas M1 rose 37%.
Notwithstanding these shocking numbers the Fed continues to buy $120bn of bonds each month
and the total amount of money in circulation is exploding at an unprecedented 40% rate.
Professor William Barnett of the Center for Financial Stability in New York explained that
today's financial collusion between the Fed and the Treasury is much like the 1940s when the
Fed served as a fiscal agent for Democratic administrations. The chaotic aftermath? By
mid-1947 the rate of inflation exceeded 17% per year - destroying low income households.
Yellen and the Fed are currently repeating one of the most disturbing episodes of U.S.
economic history. It happened during the 1940s following the conclusion of WWII.
The Fed is riding a tiger by the tail and will likely have great difficulty extricating
itself from a torrid monetary experiment that is reaching its limits. The U.S. M4 money
supply rose an alarming 24% in March alone from a year earlier whereas M1 rose 37%.
Notwithstanding these shocking numbers the Fed continues to buy $120bn of bonds each month
and the total amount of money in circulation is exploding at an unprecedented 40% rate.
Professor William Barnett of the Center for Financial Stability in New York explained
that today's financial collusion between the Fed and the Treasury is much like the 1940s
when the Fed served as a fiscal agent for Democratic administrations. The chaotic
aftermath? By mid-1947 the rate of inflation exceeded 17% per year - destroying low income
households.
Yellen and the Fed are currently repeating one of the most disturbing episodes of U.S.
economic history. It happened during the 1940s following the conclusion of WWII.
The Fed is riding a tiger by the tail and will likely have great difficulty
extricating itself from a torrid monetary experiment that is reaching its limits. The
U.S. M4 money supply rose an alarming 24% in March alone from a year earlier whereas M1
rose 37%. Notwithstanding these shocking numbers the Fed continues to buy $120bn of
bonds each month and the total amount of money in circulation is exploding at an
unprecedented 40% rate.
Professor William Barnett of the Center for Financial Stability in New York
explained that today's financial collusion between the Fed and the Treasury is much
like the 1940s when the Fed served as a fiscal agent for Democratic administrations.
The chaotic aftermath? By mid-1947 the rate of inflation exceeded 17% per year -
destroying low income households.
Yellen and the Fed are currently repeating one of the most disturbing episodes of
U.S. economic history. It happened during the 1940s following the conclusion of
WWII.
The Fed is riding a tiger by the tail and will likely have great difficulty
extricating itself from a torrid monetary experiment that is reaching its limits.
The U.S. M4 money supply rose an alarming 24% in March alone from a year earlier
whereas M1 rose 37%. Notwithstanding these shocking numbers the Fed continues to
buy $120bn of bonds each month and the total amount of money in circulation is
exploding at an unprecedented 40% rate.
Professor William Barnett of the Center for Financial Stability in New York
explained that today's financial collusion between the Fed and the Treasury is
much like the 1940s when the Fed served as a fiscal agent for Democratic
administrations. The chaotic aftermath? By mid-1947 the rate of inflation
exceeded 17% per year - destroying low income households.
President Biden and Secretary Yellen said this week there is no significant
inflation.
On May 7 of last year, the metric standard of lumber, 1,000 board feet was $360 .
Today it's $1,702 a record high. It broke $1,000 first time ever a month ago on
April 7.
That's a 70% increase in lumber in just the last 30 days.
Copper was $2.33 on May 7 of last year. Today, $4.76 a record high.
Steel Rebar was $3,768 on May 7 of last year. Today: $5,483 , record high. President Biden and Secretary Yellen said this week there is no significant inflation
.
Tell that to a builder, his subcontractors, and the buyer of a newly built home this
summer.
Food prices for Corn, Wheat, Soybeans, Rice, Milk, Coffee, Cocoa are up double digits in just
the last two months.
Vice President Harris ignored a question about inflation with her regular everyday cackle
laughing as she walked away.
We are in month four of this administration that prioritizes its war on the wind and the
weather.
Figures are from Yahoo Finance
President Biden and Secretary Yellen said this week there is no significant
inflation.
On May 7 of last year, the metric standard of lumber, 1,000 board feet was $360 .
Today it's $1,702 a record high. It broke $1,000 first time ever a month ago
on April 7.
That's a 70% increase in lumber in just the last 30 days.
Copper was $2.33 on May 7 of last year. Today, $4.76 a record high.
Steel Rebar was $3,768 on May 7 of last year. Today: $5,483 , record
high. President Biden and Secretary Yellen said this week there is no significant
inflation .
Tell that to a builder, his subcontractors, and the buyer of a newly built home this
summer.
Food prices for Corn, Wheat, Soybeans, Rice, Milk, Coffee, Cocoa are up double digits in
just the last two months.
Vice President Harris ignored a question about inflation with her regular everyday cackle
laughing as she walked away.
We are in month four of this administration that prioritizes its war on the wind and the
weather.
Figures are from Yahoo Finance
Not only is this not true, the evidence shows that bubbles are called in advance. In 1999,
the Wall Street Journal had 286 articles on bubbles. Here are a few of the titles,
"When the Bubble Bursts..."
"The Bubble Won't Burst"
"Bursting Mr. Geenspan's Bubble"
"Fed `Bubble' Policy: Watch, Don't Pop'"
"Fed Governor Meyer Counters Suggestions Of a Market Bubble"
Dogecoin is now valued at more than Ford.
Economics?
Lunacy is more like it.
This is just more proof that the dollars are becoming more worthless.
Whistling past the graveyard.
⏤But Yellen said yesterday: "I don't think there is going to be an inflationary problem.
Biden has proposed further substantial spending packages we would love to be enacted into
law."
There is no alternative to the thrust-lifting energy jet fuel provides.
Daily demand is about 6 million barrels a day, a third in the USA.
Price rise is nearing a third in just the last three months.
There is no stopping an airline's largest revenue, the cargo jet planes carry; passengers
above are incidental.
SUBSCRIBER 3 hours ago Some of this, especially the cryptocurrency talk, reminds me of the
1990s: We don't have profits, probably never will, but we have clicks. And that's what matters.
Like thumb_up 3 Reply reply Share link Report
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D
Some of this, especially the cryptocurrency talk, reminds me of the 1990s: We don't have
profits, probably never will, but we have clicks. And that's what matters.
Some of this, especially the cryptocurrency talk, reminds me of the 1990s: We don't have
profits, probably never will, but we have clicks. And that's what matters.
Some of this, especially the cryptocurrency talk, reminds me of the 1990s: We don't
have profits, probably never will, but we have clicks. And that's what matters.
Some of this, especially the cryptocurrency talk, reminds me of the 1990s: We
don't have profits, probably never will, but we have clicks. And that's what
matters.
Some of this, especially the cryptocurrency talk, reminds me of the
1990s: We don't have profits, probably never will, but we have clicks.
And that's what matters.
Some of this, especially the cryptocurrency talk, reminds me of
the 1990s: We don't have profits, probably never will, but we
have clicks. And that's what matters.
Some of this, especially the cryptocurrency talk,
reminds me of the 1990s: We don't have profits,
probably never will, but we have clicks. And that's
what matters.
Some of this, especially the
cryptocurrency talk, reminds me of
the 1990s: We don't have profits,
probably never will, but we have
clicks. And that's what matters.
Some of this,
especially the
cryptocurrency talk,
reminds me of the
1990s: We don't have
profits, probably
never will, but we
have clicks. And
that's what matters.
Some
of
this,
especially
the
cryptocurrency
talk,
reminds
me of
the
1990s:
We
don't
have
profits,
probably
never
will,
but
we
have
clicks.
And
that's
what
matters.
Some
of
this,
especially
the
cryptocurrency
talk,
reminds
me
of
the
1990s:
We
don't
have
profits,
probably
never
will,
but
we
have
clicks.
And
that's
what
matters.
Some
of
this,
especially
the
cryptocurrency
talk,
reminds
me
of
the
1990s:
We
don't
have
profits,
probably
never
will,
but
we
have
clicks.
And
that's
what
matters.
Some
of
this,
especially
the
cryptocurrency
talk,
reminds
me
of
the
1990s:
We
don't
have
profits,
probably
never
will,
but
we
have
clicks.
And
that's
what
matters.
"It's not the return on my money I'm concerned with, it's the return of my money that I'm
concerned with." Will Rogers, circa 1930. How easily we all forget.
V
"It's not the return on my money I'm concerned with, it's the return of my money that I'm
concerned with." Will Rogers, circa 1930. How easily we all forget.
V
"It's not the return on my money I'm concerned with, it's the return of my money that
I'm concerned with." Will Rogers, circa 1930. How easily we all forget.
V
"It's not the return on my money I'm concerned with, it's the return of my money
that I'm concerned with." Will Rogers, circa 1930. How easily we all forget.
V
"It's not the return on my money I'm concerned with, it's the return of
my money that I'm concerned with." Will Rogers, circa 1930. How easily we
all forget.
V
Everybody is afiad to say that this is another dot-com bubble which will eventually birst.
Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with cryptocurrencies as
the poster child of this mania. "The S&P 500 stock index now trades at about 22 times the
coming year's profits, according to FactSet, a level only exceeded at the peak of the dot-com
boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
An unprecedented fiscal and monetary stimulus led by the Federal Reserve
is fueling a new investor euphoria. Is this a new bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual
investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a result, the
10-year Treasury bond yield is well below inflation -- that is, real yields are deeply negative
-- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how do
they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields rise
one to 1.5 percentage points, he asked. " You could get a serious correction in asset
prices."
C
Everybody is afiad to say that this is another dot-com bubble which will eventually birst.
Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with cryptocurrencies
as the poster child of this mania. "The S&P 500 stock index now trades at about 22 times
the coming year's profits, according to FactSet, a level only exceeded at the peak of the
dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the Federal Reserve
is fueling a new investor euphoria. Is this a new bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual
investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a result, the
10-year Treasury bond yield is well below inflation -- that is, real yields are deeply negative
-- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how do
they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields rise
one to 1.5 percentage points, he asked. " You could get a serious correction in asset
prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen Tendencies of Democracy".
Describing the election / selection process of political leadership in America (more than one
hundred years ago), I was struck by "the certitude of the salary [provided by office] to the
great multitude who in every country either fail in life, or shrink from the conflicts which
the competitive system makes necessary, is very attractive; it soon converted the civil
service into what has been called "spoils"; that is, booty won by victories at the polls".
Roll forward one hundred years and we can only be in a worse spot: bigger, more complex
problems are being addressed by even less qualified individuals. The result is that when I go
to the grocery store now, I am paying 1.5x what I used to pay 2 years ago. And that is the
only inflation measure I trust.
Everybody is afiad to say that this is another dot-com bubble which will eventually birst.
Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with cryptocurrencies
as the poster child of this mania. "The S&P 500 stock index now trades at about 22 times
the coming year's profits, according to FactSet, a level only exceeded at the peak of the
dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the Federal Reserve
is fueling a new investor euphoria. Is this a new bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual
investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a result, the
10-year Treasury bond yield is well below inflation -- that is, real yields are deeply negative
-- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how do
they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields rise
one to 1.5 percentage points, he asked. " You could get a serious correction in asset
prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen Tendencies of Democracy".
Describing the election / selection process of political leadership in America (more than
one hundred years ago), I was struck by "the certitude of the salary [provided by office]
to the great multitude who in every country either fail in life, or shrink from the
conflicts which the competitive system makes necessary, is very attractive; it soon
converted the civil service into what has been called "spoils"; that is, booty won by
victories at the polls". Roll forward one hundred years and we can only be in a worse spot:
bigger, more complex problems are being addressed by even less qualified individuals. The
result is that when I go to the grocery store now, I am paying 1.5x what I used to pay 2
years ago. And that is the only inflation measure I trust.
Everybody is afiad to say that this is another dot-com bubble which will eventually
birst. Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with cryptocurrencies
as the poster child of this mania. "The S&P 500 stock index now trades at about 22 times
the coming year's profits, according to FactSet, a level only exceeded at the peak of the
dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the Federal
Reserve is fueling a new investor euphoria. Is this a new bubble? And when could it
burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the lowest rates on record.
Individual investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a result,
the 10-year Treasury bond yield is well below inflation -- that is, real yields are deeply
negative -- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how do
they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields
rise one to 1.5 percentage points, he asked. " You could get a serious correction in asset
prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen Tendencies of
Democracy". Describing the election / selection process of political leadership in
America (more than one hundred years ago), I was struck by "the certitude of the salary
[provided by office] to the great multitude who in every country either fail in life,
or shrink from the conflicts which the competitive system makes necessary, is very
attractive; it soon converted the civil service into what has been called "spoils";
that is, booty won by victories at the polls". Roll forward one hundred years and we
can only be in a worse spot: bigger, more complex problems are being addressed by even
less qualified individuals. The result is that when I go to the grocery store now, I am
paying 1.5x what I used to pay 2 years ago. And that is the only inflation measure I
trust.
Everybody is afiad to say that this is another dot-com bubble which will eventually
birst. Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with
cryptocurrencies as the poster child of this mania. "The S&P 500 stock index now
trades at about 22 times the coming year's profits, according to FactSet, a level only
exceeded at the peak of the dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the Federal
Reserve is fueling a new investor euphoria. Is this a new bubble? And when could it
burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to
their pre-financial crisis peak. Risky companies can borrow at the lowest rates on
record. Individual investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a
result, the 10-year Treasury bond yield is well below inflation -- that is, real yields
are deeply negative -- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot
readings on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how
do they reprice if the Fed has to tighten monetary policy to combat inflation and bond
yields rise one to 1.5 percentage points, he asked. " You could get a serious
correction in asset prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen Tendencies of
Democracy". Describing the election / selection process of political leadership
in America (more than one hundred years ago), I was struck by "the certitude of
the salary [provided by office] to the great multitude who in every country
either fail in life, or shrink from the conflicts which the competitive system
makes necessary, is very attractive; it soon converted the civil service into
what has been called "spoils"; that is, booty won by victories at the polls".
Roll forward one hundred years and we can only be in a worse spot: bigger, more
complex problems are being addressed by even less qualified individuals. The
result is that when I go to the grocery store now, I am paying 1.5x what I used
to pay 2 years ago. And that is the only inflation measure I trust.
Everybody is afiad to say that this is another dot-com bubble which will
eventually birst. Because after it burst there will be a lot of blood on the
floor.
But the current situation can be defined as a crazy financial mania with
cryptocurrencies as the poster child of this mania. "The S&P 500 stock index
now trades at about 22 times the coming year's profits, according to FactSet, a
level only exceeded at the peak of the dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the
Federal Reserve is fueling a new investor euphoria. Is this a new bubble? And when
could it burst?
To veterans of financial bubbles, there is plenty familiar about the present.
Stock valuations are their richest since the dot-com bubble in 2000. Home prices
are back to their pre-financial crisis peak. Risky companies can borrow at the
lowest rates on record. Individual investors are pouring money into green energy
and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital
commerce to fiscally greased growth that will likely be the strongest since 1983. .
..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a
result, the 10-year Treasury bond yield is well below inflation -- that is, real
yields are deeply negative -- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're
headed for sustained high inflation it's completely possible we'll have several
quarters of hot readings on inflation."
Since stocks' valuations are only justified if interest rates stay extremely
low, how do they reprice if the Fed has to tighten monetary policy to combat
inflation and bond yields rise one to 1.5 percentage points, he asked. " You
could get a serious correction in asset prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen
Tendencies of Democracy". Describing the election / selection process of
political leadership in America (more than one hundred years ago), I was
struck by "the certitude of the salary [provided by office] to the great
multitude who in every country either fail in life, or shrink from the
conflicts which the competitive system makes necessary, is very
attractive; it soon converted the civil service into what has been called
"spoils"; that is, booty won by victories at the polls". Roll forward one
hundred years and we can only be in a worse spot: bigger, more complex
problems are being addressed by even less qualified individuals. The
result is that when I go to the grocery store now, I am paying 1.5x what
I used to pay 2 years ago. And that is the only inflation measure I
trust.
Everybody is afiad to say that this is another dot-com bubble which
will eventually birst. Because after it burst there will be a lot of blood
on the floor.
But the current situation can be defined as a crazy financial mania
with cryptocurrencies as the poster child of this mania. "The S&P 500
stock index now trades at about 22 times the coming year's profits,
according to FactSet, a level only exceeded at the peak of the dot-com boom
in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall
Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by
the Federal Reserve is fueling a new investor euphoria. Is this a new
bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar about the
present. Stock valuations are their richest since the dot-com bubble in
2000. Home prices are back to their pre-financial crisis peak. Risky
companies can borrow at the lowest rates on record. Individual investors
are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital
commerce to fiscally greased growth that will likely be the strongest since
1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of
bonds. As a result, the 10-year Treasury bond yield is well below inflation
-- that is, real yields are deeply negative -- for only the second time in
40 years.
....Harvard University economist Jeremy Stein... "while I don't think
we're headed for sustained high inflation it's completely possible we'll
have several quarters of hot readings on inflation."
Since stocks' valuations are only justified if interest rates stay
extremely low, how do they reprice if the Fed has to tighten monetary
policy to combat inflation and bond yields rise one to 1.5 percentage
points, he asked. " You could get a serious correction in asset
prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s,
"Unforeseen Tendencies of Democracy". Describing the election /
selection process of political leadership in America (more than
one hundred years ago), I was struck by "the certitude of the
salary [provided by office] to the great multitude who in every
country either fail in life, or shrink from the conflicts which
the competitive system makes necessary, is very attractive; it
soon converted the civil service into what has been called
"spoils"; that is, booty won by victories at the polls". Roll
forward one hundred years and we can only be in a worse spot:
bigger, more complex problems are being addressed by even less
qualified individuals. The result is that when I go to the
grocery store now, I am paying 1.5x what I used to pay 2 years
ago. And that is the only inflation measure I trust.
Everybody is afiad to say that this is another dot-com bubble
which will eventually birst. Because after it burst there will be
a lot of blood on the floor.
But the current situation can be defined as a crazy financial
mania with cryptocurrencies as the poster child of this mania.
"The S&P 500 stock index now trades at about 22 times the
coming year's profits, according to FactSet, a level only
exceeded at the peak of the dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over
Wall Street.
May 8, 2021
An unprecedented fiscal and monetary
stimulus led by the Federal Reserve is fueling a new investor
euphoria. Is this a new bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar
about the present. Stock valuations are their richest since the
dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the
lowest rates on record. Individual investors are pouring money
into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances
in digital commerce to fiscally greased growth that will likely
be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of
dollars of bonds. As a result, the 10-year Treasury bond yield is
well below inflation -- that is, real yields are deeply negative
-- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I
don't think we're headed for sustained high inflation it's
completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates
stay extremely low, how do they reprice if the Fed has to tighten
monetary policy to combat inflation and bond yields rise one to
1.5 percentage points, he asked. " You could get a serious
correction in asset prices."
C Cam Dipalo
I was reading a book from the late 1800 early
1900s, "Unforeseen Tendencies of Democracy".
Describing the election / selection process of
political leadership in America (more than one
hundred years ago), I was struck by "the certitude
of the salary [provided by office] to the great
multitude who in every country either fail in life,
or shrink from the conflicts which the competitive
system makes necessary, is very attractive; it soon
converted the civil service into what has been
called "spoils"; that is, booty won by victories at
the polls". Roll forward one hundred years and we
can only be in a worse spot: bigger, more complex
problems are being addressed by even less qualified
individuals. The result is that when I go to the
grocery store now, I am paying 1.5x what I used to
pay 2 years ago. And that is the only inflation
measure I trust.
Everybody is afiad to say that this is another
dot-com bubble which will eventually birst. Because
after it burst there will be a lot of blood on the
floor.
But the current situation can be defined as a
crazy financial mania with cryptocurrencies as the
poster child of this mania. "The S&P 500 stock
index now trades at about 22 times the coming year's
profits, according to FactSet, a level only exceeded
at the peak of the dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management"
is all over Wall Street.
May 8, 2021
An unprecedented fiscal and
monetary stimulus led by the Federal Reserve is
fueling a new investor euphoria. Is this a new
bubble? And when could it burst?
To veterans of financial bubbles, there is plenty
familiar about the present. Stock valuations are
their richest since the dot-com bubble in 2000. Home
prices are back to their pre-financial crisis peak.
Risky companies can borrow at the lowest rates on
record. Individual investors are pouring money into
green energy and cryptocurrency.
This boom has some legitimate explanations, from
the advances in digital commerce to fiscally greased
growth that will likely be the strongest since 1983.
. ..
the Federal Reserve.... is buying hundreds of
billions of dollars of bonds. As a result, the
10-year Treasury bond yield is well below inflation
-- that is, real yields are deeply negative -- for
only the second time in 40 years.
....Harvard University economist Jeremy Stein...
"while I don't think we're headed for sustained high
inflation it's completely possible we'll have several
quarters of hot readings on inflation."
Since stocks' valuations are only justified if
interest rates stay extremely low, how do they
reprice if the Fed has to tighten monetary policy to
combat inflation and bond yields rise one to 1.5
percentage points, he asked. " You could get a
serious correction in asset prices."
C Cam Dipalo
I was reading a book from the late
1800 early 1900s, "Unforeseen
Tendencies of Democracy". Describing
the election / selection process of
political leadership in America (more
than one hundred years ago), I was
struck by "the certitude of the
salary [provided by office] to the
great multitude who in every country
either fail in life, or shrink from
the conflicts which the competitive
system makes necessary, is very
attractive; it soon converted the
civil service into what has been
called "spoils"; that is, booty won
by victories at the polls". Roll
forward one hundred years and we can
only be in a worse spot: bigger, more
complex problems are being addressed
by even less qualified individuals.
The result is that when I go to the
grocery store now, I am paying 1.5x
what I used to pay 2 years ago. And
that is the only inflation measure I
trust.
Everybody is afiad to say that this
is another dot-com bubble which will
eventually birst. Because after it
burst there will be a lot of blood on
the floor.
But the current situation can be
defined as a crazy financial mania with
cryptocurrencies as the poster child of
this mania. "The S&P 500 stock
index now trades at about 22 times the
coming year's profits, according to
FactSet, a level only exceeded at the
peak of the dot-com boom in 2000."
And the shadlow of "Long-Term
Capital Management" is all over Wall
Street.
May 8, 2021
An unprecedented
fiscal and monetary stimulus led by the
Federal Reserve is fueling a new
investor euphoria. Is this a new
bubble? And when could it burst?
To veterans of financial bubbles,
there is plenty familiar about the
present. Stock valuations are their
richest since the dot-com bubble in
2000. Home prices are back to their
pre-financial crisis peak. Risky
companies can borrow at the lowest
rates on record. Individual investors
are pouring money into green energy and
cryptocurrency.
This boom has some legitimate
explanations, from the advances in
digital commerce to fiscally greased
growth that will likely be the
strongest since 1983. . ..
the Federal Reserve.... is buying
hundreds of billions of dollars of
bonds. As a result, the 10-year
Treasury bond yield is well below
inflation -- that is, real yields are
deeply negative -- for only the second
time in 40 years.
....Harvard University economist
Jeremy Stein... "while I don't think
we're headed for sustained high
inflation it's completely possible
we'll have several quarters of hot
readings on inflation."
Since stocks' valuations are only
justified if interest rates stay
extremely low, how do they reprice if
the Fed has to tighten monetary policy
to combat inflation and bond yields
rise one to 1.5 percentage points, he
asked. " You could get a serious
correction in asset prices."
C Cam Dipalo
I was reading a book
from the late 1800
early 1900s,
"Unforeseen
Tendencies of
Democracy".
Describing the
election / selection
process of political
leadership in America
(more than one
hundred years ago), I
was struck by "the
certitude of the
salary [provided by
office] to the great
multitude who in
every country either
fail in life, or
shrink from the
conflicts which the
competitive system
makes necessary, is
very attractive; it
soon converted the
civil service into
what has been called
"spoils"; that is,
booty won by
victories at the
polls". Roll forward
one hundred years and
we can only be in a
worse spot: bigger,
more complex problems
are being addressed
by even less
qualified
individuals. The
result is that when I
go to the grocery
store now, I am
paying 1.5x what I
used to pay 2 years
ago. And that is the
only inflation
measure I trust.
Everybody is afiad
to say that this is
another dot-com bubble
which will eventually
birst. Because after it
burst there will be a
lot of blood on the
floor.
But the current
situation can be
defined as a crazy
financial mania with
cryptocurrencies as the
poster child of this
mania. "The S&P 500
stock index now trades
at about 22 times the
coming year's profits,
according to FactSet, a
level only exceeded at
the peak of the dot-com
boom in 2000."
And the shadlow of
"Long-Term Capital
Management" is all over
Wall Street.
May 8,
2021
An
unprecedented fiscal
and monetary stimulus
led by the Federal
Reserve is fueling a
new investor euphoria.
Is this a new bubble?
And when could it
burst?
To veterans of
financial bubbles,
there is plenty
familiar about the
present. Stock
valuations are their
richest since the
dot-com bubble in 2000.
Home prices are back to
their pre-financial
crisis peak. Risky
companies can borrow at
the lowest rates on
record. Individual
investors are pouring
money into green energy
and cryptocurrency.
This boom has some
legitimate
explanations, from the
advances in digital
commerce to fiscally
greased growth that
will likely be the
strongest since 1983. .
..
the Federal
Reserve.... is buying
hundreds of billions of
dollars of bonds. As a
result, the 10-year
Treasury bond yield is
well below inflation --
that is, real yields
are deeply negative --
for only the second
time in 40 years.
....Harvard
University economist
Jeremy Stein... "while
I don't think we're
headed for sustained
high inflation it's
completely possible
we'll have several
quarters of hot
readings on
inflation."
Since stocks'
valuations are only
justified if interest
rates stay extremely
low, how do they
reprice if the Fed has
to tighten monetary
policy to combat
inflation and bond
yields rise one to 1.5
percentage points, he
asked. " You could
get a serious
correction in asset
prices."
C Cam Dipalo
I was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I go
to
the
grocery
store
now,
I am
paying
1.5x
what
I
used
to
pay 2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
Everybody
is
afiad
to
say
that
this
is
another
dot-com
bubble
which
will
eventually
birst.
Because
after
it
burst
there
will
be a
lot
of
blood
on
the
floor.
But
the
current
situation
can
be
defined
as a
crazy
financial
mania
with
cryptocurrencies
as
the
poster
child
of
this
mania.
"The
S&P
500
stock
index
now
trades
at
about
22
times
the
coming
year's
profits,
according
to
FactSet,
a
level
only
exceeded
at
the
peak
of
the
dot-com
boom
in
2000."
And
the
shadlow
of
"Long-Term
Capital
Management"
is
all
over
Wall
Street.
May
8,
2021
An
unprecedented
fiscal
and
monetary
stimulus
led
by
the
Federal
Reserve
is
fueling
a new
investor
euphoria.
Is
this
a new
bubble?
And
when
could
it
burst?
To
veterans
of
financial
bubbles,
there
is
plenty
familiar
about
the
present.
Stock
valuations
are
their
richest
since
the
dot-com
bubble
in
2000.
Home
prices
are
back
to
their
pre-financial
crisis
peak.
Risky
companies
can
borrow
at
the
lowest
rates
on
record.
Individual
investors
are
pouring
money
into
green
energy
and
cryptocurrency.
This
boom
has
some
legitimate
explanations,
from
the
advances
in
digital
commerce
to
fiscally
greased
growth
that
will
likely
be
the
strongest
since
1983.
.
..
the
Federal
Reserve....
is
buying
hundreds
of
billions
of
dollars
of
bonds.
As a
result,
the
10-year
Treasury
bond
yield
is
well
below
inflation
--
that
is,
real
yields
are
deeply
negative
--
for
only
the
second
time
in 40
years.
....Harvard
University
economist
Jeremy
Stein...
"while
I
don't
think
we're
headed
for
sustained
high
inflation
it's
completely
possible
we'll
have
several
quarters
of
hot
readings
on
inflation."
Since
stocks'
valuations
are
only
justified
if
interest
rates
stay
extremely
low,
how
do
they
reprice
if
the
Fed
has
to
tighten
monetary
policy
to
combat
inflation
and
bond
yields
rise
one
to
1.5
percentage
points,
he
asked.
"
You
could
get a
serious
correction
in
asset
prices."
C
Cam
Dipalo
I
was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I
was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be
in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I
go
to
the
grocery
store
now,
I
am
paying
1.5x
what
I
used
to
pay
2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
Everybody
is
afiad
to
say
that
this
is
another
dot-com
bubble
which
will
eventually
birst.
Because
after
it
burst
there
will
be
a
lot
of
blood
on
the
floor.
But
the
current
situation
can
be
defined
as
a
crazy
financial
mania
with
cryptocurrencies
as
the
poster
child
of
this
mania.
"The
S&P
500
stock
index
now
trades
at
about
22
times
the
coming
year's
profits,
according
to
FactSet,
a
level
only
exceeded
at
the
peak
of
the
dot-com
boom
in
2000."
And
the
shadlow
of
"Long-Term
Capital
Management"
is
all
over
Wall
Street.
May
8,
2021
An
unprecedented
fiscal
and
monetary
stimulus
led
by
the
Federal
Reserve
is
fueling
a
new
investor
euphoria.
Is
this
a
new
bubble?
And
when
could
it
burst?
To
veterans
of
financial
bubbles,
there
is
plenty
familiar
about
the
present.
Stock
valuations
are
their
richest
since
the
dot-com
bubble
in
2000.
Home
prices
are
back
to
their
pre-financial
crisis
peak.
Risky
companies
can
borrow
at
the
lowest
rates
on
record.
Individual
investors
are
pouring
money
into
green
energy
and
cryptocurrency.
This
boom
has
some
legitimate
explanations,
from
the
advances
in
digital
commerce
to
fiscally
greased
growth
that
will
likely
be
the
strongest
since
1983.
.
..
the
Federal
Reserve....
is
buying
hundreds
of
billions
of
dollars
of
bonds.
As
a
result,
the
10-year
Treasury
bond
yield
is
well
below
inflation
--
that
is,
real
yields
are
deeply
negative
--
for
only
the
second
time
in
40
years.
....Harvard
University
economist
Jeremy
Stein...
"while
I
don't
think
we're
headed
for
sustained
high
inflation
it's
completely
possible
we'll
have
several
quarters
of
hot
readings
on
inflation."
Since
stocks'
valuations
are
only
justified
if
interest
rates
stay
extremely
low,
how
do
they
reprice
if
the
Fed
has
to
tighten
monetary
policy
to
combat
inflation
and
bond
yields
rise
one
to
1.5
percentage
points,
he
asked.
"
You
could
get
a
serious
correction
in
asset
prices."
C
Cam
Dipalo
I
was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I
was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be
in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I
go
to
the
grocery
store
now,
I
am
paying
1.5x
what
I
used
to
pay
2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
Everybody
is
afiad
to
say
that
this
is
another
dot-com
bubble
which
will
eventually
birst.
Because
after
it
burst
there
will
be
a
lot
of
blood
on
the
floor.
But
the
current
situation
can
be
defined
as
a
crazy
financial
mania
with
cryptocurrencies
as
the
poster
child
of
this
mania.
"The
S&P
500
stock
index
now
trades
at
about
22
times
the
coming
year's
profits,
according
to
FactSet,
a
level
only
exceeded
at
the
peak
of
the
dot-com
boom
in
2000."
And
the
shadlow
of
"Long-Term
Capital
Management"
is
all
over
Wall
Street.
May
8,
2021
An
unprecedented
fiscal
and
monetary
stimulus
led
by
the
Federal
Reserve
is
fueling
a
new
investor
euphoria.
Is
this
a
new
bubble?
And
when
could
it
burst?
To
veterans
of
financial
bubbles,
there
is
plenty
familiar
about
the
present.
Stock
valuations
are
their
richest
since
the
dot-com
bubble
in
2000.
Home
prices
are
back
to
their
pre-financial
crisis
peak.
Risky
companies
can
borrow
at
the
lowest
rates
on
record.
Individual
investors
are
pouring
money
into
green
energy
and
cryptocurrency.
This
boom
has
some
legitimate
explanations,
from
the
advances
in
digital
commerce
to
fiscally
greased
growth
that
will
likely
be
the
strongest
since
1983.
.
..
the
Federal
Reserve....
is
buying
hundreds
of
billions
of
dollars
of
bonds.
As
a
result,
the
10-year
Treasury
bond
yield
is
well
below
inflation
--
that
is,
real
yields
are
deeply
negative
--
for
only
the
second
time
in
40
years.
....Harvard
University
economist
Jeremy
Stein...
"while
I
don't
think
we're
headed
for
sustained
high
inflation
it's
completely
possible
we'll
have
several
quarters
of
hot
readings
on
inflation."
Since
stocks'
valuations
are
only
justified
if
interest
rates
stay
extremely
low,
how
do
they
reprice
if
the
Fed
has
to
tighten
monetary
policy
to
combat
inflation
and
bond
yields
rise
one
to
1.5
percentage
points,
he
asked.
"
You
could
get
a
serious
correction
in
asset
prices."
C
Cam
Dipalo
I
was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I
was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be
in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I
go
to
the
grocery
store
now,
I
am
paying
1.5x
what
I
used
to
pay
2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
Everybody
is
afiad
to
say
that
this
is
another
dot-com
bubble
which
will
eventually
birst.
Because
after
it
burst
there
will
be
a
lot
of
blood
on
the
floor.
But
the
current
situation
can
be
defined
as
a
crazy
financial
mania
with
cryptocurrencies
as
the
poster
child
of
this
mania.
"The
S&P
500
stock
index
now
trades
at
about
22
times
the
coming
year's
profits,
according
to
FactSet,
a
level
only
exceeded
at
the
peak
of
the
dot-com
boom
in
2000."
And
the
shadlow
of
"Long-Term
Capital
Management"
is
all
over
Wall
Street.
May
8,
2021
An
unprecedented
fiscal
and
monetary
stimulus
led
by
the
Federal
Reserve
is
fueling
a
new
investor
euphoria.
Is
this
a
new
bubble?
And
when
could
it
burst?
To
veterans
of
financial
bubbles,
there
is
plenty
familiar
about
the
present.
Stock
valuations
are
their
richest
since
the
dot-com
bubble
in
2000.
Home
prices
are
back
to
their
pre-financial
crisis
peak.
Risky
companies
can
borrow
at
the
lowest
rates
on
record.
Individual
investors
are
pouring
money
into
green
energy
and
cryptocurrency.
This
boom
has
some
legitimate
explanations,
from
the
advances
in
digital
commerce
to
fiscally
greased
growth
that
will
likely
be
the
strongest
since
1983.
.
..
the
Federal
Reserve....
is
buying
hundreds
of
billions
of
dollars
of
bonds.
As
a
result,
the
10-year
Treasury
bond
yield
is
well
below
inflation
--
that
is,
real
yields
are
deeply
negative
--
for
only
the
second
time
in
40
years.
....Harvard
University
economist
Jeremy
Stein...
"while
I
don't
think
we're
headed
for
sustained
high
inflation
it's
completely
possible
we'll
have
several
quarters
of
hot
readings
on
inflation."
Since
stocks'
valuations
are
only
justified
if
interest
rates
stay
extremely
low,
how
do
they
reprice
if
the
Fed
has
to
tighten
monetary
policy
to
combat
inflation
and
bond
yields
rise
one
to
1.5
percentage
points,
he
asked.
"
You
could
get
a
serious
correction
in
asset
prices."
C
Cam
Dipalo
I
was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I
was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be
in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I
go
to
the
grocery
store
now,
I
am
paying
1.5x
what
I
used
to
pay
2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
The 10-year US Treasury yield fell to only 0.48% in March 2020, when deflationary fears were
mounting. The S&P 500 index had fallen by 32% in just five weeks as China's covid crisis
was followed by the prospect of other jurisdictions going into pandemic lockdowns. Commodity
prices were collapsing. The Fed then did what it always does in these conditions. It cut
interest rates to the minimum possible (zero this time) and it flooded markets with money
($120bn in QE every month) along with some other market fixes to cap corporate bond yields from
rising to reflect lending risks.
Fuelling it all is the expansion of base money by central banks. The St Louis Fed's FRED
chart below showing the Fed's monetary base illustrates the point and is a proxy for the global
picture, because the dollar is the reserve currency and the pricing medium for all
commodities.
From the beginning of March 2020, which was the month the Fed announced virtually unlimited
monetary expansion, base money has grown by 69%. It is this rapid growth in central bank money
which is undoubtedly behind rising commodity prices, or put more accurately, is why the
purchasing power of the dollar in international markets is falling.
When the outlook for the purchasing power of a fiat currency falls, all holders expect
compensation in the form of higher interest rates. Partly, it is due to time preference -- the
fact that an owner of the currency has parted with the use of it for a period of time. And
partly it is due to the expectation that when returned, the currency will buy less than it does
today. Official forecasts of the CPI state that the dollar's purchasing power will probably
sink to 97.5 cents on the dollar, then the yield on the ten-year UST should be at least 2.56%
(2.5%/0.97), otherwise new buyers face immediate losses. The official expectation that the rise
in the rate of price inflation will be temporary is immaterial to an investment decision today,
because the yield can be expected to evolve over time in the light of events.
This is before adding something to the yield for time preference (admittedly minimal in a
freely traded bond), plus something for currency risk relative to an investor's base currency
and plus something for creditor risk. Stripped of these other considerations, on the basis of
expected inflation alone a current yield of 1.61 appears to be far too low, and a yield target
of at minimum of 2.5% appears more appropriate.
ay_arrow
FinsterF 14 hours ago
Will increase??? Inflation is already much higher than 2% or whatever the latest
government figures imply. Price inflation first shows up in real time data like stock and
commodity prices. It only later shows up in broad consumer prices. Not to mention that year
over year data already average six months late.
And this on top of tricks like homeowners equivalent rent and hedonic adjustments. So
official inflation stats both systematically understate and lag actual inflation.
HorseBuggy 19 hours ago
As long as you print money you could keep this market going higher and higher regardless
of any reality.
philipat 14 hours ago
As much as I enjoy reading Alasdair's work, he's wrong about Bond Yields because there IS
NO RECOVERY. The latest BLS jobs report started to indicate that despite all the "stimulus"
the underlying economy is very weak, and that isn't due to the excuse of Covid. From the
data, the global economy started turning down in 4Q2108. This became more obvious in 3Q2019
with the REPO crisis. All before Covid.
The Bond markets almost always get it right and, as of now, Bond yields are falling as
also are Eurodollar Futures, suggesting that for once Powell is right, any inflation is
indeed transitory.
The good news for Alasdair is that for the last 3 years, Gold has been a precise mirror
image of Bond REAL yields so as Real Yields now fall further negative again, Gold should
respond to the upside - as already being seen.
Sound of the Suburbs 13 hours ago
Why is neoclassical economics so dangerous to the financial system?
We never did learn as much as we should have done from 1929.
Neoclassical economics produces ponzi schemes of inflated prices.
When they collapse it feeds back into the financial system.
Neoclassical economics still has its 1920's problems.
What's wrong with neoclassical economics?
It makes you think you are creating wealth by inflating asset prices
Bank credit flows into inflating asset prices, debt rises faster than GDP and you
eventually get a financial crisis.
No one notices the private debt building up in the economy as neoclassical economics
doesn't consider debt.
What is the fundamental flaw in the free market theory of neoclassical economics?
The University of Chicago worked that out in the 1930s after last time.
Banks can inflate asset prices with the money they create from bank loans.
Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability
to create money.
"Simons envisioned banks that would have a choice of two types of holdings: long-term
bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw
this as beneficial in that its ultimate consequences would be the prevention of
"bank-financed inflation of securities and real estate" through the leveraged creation of
secondary forms of money."
Existing financial assets, e.g. real estate, stocks and other financial assets, are traded
and bank credit is used to fund the transfers. This inflates the price.
You end up with a ponzi scheme of inflated asset prices that will collapse and feed back
into the financial system.
At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
The use of neoclassical economics and the belief in free markets, made them think that
inflated asset prices represented real wealth.
1929 – Wakey, wakey time
Why did it cause the US financial system to collapse in 1929?
Bankers get to create money out of nothing, through bank loans, and get to charge interest
on it.
Bankers do need to ensure the vast majority of that money gets paid back, and this is
where they get into serious trouble.
Banking requires prudent lending.
If someone can't repay a loan, they need to repossess that asset and sell it to recoup
that money. If they use bank loans to inflate asset prices they get into a world of trouble
when those asset prices collapse.
As the real estate and stock market collapsed the banks became insolvent as their assets
didn't cover their liabilities.
They could no longer repossess and sell those assets to cover the outstanding loans and
they do need to get most of the money they lend out back again to balance their books.
The banks become insolvent and collapsed, along with the US economy.
When banks have been lending to inflate asset prices the financial system is in a
precarious state and can easily collapse.
What was the ponzi scheme of inflated asset prices that collapsed in Japan in 1991?
Japanese real estate.
They avoided a Great Depression by saving the banks.
They killed growth for the next 30 years by leaving the debt in place.
What was the ponzi scheme of inflated asset prices that collapsed in 2008?
"It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of
$1.4 trillion of US sub-prime loans, and dispersed throughout the world" All the Presidents
Bankers, Nomi Prins.
They avoided a Great Depression by saving the banks.
They left Western economies struggling by leaving the debt in place, just like Japan.
It's not as bad as Japan as we didn't let asset prices crash in the West, but it is this
problem has made our economies so sluggish since 2008.
The last lamb to the slaughter, India
They had created a ponzi scheme of inflated asset prices in real estate, but it
collapsed.
"This Time is Different" by Reinhart and Rogoff has a graph showing the same thing (Figure
13.1 - The proportion of countries with banking crises, 1900-2008).
Neoclassical economics came back and so did the financial crises.
The neoliberals removed the regulations that created financial stability in the Keynesian
era and put independent central banks in charge of financial stability.
Why does it go so wrong?
Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion from
2001 – 2007 and knew there was going to be a financial crisis.
Richard Vague has looked at the data for financial crises going back 200 years and found
the cause was nearly always runaway bank lending.
We put central bankers in charge of financial stability, but they use an economics that
ignores the main cause of financial crises, private debt.
Most of the problems are coming from private debt.
The technocrats use an economics that ignores private debt.
The poor old technocrats don't really stand a chance.
In 2008 the Queen visited the revered economists of the LSE and said "If these things were
so large, how come everyone missed it?"
It's that neoclassical economics they use Ma'am, it doesn't consider private debt.
One of the biggest risks to U.S. recovery is the difficulty aroun...
U.S. job growth significantly undershot forecasts in April, suggesting that difficulty
attracting workers is slowing momentum in the labor market and challenging the economic
recovery.
Payrolls rose 266,000 from a month earlier, according to a Labor Department report Friday
that represented one of the largest downside misses on record. Economists in a Bloomberg survey
projected a 1 million hiring surge in April.
The unemployment rate edged up to 6.1 per cent, though the labor-force participation rate
also increased.
... The disappointing payrolls print leaves overall employment more than 8 million short of
its pre-pandemic level and is consistent with recent comments from company officials
highlighting challenges in filling open positions.
... While job gains accelerated in leisure and hospitality, employment at temporary-help
agencies and transportation and warehousing declined sharply.
...
Labor force participation, a measure of the percentage of Americans either working or
looking for work, rose to 61.7 per cent in April from 61.5 per cent, likely supported by
increased vaccinations that helped fuel the reopenings of many retail establishments,
restaurants and leisure-facing businesses.
Average weekly hours increased to match the highest in records dating back to 2006. The gain
in the workweek, increased pay and the improvement in hiring helped boost aggregate weekly
payrolls 1.2 per cent in April after a 1.3 per cent gain a month earlier.
Workforce participation for men age 25 to 54 increased last month, while edging lower for
women.
Goldman Sachs Group Inc. and bond titan Pacific Investment Management Co. have a simple
message for Treasuries traders fretting over inflation: Relax.
The firms estimate that bond traders who are pricing in annual inflation approaching 3% over
the next handful of years are overstating the pressures bubbling up as the U.S. economy
rebounds from the pandemic.
...the overshoot could be as large as 0.2-to-0.3 percentage point. That gap makes a
difference with key market proxies of inflation expectations for the coming few years surging
this week to the highest in more than a decade. The 10-year measure, perhaps the most closely
followed, eclipsed 2.5% Friday for the first time since 2013, even after unexpectedly weak U.S.
jobs data.
There's at least one market metric that backs up the view that the pressures, which have
been building for months, aren't about to get out of hand and may even prove temporary. A swaps
instrument that reflects the annual inflation rate for the second half of the next decade has
been relatively stable in recent months.
...The Federal Reserve has been hammering home that it sees any spike in price pressures as
likely short-lived, and that it's willing to let inflation run above target for a period as the
economy revives.
... ... ...
... Inflation worries have been mounting against a backdrop of soaring commodities prices --
copper, for example, set a record high Friday. It's all happening as lawmakers in Washington
debate another massive fiscal-stimulus package.
...
Korapaty calls the outlook for inflation "benign." His view is that the market is overly
optimistic with its inflation assumptions, with the greatest mismatch to be found on the three-
and five-year horizon. At roughly 2.75% and 2.7%, respectively, those rates are around 20 to 30
basis points higher than they should be, in his estimate.
... ... ...
...Treasury Secretary Janet Yellen stirred markets by saying interest rates will likely rise
as government spending swells and the economy achieves faster growth. She walked back the
remarks hours later.
... "Because we think front-end rates are pricing in a more aggressive Fed path than we
believe, we do like shorter-dated nominal bonds, and think there's value there," she said.
...retail investors have been net buyers of stocks for 10 straight weeks, hedge funds have
been sellers, client data from BofA Global Research showed, with the four-week average of net
sales of equities by hedge funds hitting their highest levels since the firm began tracking the
data in 2008.
Just yesterday,
we showed that only a few quarters after banks effectively shut down, refusing to give out
C&I, credit card or auto loans and mortgages to virtually anyone as a result of record
Draconian credit standards, credit standards saw a complete U-turn and as of April, lending
standards for credit cards and autos were the loosest on record.
This was not lost on US consumers who after suffering through a miserable 12 months in which
they dutifully repaid their credit card debt like total idiots who acted responsibly (instead
of doing what US corporations are doing and loading up on even more debt to ensure they all get
bailed out during the next crisis), in March aggregate consumer credit surged by $25.8BN,
smashing expectations for the 2nd month in a row (
as a reminder February was the biggest beat on record ) and barely slowing down from last
month's massive $26.1BN increase.
... non-revolving credit - i.e., student and auto loans - continued its relentless ramp
higher, increasing by $19.4BN in March, the most since June of 2020...
Just a Little Froth in the Market 10 minutes ago
"Americans are once again highly confident about the future, and are spending far beyond
their means, as they always tend to do."
Ah no, they are using credit cards because they have no real money. Asinine article.
Archimedes bathwater PREMIUM 7 minutes ago
If Americans use their credit cards for the same stuff as last year, but everything costs
20% more, is that also called an explosion in consumer credit? MOAR WINNING??!
nsurf9 8 minutes ago (Edited) remove link
Well, the average revolving credit card rate is only 16%.
brian91145 12 minutes ago
lol so no one is working and everyone is using credit cards? Sounds like a great
economy!
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias, Panics and
Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because you can
justify a wide range of valuations," says Robin Greenwood, a Harvard Business School professor
who has studied bubbles. He says another classic example was a 1920s boom in closed-end funds,
investment portfolios that trade on an exchange. Before the 1929 stock crash, issuance of
closed-end funds soared and the prices on the funds raced ahead of the underlying values of
their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert Knight,
who helped cook the books of the South Sea Company, fled England and landed in an Antwerp
prison for a time. Then there was Bernie Madoff, who cooked up his own investment Ponzi scheme
that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in borrowing.
"Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped fuel
mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than doubled from
$8.7 trillion to $18 trillion; among households it doubled from $7.2 trillion to $14.1
trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more slowly
than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion, from $13.6
trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can exist (first
red flag of many). It was created as a joke. Yet people are buying for one reason and one
reason only: They think someone will come behind them and pay even more. Until that stops
happening the sky is the limit. If this is not a sign of the bubble I do not knw what
is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias, Panics and
Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because you can
justify a wide range of valuations," says Robin Greenwood, a Harvard Business School professor
who has studied bubbles. He says another classic example was a 1920s boom in closed-end funds,
investment portfolios that trade on an exchange. Before the 1929 stock crash, issuance of
closed-end funds soared and the prices on the funds raced ahead of the underlying values of
their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert Knight,
who helped cook the books of the South Sea Company, fled England and landed in an Antwerp
prison for a time. Then there was Bernie Madoff, who cooked up his own investment Ponzi scheme
that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in borrowing.
"Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped fuel
mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than doubled from
$8.7 trillion to $18 trillion; among households it doubled from $7.2 trillion to $14.1
trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more slowly
than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion, from $13.6
trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy returns (dot-com stocks
in the 90s, housing in the 2000s), it always ended with a crash. I got that feeling with
crypto currency. I know to resist the urge. I did.
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can exist (first
red flag of many). It was created as a joke. Yet people are buying for one reason and one
reason only: They think someone will come behind them and pay even more. Until that stops
happening the sky is the limit. If this is not a sign of the bubble I do not knw what
is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias, Panics and
Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because you can
justify a wide range of valuations," says Robin Greenwood, a Harvard Business School professor
who has studied bubbles. He says another classic example was a 1920s boom in closed-end funds,
investment portfolios that trade on an exchange. Before the 1929 stock crash, issuance of
closed-end funds soared and the prices on the funds raced ahead of the underlying values of
their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert Knight,
who helped cook the books of the South Sea Company, fled England and landed in an Antwerp
prison for a time. Then there was Bernie Madoff, who cooked up his own investment Ponzi scheme
that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in borrowing.
"Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped fuel
mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than doubled from
$8.7 trillion to $18 trillion; among households it doubled from $7.2 trillion to $14.1
trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more slowly
than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion, from $13.6
trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy returns (dot-com
stocks in the 90s, housing in the 2000s), it always ended with a crash. I got that feeling
with crypto currency. I know to resist the urge. I did.
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can exist
(first red flag of many). It was created as a joke. Yet people are buying for one reason and
one reason only: They think someone will come behind them and pay even more. Until that stops
happening the sky is the limit. If this is not a sign of the bubble I do not knw what
is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias, Panics
and Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because you
can justify a wide range of valuations," says Robin Greenwood, a Harvard Business School
professor who has studied bubbles. He says another classic example was a 1920s boom in
closed-end funds, investment portfolios that trade on an exchange. Before the 1929 stock
crash, issuance of closed-end funds soared and the prices on the funds raced ahead of the
underlying values of their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert Knight,
who helped cook the books of the South Sea Company, fled England and landed in an Antwerp
prison for a time. Then there was Bernie Madoff, who cooked up his own investment Ponzi
scheme that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in
borrowing. "Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped
fuel mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than
doubled from $8.7 trillion to $18 trillion; among households it doubled from $7.2 trillion to
$14.1 trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more slowly
than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion, from $13.6
trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy returns (dot-com
stocks in the 90s, housing in the 2000s), it always ended with a crash. I got that
feeling with crypto currency. I know to resist the urge. I did.
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can exist
(first red flag of many). It was created as a joke. Yet people are buying for one reason
and one reason only: They think someone will come behind them and pay even more. Until
that stops happening the sky is the limit. If this is not a sign of the bubble I do not
knw what is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias,
Panics and Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because
you can justify a wide range of valuations," says Robin Greenwood, a Harvard Business
School professor who has studied bubbles. He says another classic example was a 1920s
boom in closed-end funds, investment portfolios that trade on an exchange. Before the
1929 stock crash, issuance of closed-end funds soared and the prices on the funds raced
ahead of the underlying values of their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert
Knight, who helped cook the books of the South Sea Company, fled England and landed in an
Antwerp prison for a time. Then there was Bernie Madoff, who cooked up his own investment
Ponzi scheme that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in
borrowing. "Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped
fuel mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than
doubled from $8.7 trillion to $18 trillion; among households it doubled from $7.2
trillion to $14.1 trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more
slowly than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion,
from $13.6 trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy returns
(dot-com stocks in the 90s, housing in the 2000s), it always ended with a crash.
I got that feeling with crypto currency. I know to resist the urge. I did.
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can
exist (first red flag of many). It was created as a joke. Yet people are buying for
one reason and one reason only: They think someone will come behind them and pay
even more. Until that stops happening the sky is the limit. If this is not a sign
of the bubble I do not knw what is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book,
"Manias, Panics and Crashes," called such speculation and crisis a hardy
perennial.
"Periods of great innovation are interesting from an investor's perspective
because you can justify a wide range of valuations," says Robin Greenwood, a
Harvard Business School professor who has studied bubbles. He says another classic
example was a 1920s boom in closed-end funds, investment portfolios that trade on
an exchange. Before the 1929 stock crash, issuance of closed-end funds soared and
the prices on the funds raced ahead of the underlying values of their investment
holdings.
Swindlers are oftentimes attached to the financial boom, too. That included
Robert Knight, who helped cook the books of the South Sea Company, fled England and
landed in an Antwerp prison for a time. Then there was Bernie Madoff, who cooked up
his own investment Ponzi scheme that crashed in December 2008. He died in jail last
month.
.... The problem might be when investment in the vehicle is fueled by a surge in
borrowing. "Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations
helped fuel mortgage borrowing. Between 2000 and 2008, debt in the financial sector
more than doubled from $8.7 trillion to $18 trillion; among households it doubled
from $7.2 trillion to $14.1 trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt
in the financial sector remains below its 2008 peak and household debt has been
rising more slowly than in the 2000s. Between 2012 and 2020, household debt rose to
$16.6 trillion, from $13.6 trillion. That is something that gives Mr. Buiter some
peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of
an unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy
returns (dot-com stocks in the 90s, housing in the 2000s), it always
ended with a crash. I got that feeling with crypto currency. I know to
resist the urge. I did.
Yves here. Mark Blyth is such a treat. How can you not be a fan of the man who coined "The
Hamptons are not a defensible position"? Even though he's not always right, he's so incisive
and has such a strong point of view that his occasional questionable notions serve as fodder
for thought. And I suspect he'll be proven correct on his topic today, the inflation bugaboo.
Yves here. Mark Blyth is such a treat. How can you not be a fan of the man who coined "The
Hamptons are not a defensible position"? Even though he's not always right, he's so incisive
and has such a strong point of view that his occasional questionable notions serve as fodder
for thought. And I suspect he'll be proven correct on his topic today, the inflation bugaboo.
Even though he's not always right, he's so incisive and has such a strong point of view that
his occasional questionable notions serve as fodder for thought. And I suspect he'll be proven
correct on his topic today, the inflation bugaboo. Even though he's not always right, he's so
incisive and has such a strong point of view that his occasional questionable notions serve as
fodder for thought. And I suspect he'll be proven correct on his topic today, the inflation
bugaboo. By Paul Jay.
... ... ...
Paul Jay
And is the idea that inflation is about to come roaring back one of the stupid
ideas that you're talking about? And is the idea that inflation is about to come roaring back
one of the stupid ideas that you're talking about?
Mark Blyth
I hope that it is, but I'm going to go with Larry on this one. He says it's
about one third chance that it's going to do this. I'd probably give it about one in ten, so
it's not impossible.
So, let's unpack why we're going to see this. Can you generate inflation? Yeah. I mean, dead
easy. Imagine your Turkey. Why not be a kind of Turkish pseudo dictator?
Why not fire the head of your central bank in an economy that's basically dependent on other
people valuing your assets and giving you money through capital flows? And then why don't you
fire the central bank head and put in charge your brother-in-law? I think it was his
brother-in-law. And then insist that low interest rates cure inflation. And then watch as the
value of your currency, the lira collapses, which means all the stuff you import is massively
expensive, which means that people will pay more, and the general level of all prices will go
up, which is an inflation. So, can you generate an inflation in the modern world? Sure, yeah.
Easy. Just be an idiot, right? Now, does this apply to the United States? No. That's where it
gets entirely different. So, a couple of things to think about (first). So, you mentioned that
huge number of 20 trillion dollars. Well, that's more or less about two thirds of what we threw
into the global economy after the global financial crisis, and inflation singularly failed to
show up. All those people in 2010 screaming about inflation and China dumping bonds and all
that. Totally wrong. Completely wrong. No central bank that's got a brass nameplate worth a
damn has managed to hit its inflation target of two percent in over a decade. All that would
imply that there is a huge amount of what we call "˜slack' in the economy. (Also) think
about the fact that we've had, since the 1990s, across the OECD, by any measure, full
employment. That is to say, most people who want a job can actually find one, and at the same
time, despite that, there has been almost no price pressure coming from wages, pushing on into
prices, to push up inflation. So rather than the so-called vertical Phillips curve, which most
of modern macro is based upon, whereby there's a kind of speed bump for the economy, and if the
government spends money, it can't push this curve out, all it can do is push it up in terms of
prices. What we seem to actually have is one whereby you can have a constant level of
inflation, which is very low, and any amount of unemployment you want from 2 percent to 12
percent, depending on where you look and in which time-period.
All of which suggests that at least for big developed, open, globalized economies, where
you've destroyed trade unions, busted up national product cartels, globally integrated your
markets, and added 600 million people to the global labor supply, you just can't generate
inflation very easily. Now, we're running, depending on how much actually passes, a two to five
trillion-dollar experiment on which theory of inflation is right. This one, or is it this one?
That's basically what we're doing just now. Larry's given it one in three that it's his one.
I'd give it one in ten his one's right. Now, if I may just go on just for a seconds longer.
This is where the politics of this gets interesting. Most people don't understand what
inflation is. You get all this stuff talked by economists and central bankers about inflation
and expectations and all that, but you go out and survey people and they have no idea what the
damn thing is. Think about the fact that most people talk about house price inflation.
There is no such thing as house price inflation. Inflation is a general rise in the level of
all prices. A sustained rise in the level of prices. The fact that house prices in Toronto have
gone up is because Canada stopped building public housing in the 1980s and turned it into an
asset class and let the 10 percent top earners buy it all and swap it with each other. That is
singularly not an inflation. So, what's going to happen coming out of Covid is there will be a
big pickup in spending, a pickup in employment. I think it's (going to be) less than people
expect because the people with the money are not going to go out and spend it because they have
all they want already. There are only so many Sub-Zero fridges you can buy. Meanwhile, the
bottom 60 percent of the income distribution are too busy paying back debt from the past year
to go on a spending spree, but there definitely will be a pickup. Now, does that mean that
there's going to be what we used to call bottlenecks? Yeah, because basically firms run down
inventory because they're in the middle of a bloody recession. Does it mean that there are
going to be supply chain problems? Yes, we see this with computer chips. So, what's going to
happen is that computer chips are going to go up in price.
So, lots of individual things are going to go up in price, and what's going to happen is
people are going to go "there's the inflation, there's that terrible inflation," and it's not.
It's just basically short-term factors that will dissipate after 18 months. That is my bet. For
Larry to be right what would have to be true?
That we would have to have the institutions, agreements, labor markets and product markets
of the 1970s. We don't.
... ... ...
So, I just don't actually see what the generator of inflation would be. We are not Turkey
dependent on capital imports for our survival with a currency that's falling off a cliff. That
is entirely different. That import mechanism, which is the way that most countries these days
get a bit of inflation. That simply doesn't apply in the U.S. So, with my money on it, if I had
to bet, it's one in 10 Larry's right, rather one in 3.
Paul Jay
The other point he raises, and we talked a little bit about this in a previous
interview, but let's revisit it, is that the size of the American debt, even if it isn't
inflationary at some point, creates some kind of crisis of confidence in the dollar being the
reserve currency of the world, and so this big infrastructure spending is a problem because of
that. That's part of, I believe, one of his arguments. The other point he raises, and we talked
a little bit about this in a previous interview, but let's revisit it, is that the size of the
American debt, even if it isn't inflationary at some point, creates some kind of crisis of
confidence in the dollar being the reserve currency of the world, and so this big
infrastructure spending is a problem because of that. That's part of, I believe, one of his
arguments.
Mark Blyth
The way political economists look at the financial plumbing, I think, is
different to the way that macro economists do. We see it rather differently. The first thing
is, what's your alternative to the dollar unless you're basically going to go all-in on gold or
bitcoin? And good luck with those. If we go into a crushing recession and our bond market
collapses, don't think that Europe's going to be a safe haven given that they've got half the
US growth rate. And we could talk about what Europe's got going on post-pandemic because it's
not that good. So what's your alternative (to the Dollar)? Buy yen? No, not really. You're
going to buy Chinese assets? Well, good luck, and given the way that their country is being run
at the moment, if you ever want to take your capital out. I'm not sure that's going to work for
you, even if you could. So you're kind of stuck with it. Mechanically there's another problem.
All of the countries that make surpluses in the world make surpluses because we run deficits.
One has to balance the other. So, when you're a Chinese firm selling to the United States,
which is probably an American firm in China with Chinese subcontractors selling to the United
States, what happens is they get paid in dollars. When they receive those dollars in China,
they don't let them into the domestic banking system. They sterilize them and they turn them
into the local currency, which is why China has all these (dollar) reserves. That's their
national savings. Would you like to burn your reserves in a giant pile? Well, one way to do
that would be to dump American debt, which would be equivalent to burning your national
savings. If you're a firm, what do you do? Well, you basically have to use dollars for your
invoicing. You have to use dollars for your purchasing, and you keep accumulating dollars,
which you hand back to your central bank, which then hands you the domestic currency. The
central bank then has a problem because it's got a liability " (foreign) cash rather than an
asset. So, what's the easiest asset to buy? Buy another 10-year Treasury bill, rinse and
repeat, rinse and repeat. So, if we were to actually have that type of crisis of confidence,
the people who would actually suffer would be the Germans and the Chinese, because their
export-driven models only makes sense in terms of the deficits that we run. Think of it as kind
of monetarily assured destruction because the plumbing works this way. I just don't see how you
can have that crisis of confidence because you've got nowhere else to take your confidence.
Paul Jay
If I understand it correctly, the majority of American government debt is held
by Americans, so it's actually really the wealth is still inside the United States. I saw a
number, this was done three or four years ago, maybe, but I think it was Brookings Institute,
that assets after liabilities in private hands in the United States is something like 98
trillion dollars. So I don't get where this crisis of confidence is going to come any time
soon. If I understand it correctly, the majority of American government debt is held by
Americans, so it's actually really the wealth is still inside the United States. I saw a
number, this was done three or four years ago, maybe, but I think it was Brookings Institute,
that assets after liabilities in private hands in the United States is something like 98
trillion dollars. So I don't get where this crisis of confidence is going to come any time
soon.
Mark Blyth
Basically, if your economy grows faster (than the rest of the world because
you are) the technological leader, your stock markets grows faster than the others. If you're
an international investor, you want access to that. (That ends) only if there were actual real
deep economic problems (for the US), like, for example, China invents fusion energy and gives
it free to the world. That would definitely screw up Texas. But short of that, it's hard to see
exactly what would be these game-changers that would result in this. And of course, this is
where the Bitcoin people come in. It's all about crypto, and nobody has any faith in the
dollar, and all this sort of stuff. Well, I don't see why we have faith in something (like that
instead . I think it was just last week. There wasn't much reporting on this, I don't know if
you caught this, but there were some twenty-nine-year-old dude ran a crypto exchange. I can't
remember where it was. Maybe somewhere like Turkey. But basically he had two billion in crypto
and he just walked off with the cash. You don't walk off with the Fed, but you could walk off
with a crypto exchange. So until those problems are basically sorted out, the notion that we
can all jump into a digital currency, which at the end of the day, to buy anything, you need to
turn back into a physical currency because you don't buy your coffee with crypto, we're back to
that (old) problem. How do you get out of the dollar? That structural feature is incredibly
important.
Paul Jay
So there's some critique of the Biden infrastructure plan and some of the
other stimulus, coming from the left, because, one, the left more or less agrees with what you
said about inflation, and the critique is that it's actually not big enough, and let me add to
that. I'm kind of a little bit surprised, maybe not anymore, but Wall Street on the whole, not
Larry Summers and a few others, but most of them actually seem quite in support of the Biden
plan. You don't hear a lot of screaming about inflation from Wall Street. Maybe from the
Republicans, but not from listening to Bloomberg Radio. So there's some critique of the Biden
infrastructure plan and some of the other stimulus, coming from the left, because, one, the
left more or less agrees with what you said about inflation, and the critique is that it's
actually not big enough, and let me add to that. I'm kind of a little bit surprised, maybe not
anymore, but Wall Street on the whole, not Larry Summers and a few others, but most of them
actually seem quite in support of the Biden plan. You don't hear a lot of screaming about
inflation from Wall Street. Maybe from the Republicans, but not from listening to Bloomberg
Radio.
Mark Blyth
You don't even hear a lot of screaming about corporate taxes, which is
fascinating, right? You'd think they'd be up in arms about this? I actually spoke to a business
audience recently about this, and I kind of did an informal survey and I said, "why are you
guys not up in arms about this?" And someone that was on the call said, "well, you know, the
Warren Buffet line about you find out who's swimming naked when the tide goes out? What if a
lot of firms that we think are great firms are just really good at tax optimization? What if
those profits are really just contingent on that? That would be really nice to know this
because then we could stop investing in them and invest in better stuff that actually does
things." You don't even hear a lot of screaming about corporate taxes, which is fascinating,
right? You'd think they'd be up in arms about this? I actually spoke to a business audience
recently about this, and I kind of did an informal survey and I said, "why are you guys not up
in arms about this?" And someone that was on the call said, "well, you know, the Warren Buffet
line about you find out who's swimming naked when the tide goes out? What if a lot of firms
that we think are great firms are just really good at tax optimization? What if those profits
are really just contingent on that? That would be really nice to know this because then we
could stop investing in them and invest in better stuff that actually does things."
Paul Jay
And pick up the pieces of what's left of them for a penny if they have to go
down. And pick up the pieces of what's left of them for a penny if they have to go down.
Mark Blyth
Absolutely. Just one thought that we'll circle back, to the left does not
think it's big enough, etc. Well, yes, of course they wouldn't, and this is one of those things
whereby you kind of have to check yourself. I give the inflation problem a one in ten. But what
I'm really dispassionately trying to do is to look at this as just a problem. My political
preferences lie on the side of "˜the state should do more.' They lie on the side of
"˜I think we should have higher real wages.' They lay on the side that says that
"˜populism is something that can be fixed if the bottom 60 percent actually had some kind
of growth.' So, therefore, I like programs that do that. Psychologically, I am predisposed
therefore to discount inflation. I'm totally discounting that because that's my priors and I'm
really deeply trying to check this. In this debate, it's always worth bearing in mind, no one's
doing that. The Republicans and the right are absolutely going to be hell bent on inflation,
not because they necessarily really believe in (inevitable) inflation, (but) because it's a
useful way to stop things happening. And then for the left to turn around and say, well, it
isn't big enough, (is because you might as well play double or quits because, you know, you've
got Biden and that's the best that's going to get. So there's a way in which when we really are
trying to figure out these things, we kind of have to check our partisan preferences because
they basically multiply the errors in our thinking, I think.
Paul Jay
Now, earlier you said that one of the main factors why inflation is
structurally low now, I don't know if you said exactly those words. Now, earlier you said that
one of the main factors why inflation is structurally low now, I don't know if you said exactly
those words.
Mark Blyth
I would say that yes. I would say that yes.
Paul Jay
Is the weakness of the unions, the weakness of workers in virtually all
countries, but particularly in the U.S., because it matters so much. That organizing of workers
is just, they're so unable to raise their wages over decades of essentially wages that barely
keep up with inflation and don't grow in any way, certainly not in any relationship to the way
productivity has grown. So we as progressives, well, we want workers to get better organized.
We want stronger unions. We want higher wages, but we want it without inflation. Is the
weakness of the unions, the weakness of workers in virtually all countries, but particularly in
the U.S., because it matters so much. That organizing of workers is just, they're so unable to
raise their wages over decades of essentially wages that barely keep up with inflation and
don't grow in any way, certainly not in any relationship to the way productivity has grown. So
we as progressives, well, we want workers to get better organized. We want stronger unions. We
want higher wages, but we want it without inflation.
Mark Blyth
And it's a question of how much room you have to do that. I mean,
essentially, if you quintuple the money supply, eventually prices will have to rise"¦but
that depends upon the velocity of money which has actually been collapsing. So maybe you'd have
to do it 10 times. There's interesting research out of London, which I saw a couple of weeks
ago, that basically says you really can't correlate inflation with increases in the money
supply. It's just not true. It's not the money that's doing it. It's the expectations. That
then begs the question, well, who's actually paying attention if we all don't really understand
what inflation is? So I tend to think of this as basically a kind of a physical process. It's
very easy to understand if your currency goes down by 50 percent and you're heavily dependent
on imports. You're import (prices) go up. All the prices in the shops are going to go up.
That's a mechanism that I can clearly identify that will generate rising prices. If you have
big unions, if you have kind of cartel-like vertically integrated firms that control the
national market, if you have COLA contracts. If you have labor able to do what we used to call
leapfrogging wage claims against other unions, if this is all institutionally and legally
protected, I can see how that generates inflation, that is a mechanism I can point to. That
doesn't exist just now. Let's unpack this for a minute. The sort of fundamental theoretical
assumption on this is based is some kind of "˜marginal productivity theory of wages.' In
a perfectly free market with free exchange, in which we don't live, what would happen is you
would hire me up to the point that my marginal product is basically paying off for you, and
once it produces zero profits, that's kind of where my wages end. I'm paid up to the point that
my marginal product is useful to the firm. This is not really a useful way of thinking about it
because if you're the employer and I'm the worker, and I walk up to you and say, hey, my
marginal productivity is seven, so how about you pay me seven bucks? You just say, shut up or
I'll fire you and get someone else. Now, the way that we used to deal with this was a kind of
"˜higher than your outside option,' on wages. The way we used to think about this was
"why would you pay somebody ten bucks at McDonald's?" Because then you might actually get them
to and flip the burgers because they're outside option is probably seven bucks, and if you pay
them seven bucks, they just won't show up. So we used to have to pay workers a bit more. So
that was, in a sense, (workers) claiming (a bit of the surplus) from productivity. But now what
we've done, Suresh Naidu the economist was talking about this the other day, is we have all
these technologies for surveilling workers (instead of paying them more). So now what we can do
is take that difference between seven and ten and just pocket it because we can actually pay
workers at your outside option, because I monitor everything you do, and if you don't do
exactly what I say I'll fire you, and get somebody else for seven bucks. So all the mechanisms
for the sharing of sharing productivity, unions, technology, now lies in the hands of
employers. It's all going against labor. So (as a result) we have this fiction that somehow
when the economy grows, our productivity goes up, and workers share in that. Again, what's the
mechanism? Once you take out unions and once you weaponize the ability of employers to extract
surplus through mechanisms like technology, franchising, all the rest of it, then it just tilts
the playing field so much that we just don't see any increase in wages. (Now) let's bring this
back to inflation. Unless you see systematic (and sustained) increases in the real wage that
increases costs for firms to the point that they need to push on prices, I just don't see the
mechanism for generating inflation. It just isn't there. And we've underpaid the bottom 60
percent of the U.S. labor market so long it would take a hell of a lot of wage inflation to get
there, with or without unions.
Paul Jay
Yeah, what's that number, that if the minimum wage was adjusted for inflation
and it was what the minimum wage was, what, 30 years ago, the minimum wage would be somewhere
between 25 and 30 bucks, and that wasn't causing raging inflation. Yeah, what's that number,
that if the minimum wage was adjusted for inflation and it was what the minimum wage was, what,
30 years ago, the minimum wage would be somewhere between 25 and 30 bucks, and that wasn't
causing raging inflation.
Mark Blyth
And there is that RAND study from November 2020 that was adeninely entitled, "˜Trends
in Income 1979 to 2020,' and they calculated, and I think this is the number, but even if I'm
off, the order of magnitude is there, that transfers, because of tax and regulatory changes,
from the 90th percentile of the distribution to the 10 percentile, totalled something in the
order of $34 trillion. That's how much was vacuumed up and practically nothing trickled down.
So when you consider that as a mechanism of extraction, why are worrying about inflation
(from wages)? The best story on inflation is actually Charles Goodhart's book that came out
last year. We got a long period of low inflation because of global supply chains, and because
of demographic trends. It's a combination of global supply chains, Chinese labor, and
demographics all coming together to basically push down labor costs, and that's why you get
this long period of deflation, which leads to rising profits and zero inflation. A perfectly
reasonable way of explaining it. And his point is that, well, that's coming to an end. The
demographics are shifting, or shrinking. We're going back to more closed economies. You're
going to create this inflation problem again. OK, what's the timeline on that? About 20
years? A few years ago, we were told we had 12 years to fix the climate problem or we're in
deep shit. If we have to face the climate problem versus single to double-digit inflation,
I'm left wondering what is the real problem here? And there is that RAND study from November
2020 that was adeninely entitled, "˜Trends in Income 1979 to 2020,' and they
calculated, and I think this is the number, but even if I'm off, the order of magnitude is
there, that transfers, because of tax and regulatory changes, from the 90th percentile of the
distribution to the 10 percentile, totalled something in the order of $34 trillion. That's
how much was vacuumed up and practically nothing trickled down. So when you consider that as
a mechanism of extraction, why are worrying about inflation (from wages)? The best story on
inflation is actually Charles Goodhart's book that came out last year. We got a long period
of low inflation because of global supply chains, and because of demographic trends. It's a
combination of global supply chains, Chinese labor, and demographics all coming together to
basically push down labor costs, and that's why you get this long period of deflation, which
leads to rising profits and zero inflation. A perfectly reasonable way of explaining it. And
his point is that, well, that's coming to an end. The demographics are shifting, or
shrinking. We're going back to more closed economies. You're going to create this inflation
problem again. OK, what's the timeline on that? About 20 years? A few years ago, we were told
we had 12 years to fix the climate problem or we're in deep shit. If we have to face the
climate problem versus single to double-digit inflation, I'm left wondering what is the real
problem here? The best story on inflation is actually Charles Goodhart's book that came out
last year. We got a long period of low inflation because of global supply chains, and because
of demographic trends. It's a combination of global supply chains, Chinese labor, and
demographics all coming together to basically push down labor costs, and that's why you get
this long period of deflation, which leads to rising profits and zero inflation. A perfectly
reasonable way of explaining it. And his point is that, well, that's coming to an end. The
demographics are shifting, or shrinking. We're going back to more closed economies. You're
going to create this inflation problem again. OK, what's the timeline on that? About 20
years? A few years ago, we were told we had 12 years to fix the climate problem or we're in
deep shit. If we have to face the climate problem versus single to double-digit inflation,
I'm left wondering what is the real problem here? The best story on inflation is actually
Charles Goodhart's book that came out last year. We got a long period of low inflation
because of global supply chains, and because of demographic trends. It's a combination of
global supply chains, Chinese labor, and demographics all coming together to basically push
down labor costs, and that's why you get this long period of deflation, which leads to rising
profits and zero inflation. A perfectly reasonable way of explaining it. And his point is
that, well, that's coming to an end. The demographics are shifting, or shrinking. We're going
back to more closed economies. You're going to create this inflation problem again. OK,
what's the timeline on that? About 20 years? A few years ago, we were told we had 12 years to
fix the climate problem or we're in deep shit. If we have to face the climate problem versus
single to double-digit inflation, I'm left wondering what is the real problem here? OK,
what's the timeline on that? About 20 years? A few years ago, we were told we had 12 years to
fix the climate problem or we're in deep shit. If we have to face the climate problem versus
single to double-digit inflation, I'm left wondering what is the real problem here? OK,
what's the timeline on that? About 20 years? A few years ago, we were told we had 12 years to
fix the climate problem or we're in deep shit. If we have to face the climate problem versus
single to double-digit inflation, I'm left wondering what is the real problem here? A few
years ago, we were told we had 12 years to fix the climate problem or we're in deep shit. If
we have to face the climate problem versus single to double-digit inflation, I'm left
wondering what is the real problem here? A few years ago, we were told we had 12 years to fix
the climate problem or we're in deep shit. If we have to face the climate problem versus
single to double-digit inflation, I'm left wondering what is the real problem here?
Great piece. He put to words something I've thought about but couldn't articulate: if
wages are stagnant, how could you possibly get broad based inflation?
There is no upward pressure on labor costs anywhere in the economy. The pressures are
all downward.
You would need government spending in the order of magnitudes to drive up wages. Or
release from a lot of debt, like student loan forgiveness or what have you.
I'm not sure you need wage growth to get inflation. As Blyth notes, most of the time
inflation is a currency or a monetary issue. In the 70s, it was initially an oil thing " and
oil flows through a lot of products " and then really went crazy only when Volker started
raising interest rates. I don't think there is an episode of "wage-push" inflation in
history. (The union cost-of-living clauses don't "cause" inflation, they only adjust for past
inflation. If unions can cause wage-push inflation, someone needs to explain how they did
this in the late 70s, when they were much less powerful and unemployment was substantially
higher, than in the 1950s.) One could argue that expansive fiscal policy might drive
inflation but, even then, the mechanism is through price increases, not wage increases. You
do need consumption but that can always come from the wealthy and further debt immiseration
of the rest of us.
Blythe is one of those guys who is *almost* correct. For example he declares that
expectations drive inflation. What about genuine shortages? The most recent U.S. big inflation
stemmed from OPEC withholding oil"a shortage we answered by increasing the price ($1.75/bbl in
1971 -> $42/bbl in 1982). In Germany, the hyperinflation was driven by the French invading
the Ruhr, something roughly like shutting down Ohio in the U.S. A shortage of goods resulted.
Inflation! In Zimbabwe, the Rhodesian (white) farmers left, and the natives who took over their
farms were not producing enough food. A shortage of food, requiring imports, resulted.
Inflation!
I guess you could say people in Zimbabwe "expected" food"¦but that's not standard
English.
JFYI, Blythe is not a fan of MMT. He calls it "annoying." Yep, that's his well-reasoned
argument about how to think about it.
As a *political* economist, he may have a point in saying MMT is a difficult political sell,
but otherwise, I'd say the guy is clueless about it.
Inflation isn't caused by the amount of money in the economy but by the amount of
*spending*.
Like the other commenter, I've wondered this too"if wages have been stagnant for a
generation, then how are we going to get inflation? By what mechanism? It seems like almost all
of the new money just adds a few zeros to the end of the bank account balances of the already
rich (or else disappears offshore).
Still, you just cannot people to understand this because of houses, health care and
education. One might even argue that inflated house and education prices are helping keep
inflation down. If more and more of our meager income is going to pay for these fixed
expenditures, then there's no money left over to pay increased prices for goods and services.
So there's no room to increase the prices of those things. As Michael Hudson would point out,
it's all sucked away for debt service, meaning a lot of the "money printing" is just
subsidizing Wall Street.
But if you pay attention to the internet, for years there have been conspiracy theories all
across the political spectrum that we were really in hyperinflation and the government just
secretly "cooked the books" and manipulated the statistics to convince us all it wasn't
happening. Of course, these conspiracy theories all pointed to the cost of housing, medicine
and education as "proof" of this theory (three things which, ironically, didn't go up
spectacularly during the Great Inflation of the 1970's). Or else they'd point to gas prices,
but that strategy lost it's potency after 2012. Or else they'd complain that their peanut
butter was secretly getting smaller, hiding the inflation (shrinkflation is real, or course,
but it's not a vast conspiracy to hide price increases from the public).
I'm convinced that this was the ground zero for the kind of anti-government conspiratorial
thinking that's taken over our politics today. These ideas was heavy promoted by libertarians
like Ron Paul starting in the nineties, helped by tracts like "The Creature from Jekyll
Island," which argued that the Fed itself was one big conspiracy. I've seen plenty of people
across the political spectrum"including on the far Left"take all of this stuff as gospel.
So if the government is secretly hiding inflation and the Fed itself is a grand conspiracy
to convince us that paper is money (rather than "real" money, aka gold), then is it that hard
to believe they're manipulating Covid statistics and plotting to control us all by forcing us
all to wear masks and get vaccinated? In my view, it all started with inflation paranoia.
Blyth explains why housing inflation isn't really a sign of hyperinflation. But the average
"man on the street" just doesn't get it. To Joe Sixpack, not counting some of the things he has
to pay for is cheating. So are "substitutions" like ground beef when steak gets too pricey, or
a Honda Civic for a Toyota Camry, for example. The complexity of counting inflation is totally
lost on them, making them vulnerable to conspiratorial thinking. Since Biden was elected, the
ZOMG HyPeRiNfLaTiOn!!&%! articles are ubiquitous.
Does anyone have a good way of explaining this to ordinary (i.e. non-economically literate)
people? I'd love to hear it! Thanks.
"There is no such thing as house price inflation. Inflation is a general rise in the level
of all prices. A sustained rise in the level of prices. The fact that house prices in Toronto
have gone up is because Canada stopped building public housing in the 1980s and turned it into
an asset class and let the 10 percent top earners buy it all and swap it with each other. That
is singularly not an inflation."
Maybe I am totally off but, I would say"¦. By your definition, inflation does not exist
in the economic terminology as inflation only exists if generally all prices go up and a
singularity of soaring house prices and education and healthcare do not constitute an inflation
because the number of things inflating do not meet some unknown number of items needed for a
general rise in all prices to create an inflation.
What I read you to say is that if Labor prices go up " that could lead to inflation " but if
house prices go up (as they have) that is not inflation.
Hypothetically " if labor prices do not go up and the "˜nessesities of living' prices go
up (Housing and Med) " would you not have an inflation in the cost of living? " I am convinced
that economists and market experts try to claim that the economy and markets are seperate and
distinct from humans as a science " and that Political science has nothing to do with what they
present. Yet, humans are the only species to have formed the markets and money we all
participate and, the only species, therefore, to have an exclusive asset ownership, indifferent
to any other species " IE " if you can't pay you can't play and have no say.
I submit that one or a few asset price increases that are combined with labor price stasis(the
actual money outlayed for those asset price increased products not moving up) " especially one
that is a basic to living (shelter) and not mobile (like money) is inflation " Land prices
going up will generally increase the prices of all products created thereon.
I think there's two things going on here. There's different inflation indicators, and asset
prices are by definition never a part of inflation
The main indicator of CPI has so many different things in it that the inflation of any one
item is going to have little effect on it. But you can look up BEA's detailed GDP deflator to
see inflation for more specific things like housing expenses (rent) or transportation.
So back to real estate/land: real estate and land are like the stock market. They aren't
subject to inflation. They are subject to appreciation. There is somewhat of a feedback effect
for sure though: Increased real estate prices can drive up inflation. Rent for sure gets driven
up, but also any other good that's built domestically if the owners of capital need to pay more
to rent their factories/farms etc.
As noted in the article though, capitalists can simply move their production overseas so
there's a limit to how much US land appreciation can filter into inflation. Its definitely
happening with rent as housing can't be outsourced. But rent is only one part of overall
inflation
The point he was making is that the price change in housing is the result of a policy
restructuring of the market: no new public housing and financial deregulation.
The price of food is similarly a response to policy changes: industry consolidation and
resulting price setting to juice financial profits.
The point is distinguishing between political forces and market forces. The former is
socially/politically determined while the latter has to do with material realities within a
more or less static market structure.
This is a distinction essential to making good policy but useless from a cost of living
perspective.
One could prevent crossover for awhile, but eventually certain policies are going to affect
certain markets. The policy of giving the rich money drives up asset prices, real estate is a
kind of asset, eventually rising real estate costs affect the market the proles enter when they
have to buy or rent real estate.
If state institutions tell them there is no inflation, the proles learn that the state
institutions lie because they know better from direct experience. Once that gap develops, it's
as with personal relationships: when trust is broken, it is very hard to replace. Once belief
in state institutions is lost, significant political effects ensue. Often they are rather
unpleasant.
Blyth pointed to the lack of systemic drivers of price increases, and how the traditional
ones have disappeared. I think one that he missed, that results in a disconnect with the
evidence of price increases across multiple sectors, is the neoliberal infestation.
Rent-sucking intermediaries have imposed themselves into growing swaths of the mechanisms of
survival, hollowed out productive capacity, and crapified artifacts to the extent that their
value is irredeemably reduced. This is a systemic cause for reduced buying power, i.e.
inflation, but it is not a result of monetary or fiscal policy, but political and ideological
power.
> . . . The fact that house prices in Toronto have gone up is because Canada
stopped building public housing in the 1980s and turned it into an asset class and let the 10
percent top earners buy it all and swap it with each other.
That is a total load of baloney. The eighties were a time when the Conservative government
came up with the foreign investor program and it was people from Hong Kong getting out before
the British hand over to China in 1997.
I was there, trying to save for a house and for every buck saved the houses went up twenty.
I finally pulled the plug in 89 when someone subdivided a one car garage from their house and
sold it for a small fortune. The stories of Hong Kongers coming up to people raking their yard
and offering cash well above supposed market rates and the homeowner dropping their rakes and
handing over the keys were legendary.
It's still that way except now they come from mainland China, CCP members laundering their
loot.
Any government that makes domestic labor compete with foreign richies for housing is
mendacious.
When a Canadian drug dealer "saves up" a million to buy a house and the RCMP get wind of it,
they lose the house. When a foreigner show up at the border with a million, it's all clean.
Many people who talk about avoiding inflation are speaking euphemistically about preventing
wage growth, and only that; dog whistles, clearly heard by the intended audience. Yet they are
rarely confronted directly on this point. Instead we hear that they don't understand what the
word inflation means, and Mark seems to be saying these euphamists (eupahmites?) needn't be so
concerned because wages will not go up anyway. If so, what we are talking about here is merely
helping workers stay afloat without making any fundamental changes. Well, both sides can agree
to that as usual. Guess I'm just worn out by this kind of thing.
The thing that I like about Mark Blyth is how he cuts to the chase and does not waffle. Must
be his upbringing in Scotland I would say. The revelation that the US minimum wage should be
about $25-30 is just mind-boggling in itself. But in that talk he unintentionally put a value
on how much is at stake in making a fairer economic system and it works out to be about $34
trillion. That is how much has been stolen by the upper percentile and why workers have gone
from having a job, car, family & annual vacation to crushing student debt, a job at an
Amazon fulfillment center and a second job being an Uber driver while living out of car.
That $25-30 wage was keeping up with inflation , if it were keeping up with
productivity it would be, IIRC, nearly twice that. It is interesting to see a dollar
figure put on the amount you can reap after a generation or two of growing a middle class, by
impoverishing it.
But now what we've done, Suresh Naidu the economist was talking about this the other day,
is we have all these technologies for surveilling workers (instead of paying them
more) . So now what we can do is take that difference between seven and ten and just
pocket it because we can actually pay workers at your outside option, because I monitor
everything you do, and if you don't do exactly what I say I'll fire you, and get somebody
else for seven bucks.
Praise be the STEM workers. Without them where would the criminal corporate class be?
Every time I listen to the news (without barfing) the story is, we need moar STEM workers,
and I ask myself, what do they do for a living?
If that kind of tidbit excites you:
Before going into economics, Alan Greenspan was a sax and clarinet player who played with the
likes of Stan Getz and Quincy Jones.
And Michael Hudson studied piano and conducting .
Do failed musicians gravitate to economics? Perhaps for the same reason as my bank manager, a
failed bass player (honors graduate from Classy Cdn U in double bass), they see the handwriting
on the wall. He told me his epiphany came when he and his band-mates were trying to make
cup-o-noodles with tap water in a room over the pub in Thunder Bay where they were playing.
The mental gymnastics to get to "everything needed to survive costs more but wages have not
gone up in decades so therefore its all transitory and inflation does not exist" must be
painful. How high does the price for cat food have to get before we stop eating?
Yes! "The Hamptons are not a defensible position" ranks right up there with "It is easier to
imagine the end of the world than the end of (neoliberal) capitalism" by Mark Fisher (and F.
Jameson?).
Very good, Mark. This leads to the next Q. How do we maintain aggregate demand? The rich
guys increasingly Hoover everything up and pay no taxes. So, there is no T. Is the only way to
get cash and avoid deflation deficit spending by the G? There is no I worth a damn. (X-M) is a
total drain on everything since it's all M in the US and no X. The deficits will have to go out
of sight in the future.
You say that there is no velocity of money. Is this because the more money pored into the
economy by the G, the more money the rich guys steal? So, there is a general collapse in C.
Maybe the work around for the rich guy theft is a $2,000 (sorry, $1,400) check every now and
then to the great unwashed. The poors can circulate it a couple of times before the rich guys
steal it. Seems like the macro-economists have a lot of "˜splainin' to do. Oh, right,
they are busy right now measuring the output gap.
I'd like to see Mark go into a discussion on the velocity of money. I remember the old timey
Keynesians lecturing about it, and that's all I remember. I'm guessing that it's related to the
marginal propensity to consume.
I may be getting a bit out over my skis, but the St. Louis Fed calculates the velocity of
money ( https://fred.stlouisfed.org/series/M2V ). It is
defined as
The velocity of money is the frequency at which one unit of currency is used to purchase
domestically- produced goods and services within a given time period. In other words, it is the
number of times one dollar is spent to buy goods and services per unit of time. If the velocity
of money is increasing, then more transactions are occurring between individuals in an
economy.
So as velocity slows, fewer transactions happen. Based on the linked chart, the peak
velocity was 2.2 in mid-1997. In Q1 2021, it was 1.12. By my understanding, although the money
supply continues to increase, the money isn't flowing through the economy in the way it was
over the last 30 years (or even 10 years ago).
It's beyond my level of understanding to say with any certainty as to why the slowdown in
velocity has occurred, but I speculate it's directly related to the ever-growing inequality in
the US economy and the ongoing rentier-ism that Dr. Hudson discusses. [simplistically, if Jeff
Bezos has $1.3 billion more on Monday than on Friday, that money will flow virtually nowhere.
If each of Amazon's employees equally shared that $1.3 billion (about $1,000 each), the
preponderance of the money would flow into the economy in short order].
I've always speculated that money velocity is one of the key indicators of the stagnant
economy since 2008. It certainly has coincided with the dramatic increase in wealth in the top
fraction (not the 1% but the 0.001%) of the US population.
What Blythe has laid out is not a tale about inflation or money, but a tale about power.
If money goes to the non-elite, you get inflation. If it goes to the elite, you don't get
inflation.
If you are a country with little control of your resources (not lack of resources, but control)
and/or loans (think IMF)/debt (think war reparations) that give people with little interest in
whether you live or die control over your countries' finances, you can be prone to inflation or
even hyperinflation.
Yeah, I figured out a long time ago that none of this is any "natural economic law" because
there is no such thing as "nature" in economics. Inflation is all about political decisions and
perceptions.
And I saw this on YouTube a couple of days ago"¦and I still can't think of anything
around me that hasn't gone up on price.
This is a good response to Summers. But I have a quibble and a concern.
My quibble is that he offers no theory of inflation except implicitly aggregate supply
exceeding aggregate demand and there is nothing but hand-waving regarding what he is referring
to that he feels has a one chance in ten of happening versus Summers one in three. A second
part of this quibble is: what does it mean for inflation to "come roaring back." I assume it
means more than just a short-term adjustment to a shot of government spending and gifting. I
believe if he thought this through he would have to conclude that without changes in the
current structure of the global economy there is no way for this to happen. That really is the
case he has made. With labor beaten down not only in the US but worldwide inflation will not
come roaring back, period. That is unless there is a chance either that a labor renewal is a
near-term possibility. I doubt he believes this. Or does he believe there is another way for
inflation to roar back? If so, what is that way, what is the theory behind it?
A more fundamental concern is the part where he relies on marginal productivity theory when
discussing employment and exploitation. Conceptually that far from Marx's fundamental
distinction between labor and labor power.
Hyperinflation doesn't seem to be possible in this age of digital money no matter how much
you conjure up because nobody notices the extreme amount of monies around all of the sudden as
the average joe isn't in the know.
Used houses are always appreciating in value, but none dare call it inflationary, more of a
desired outcome in income advancement if you own a domicile.
There were no shortages of anything in the aftermath of the GFC, and now for want of a
semiconductor, a car sale was lost. Everything got way too complex, and we'll be paying the
price for that.
I think the inflation to come won't be caused by a lack of faith in a given country's money,
but the products and services it enabled us to purchase.
""¦and now for want of a semiconductor, a car sale was lost"¦."
Sometimes car sales are lost because the price of cars has gone up (new and used)"¦just
don't call it inflation"¦
I'm going to let some more time pass, but stimulus or not, we went from all economic
problems being laid at the feet of Covid to now moving on to "shortages"
everywhere"¦
Just enought to make you go"¦hmmmm"¦.unti more time passes.
Used houses always appreciate " or is it that they appreciate due to a combination of
inflation in income over time and the dramatic decrease in interest rates over the last 20
years?
A very quick back of the envelope calc (literally " and all number are approximate):
In June 2000, median US income was $40,500; 30 yr mortgage rate was 8.25%. 28% of monthly
income = $945. That supports a mortgage (30 yr fixed, P&I only " no tax, insurance, etc) of
roughly $125,000.
In June 2005, median US income was $44,000; 30 yr mortgage rate was 5.5%. 28% of monthly
income = $1026. That supports a mortgage (30 yr fixed, P&I only " no tax, insurance, etc)
of roughly $180,000.
In June 2010, median US income was $49,500; 30 yr mortgage rate was 4.69%. 28% of monthly
income = $1155. That supports a mortgage (30 yr fixed, P&I only " no tax, insurance, etc)
of roughly $225,000.
In June 2015, median US income was $53,600; 30 yr mortgage rate was 4.00%. 28% of monthly
income = $1250. That supports a mortgage (30 yr fixed, P&I only " no tax, insurance, etc)
of roughly $260,000.
Finally, In June 2020, median US income was $63,000; 30 yr mortgage rate was 3.25%. 28% of
monthly income = $1470. That supports a mortgage (30 yr fixed, P&I only " no tax,
insurance, etc) of roughly $340,000.
And for fun, if you went to 40% of income in 2020 (payment only), a $2100 monthly payment
will cover nearly a $500,000 mortgage in 2020.
For the vast majority of home buyers, the price isn't the main consideration " it's how much
will it cost per month. So a small increase in median income (roughly 2% per year) combined
with dramatically lower interest rates can drive a HUGE increase in a mortgage " and ultimately
the price that can be paid for a house.
Can't say I really understand this sort of thing but saying rocketing house-prices is
"˜a singularity' rather than "˜house-price inflation' has to me echoes of the
Bourbon's "Bread too expensive? Let them eat cake." And Versailles wasn't a defensive position
either.
In my version of economics-for-the-under-tens you get inflation in two situations. First is
where enough folk have enough cash in their pockets for producers/manufacturers/retailers to
hike their prices without hitting their sales too much and secondly where there's a shortage of
stuff people want and/or need which leads to a bidding war. However I'd agree with Blyth that
neither condition exists now or seems likely to arise for a while, making a "˜spike' in
inflation unlikely.
I am a non-economist, and so my thoughts below may be wrong. However, here goes.
I would say we have had inflation. Roaring inflation. For the past 20 years of so.
Inflation in wages and ordinary costs of living? No, wages have been stagnant. Health care
has led the charge in cost of living increases, but most other living expense increases have
been low.
Inflation in asset prices? We have had massive inflation in the costs of residential housing
where I live.
20 years ago I could buy a 5 br, 3 bath home on a decent block in a good area close to
everything for $270,000 dollars. Sure it needed some renovation, but still"¦. Now to buy
that home it would cost me around $1,250,000. So that home has gone up in value by 500%. Man,
that is inflation.
As I understand it, asset inflation is not counted by governments in the GDP or CPI. It
appears that those who have most of the assets don't want this to be counted, by the very fact
that they control the politicians who control what is counted, and asset inflation isn't
counted in the economic data that the politicians rely upon to prove how prudent they are.
So if you want a day to day example of where all this free money is going, look at housing.
And also have a quick look at the insane increases in the worth of billionaires. They love all
this government spending which magically? seems to end up, via asset purchase and asset price
inflation, in their pockets.
Price is what one pays, value is what one gets. That house is roughly the same, so the value
has not changed, but the price has gone up by a factor of 5
Same with stawks. One share of Amazon stawk is $3,467.42 as of yesterday.
What is its value? If Bezos can work his tools ever harder, monitor them down to the
nanosecond and wring ever moar productivity out of them before throwing them in the tool
dumpster behind every Amazon warehouse, the value proposition is that someone else will believe
the stawk price should be even higher, at which point one can sell it at greater price for a
profit.
What is inflation? Good question. I'd say inflation is fear of monetary devaluation. Not
devaluation, just the fear of it. We'll never overcome this unease if we always deal in
numbers. Dollars, digits, whatever. We need to deal in commodities " let's call just about
everything we live with and use a "commodity". Including unpaid family help/care; and the more
obvious things like transportation. If we simply took a summary of all the necessary things we
need to live decent lives " but not translated into dollars because dollars have no sense " and
then provided these necessities via some government agency so that they were not "inflated" in
the process and thereby provided a stable society, then government could MMT this very easily.
Our current approach is so audaciously stupid it will never make sense let alone balance any
balance sheets. That's a feature, not a bug because it's the best way to steal a profit. The
best way to stop demand inflation or some fake scarcity or whatever is to provide the necessary
availability. That's where uncle Joe is gonna run headlong into a brick wall. He has spent his
entire life doing the exact opposite.
The figure for the upward transfer of wealth from the Rand Study was $50 trillion between
1975-2018. It was adjusted up by the authors from $47 trillion to bring it up to 2020
trends.
Now the interesting thing to me is this " look at the date of the publication in Time
magazine: Sept. 14, 2020, so right in the heart of campaign fever, and it never came up in the
debates, in the press"¦I didn't hear about it until Blyth made one of his appearances on
Jay's show with Rana Foroohar. Long after the election.
As long as 80% of Americans are head over heels in debt and 52% of 18-to-29-year-olds are
currently living with their parents, there never will be the wage inflation of the 1970s. A
majority of the people arrested for the Capitol riot had a history of financial trouble. The
elite blue zones in Washington State and Oregon that prospered from globalism are seeing a
spike in coronavirus cases. North American neoliberal governments have failed dismally. It is
intentional in order to exploit more wealth for the rich from the natural resources and
workers. If the mRNA vaccines do not control coronavirus variants, and a workable national
public health system is not implemented; succession and chaos will bring on Zimbabwe type
inflation.
There is a reason why Portland Oregon has been a center of unrest for the past year. The
Elite just do not want to see it. How can Janet Yellen deal with this? She can't. She is an
Insider. She was paid 7.2 million dollars in speaker and seminar fees in the last two years not
to.
"... Despite the fact that most moving-average-crossover signals provide some form of maximum loss reduction in comparison to a buy-and-hold strategy, their ability to outperform the underlying market is limited. Furthermore, the recent underperformance of such crossover signals since 2009 is a typical phenomenon rather than a temporarily one. This is because a negative crossover signal does not necessarily predict significant and longer-lasting downturns, or bear markets. Nevertheless, if investors are more focused on maximum draw-down reduction, such crossover signals are worth looking at, though they should definitely not be the sole source of information. ..."
Advisor Perspectives welcomes guest contributions. The views presented here do not
necessarily represent those of Advisor Perspectives.
Moving-average-crossover strategies have worked out very well in recent years. They
prevented their followers from being invested in equities during the tech bubble and the
financial crisis. Nevertheless, most of those strategies have underperformed the broad
equity market since 2009. In this article, I will analyze all possible
moving-average-crossover signals for the S&P 500 since 1928, to see if these strategies
provide any value for investors.
Introduction
Mebane Faber's 2007 paper " A Quantitative Approach to
Tactical Asset Allocation " has become quite popular among the investment community. In
this paper, he demonstrated that a very simple 10-month moving average could be used as an
effective investment strategy. To be more precise, Faber used a 10-month moving average to
determine if an investor should enter or exit a position within a specific asset class.
When the closing price of any given underlying closes above its 10-month moving average (10
months is approximately 200 trading days), the investor should buy, and when the price
closes below the 10-month moving average, the investor should sell. As this strategy has
worked out very well in the past and is very easy to follow, many investors have adopted
similar moving-average-crossover strategies for their personal portfolios. A lot of
articles have been published about how to apply or improve on Faber's ideas.
Another famous moving-average-crossover pattern is called the "golden cross." It occurs
when the 50-day moving average of a specific underlying security crosses above its 200-day
moving average. The claim is that this signifies an improvement in the underlying trend
structure of any given security. Investors should move into cash if the golden cross turns
into a "death cross," in which the 50-day moving average crosses below the 200-day moving
average. Within the last decade, most of those moving-average-crossover strategies have
worked out very well, as shown in the chart below. This was mainly because those moving
average strategies prevented their followers from being invested in equities during the
tech bubble and the financial crisis.
Nevertheless, most of those crossover strategies have underperformed the broad equity
market since 2009, as shown in the chart below, where the payoff from the golden cross
since 2009 is depicted. This was mainly because we have not seen any longer-lasting
downturn since then.
The recent underperformance of such strategies is not a big surprise at all, as all
trend-following strategies are facing the typical "late in, late out" effect. Therefore,
such an approach can only outperform a simple buy-and-hold strategy during longer lasting
bear markets. However, many investors try to avoid the typical late-in-late-out effect by
choosing shorter moving-average combinations, which has, of course, the negative effect of
increased trading activities.
Despite the fact that those moving-average-crossover signals are quite popular, I have
not found any research paper that evaluates all possible moving-average-crossover
combinations to determine whether such strategies provide any additional value for
investors.
Methodology
Let's analyze all possible moving-average-crossover signals for the S&P 500 from
Dec. 31, 1928, until June 11, 2014, to get an unbiased view of the pros and cons of such
crossover signals. In addition, I would like to determine if the recent underperformance of
those crossover signals compared to a simple buy-and-hold strategy is typical or just a
temporary phenomenon. Moreover, I would like to find out if the outcome of a specific
crossover strategy tends to be stable or more random in its nature. For simplicity, I have
assumed a zero nominal rate of return if a specific strategy was invested in cash.
Moreover, in our example there is no allowance for transaction costs or brokerage
fees.
Results
In the following charts I analyze different kind of key metrics (z-axis), and the time
frame for each single moving average is plotted on the x and y axis, respectively. For
example, the key metric for the golden cross strategy (50:200) can be found if you search
the crossing point of the 50 day moving average (x-axis=50) and the 200 day moving average
(y-axis=200). I tested all combinations of lengths (in days) of moving averages crossing
over one another.
All moving crossover strategies provide some form of maximum loss reduction. If we
consider the fact that the biggest decline from the S&P 500 was 86% during the 1930s,
the main advantage of such strategies become quite obvious.
In total, there were only three combinations of days (70/75, 65/80 and 70/80) that faced
a maximum loss exceeding the maximum loss from the S&P 500. All other combinations
faced losses less than a typical buy-and-hold strategy. Especially in the range from 50/240
days to 220/240 days, the maximum loss ranged between -40% and 060%, which is quite an
encouraging ratio if we consider the 86.1% from the S&P 500. Moreover, as we can see
that in that region, this drawdown reduction was or tends to be quite stable over time --
this area can be described as a plateau. If this effect was a random variable within that
specific time range, there would have been many more spikes in that area. Therefore, small
adjustments within the time frames of any moving average are likely to have not a big
impact at all, regarding to this ratio. The case is quite different if we analyze the area
around 1/100 days to 1/200 days. In that area, small adjustments within the time frame of
each moving average could lead to quite different results and are therefore highly likely
to be random.
Another typical relationship is that as the number of trades increases, both moving
averages become shorter. This, of course, is due to transaction costs. For that reason,
most followers of such a strategy prefer a combination of short-term-oriented and
long-term-oriented moving averages to reduce the total number of trades.
If we focus on the annualized performance of those moving-average-crossover signals
since 1929, we can see that all combinations delivered a positive return since then. This
outcome is not a big surprise at all, as the S&P 500 has risen by nearly 8,000% since
then. Therefore, any continuous participation within the market should have led to a
positive performance.
Another interesting point is the historical ability of those crossover signals to
outperform a simple buy-and-hold strategy. In the second graph, we only highlighted those
moving-average-crossover combinations that have been able to outperform a buy-and
hold-strategy. We can see that the best combination (5/186) was able to generate a yearly
outperformance of 1.4% on average, with no transaction costs included. Nevertheless, we can
see a lot of spikes in that graph. Most outcomes are highly likely to be random by their
nature. For example, the 5/175 combination delivered a yearly outperformance of 1.3% on
average, while the 10/175 crossover outperformance was only 0.3% and the 20/175
underperformed the market by almost 0.5% on average.
Therefore, the outperformance of most crossover signals depends on pure luck. The case
is slightly different if we focus on the area between 1:100/ 200:240, as all combinations
in that range managed to outperform the S&P 500. The outperformance was quite stable
over time, as small adjustments within the timeframe of each moving average did not lead to
big differences in terms of outperformance. Nevertheless, the yearly outperformance in that
region was only 0.58% on average. Please bear in mind that I have not included any
transaction costs in our example.
Generating
absolute returns
Outperformance is just one side of the story. Investors might be also interested in
generating absolute rather than relative positive returns. I looked at the ability of any
moving-average-crossover combination to generate absolute positive returns. I analyzed how
many signals of each moving-average-crossover combination were profitable in the past,
expressed in percentage terms. A lot of combinations delivered long signals, which have
been profitable more than 50% of the time. The area around 50/120 days to 200/240 days
tends to be pretty stable, as the percentage of absolute positive signals is slowly
increasing to the top. It looks like some moving-average combinations have the ability to
forecast rising markets.
Unfortunately, this does not hold in most cases, as the percentage of absolute positive
signals strongly depends on the number of days each moving-average combination was invested
in the S&P 500. This becomes quite obvious if we consider that the S&P 500 has
risen slightly less than 8,000% since 1929. Any exposure to the market in that time period
is highly likely to produce a positive return! This effect can be seen on the second graph
below, which shows the average long-signal length of each moving crossover combination,
measured in days. If we compare both graphs, we can see a strong relationship between the
average signal length and the percentage of positive performing signals. Nevertheless, some
combinations tend to be better suitable for catching a positive trend than
others.
As any moving-average combination could only outperform the market during a
longer-lasting downturn, it is also interesting to examine how often a cash signal
(negative crossover signal) was able to outperform the market. In such a case, the S&P
500 must have performed negative during that specific time period. The ratio can be also
seen as the probability that a bearish crossover signal indicates a longer-lasting
downturn. As you can see in the graph below, the S&P 500 performed negative in less
than 50% of all cases after any moving-average-crossover combination flashed a bearish
crossover signal. In addition, the graph is extremely spiked, indicating that this poor
outcome tends to be completely random.
The bottom
line
Despite the fact that most moving-average-crossover signals provide some form of
maximum loss reduction in comparison to a buy-and-hold strategy, their ability to
outperform the underlying market is limited. Furthermore, the recent underperformance of
such crossover signals since 2009 is a typical phenomenon rather than a temporarily one.
This is because a negative crossover signal does not necessarily predict significant and
longer-lasting downturns, or bear markets. Nevertheless, if investors are more focused on
maximum draw-down reduction, such crossover signals are worth looking at, though they
should definitely not be the sole source of information.
Paul Allen is the head of quantitative/technical market analysis ofWallStreetCourier.com, an
independent research- and investment advisor for selected stock market information.
Last Wednesday, Federal Reserve Chair Jerome Powell showed how simple questions do not
always get simple answers. When speaking to the media after the latest Federal Open Market
Committee ( FOMC ) meeting,
some difficult questions were asked. So much so, Powell had to repeat one question to himself,
asking:
When will the economy be able to stand on its own feet?
He immediately followed with:
I'm not sure what the exact nature of that question is.
FOX News correspondent Edward Lawrence elaborated, asking when the Fed would lower the
number of treasuries it buys, and when the economy would function "without having that support
from the monetary side."
Powell found ways to avoid answering the idea of a nation which stands without central bank
supports, but he did refer to various "tests" the Fed will do in order to make decisions like
shrinking the balance sheet, explaining:
we've articulated our test for that, as you know, and that is just we'll continue asset
purchases at this pace until we see substantial further progress.
He went on to say that prior to making any decisions, such as buying fewer treasuries, they
will give the public a lot of notice beforehand.
There was also a question related to the Fed's influence in the housing market:
the housing market is strong, prices are up. And yet, the Fed is buying $40 billion per
month in mortgage related assets. Why is that, and are those purchases playing a role at all
in pushing up prices?
Despite amassing nearly $2.2 trillion of mortgage-backed securities
(MBS), Powell defended the central bank on the grounds that:
I mean, we started buying MBS because the mortgage-backed security market was really
experiencing severe dysfunction, and we've sort of articulated, you know, what our exit path
is from that. It's not meant to provide direct assistance to the housing market.
To be clear, the "severe dysfunction" occurred over a decade ago, when the Fed entered the
MBS market. As for the public knowing the exit path or not providing assistance to the housing
market, both ideas are highly debatable, to say the least.
But even more puzzling is when Powell says that during the current COVID crisis:
We bought MBS, too. Again, not intention to send help to the housing market, which was
really not a problem this time at all.
Strange, the Fed would commit to buying $40 billion a month of MBS when, according to the
Chair, there were no problems in the market. He concludes that purchases will go to zero over
time, but the "time is not yet."
The final question asked was in regards to market intervention:
if you get out of the markets, there aren't enough buyers for all of the Treasury debt?
And so, rates would have to go way up. Bottom line question is what do we get for $120
billion a month that we couldn't get for less?
Powell never explained what exactly "we get for $120 billion" a month, but assured us the
Fed was looking to reach its goals, and this was part of its plan. However, he did comment on
purchases, saying:
But if we bought less, you know, no. I mean, I think the effect is proportional to the
amount we buy And we articulated the, you know, the test for withdrawing that accommodation.
And we think, you know. So, we're waiting to see those tests to be fulfilled, both for asset
purchases and for lift off of rates. And, you know, when the tests are fulfilled, we'll go
ahead as, you know, we've done this before.
Between various tests to determine policy, vague responses, and a general avoidance of
answering questions directly, not much was offered other than providing perpetual liquidity
injections under accommodative monetary conditions. It was refreshing to see the mainstream
media ask more questions about the plan ahead; we can only hope the mainstream economic
community will do the same.
Janet Yellen caused market ructions when she noted in public that: "It may be that interest
rates will have to rise somewhat to make sure that our economy doesn't overheat, even though
the additional spending is relatively small relative to the size of the economy."
Firstly, because rates aren't the Treasury Secretary's job to comment on - EVER. Yes, there
is the same need for endless hockey-stick-projection optimism on growth, the same silken spiel,
and the same one-size-fits-all Panglossian policy prescriptions (of various vintages: Slash
taxes! Raise taxes!) in both roles: but there is a separation of powers between the two.
Secondly, because that very same Panglossian policy from the Fed has got global markets to
the point where the mere idea of small increase in US rates is going to bring a whole lot of
precariously-levered objects tumbling down. It's a good job that interest rates never, ever,
ever have to go up again then, isn't?
Naturally, Yellen immediately had to walk back these comments when qualifying that rate
increases " are not something that I am predicting or recommending ." So just what was the
correct verb then? Speculating? Hypothesizing? Imagining? Dreaming? Deluding?
For now, markets can happily seize on all of the usual Fed-driven speculative hypotheticals
to imagine, dream, and delude themselves to greater wealth as usual . US couples everywhere can
keep fantasizing that they too can one day get a billionaire divorce. Yet it's not as if Yellen
doesn't have just *a little* bit of experience in this rate field thing. It's not as if she
might not end up thinking a certain way on autopilot in the new job, and saying the quiet part
out loud – is it?
Of course, the question of who is driving applies to the Fed itself . Yellen added: "If
anyone appreciates the independence of the Federal Reserve I think that person is me." Yet
unlike the BOE, for example, the Fed allows US banks a major role (if not "ownership") in its
12 regional Reserve Banks, alongside balancing presidential appointees. So it a fusion body,
and even if it is independent of the Treasury, that is hardly true of all influence: the reason
for having 12 regional Reserve Banks was originally to water down that of Wall Street. Yet how
is that working out, and where are the union/labour representatives, for example? That's a
structural issue the US press doesn't talk about much even as much of it obsesses about power
structures everywhere else; but, sadly, anti-Semitic conspiracy theorists more than compensate,
because that's their defined role.
Meanwhile, we all know the Powell Fed is still firmly in pedal-to-the-metal mode . Yellen
just agreed to stay in the back seat in that regard, even if her proposed fiscal policy is the
equivalent of winding down the window and sticking her head out of it, like a dog having a good
time, which should see any caring central bank driver reduce speed accordingly.
The question remains, however, as to exactly what is driving the massive surge in commodity
prices we are still seeing all round us? Headlines yesterday were that corn hit USD7 a bushel,
the highest since 2013. Today Bloomberg reports "Raw materials surging across tighter markets
and recovery; Consumer prices rising as manufacturers pass on higher costs." Once upon a time,
central banks used to do something when headlines like this were seen. So why no need to brake?
Because this is all transitory, as Powell and Yellen, at the second attempt, just
underlined.
But how so? Is it Covid-19 related? We already hear that semiconductor supply will be
pinched for years. Or perhaps it is all just happening "because markets", as seems to be the
general consensus? Or, just maybe, the Fed, and other major central banks, are also playing a
role via their pedal-to-the-metal liquidity? Another key driver is Wall Street realising
commodities are an inflation hedge too – even as that creates the inflation they are
trying to avoid. (Don't worry: they still get to eat. Others might not though.) Another is
China's voracious commodity appetite. (Don't worry: they still get to eat. Others might not
though.) One thing we can be sure of. Prices seem to be moving significantly higher, and not
just due to the expected base effects.
Ironically, the only way in which Powell --and Yellen-- can be sanguine about this is in the
knowledge that even if prices go up, US wages almost certainly won't. Yes, at the moment we are
anecdotally seeing US labour shortages as millions of previously low-paid workers prefer to
live off of their last stimulus cheque rather than report for the daily drudgery. But have you
heard any anecdotes of wages going up as a result – or rather of businesses closing down,
or automating? As has been repeated here many times, are the structures *really* being put in
place to support sustained higher wages? If not, it's just higher prices - and so lower real
wages.
I am not sure that the 12 regional Reserve Banks and those in DC are aware of what that will
feel like to Joe Public. More so if their logical response is to keep monetary stimulus high,
and so pushing real wages even lower. If mishandled, this could easily drive us off a cliff. As
such, who is really in the driver's seat?
3 play_arrow
Cloud9.5 3 hours ago (Edited)
Who is running the show? The front is the CIA. Who is behind it? A collection of
oligarchs.
Brill 3 hours ago
No mention of Rothschild?
No mention of Rockefeller?
Joe Bribem 2 hours ago
The biggest cockroaches are never mentioned.
Lordflin 3 hours ago remove link
Geopolitics are in the driver's seat...
The economy is along for the ride...
radical-extremist 2 hours ago
If Antifa had any brains (which they don't), they'd be marching and rioting against the
CIA and the Fed - not the Proud Boys, ICE and local police stations. They're fighting to tear
down the SYSTEM, and they don't even know what or where the SYSTEM really is.
PAsucks 2 hours ago
"I am not sure that the 12 regional Reserve Banks and those in DC are aware of what that
will feel like to Joe Public." It's called a lack of empathy, an important trait of
sociopaths. Federal Reserve is an arm of .gov - a criminal organization.
Apollo Capricornus Maximus 2 hours ago
The unelected Council of Foreign Relations kleptocratic oligarchy is in charge of the
kinetic and psychological manipulation of Western finances and zeitgeist. The Federal
Reserve, CIA, National Security state, MSM, Congress all report and obey this criminal cabal
of whom every member should be hung by the American people.
Last Wednesday, Federal Reserve Chair Jerome Powell showed how simple questions do not
always get simple answers. When speaking to the media after the latest Federal Open Market
Committee ( FOMC ) meeting,
some difficult questions were asked. So much so, Powell had to repeat one question to himself,
asking:
When will the economy be able to stand on its own feet?
He immediately followed with:
I'm not sure what the exact nature of that question is.
FOX News correspondent Edward Lawrence elaborated, asking when the Fed would lower the
number of treasuries it buys, and when the economy would function "without having that support
from the monetary side."
Powell found ways to avoid answering the idea of a nation which stands without central bank
supports, but he did refer to various "tests" the Fed will do in order to make decisions like
shrinking the balance sheet, explaining:
we've articulated our test for that, as you know, and that is just we'll continue asset
purchases at this pace until we see substantial further progress.
He went on to say that prior to making any decisions, such as buying fewer treasuries, they
will give the public a lot of notice beforehand.
There was also a question related to the Fed's influence in the housing market:
the housing market is strong, prices are up. And yet, the Fed is buying $40 billion per
month in mortgage related assets. Why is that, and are those purchases playing a role at all
in pushing up prices?
Despite amassing nearly $2.2 trillion of mortgage-backed securities
(MBS), Powell defended the central bank on the grounds that:
I mean, we started buying MBS because the mortgage-backed security market was really
experiencing severe dysfunction, and we've sort of articulated, you know, what our exit path
is from that. It's not meant to provide direct assistance to the housing market.
To be clear, the "severe dysfunction" occurred over a decade ago, when the Fed entered the
MBS market. As for the public knowing the exit path or not providing assistance to the housing
market, both ideas are highly debatable, to say the least.
But even more puzzling is when Powell says that during the current COVID crisis:
We bought MBS, too. Again, not intention to send help to the housing market, which was
really not a problem this time at all.
Strange, the Fed would commit to buying $40 billion a month of MBS when, according to the
Chair, there were no problems in the market. He concludes that purchases will go to zero over
time, but the "time is not yet."
The final question asked was in regards to market intervention:
if you get out of the markets, there aren't enough buyers for all of the Treasury debt?
And so, rates would have to go way up. Bottom line question is what do we get for $120
billion a month that we couldn't get for less?
Powell never explained what exactly "we get for $120 billion" a month, but assured us the
Fed was looking to reach its goals, and this was part of its plan. However, he did comment on
purchases, saying:
But if we bought less, you know, no. I mean, I think the effect is proportional to the
amount we buy And we articulated the, you know, the test for withdrawing that accommodation.
And we think, you know. So, we're waiting to see those tests to be fulfilled, both for asset
purchases and for lift off of rates. And, you know, when the tests are fulfilled, we'll go
ahead as, you know, we've done this before.
Between various tests to determine policy, vague responses, and a general avoidance of
answering questions directly, not much was offered other than providing perpetual liquidity
injections under accommodative monetary conditions. It was refreshing to see the mainstream
media ask more questions about the plan ahead; we can only hope the mainstream economic
community will do the same.
ReadyForHillary 1 hour ago
When will the economy be able to stand on its own feet?
He immediately followed with:
I'm not sure what the exact nature of that question is.
HA HA HA HA!
HA HA HA HA HA HA HA HA!
CovidBannedTard 1 hour ago
C'mon man!!!
Lordflin 1 hour ago
The entire point to the Fed is to fail to answer tough questions...
no cents at all 1 hour ago
Or doublespeak. The fed probably has a talented linguistics department at their employ
Paul Bunyan 1 hour ago (Edited)
What they have always said is moronic. Yet the world is full of morons, so the people
can't see through the lies.
Miniminer1 1 hour ago
Not a confidence builder
SDShack 1 hour ago (Edited)
Good god, how many 'you know' responses did Powell have? Sounds like some brain dead
zoomer...'it's like, you know, complicated, and like, you know, we are working on it.' A
complete 'Emperor has no clothes' moment. And these are supposed to be the smartest people on
the planet. Clueless or just evil liars. Or both.
mtl4 53 minutes ago
I'll take both for $1000 Alex
Ajax_USB_Port_Repair_Service_ 1 hour ago
The Fed intervenes everyday, all day, because they have to. There is no market without the
Fed.
CovidBannedTard 1 hour ago
You know!!!....The Thing!!!
C'mon Man!!
Paul Bunyan 1 hour ago (Edited)
The game is almost over. The dollar has 1-2 years left before a complete monetary reset.
Make sure you get out soon. You won't want to make last minute decisions.
JOHNLGALT. 1 hour ago
My last minute decision is:
1). Do I buy Ounces?
2). Do I buy Kilograms?
🦍🦍🚀🚀🚀😂🤣😎.
Emmet Fitz-Hume 1 hour ago
Powell, Greenspan, et al are just word-salad machines
Why should seniors and retirees be sacrificed with ZIRP in order to advance the interests
of the US Treasury and Corporate borrowers?
I would call it elder abuse. He should be required to address this question. Let's have
the Press do their job
Ben A Drill 41 minutes ago
Why should anyone gamble with their hard earned money to keep up with inflation?
AhabQuixote 50 minutes ago
This is a ponzi scheme in plain sight. It is as if Bernie Madoff told his clients that his
firm is a scam but a scam is the only way the system can function. It will all be fixed at
some point in the future when pigs fly.
nuerocaster 29 minutes ago
You may think that the Mises Institute and Rabo Bank are idiots. But think how hard it is
to present all this as managerial error and make stupendous wealth transference and money
laundering sound like oopsie.
archipusz 1 hour ago
Why even ask.
They are going to print. Congress wants them to print. All the elite benefit from the
printing.
It is not going to stop.
JOHNLGALT. 1 hour ago
WE will stop them!!
We are a community that loves Silver, Period. 72.4k. Silverbacks. 2.2k. Online now Created
29 Jan 2021.
Go SILVERBACKS 🦍🦍🦍🦍.
This is a movement to bring the
🐍🐍🐍BANK$TER$🐍🐍🐍DOWN.
Biden the moron dictator doesn't like to answer questions either
ChromeRobot 47 minutes ago
Basically, if you haven't figured it after 108 years, these clowns don't have the
slightest clue what they're doing or worse....do.
Revolution_starts_now 1 hour ago
Do you prefer GITMO or SuperMax?
Ajax_USB_Port_Repair_Service_ 17 minutes ago
I'll take GITMO. Nonsmoking, non-vaccinated, section please.
CrabbyR 1 hour ago (Edited)
Politicians and banker's first language is bafflegab
Misesmissesme 1 hour ago (Edited)
Answers? We ain't got no answers! We don't need no answers! I don't have to give you any
steenking answers!
Backhandslicer 23 minutes ago
Life support? They have created a monster and the monster is ravaging the country side
Backhandslicer 25 minutes ago
Powell is thinking I'm a currency printing machine and all the chicks dig me I shouldn't
have to answer any questions
Backhandslicer 35 minutes ago
Powell sounds like the absent minded janitor
Backhandslicer 36 minutes ago (Edited)
Eliminate the central bank and use only metals as money with paper currency withdrawable
for any of the metals at any bank or credit union
CosmoJoe 35 minutes ago
Seriously? I haven't carried cash in years. I don't want to. I don't want to carry a bunch
of gold and silver around in a little money sack. It isn't the f&cking middle ages.
zorrosgato 31 minutes ago
A paper currency backed by gold would work fine enough.
MASTER OF UNIVERSE 18 minutes ago
Would cement bricks painted gold work well enough if we never allowed anybody to test gold
samples to verify authenticity?
That's what Fort Knox is, right?
MOU
Backhandslicer 26 minutes ago
Does a 100 dollar bill in your pocket give you a rash?
CosmoJoe 19 minutes ago
I wouldn't know, I don't carry $100 in my pocket.
permanent victim 55 minutes ago
The fed will be all powerful till the world abandons the dollar. Until then they will
print shamelessly
Ben A Drill 48 minutes ago
Understand the free masons and you will see how much evil is in the world.
Realism 1 hour ago
The list of paid liars keeps growing
VWAndy 1 hour ago
Why shouldnt they be hung from lamp posts is a valid question too.
Rainman 1 hour ago
By now we all know the bankster-owned Fed and the US Treasury are one and the same
entity.
Old Hickory twitches in his grave...
dlfield 1 hour ago
A: Why never, because then I would be out of a job.
sarret PREMIUM 1 hour ago
Here's a difficult question Powell. Do you identify more with a disabled penguin or a gay
orangutan? Get it wrong and you will be cancelled ya numpty.
JohnnyCrypto 19 seconds ago
Yeah, MadeofTheta was right!
It's over!
ClamJammer 2 minutes ago
Learned everything he knew about not answering questions from Pompeo........we lie, we
steal, we cheat.........
permanent victim 10 minutes ago
As long as the markets are up I am doing what I am getting paid to do
cowdiddly 14 minutes ago
Ummm....errrr... Questions? We don't need no stinking questions.
IDESofMARCH 16 minutes ago remove link
FED policy picks and chooses which busines fails and which makes all the money.
FED kills Ma and Pa Bus DEAD, Wall Mart, HD, Chain Restaurants and Dollar Stores all
having a good time raising prices.
Treasury Secretary walks backs comments she made earlier suggesting that
rates might rise
Treasury Secretary Janet Yellen said Tuesday she is neither predicting nor recommending that
the Federal Reserve raise interest rates as a result of President Biden's spending plans,
walking back her comments earlier in the day that rates might need to rise to keep the economy
from overheating.
"I don't think there's going to be an inflationary problem, but if there is, the Fed can be
counted on to address it," Ms. Yellen, a former Fed chairwoman, said Tuesday at The Wall Street
Journal's CEO Council Summit.
Ms. Yellen suggested earlier Tuesday that the central bank might have to raise rates to keep
the economy from overheating, if the Biden administration's roughly $4 trillion spending plans
are enacted.
Banks including Goldman
Sachs Group Inc., Morgan Stanley and UBS are focused on hedge funds with very concentrated
positions, including those that attempt to increase their returns by borrowing a significant
amount of money, fund managers said. Some are running stress tests to see where they could have
shortfalls if some of a fund's positions precipitously drop. Newly empowered credit-risk
departments are reviewing clients with portfolios that are far more diversified than
Archegos's.
Several banks are starting to rework agreements with a number of clients to change the terms
of equities total-return swaps, said prime-brokerage executives and advisers to funds.
Total-return swaps are derivative contracts that helped Archegos anonymously amass huge
positions across multiple lenders, without the knowledge of those lenders and with little money
upfront. Archegos's collapse has sparked calls for tougher regulation of such swaps.
Swaps give their holders exposure to the profits and losses of the securities underlying the
agreements but not ownership. In the case of Archegos, for example, the family office had swap
agreements with multiple banks giving it exposure to ViacomCBS Inc. But the banks actually held
the shares.
As things stand now, some margin requirements are fixed. Going forward, some clients will be
regularly required to post additional collateral based on the changing market value of their
portfolios or factors such as increases in volatility or concentration. Many swaps agreements
already have such a margin requirement, though some larger clients with more negotiating power
don't.
Elizabeth Schubert, a partner at Sidley Austin LLP who advises hedge-fund clients on
negotiating their trading relationships with dealers, said she has seen several banks recently
move to look at a client's cash and swaps positions together when determining the collateral
required.
For dealers, "it gives them more control from a risk-management perspective -- but clients
lose a lot of control and transparency about the margin they have to post," Ms. Schubert said.
She added that fund managers who lived through the failure of Lehman Brothers, which tied up
some funds' assets for years, remain wary about posting more than a minimal amount of
margin.
Several banks, including Morgan Stanley, have spoken with clients about fully or partly
terminating swaps, said people briefed on the conversations. Such moves could help lower the
lenders' exposure to swaps and in instances reduce the leverage a fund is using.
Banks including Goldman
Sachs Group Inc., Morgan Stanley and UBS are focused on hedge funds with very concentrated
positions, including those that attempt to increase their returns by borrowing a significant
amount of money, fund managers said. Some are running stress tests to see where they could have
shortfalls if some of a fund's positions precipitously drop. Newly empowered credit-risk
departments are reviewing clients with portfolios that are far more diversified than
Archegos's.
Several banks are starting to rework agreements with a number of clients to change the terms
of equities total-return swaps, said prime-brokerage executives and advisers to funds.
Total-return swaps are derivative contracts that helped Archegos anonymously amass huge
positions across multiple lenders, without the knowledge of those lenders and with little money
upfront. Archegos's collapse has sparked calls for tougher regulation of such swaps.
Swaps give their holders exposure to the profits and losses of the securities underlying the
agreements but not ownership. In the case of Archegos, for example, the family office had swap
agreements with multiple banks giving it exposure to ViacomCBS Inc. But the banks actually held
the shares.
As things stand now, some margin requirements are fixed. Going forward, some clients will be
regularly required to post additional collateral based on the changing market value of their
portfolios or factors such as increases in volatility or concentration. Many swaps agreements
already have such a margin requirement, though some larger clients with more negotiating power
don't.
Elizabeth Schubert, a partner at Sidley Austin LLP who advises hedge-fund clients on
negotiating their trading relationships with dealers, said she has seen several banks recently
move to look at a client's cash and swaps positions together when determining the collateral
required.
For dealers, "it gives them more control from a risk-management perspective -- but clients
lose a lot of control and transparency about the margin they have to post," Ms. Schubert said.
She added that fund managers who lived through the failure of Lehman Brothers, which tied up
some funds' assets for years, remain wary about posting more than a minimal amount of
margin.
Several banks, including Morgan Stanley, have spoken with clients about fully or partly
terminating swaps, said people briefed on the conversations. Such moves could help lower the
lenders' exposure to swaps and in instances reduce the leverage a fund is using.
Are we suppose to believe that Credit Suisse, Morgan Stanley, Goldman Sachs, et al, were
really blindly investing billions with a family office? Is it really true that the head of
the office had had his brokerage license taken away by the SEC and only recently restored by
the Trump administration?
Goldman Sachs apparently knew enough to pull their money out in time.
The real issue is whether investment bankers were taking advantage of the less stringent
regulation of a family office in order to manipulate the markets. Manipulation like the
creation of short squeezes on target stocks. Is that even legal?
Banks including Goldman
Sachs Group Inc., Morgan Stanley and UBS are focused on hedge funds with very concentrated
positions, including those that attempt to increase their returns by borrowing a significant
amount of money, fund managers said. Some are running stress tests to see where they could have
shortfalls if some of a fund's positions precipitously drop. Newly empowered credit-risk
departments are reviewing clients with portfolios that are far more diversified than
Archegos's.
Several banks are starting to rework agreements with a number of clients to change the terms
of equities total-return swaps, said prime-brokerage executives and advisers to funds.
Total-return swaps are derivative contracts that helped Archegos anonymously amass huge
positions across multiple lenders, without the knowledge of those lenders and with little money
upfront. Archegos's collapse has sparked calls for tougher regulation of such swaps.
Swaps give their holders exposure to the profits and losses of the securities underlying the
agreements but not ownership. In the case of Archegos, for example, the family office had swap
agreements with multiple banks giving it exposure to ViacomCBS Inc. But the banks actually held
the shares.
As things stand now, some margin requirements are fixed. Going forward, some clients will be
regularly required to post additional collateral based on the changing market value of their
portfolios or factors such as increases in volatility or concentration. Many swaps agreements
already have such a margin requirement, though some larger clients with more negotiating power
don't.
Elizabeth Schubert, a partner at Sidley Austin LLP who advises hedge-fund clients on
negotiating their trading relationships with dealers, said she has seen several banks recently
move to look at a client's cash and swaps positions together when determining the collateral
required.
For dealers, "it gives them more control from a risk-management perspective -- but clients
lose a lot of control and transparency about the margin they have to post," Ms. Schubert said.
She added that fund managers who lived through the failure of Lehman Brothers, which tied up
some funds' assets for years, remain wary about posting more than a minimal amount of
margin.
Several banks, including Morgan Stanley, have spoken with clients about fully or partly
terminating swaps, said people briefed on the conversations. Such moves could help lower the
lenders' exposure to swaps and in instances reduce the leverage a fund is using.
Are we suppose to believe that Credit Suisse, Morgan Stanley, Goldman Sachs, et al, were
really blindly investing billions with a family office? Is it really true that the head of
the office had had his brokerage license taken away by the SEC and only recently restored
by the Trump administration?
Goldman Sachs apparently knew enough to pull their money out in time.
The real issue is whether investment bankers were taking advantage of the less stringent
regulation of a family office in order to manipulate the markets. Manipulation like the
creation of short squeezes on target stocks. Is that even legal?
big institutions are currently selling into strength.
2) May and June (especially the second half of June) tend to be challenging months for the
market. After the first week of May, approximately 80% of S&P 500 companies will have
reported their earnings. The news cycle will then shift away from fundamentals to politics,
interest rates, and any geopolitical concerns. Speaking of interest rates, as the economy
slowly gets back to normal, it wouldn't surprise me to see the 10-year yield return to its
levels from January 2020 (around 1.8%-2.0%). If this happens, it will lead to further
compression in the multiples of growth stocks.
3) The IRS deadline for filing tax returns was extended this year to May 17. We will likely
see tax selling prior to this because 2020 was a strong year for the markets, and many people
will have capital gains taxes to pay by this date. On a related note, the new administration
seems determined to raise taxes, specifically capital gains taxes. I don't believe they will
get any of these new proposals approved, but the continuous headlines could keep some pressure
on the market over the near-term.
4) The S&P 500 ( ^GSPC ) historically averages a 10% return per
year. So far this year, it is up over 11%. It wouldn't be unreasonable to see a normal
correction or some technical digestion before heading higher later in the year. Also, since
1980, the average intra-year correction is -14.3%.
5) A few sentiment measures are showing high levels of bullishness. For example, the latest
NAAIM Exposure
Index , which measures exposure by active investment managers, is at its highest level in
over two months. Any minor pullback would shake out some of this excess bullishness, as
investors are still quick to rush out the door when the market starts to drop.
Art 14 hours ago The major fundamental issue now is the soon-to-be-obvious inflation triggered
by the six trillion dollar man and the always wrong federal reserve policies. Ultimately,
fundamentals decide stock market valuations. Reply 13 2 Allen 1 day ago If Apple's earnings
couldn't lift the market then nothing will. Look the market is near or at all time highs and
valuations are stretched to say the least. The easy money has already been made the current
risk reward is to the downside. The market is way overdue for at least a 10-20% correction
which would be healthy. "As they say... stairs up elevator down." Reply 7 1 EmEs 1334 14 hours
ago Several things wrong with the article. First, some Biden taxes will pass, because budget
reconciliation process works for taxing and spending. Not clear whether they will be
retroactive or when they will take effect, but I'd say next year. People with gains might be
induced to sell this year to take advantage of disappearing low cap gains rates - and selling
puts downward pressure on the market. Very little about that, here. Very little here about
fundamentals, like stretched P/E or CAPE ratios. Very little here about the tremendous amount
of money in the system from the Fed and from the fiscal stimulus bills that are pushing the
market higher, both because of more money chasing assets and because of expectations that the
economy will launch into hyper-drive because of the stimulus. Instead, this guy just thinks
that prices return to a mean of 10% per year - many years it is more and many it is less, so
that is no measure at all. Infantile analysis. But he could be right about the run-up running
out of steam. It certainly would be nice if the froth was skimmed off because I'd like a buying
opportunity and buying any stocks at these prices is pretty crazy. I'd by TAIL. Reply 4
DoublinDown 1 day ago Think you nailed it. Quality growth stocks selling off after great ER's
points to weakness underneath. This doesn't bode well for the overall market in the near term.
Bullying is an epidemic. It is rampant, widespread, pervasive and the effects can be
catastrophic. It occurs in our communities, in our schools – and sadly – even in
our homes. Bullying statistics are staggering, scary and merit serious consideration and
immediate action. Consider the following:
Facts and Statistics
90% of students in grades 4-8 report having been harassed or bullied.
28% of students in grades 6-12 experience bullying. 2
20% of students in grades 9-12 experience bullying. (stopbullying.gov)
In grades 6-12, 9% of students have experienced cyberbulling. 2
Over 160,000 kids refuse to go to school each day for fear of being bullied. (Nation
Education Association)
70.6% of students report having witnessed bullying in their school–and over 71% say
bullying is a problem.
Over 10% of students who dropout of school do so due to being bullied repeatedly.
Each month 282,000 students are physically assaulted in some way in secondary schools
throughout the United States–and the number is growing.
Statistics suggest that revenge [due to bullying] is the number one motivator for school
shootings in the U.S.
86% of students surveyed said, "other kids picking on them, making fun of them or
bullying them" is the number one reason that teenagers turn to lethal violence at
school.
Nearly 75% of school shootings have been linked to harassment and bullying.
87% of students surveyed report that bullying is the primary motivator of school
shootings.
64% of students who are bullied do not report it. (Petrosina, Guckenburg, Devoe and
Hanson 2010)
2 National Center for Education Statistics and Bureau of Justice
Statistics
Types of Bullying
When most people think about bullying they envision some kind of physical intimidation.
However, bullying can take on many forms which are just as emotionally and psychologically
damaging as physical intimidation and harassment. There are four general forms of bullying.
These include:
Physical – Physical bullying involves aggressive physical intimidation and is
often characterized by repeated tripping, pushing, hitting, kicking, blocking, or touching
in some other inappropriate way. Even though it's the most obvious form of bullying, it
isn't the most prominent.
Physical bullying is damaging and can be emotionally and psychologically devastating.
When a child fears for their safety, they're not able to focus on life and function
normally. Notwithstanding the trauma that physical bullying causes, most children don't
report it to a teacher or to their parents. Signs of physical bullying may include
unexplained scratches, bruises, and cuts, or unexplainable headaches or stomach aches.
However, the psychological effects of physical bullying may be even more pronounced than
the physical scars. Children who are withdrawn, struggle to focus, or become anti-social
may also be the recipients of physical bullying–even if there aren't any other
outward signs.
If you think your child or student is being bullied physically, talk to them in a casual
manner about what's going on before school, during class, during lunch or recess, and on
the way home from school. Ask them if anyone has been, or is being, mean to them. Keep your
emotions in check, and stay calm and caring in your tone, or your child may shut off and
not tell you what's happening. If you find that physical bullying is occurring, contact the
appropriate school officials, or law enforcement officers – there are anti-bullying
laws at the local, state and federal levels. Do not confront the bully, or the bully's
parents, on your own.
Verbal – Verbal bullying involves putting down others and bullying them using
cruel, demeaning words. Verbal bullying includes name calling, making racist, sexist or
homophobic remarks or jokes, insulting, slurs, sexually suggestive comments, or abusive
language of any kinds. Verbal bullying is one of the most common forms of bullying.
So how do you know when a child is being verbally bullied? They may become moody,
withdrawn, and/or have a change in their appetite. They may be straight forward and tell
you that somebody said something that hurt their feelings, or ask you if something someone
said about them is true.
Verbal bullying can be difficult to address. The best way to deal with verbal bullying
is to build childrens' self confidence. Confident kids are less susceptible to verbal
bullying than those who already struggle with poor self esteem and self image. Students
should be taught in the classroom to treat everyone with respect and that there is never an
excuse for saying something mean or disrespectful to someone else.
Social – Social bullying is a common form of bullying among children and
students. It involves exclusion from groups, spreading malicious rumors and stories about
others, and generally alienating people from social acceptance and interaction. Next to
verbal bullying, social bullying is one of the most common forms of bullying.
Social bullying can be one of the hardest forms of bullying to identify and address
– but it's just as damaging as other forms of bullying, and the effects can last a
long time. Children being bullied socially may experience mood changes, become withdrawn,
and start spending more time alone. Social bullying is more common among girls than
boys.
The best way to identify social bullying is to stay close to your kids and maintain an
open line of communication. Talk to them nightly about how their day went and how things
are going in school. Focus on building their self esteem and get them involved in
extracurricular activities outside of school such as team sports, music, art and other
activities where they develop friendships and interact with others.
Cyberbullying – Cyberbullying is the least common type of bullying, but it can
be just as damaging as other forms of bullying. It includes any type of bullying that
occurs via the Internet or through electronic mediums. The most common types of
cyberbullying include:
Text message bullying
Picture/video clip bullying via mobile phone cameras
Email message bullying
Bullying through instant messaging
Chat-room bullying
Bullying via websites
Children who are being cyberbullied typically spend more time online or texting. They
often frequent social media sites such as facebook, twitter, etc. If a child or student
seems upset, sad or anxious after being online, especially if they're visiting social media
websites, it may be a sign they're being cyberbullied. Kids and students who are
cyberbullied exhibit many of the same characteristics as kids being bullied physically,
verbally or socially. They may become withdrawn, anxious, distant, or want to stay home
from school.
Cyberbullying can occur 24/7, so the best way to combat cyberbullying is to monitor
Internet usage and limit time spent on social media websites. Children need to know that if
they encounter cyberbullying they shouldn't respond, engage, or forward it. Instead, they
need to inform their parents or a teacher so the communication can be printed out and taken
to the proper authorities. When cyberbullying includes threats of violence or sexually
explicit content, law enforcement should be involved.
Where Does Bullying Occur?
The majority of bullying occurs at school, outside on school grounds during recess or after
school, and on the school bus – or anywhere else students interact unsupervised. Bullying
may also occur at home between siblings or in the community where kids congregate.
Cyberbullying takes place online and via digital communication devices.
* Bradshaw, C.P. (2007). Bullying and peer victimization at school: Perceptual differences
between students and school staff. 36(3), 361-382.
Anti-bullying Laws and Policies
Currently, there aren't any Federal anti-bullying laws. However, state and local lawmakers
have taken steps to prevent bullying and protect the physical, emotional and psychological well
being of children. To date, 49 states have passed anti-bullying legislation. When bullying
moves into the category of harassment, it then becomes a violation of Federal law. Criminal
code as it relates to bullying by minors varies from state to state. The map below shows the
states that have established anti-bullying laws, anti-bullying policies, and both anti-bullying
laws and policies.
The current market melt-up is taken as nearly risk-free because the Fed has our back , i.e. the Federal Reserve will intervene
long before any market decline does any damage.
It's assumed the Fed or its proxies, i.e. the Plunge Protection Team, will be the buyer in any freefall sell-off: no matter how
many punters are selling, the PPT will keep buying with its presumably unlimited billions.
"They (financial firms) failed to recognize that market liquidity is largely a function of the degree of investors' risk aversion,
the most dominant animal spirit that drives financial markets. But when fear-induced market retrenchment set in, that liquidity
disappeared overnight, as buyers pulled back. In fact, in many markets, at the height of the crisis of 2008, bids virtually disappeared."
For the uninitiated, bids are the price offered to buyers of stocks and ETFs and the ask is the price offered to sellers. When
bids virtually disappear , this means buyers have vanished: everyone willing to buy on the way down (known as catching the falling
knife ) has already bought and been crushed with losses, and so there's nobody left (and no trading bots, either) to buy.
When buyers vanish, the market goes bidless , meaning when you enter your "sell" order at a specific price (limit order), there's
nobody willing to buy your shares at the current price. The shares remains yours all the way down.
If you decide to just get out at any price and place a market order (sell at whatever the bid is offered), your $100 per share
stock might sell for $5 a share. This is known as a flash crash , and astute punters have observed that these are becoming more common.
When markets go bidless, the predictable order flow of low-volume days goes out the window. On a typical low volume day (and all
days are low volume recently), the spread between bid and ask is modest in heavily traded issues and sellers can be confident their
sell order will execute in a few seconds. In a freefall sell-off, sell orders pile up and the bid plummets to levels that were considered
"impossible" in low-volume days.
What Greenspan didn't discuss is the trading bots that do most of the trading have been programmed to be risk averse . In a real
sell-off, why catch the falling knife by hitting the bid on the way down? That's a guaranteed way to either lose money or ending
up a bagholder .
Humans have a default setting for risk aversion: it's called panic. Once the euphoric comnfidence that the Fed will never allow
the market to fall by more than a few percentage points is broken, it's not replaced by rational risk assessment; it's replaced by
full-blown just-get-me-out panic.
The Plunge Protection Team works just fine on low-volume days, but it fails when a tsunami of selling washes away the bid. Though
few seemed to notice, massive selling volume begets more selling as the bots' risk aversion kicks in.
Ironically, the mass migration of retail punters into the market has introduced a heightened potential for panic selling. The
wild swings in Gamestock (GME) earlier in the year were a sneak preview of what can happen as panicked newbies enter market sell
orders.
Euphoric punters forget that many of the players are leveraged, meaning that they're using borrowed money (margin debt) to buy
more stocks. Should the market drop instead of rebounding, their account will fall below minimum requirements and they will have
to add cash or sell stocks. When buy the dip fails, those with margin calls add to the selling.
Other limits can manifest in cryptocurrency trading. When most trades are buys, few notice the fine print on exchange sell orders
in crypto wallets and exchanges. Prices may be guaranteed for a limited time (for example, 10 minutes), and there may not be an option
for limit orders. If the order doesn't execute before the time limit expires, then the order to sell executes at whatever bid is
offered.
There's also no guarantee that your sell order will execute in a timely manner. A reader recently sent me a screenshot of an exchange
of a top 100 (by market cap) cryptocurrency for Bitcoin that took almost 2 hours to execute. (The reader passed on using the Lightning
Network after reading the disclosures.)
Exchanges may limit the number of coins per exchange. In other words, the implicit assumption that punters can unload their entire
position at the current bid may prove unfounded in heavy sell volume days.
The point here is bottlenecks can emerge in heavy sell volume days that traders did not anticipate. The possibility that markets,
brokerage platforms and exchanges could break and simply cease to function isn't on anyone's radar, despite various bits of evidence
that a breakdown isn't as farfetched as punters currently assume.
Ten minutes is more than enough time for supreme, euphoric confidence to crumble into panic , and trading bots can pull their
buy orders in 10 milliseconds.
This is why the big players distribute their shares to overly confident retail punters over many weeks. Big players know there
is no way they can dump their entire position without crushing the bid, so they sell in bits and pieces all the way up the euphoric
melt-up.
The issue isn't just the price you get when you sell--it's being able to get out of your position at all. A strange phenomenon
occurs in freefall sell-offs: the exit door (i.e. the liquidity that allows you to liquidate your entire position at the current
bid) suddenly shrinks from a barndoor to a mouse-sized hole in the baseboard.
Nobody thinks a euphoric rally could ever go bidless, but as Greenspan belatedly admitted, liquidity is not guaranteed . In a
real tsunami of trading-bot selling, the Plunge Protection Team's card table is no match for the sea of selling.
Risk aversion can go from zero to 200 faster than overconfident punters believe possible.
The prices of raw materials used to make almost everything are skyrocketing, and the upward trajectory looks set to continue as
the world economy roars back to life.
From steel and copper to corn and lumber, commodities started 2021 with a bang, surging to levels not seen for years. The rally
threatens to raise the cost of goods from the lunchtime sandwich to gleaming skyscrapers. It’s also lit the fuse on the massive
reflation trade that’s gripped markets this year and pushed up inflation expectations. With the U.S. economy pumped up on fiscal
stimulus, and Europe’s economy starting to reopen as its vaccination rollout gets into gear, there’s little reason to expect
a change in direction.
JPMorgan Chase & Co. said this week it sees a continued rally in commodities and that the “reflation and reopening trade will
continue.†On top of that, the Federal Reserve and other central banks seem calm about inflation, meaning economies could be left
to run hot, which will rev up demand even more.
“The most important drivers supporting commodity prices are the global economic recovery and acceleration in the reopening phase,â€
said Giovanni Staunovo, commodity analyst at UBS Group AG. The bank expects commodities as a whole to rise about 10% in the next
year.
The Treasury market's inflation bulls seem to have gotten a green light from Federal Reserve
Chair Jerome Powell to double down on wagers that price pressures will only intensify in the
months ahead.
The renewed mojo for the reflation trade follows Powell's reaffirmation this week of the
central bank's intention to let the world's biggest economy run hot for some time as it
recovers from the pandemic. The Fed's unwavering commitment to ultra-loose policy in the face
of robust economic data is what caught traders' attention. It took on added significance as it
coincided with signs infections are ebbing again in the U.S., and as President Joe Biden
unveiled plans for trillions more in fiscal spending.
Investors eying all this aren't ready to give the Fed the benefit of the doubt in its
assessment that inflationary pressures will prove temporary. A key bond-market proxy of
inflation expectations for the next decade just hit the highest since 2013, and cash has been
pouring into the largest exchange-traded fund for Treasury Inflation-Protected Securities.
Globally, there's been a net inflow into mutual and exchange-traded inflation-linked debt funds
for 23 straight weeks, EPFR Global data show.
The Fed is stressing that inflation's upswing "is transitory, but we likely won't have
better clarity on this assertion until this initial economic wave from reopening has subsided,"
said Jake Remley, a senior portfolio manager at Income Research + Management, which oversees
$89.5 billion. "Inflation is a very difficult macro-economic phenomenon to predict in normal
times. The uncertainty of a global pandemic and a dramatic economic rebound" has made it even
harder.
Ten-year TIPS provide a reasonably priced insurance policy against inflation risk over the
coming decade, Remley said. The securities show traders are wagering annual consumer price
inflation will average about 2.4% through April 2031. The measure has roared back from the
depths of last year, when it dipped below 0.5% at one point in March.
Brian Sozzi ·
Editor-at-Large Sat, May 1, 2021, 6:05 PM
Billionaire Warren Buffett is joining the long list of executives saying serious levels of
inflation are starting to take hold as the U.S. economy roars back from the COVID-19
downturn.
Buffett called out much higher steel costs impacting Berkshire's housing and furniture
businesses.
"People have money in their pocket, and they pay higher prices... it's almost a buying
frenzy," Buffett said, noting that the economy is "red hot."
The Oracle of Omaha isn't alone in battling inflation at the moment from everything to
higher steel prices to runaway copper prices.
The number of mentions of "inflation" during first quarter earnings calls this month have
tripled year-over-year, the biggest jump dating back to 2004, according to fresh research from
Bank of America strategist Savita
Subramanian . Raw materials, transportation, and labor were cited as the
main drivers of inflation .
Subramanian's research found that the number of inflation mentions has historically led the
consumer price index by a quarter, with 52% correlation. In other words, Subramanian thinks
investors could see a "robust" rebound in inflation in coming months in the wake of the latest
round of C-suite commentary.
"Inflation is arguably the biggest topic during this earnings season, with a broad array of
sectors (Consumer/Industrials/Materials, etc.) citing inflation pressures," Subramanian
notes.
The world's biggest companies are taking action, just like Buffett at Berkshire.
Kleenex maker Kimberly-Clark said it will increase prices in the U.S. and Canada on the
majority of its consumer products due to "significant" commodity cost inflation. The percentage
increases will range from mid- to high-single digits and go into effect in June.
Archegos is a Greek word denoting leadership. The place where the eponymous family office
led UBS, and a growing roll call of investment banks, was into a morass.
"... That is, the premium for commodities that can be delivered now versus later into the future is the highest it has been since at least 2007, signaling just how strong the world's demand is for raw materials and how tight supplies are. ..."
For an idea of exactly how strong the fundamentals are for commodities such as metals, agriculture and oil today, consider this:
These markets are now showing the steepest backwardation in more than 14 years.
That is, the premium for commodities that can be delivered now versus later into the future is the highest it has been since
at least 2007, signaling just how strong the world's demand is for raw materials and how tight supplies are.
In commodities markets, futures are frequently pricier at longer maturities because they reflect the cost of carrying inventories
over time as well as future demand expectations. But urgent demand has flipped about half of major commodity markets tracked by the
Bloomberg Commodity Index including oil, natural gas, copper, soybeans into backwardation.
When the Federal Open Market Committee begins its two-day meeting on Tuesday, it ought to
consider whether its policies aimed to bolster housing may be having negative side effects.
With the market for new and existing homes red hot, the rationale for subsidizing the mortgage
market has largely passed. Indeed, the Fed’s policies may be hurting home
affordability as much as they’re helping.
"... Deluard points out that the level of stock gains we are seeing now is unprecedented, with one exception: the Great Depression. After passing 4,000 points for the first time this month, the S&P 500 is on track to soon double its COVID-19 pandemic low of 2,237 points 14 months ago. ..."
"... individual investors have been throwing money at the market while insiders are getting out. An unprecedented $105 billion flowed into U.S. equity exchange-traded funds in the last eight weeks, Deluard says. Meanwhile, the strategist says equity offerings raised a record $262 billion in the first quarter and Nasdaq insiders sold $41.5 billion in the past three quarters. ..."
"... The strategist also points to inflation as a worrying sign. He believes the argument that COVID-19 is distorting inflation is flawed, and that the current level of inflation, such as in commodity prices, represents more than normalization from the pandemic shock ..."
Our
call
of the day
, from strategist Vincent Deluard at broker StoneX, takes a close look at the big question hovering above these
recent market gains. Are we seeing a new roaring economic cycle that started in March 2020, or “the spectacular apotheosis of a
decade plus-long expansion and overvalued bull market”?
The strategist uses “the duck test” â€" which follows from the saying, “if it looks like a duck, swims like a duck, and quacks like a
duck, then it probably is a duck.” His conclusion isn’t good news for stocks.
Deluard points out that the level of stock gains we are seeing now is unprecedented, with one exception: the Great Depression. After
passing 4,000 points for the first time this month, the S&P 500 is on track to soon double its COVID-19 pandemic low of 2,237 points
14 months ago.
There have been 12 major bear markets in the last century, according to Deluard, and stock prices never doubled in the ensuing rally
after five of them. In the seven cases where stock prices in the post-bear market doubled, it took an average of four years.
“There is only one precedent in history for such a rapid doubling, when U.S. stocks doubled between June and September 1932,”
Deluard says. “A 40% correction quickly followed, and then another 100% + rally in a confusing sequence of brutal bear markets and
dazzling rebounds which lasted until the battle of Stalingrad turned the fate of World War II.”
Another troubling sign is that the recent, spectacular rebound in corporate earnings amid the wider economic recovery from the
pandemic hasn’t led to a rise in share buybacks, which are still 30% below pre-pandemic levels, according to Deluard. “As a result,
the total shareholder yield (buybacks & dividend divided by market cap) of U.S. large-caps is at its lowest level in a generation,”
Deluard says.
Further to that,
individual investors have been throwing money at the market while insiders are getting out. An unprecedented $105
billion flowed into U.S. equity exchange-traded funds in the last eight weeks, Deluard says. Meanwhile, the strategist says equity
offerings raised a record $262 billion in the first quarter and Nasdaq insiders sold $41.5 billion in the past three quarters.
Chart via StoneX.
The strategist also points to inflation as a worrying sign. He believes the argument that COVID-19 is distorting inflation is
flawed, and that the current level of inflation, such as in commodity prices, represents more than normalization from the pandemic
shock
The last point Deluard makes is that banks’ loan-to-deposit ratio has collapsed to 50%, which is half of its pre-2007 levels. This
is a red flag for “trapped kinetic energy” that will be unleashed by steeper yield curves, stronger demand for loans, and other
factors, according to the strategist. Deluard notes that the big four banks would need to issue an additional $2.1 trillion in loans
to return to the pre-pandemic loan-to-deposit ratio average.
“Inflation is the 800-pound gorilla that will kill this aging bull,” Deluard says.
Would you pay more than 100 million dollars for a single deli in rural New Jersey that had
less than $36,000 in sales during the last two years combined? I know that sounds like a
completely ridiculous question, but the stock market apparently thinks that deli is worth that
much. On Thursday, the Dow Jones Industrial Average closed above 34,000 for the first time in
history, and investors all over the country cheered. But this financial bubble is not real. It
is a giant mirage that is built on a foundation of fraud.
Einhorn Sees
Broken Markets in N.J. Deli’s $105 Million Valuation
Investors have lost all touch with reality, and in this sort of euphoric environment a small
deli in rural New Jersey can literally be valued
at more than 100 million dollars …
The Paulsboro, New Jersey-based Your Hometown Deli is the sole location for Hometown
International, which has an eye-popping market value despite totaling $35,748 in sales in the
last two years combined, according to securities filings.
“Someone pointed us to Hometown International (HWIN), which owns a
single deli in rural New Jersey … HWIN reached a market cap of $113
million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director,
who also happens to be the wrestling coach of the high school next door to the deli. The
pastrami must be amazing,†Einhorn said in a letter to clients published
Thursday.
For young people getting ready to graduate from high school and go to college,
don’t waste your time.
Just open up a small deli and go public.
Soon you will be a multi-millionaire.
Alternatively, you could start a fake cryptocurrency as a joke and watch it become worth
billions of dollars.
The digital currency Dogecoin surged by more than 85 percent so far this week in thrilling
scenes for fans of the bizarre coin. Launched in 2013 and created by Jackson Palmer and Billy
Markus as a joke, the cryptocurrency has never seen the highs of rival coins like bitcoin,
which is currently worth $63,531.49. But a growing fanbase has helped kickstart the meme
coins value, and today has seen the prices skyrocket.
Looking at it objectively, I don’t know why any rational investor would
ever put one red cent into Dogecoin.
But in 2021, rational investors are being left in the dust, and those that foolishly rush in
are getting filthy rich.
Coinbase was briefly valued at as much as $100 billion in its Nasdaq debut Wednesday, a
landmark event for the cryptocurrency industry. The stock closed at $328.28 per share,
valuing Coinbase at $85.8 billion on a fully diluted basis.
Don’t you wish that you would have been the one to launch Coinbase?
Of course all of these absurd valuations are just temporary.
This bubble will inevitably pop, and those that did not sell at the top of the market will
be kicking themselves.
In the financial markets, enormous fortunes are being won and lost all the time, but none of
this is real.
What is real are the riots that are happening in our streets on a nightly basis. Last night,
rioters “waved
a pig’s head†at police officers in
Minnesota…
DAUNTE Wright protesters waved a pig’s head at cops as chaos again
erupted in Brooklyn Center, with hundreds storming the police station.
Demonstrators came out for the fourth night in a row since Wright, 20, was fatally shot by
police officer Kim Potter during a traffic stop on Sunday.
A prominent activist who supports the Black Lives Matter movement has appeared to support
violent protests, arguing that rioting and looting are ‘a legitimate,
politically-informed response to state violence’.
Bree Newsome, 35, made the passionate remarks in a series of tweets this week, arguing
that police are not limited to non-violence, and that a violent response to injustice can be
appropriate and justified.
Homeless men lie on the sidewalk while others wearing blankets and rags loiter on a street
strewn with garbage, feces, and drug paraphernalia along the notorious Kensington Avenue drag
in Philadelphia.
Video posted online on March 10 shows people living out of suitcases on the sidewalks in
the area adjacent to the entrance to the Somerset train station along the Market-Frankford
train line while others openly brandish needles.
Cardboard boxes with trash bags stacked on top of them lie feet away from the entrances to
various pawn shops, check-cashing stores, delis, and bodegas.
The financial bubble that we are experiencing right now will go away, but the problems on
our streets are not going away.
But if you don’t want to believe this, go ahead and pour your life
savings into Hometown International or Dogecoin and see what happens.
You only make money in the markets if you get out in time, and time is quickly running out
for those that have put their faith in this financial bubble.
* * *
Michael’s new book entitled “Lost Prophecies Of The
Future Of America†is now available in paperback and for the
Kindle on Amazon.
Educated_Redneck 12 hours ago (Edited)
This article is late by 13 years (i.e. 2008 financial crisis) or dare I say 49 years (i.e.
1972 leaving the gold standard) or maybe 108 years (i.e. 1913 FED creation). Pick your
favorite year.
Lordflin 12 hours ago
Our civilization is now run on fraud...
People expect fraud... depend on it... entire industries are built around it...
What hasn't fraud touched...?
chunga 12 hours ago
A few years ago I was semi-obsessed with looking for it. If you look you will see it is
literally everywhere. It is what it is.
Lordflin 12 hours ago
Sadly...
In too many situations over the past thirty years it has come looking for me...
From my experience in education to my experience at the hands of the justice system here
in Idaho...
And I have been trying to mind my own business... imagine what I could accomplish if I
were actually looking for trouble...
Kreditanstalt 12 hours ago (Edited)
They're not "filthy rich" until they successfully sell their Dogecoins to some other
fool...which might one day become difficult.
It's a Ponzi scheme and only the early entries get rich
truthseeker47 12 hours ago
I would not call it a bubble; looks more like a Ponzi Scheme to me.
"... In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. ..."
"... The parallel in the stock market is the hunt for the greater fool . Sure, GameStop shares bear no relation to the reality of the company, but I can make money from buying an overpriced stock if I can find someone willing to pay even more because they 'like the stock.' ..."
"... The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back. ..."
In Minsky's second stage, borrowers plan only to repay the interest, and
refinance when the main debt is due to be repaid; much company debt works like this. It is
taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go
down when the company needs to refinance, it will pay less.
The equity parallel is to gains in valuation due to lower long-term rates. As with corporate
debt, this is entirely justified and sustainable so long as rates stay low, because future
earnings are now more appealing. The danger is that rates rise, in which case the stock might
be hit no matter how earnings pan out.
A big chunk of the gains in stocks in the past year came from the sharply lower rates in the
first response to the pandemic when the Federal Reserve flooded the system with money.
Price-to-forward-earnings multiples soared. From the S&P 500's low on
March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings
12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the
10-year Treasury, already down sharply from mid-February's high, fell
further as stocks rebounded.
In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the
hope of capital gains big enough to make up the gap. Land speculators are a prime
example.
The parallel in the stock market is the
hunt for the greater fool . Sure, GameStop shares
bear no relation to the reality of the company, but I can make money from buying an overpriced stock if I can find someone
willing to pay even more because they 'like the stock.'
Wild bets became obvious this year, as newcomers armed with stimulus, or 'stimmy,' checks
drove up the price of many tiny stocks, penny shares and those popular on Reddit discussion
boards.
The concern for investors: How much of the market's gain is thanks to
this pure speculation, and how much to the justifiable gains of the improving economy and low
rates? If too much comes from speculation, the danger is that we run out of greater fools
and prices quickly drop back.
Builders are struggling to construct new homes given an ongoing lumber shortage. Without more homeowners listing, buyers are scrambling
to compete for the limited number of homes on the market, which continues to drive prices up to new heights.
The threat of higher inflation: For the past three decades, U.S. inflation has been low,
leading some investors to discount it as a threat. Yet veteran investors will remember that in
the late 1970s inflation reached double-digit levels. For the 1973â€"1982 period,
the annual inflation rate averaged 8.7%. At that rate, a car that cost $20,000 would be priced
at $21,740 one year later. Five years later, the price of the same car would be $30,351. Of
course, it’s not just big-ticket items that are affected by inflation.
Virtually everything you buy costs more â€" from a gallon of milk to a pair of
running shoes.
It’s safe to assume that inflation will be a factor to one degree or
another during your investing lifetime. For this reason, it’s vital to
consider inflation when you calculate how your investments will grow with time.
Inflation is also an important consideration in portfolio construction. The real returns
(i.e., adjusted for inflation) of cash investments have not kept pace with inflation. Bonds are
particularly vulnerable, too, because a considerable portion of their return consists of
interest payments, which are worth a little less each year in an inflationary period. (At one
point in the 1970s, bonds were facetiously known as “certificates of
confiscation.â€) As such, most long-term investors need to hold a significant stake
in stocks, which provide more stable dividends and the potential to increase substantially in
value
Pius
Twelvetrees 5 hours ago Excellent advice from someone who's seen a lot of ups and downs. Many
of today's investors/traders have never experienced a truly bear market. There will be some
hard lessons learned over the next few months/years. I predict inflation will come roaring
back.
...“The economy went off a cliff in March [2020],†Buffett said. “It was resurrected in an extraordinarily effective way
by Federal Reserve actions and, later, on the fiscal front, by Congress.â€
Buffett added that the Fed’s actions helped companies brace for impact, as the initial spread of COVID sent companies scrambling
to raise funds. Berkshire Hathaway was among the many companies that turned to debt issuance as the stock market tanked in late February
and early March last year, issuing a $500
million 10-year bond on March 4, 2020.
The appetite for corporate debt dried up shortly after that, prompting the Fed weeks later to create
several liquidity facilities
that would take on commercial paper and medium-term investment grade debt.
By entering the debt market as its own counterparty (through separate vehicles with equity investment from the U.S. Treasury),
the central bank hoped to not only backstop markets but give private players the confidence to provide their own liquidity.
“[The Fed] took a market where Berkshire couldn't sell bonds on the day before and turned it into one where Carnival Cruise
Lines, a day or two later, had record issuance of corporate debt,†Buffett said. “Companies losing money, companies were closed.
It was the most dramatic move that you could imagine.â€
Those purchases included over $40 million
in debt issued by Berkshire Hathaway, covering its insurance, finance, and energy businesses.
Buffett applauded Powell for his “speed and decisiveness†in backstopping the corporate debt market, adding that his persistence
on getting more fiscal support was also helpful to the federal government’s relief efforts.
Buffett
similarly said at Berkshire Hathaway’s meeting last year that “every one of those people that issued bonds in late March
and April [2020] ought to send a thank you letter to the Fed.â€
The Oracle of Omaha added that the Fed and the government have helped the economic rebound, estimating that 85% of the U.S. economy
now appears to be “running a super high gear.â€
My uncle did admissions at Cambridge and he actively discriminated against Public School
boys, despite being one himself. He was actually involved in hiring that black woman to be the
Master at Christ's College. Similarly at Citi it was very obvious any remotely competent black
was promoted way beyond there competency, although that was largely limited to back and middle
office roles.
Still the ONS dataset is A09, Labour Market status by ethnic group, is testament to
white folks ingenuity to overcome such discrimination and the free market at work.
By Joseph
Carson , former chief economist of Alliance Bernstein
Federal Reserve Chairman Jerome Powell has played down the current runup in inflation,
arguing it is associated with the reopening of the economy. And as the low inflation readings
of one year ago drop out, the twelve-month calculation (i.e., the so-called base effect) of
reported inflation is likely to move up in the coming months.
Yet, Mr. Powell's "base effect" inflation argument is nonsense. For the "base effect"
argument to be correct, the twelve-month reading of reported inflation should be markedly lower
when the economy was closed than what occurred before the pandemic. But that's not the
case.
Last week, the Bureau of Economic Analysis reported that the twelve-month change ending in
March 2021 in the core personal consumption index (the Fed's preferred price index) was 1.83%.
That compares to the 1.87% reading for the year ending in February 2020 and 1.7% for the year
before that.
The 1.83% reading for twelve months ending March 2021 essentially matches the average
inflation rate of the two prior years. And that 12 month period includes the three months
(April to June) when the economy was closed, and GDP plunged a record 31% annualized. How could
there be a "base effect" on reported inflation when the base year has the same inflation rate
as it did before the pandemic?
Mr. Powell's "base effect" inflation argument has not been questioned or challenged by
analysts or reporters. Regardless of that, investors need to ignore the Fed's rhetoric and
treat upcoming price increases as "new" inflation.
As nonsensical as the explanation for the uptick in inflation, so too is the remedy. Demand
has always been the primary force behind broad inflation cycles. Yet, Mr. Powell argues that
product price inflation will ease once manufacturers increase output and eliminate "supply
bottlenecks," and home inflation will slow once builders build more homes.
It's hard to see how more supply (or growth) will slow inflation anytime soon. Federal Home
Loan Mortgage Company (Freddie Mac) estimates that the US needs almost 4 million new homes to
meet demand. That could take two to three years. Also, it's hard to see how increasing product
output will solve the inflation problem. The supply-side argument solution; fight inflation
with more demand and more commodity inflation.
The Fed's mantra has always been "inflation is everywhere and always a monetary phenomenon."
But nowhere in Mr. Powell's statements or comments do you find any monetary policy role for
increased inflation or any responsibility for containment. Investors forewarned.
Trying to guess when the bubble burst is fools game. But the fact support the idea that this
is a huge bubble.
Notable quotes:
"... 'Fake earnings, fake GDP, fake interest rates and super-high valuations' make for an increasingly untenable situation, he warns. The expanding market bubble has been building since 2008. But the Federal Reserve keeps averting the next huge crisis by continuously 'printing money,' declares the Harvard Business School MBA. ..."
"... It's the riskiest market since 1929. The difference is that '29 wasn't as global. This is an everything bubble. And with the $1.9 trillion fiscal stimulus bill, we're wiling to stimulate 40-something percent of GDP just to prevent a slowdown in the economy. That's going to go down in history as the most insane thing ever. They'll say, 'What were they smoking?' ..."
"... The next crash will be worse than the last one because it will come from higher levels and [plummet] to lower levels. ..."
"... If you're willing to take more risk, you'll have one bucket in long-term U.S. Treasury bonds and maybe in a few other good governments, like Sweden or Australia. Triple-A corporate could go in there too. Then you'll have another bucket '" of short stocks, not leveraged. ..."
"... Jeremy Grantham [GMO co-founder] said [on Jan. 5] this level of euphoria means you're within months '" not years '" of a major bubble peak. You're at the end. ..."
"... The only reason people are spending is because the government handed businesses and consumers tons of money. But it will get to a point where it's not going to matter how much money is printed '" and then you'll have an avalanche. A huge collapse is coming. ..."
"... Loans will fail by the boatload. Then money disappears. That causes bank and business failures. We have to get all the financial leverage, financial assets and debt out of our economy. Twenty percent of public companies are zombies. They can't even pay their debt service in a growth economy. ..."
That's what 'The Contrarian's Contrarian, as Dent has been dubbed, tells ThinkAdvisor in an interview.
The strategist correctly called Japan's 1989 bubble bust and recession,
the dot-com crash and the populist swell that made Donald Trump president.
What could be 'the biggest crash ever,' he argues, will hit by the end of June, if not sooner. It will be 'the initiation of the next
big economic downturn,' Dent predicts.
'Fake earnings, fake GDP, fake interest rates and super-high
valuations' make for an increasingly untenable situation, he warns. The expanding market bubble has been building since 2008.
But the Federal Reserve keeps averting the next huge crisis by continuously 'printing money,' declares the
Harvard Business School MBA.
His HSD Publishing, an independent research firm, generates monthly newsletters that he and
Rodney Johnson, HSD president, each write.
In the interview, Dent delivers his prescription for investing amid the weakened economy and
impending disaster, as he sees it: Zero in on long-term Treasurys.
'What's better than sleeping with 30-year Treasury
bonds,' he exults. They'll 'magnify your money.'
He then describes a portfolio allocation for the investor that's 'willing to take more risk.' As for
the notion of high inflation, 'no way in hell,' he says.
Dent, whose latest book is ' What to Do When the
Bubble Pops: Personal and Business Strategies for the Coming Economic Winter '
(G&D Media-April 2020), also tells ThinkAdvisor his considered opinions on cryptocurrency
('a big trend long term'), the GameStop frenzy
('stupid but admirable') and Sen. Elizabeth
Warren's wealth tax bill ('First of all, those assets are
going to crash.')
ThinkAdvisor interviewed Dent on March 5. He was speaking by phone from his base in San
Juan, Puerto Rico, where he has resided for the last several years. When the conversation
pivoted to folks who attack him for his frequently inaccurate predictions, he offered some
choice words and an explanation, then described key indicators he employs that show 'very clear cycles.'
Here are highlights of our interview:
THINKADVISOR: How much risk is there in the stock market right now?
HARRY DENT JR.: It's the riskiest market since 1929. The
difference is that '29 wasn't as global. This is an
everything bubble. And with the $1.9 trillion fiscal stimulus bill, we're
wiling to stimulate 40-something percent of GDP just to prevent a slowdown in the economy.
That's going to go down in history as the most insane thing ever.
They'll say, 'What were they smoking?'
Please elaborate on the extent of the risk you see.
This may be the biggest bubble crash ever: stocks, commodities, real estate.
The next crash is the initiation of the next big [economic] downturn, which will be much worse
than the one in 2008-2009.
When do you think the next crash will occur?
It will likely come by the end of June, probably sooner. The S&P falls to 2,100
'" lower than the March 2020 low '" and that would be a 47% to 48% drop
from recent highs, though it may go to 4,000 first. The next crash will be worse than the last
one because it will come from higher levels and [plummet] to lower levels.
Why will the downturn that you see be so harsh?
The only reason the 2008 downturn didn't turn into a depression was that
they turned on the monetary spigots so hard and blew us out of it, which kept the bubble going.
They kept printing money and put it off. Now we've got a bigger bubble. This
downturn is going to be the Great Depression that the deep recession of 2008 was [falling
into].
How long do you think the depression will last?
If the economy finally falls apart after this much stimulus, economists will flip from being
endlessly bullish to endlessly bearish. They'll say, 'Now
we're in a decade-long-plus depression, like the 1930s.' But
I'll say, 'Nope, this thing will be hell:
It's going to do its work very fast. By 2024, it will be over.'
By 2023 or 2024, we're going to be coming out of it into what I call the
next Spring Boom.
Right now, you favor investing in Treasury bonds. What's your
strategy?
Man, what's better than sleeping with 30-year Treasury bonds
'" the safest investment in the reserve currency of a country
that's in big trouble '" but not as much as Europe and Japan are
in and nowhere near as much as China is in. We're in the best house in a bad
neighborhood.
What will happen to the 30-year Treasury bond during the massive crash you
foresee?
It's going to fall to half a percent and maybe zero. It will expand your
money 30%, 40%, 50%, while stocks are crashing 70%, 80%, 90%. Real estate will go down 30%,
40%, 50%. Commodities are already down 50% and are going down another 30% or 40%. Everything is
going to default. Cash will preserve your money. The 30-year Treasury will magnify your
money.
So, do you think 50% of an investment portfolio should be in Treasurys?
If you're willing to take more risk, you'll have one
bucket in long-term U.S. Treasury bonds and maybe in a few other good governments, like Sweden
or Australia. Triple-A corporate could go in there too. Then you'll have
another bucket '" of short stocks, not leveraged.
Stocks are very volatile on the way down. You can also be in REITs that are in very solid
areas, like multi-family housing in affordable cities and medical facilities because those will
hold up the best.
There's a discernable euphoria now among investors. But John
Templeton, the renowned investor and fund manager, famously said that 'bull
markets die on euphoria.' Do you agree with that?
Yes. And Jeremy Grantham [GMO co-founder] said [on Jan. 5] this level of euphoria means
you're within months '" not years '" of a major
bubble peak. You're at the end.
Wil cryptocurrency be part of that huge crash?
Yes. I think Bitcoin is the big thing long term and that crypto and blockchain is a big
trend. It's like the internet of finance '" money and assets
'" instead of information. So it's a big deal '" but
in its early stages.
Bitcoin is going to go to 58 [thousand], 60, 80 '" and then end up back at 3,000
to 4,000. I would buy it long term, a couple of years from now. I wouldn't
touch it between now and then.
What are your expectations for the economy once the pandemic substantially fades?
Some industries are never going to come back. We're not back to where we
were before COVID '" by GDP or any other major indicator. Everybody is acting like 'When we get over COVID, we'll be back better than
ever.' The stock market is already anticipating that. But it's
wrong.
The only reason people are spending is because the government handed businesses and
consumers tons of money. But it will get to a point where it's not going to
matter how much money is printed '" and then you'll have an
avalanche. A huge collapse is coming.
What specifically will cause it?
There's is no way you can [keep] having fake earnings, fake GDP, fake
interest rates and super-high valuations. Financial assets have to come down to reality.
What are the implications?
Loans will fail by the boatload. Then money disappears. That causes bank and business
failures. We have to get all the financial leverage, financial assets and debt out of our
economy. Twenty percent of public companies are zombies. They can't even pay their
debt service in a growth economy. They're already dead.
We've just keeping them alive with embalming.
Jensen joined
Bloomberg's "What Goes Up" podcast to discuss this week's Federal Reserve meeting and how
ample liquidity from the central bank, combined with a booming economic rebound, make
conditions ripe for markets to get more bubbly.
Q. Bubbles are a very strange phenomenon because the risk-reward relationship is so
interesting. It almost seems that as an investor, you have to participate in bubbles. Because
if you think it's a bubble too early, you really miss the best returns from them. How do you
know when it's time to get out of an overvalued market?
A: All along through Bridgewater's history we've been systematic. So we've taken the kind
of discussion we're having now -- a very qualitative view of the world -- but translated into
ways to measure it. So you take something like a bubble, right? A classic qualitative thing.
What do you mean by bubble? How do you measure that it's a bubble? Is it enough to say prices
are high relative to history, or what's the actual measure? And then how reliable is it?
And we have six gauges of a bubble that we use all over the world. Then you could apply it
to cryptocurrency. You can apply it to anything you wanted in the world to stocks, to bonds
to anything. Our basic scoreboard is: Are prices high relative to traditional measures? Are
prices discounting unsustainable conditions?
So, as an example today, there's something like 10% of stocks that are pricing in more
than 20% revenue growth and margin expansion. If you look at history, 2% of stocks actually
achieved that. That's an extremely hard thing to do.
Q: That's not counting the base effects from last year, right?
A: No. I'm talking about ongoing growth rates without the base effect. It doesn't happen.
That's very, very unlikely to happen. Potentially with inflation or something you might, but
in a normal kind of forward-looking picture, you don't get that. So that's an example of
discounting unsustainable conditions. They can't, as a group, actually achieve that
condition.
The third thing is new buyers entering the market. How many new buyers are there? How big
a part of the market are they? There's the broad sentiment measures. There's purchases being
financed by leverage and buyers and businesses sort of making extended forward purchases .
That's all part of our checklist for a bubble. And you see today a fair amount of the equity
market in the U.S. in a bubble, but not the aggregate.
There are definitely pockets that meet those standards and that's dangerous. And then,
like you said, what do you want to do, buy or sell them? Well, that's a whole other dangerous
thing.
And that's where, when we had a drawdown in 2000-2001 associated with the bubble -- both
the dollar and the equity market and how that was playing out at the time -- that really
forced us to get into flows, which is basically how we measure bubbles today. Where's the
money coming from? Who are the buyers and sellers? What are their balance sheets? How much
more money can they put into this bubble versus how much income they're getting and when does
that start to flip? And so for us, that process of being able to look at the balance sheets
of the buyers and sellers and think about when they've been stretched to an extreme -- where
they won't have the money, where there's more supply coming than possible demand."
So you look at the IPO pipeline, you look at the creation of new instruments, how fast
those balance sheets are growing. And that's how we try to measure that criss-cross. And it's
still a very, very dangerous game, like you're saying.
So the third part is be careful and be conservative in your thinking around the ability to
time those things, because that's kind of the easiest place to die in asset prices is trying
to be short a bubble too early.
"... Mr. Courtney's calculation was one of several supporting the disclosure in a Journal article last fall that taxpayers could ultimately be on the hook for roughly a third of the $1.6 trillion federal student loan portfolio. This could amount to more than $500 billion, exceeding what taxpayers lost on the saving-and-loan crisis 30 years ago. ..."
The federal budget assumes the government will recover 96 cents of every dollar borrowers
default on. That sounded high to Mr. Courtney because in the private sector 20 cents would be
more appropriate for defaulted consumer loans that aren't backed by an asset.
He asked Education Department budget officials how they calculated that number. They told
him that when borrowers default, the government often puts them into new loans. These pay off
the old loans, and this is considered a recovery, even though in many cases the borrowers
haven't repaid anything and default on the new loans as well.
In reality, the government is likely to recover just 51% to 63% of defaulted amounts,
according to Mr. Courtney's forecast in a 144-page report of his findings, which was reviewed
by The Wall Street Journal.
"If you accounted this way in the private sector, you wouldn't be in business anymore," Mrs.
DeVos said in a December interview. "You'd probably be behind bars."
Mr. Courtney's calculation was one of several supporting the disclosure in
a Journal article last fall that taxpayers could ultimately be on the hook for roughly a
third of the $1.6 trillion federal student loan portfolio. This could amount to more than $500
billion, exceeding what taxpayers lost on the saving-and-loan crisis 30 years ago.
If Mr. Courtney is right, there are big implications for taxpayers and families alike. While
defaulted student loans can't cause the federal government to go bankrupt the way bad mortgage
lending upended banks during the financial crisis, they expose a similar problem: Billions of
dollars lent based on flawed assumptions about whether the money can be repaid.
There are periods when you should sit on your money, despite inflation. This is probably one of those. When no one believes in the future, that's an opportunity. When everyone does, sell
Notable quotes:
"... Take Quantumscape, which went public via a SPAC and produces solid-state lithium metal batteries. Bill Gates and Volkswagen are investors. In 2020 it had no revenue and lost more than $1 billion. Quantumscape had a peak valuation of $50 billion last December. ..."
When I read that technology can construct an image of your face from your DNA, my initial reaction was: That's the stupidest
thing I've ever heard.
Fortunately, I've had a lifetime
of stupidest-things-I've-heard things (
like Bleep ) became
reality. Like the Kübler-Ross stages of grief -- denial, anger, bargaining, depression, acceptance -- technology goes through similar
phases.
My phases of techno-hype: Incredulous. Will never happen. Dread. I'll try it. Booster. Overhype. Failed expectations.
On to the next paradigm. Understand these before plunking money into passing fancies. We know the famous will-never-happen
predictions.
Understand these before plunking money into passing fancies.
We know the famous will-never-happen predictions.
IBM 's Thomas
Watson : "I think there is a world market for maybe five computers." Digital's Ken Olsen : "There is no reason anyone would want a computer
in their home." Funny now, but not unreasonable at the time.
I've learned to harness those knee-jerk denials when I know that technology performance will increase and costs decrease.
Classic scale. I'm actually suspicious of things that aren't controversial from the start. I live in those denial phases -- ask
my wife. Why? Because almost every time, no one believes in the future. That's the time to invest. Until everyone believes it and
then some. Then it's probably time to sell.
I live in those denial phases -- ask my wife. Why? Because almost every time, no one believes in
the future. That's the time to invest. Until everyone believes it and then some. Then it's probably time to sell.
Think of the 2007 iPhone introduction. Typing on glass, are you kidding me? So many white-collar warriors hurdling through airports
were thumb-writing on BlackBerry s -- aka Crackberrys. Take
away my keyboard, even though it's tiny and painful to use? Over my dead body. Well, we know how that turned out. BlackBerry is now
worth $5 billion. Apple a bit more.
Same for electric cars. It's my God-given right to guzzle gas and shift gears with abandon. I don't want a car that works like a
high school electronics lab with a battery and a fan. No way. Yet batteries got cheaper, and range went up.
It wasn't that long ago that everyone was dubious of autonomous cars. The 2005 Darpa Grand Challenge saw Stanley, a Stanford robot,
win $2 million in a 132-mile self-driving race. But on real streets with bicyclists and old ladies? No way. Well, we're not there yet,
but it's certainly accepted that it will happen.
The stock market allocates capital to those ideas it believes are winners. Remember investing guru Benjamin Graham's stock market
as a short-run voting machine, long-run weighing machine? So where are we now -- especially amid a Fed-fueled feeding frenzy? When markets
overpay, they're voting that all that good stuff is practically guaranteed to happen. Huge expectations are built into many stock prices.
Entrepreneurs, naturally, love the overhype stage -- almost free money thrown at them at billion-dollar valuations. But it's the
most dangerous time for investors. HBO has a show named "Euphoria." It's about teen drug use, but no matter; the show's best line is
by the main character, Rue: "Every time I feel good, I think it will last forever . . . but it doesn't."
Expectations eventually get dashed. Reality bites. Stocks come down. Even if the market or product ends up successful, I've noticed
that overhyped stocks can return to their peak values, but five to 10 years later. That's a long time to wait for hype to become real.
Take Quantumscape, which went public via a SPAC and produces solid-state lithium metal batteries. Bill Gates and
Volkswagen are investors. In 2020 it had no revenue
and lost more than $1 billion. Quantumscape had a peak valuation of $50 billion last December. Now it's $13.5 billion. It could work.
I hope it does work. But unless something radical changes, I think it will take a long time for the company to be worth $50 billion
again.
There are plenty of overhyped things to choose from, many with zero revenue. Some may be successful, others certainly won't: Air
taxis (Archer and Joby). Hydroponic vertical farms (AeroFarms). Space travel (Momentus).
Gamestop 's turnaround.
My advice is always to invest in the fog. When everyone else is incredulous, look for scale. Usually, no one else can see it. Squint
hard, but don't make stuff up. If you can see something that everyone dismisses, and that will get cheaper over a long period of time,
maybe decades, buy in cheap and go along for the long ride. Others will eventually overpay.
On the flip side, when the fog clears and we've moved from the acceptance to hype, it's time to unload your shares to those late
to the party. One hint is that stocks are now worth twice gross domestic product. You might sell early. So what? No one ever lost money
taking a profit. But please, know which phase we're in -- don't be the last one in the pool. Instead, start hunting for the next wave
no one believes in.
But constructing a face from DNA? That'll never happen. Well, maybe . . .
In fall 2011 the National Student Clearinghouse Research Center found that higher education
enrollment was slightly more than 20.5 million students. By fall 2019 that figure had dropped
to about 18.2 million, a decline of slightly over 11%. During those eight years the number of
18- to 24-year-olds remained roughly constant.
We have long had a social consensus that it's worth four years of our children's lives and
very large sums of their parents' money to see their knowledge, mental capacity, and career
prospects greatly expanded by going to college. Attitudes and habits formed by this consensus
were bound to lag behind the reality of academia as it now is. Yet the NSCRC numbers show that
already about 1 in 9 have mustered the courage and independence of thought to face reality and
stop wasting time and money.
This illicit conversion of a vital social institution to an alien use deprives all Americans
of the benefits of a properly functioning system of higher education. It also means that a
destructive and long since discredited political ideology is now using colleges and
universities to gain a degree of influence over society that it could never have achieved at
the ballot box. That's election interference on a scale not remotely matched by anything that
was alleged in the 2020 election.
When academia's astonishing message to society is, "We'll take your money, but we'll do with
it what we want, not what you want," the response ought to be simple: "No you won't." The
question is, can the millions of people who make up that wonderful abstraction called "society"
act in a way that is sufficiently concerted and organized to deliver the message effectively?
Many have already made a good start. But the rest need to join if we are ever again to have
college campuses that aren't as academically incompetent as they are politically
malevolent.
Mr. Ellis is a professor emeritus of German literature at the University of California,
Santa Cruz and author of "The Breakdown of Higher Education: How It happened, the Damage It
Does, and What Can Be Done."
Joe Biden took the riskiest step of his presidency with a call for higher taxes on the
wealthy to fund a massive investment in the nation's social safety net, betting he could sell
the American public on sweeping change following a pandemic that exacerbated economic and
social divides.
Biden devoted his first address to a joint session of Congress to a call for a "a
once-in-a-generation investment in our families," prescribing trillions of dollars in new
spending for infrastructure, child care, paid leave, community college tuition, and a bevy of
subsidies for working class families.
And in a full-throated confrontation of Wall Street, Biden said the nation's wealthiest
taxpayers and companies should foot the bill. He declared investors "didn't build this country"
and said the wealthy had lined their pockets during the pandemic without paying their fair
share.
"I stand here tonight before you in a new and vital hour of life and democracy of our
nation," Biden said.
The speech was delivered to a House chamber where heightened security and social distancing
measures underscored the disease and division still confronting the nation. It amounted to an
audacious gamble that Biden can harness public support not only for trillions of dollars in new
federal programs for lower- and middle-income Americans, but the biggest tax hikes in
decades.
But his ambitions rest on a narrow Democratic majority in the Senate, where the defections
of only a single moderate or two would mean failure.
Biden painted the deadly course of the virus as embodying and exaggerating the inequalities
that have broadened in recent decades, with working class Americans shouldering economic and
health insecurity while the wealthiest flourished. At risk is not only his vision for
rebuilding the economy, but the razor-thin advantage his party holds in Congress ahead of the
2022 midterm elections, when Republicans are well positioned to retake the majority at least in
the House.
"Doing nothing is not an option," the president implored.
Unattainable Wealth
Biden's effort was in many ways a break from the cautious center-left triangulation that has
defined Democratic presidential politics since the Reagan Revolution. His calculation is that
voters battered by the virus just a decade after a painful recession are no longer as concerned
about deficit spending or retaining low tax rates for a tier of wealth that seems increasingly
unattainable.
And Biden used one of the biggest bully pulpits he's provided to offer a presidential
validation of the growing influence of the progressive left, pitching at least US$3.8 trillion
in new spending, sweeping new changes to the health care system, and substantial gun control
measures.
Biden's own tendencies are more conciliatory, and he's likely to ultimately jettison some of
the more ambitious proposals as he seeks to navigate legislation through Capitol Hill --
particularly with moderate Democrats already expressing skepticism about new taxes and
spending. He took pains to caveat his broadsides against the nation's wealthiest, saying he was
"not out to punish anyone" and, in a line improvised from the prepared text, acknowledged the
"good guys and women on Wall Street."
But he left little room for critics within his party to argue he lacked ambition, and his
presidential legacy will now be defined by his ability to deliver a once-in-a-generation suite
of new government investments, services, and programs.
The forum for Biden's call for structural economic change itself seemed designed to
underscore the unprecedented moment. Because of coronavirus precautions, only about 200
lawmakers were invited to attend the speech in person, and some of the Senate's most powerful
moderates -- including West Virginia Democrat Joe Manchin and Utah Republican Mitt Romney --
were relegated to seats in the upper balcony.
The president's tone and tenor suggested that even if ordinary Americans weren't in the
room, he felt emboldened by polls that suggest his proposals are popular – and that he
himself has been buoyed by a largely successful vaccine campaign that's administered more than
315 million shots and a stimulus program that provided more than 160 million checks to
taxpayers.
The president's approval rating is at 57 per cent, according to a Gallup poll released
Friday, matching his post-inauguration high. And seven in 10 Americans favored Biden's initial
US$1.9 trillion stimulus bill, with only around a third of those surveyed by the Pew Research
Center earlier this month saying it spent too much.
His new US$1.8 trillion families plan and the US$2.25 trillion infrastructure proposal
– which he christened a "blue-collar blueprint to build America" -- directly targeted two
key constituencies: suburban moms and the White working class of the Rust Belt.
The Bloomberg Dollar Spot Index erased its losses as of 12:00 p.m. in Hong Kong, as traders
who were betting on a bigger spending plan from Biden cut back on currency risk positions.
Treasury futures were little changed and U.S. equity futures maintained their gains.B
Pandemic Disparities
There's reason for Biden to direct his appeal to those he said "feel left behind and
forgotten."
The pandemic ushered in not only disproportionate health outcomes -- a recent study by Ball
State University showed a higher death rate among counties with higher poverty levels -- but
deepened disparate economic trends.
While the richest 1 per cent in the U.S. saw their wealth increase by US$4 trillion, the
bottom half of Americans shared just a US$471 billion increase. Female participation in the
labor force has slipped to 57 per cent -- the lowest level since 1988 – and a half
million more women exited the workforce than men during a crisis that saw 10 million jobs
disappear.
White House advisers have made no secret about the opening they see.
Chief of Staff Ron Klain has spent recent weeks promoting stories that bluntly describe
Biden's plans to hike taxes on the wealthy in a flurry of social media posts.
Economic adviser Brian Deese declined to publicly address any element of Biden's families
plan ahead of its rollout Wednesday – except a provision to hike capital gains taxes on
Americans making over US$1 million a year. And political adviser Anita Dunn on Tuesday penned a
memo to "interested parties" pointing to recent Fox News polling that showed 56 per cent of
respondents backed paying for infrastructure through increased taxes on corporations and 63 per
cent supported raising income taxes on the wealthiest Americans.
"We need to make the case, but the American people seem very supportive of the idea that
when it comes to longstanding challenges in this country, we need to come together and make the
investments we need in order to address them," said White House economic adviser David
Kamin.
Congressional Difficulties
Still, the success of Biden's effort will hinge on parlaying that popular support into votes
in a narrowly divided Congress, where Republicans remain loathe to offer any assistance and
without them, moderate Senate Democrats like Arizona's Kyrsten Sinema and Manchin can scuttle
any piece of legislation single-handedly.
Both have already voiced skepticism about Biden's proposed tax increases, leaving open the
question of how the White House's proposals can proceed. And Republicans looked to fan that
uncertainty, painting the president's vision as excessive and ineffective.
"Our best future won't come from Washington schemes or socialist dreams," Senator Tim Scott,
a South Carolina Republican, said in the GOP rebuttal to Biden's address. "It will come from
you -- the American people."
Biden, for his part, said that big investments in jobs and infrastructure "have often had
bipartisan support" and looked to win skeptics by adopting rhetoric more familiar to
Republicans and painting his plans as essential to winning a global battle for the future.
"We have to prove democracy still works," the president said. "That our government still
works -- and can deliver for the people."
--With assistance from Jennifer Epstein and Tan Hwee Ann.
Wealthiest Americans get US$195 billion richer in Biden's first 100 days
Simon Hunt and Ben Steverman , Bloomberg News
https://imasdk.googleapis.com/js/core/bridge3.453.0_en.html#goog_1563483815 Getting
Biden's capital gains tax through congress is slim to none: Federated Hermes' Orlando
Biden tax plans have roadblocks but will trigger a big sell-off i...
Joe Biden's election has done little to slow the inexorable surge of wealth among U.S.
billionaires.
In the president's first 100 days in office, against a drumbeat of calls for the rich to pay
more in taxes, the 100 wealthiest Americans added a combined US$195 billion to their fortunes,
according to a Bloomberg analysis.
The most recent gains have been fueled by the continued rise of the stock market since Biden
was sworn in Jan. 20, along with the vaccination program's fast rollout and a US$1.9 trillion
government stimulus package. The S&P 500 and Dow Jones indexes have both climbed more than
10 per cent during that time.
Attempts such as Biden's to refloat the economy can boost incomes and wealth at the very
top, said Mike Savage, a sociology professor at the London School of Economics.
"We've seen that paradox since the 2008 financial crash with quantitative easing, which has
mostly benefited people with assets, inflating their value significantly,'' Savage said.
The richest 100 made a further US$267 billion between the 2020 election and Biden's
inauguration, amounting to a total gain of US$461 billion since Nov. 4. From Donald Trump's
2017 inauguration to last fall's election, those billionaires got about US$860 billion
richer.
The combined fortunes of the richest 100 Americans have reached US$2.9 trillion, greater
than the combined US$2.5 trillion wealth of the bottom 50 per cent of the U.S. population,
according to data from the Federal Reserve.
The rise has been driven by an explosion of wealth among a handful of ultra-billionaires.
The 10 wealthiest Americans have added US$255 billion since election day, bringing their
combined net worth to US$1.2 trillion.
The biggest driver of this wealth surge has been tech companies like Amazon.com Inc.,
Facebook Inc. and Alphabet Inc.'s Google, bolstered by increased online and stay-at-home
activity during the coronavirus pandemic. The FANG stocks index has climbed 94 per cent in the
past 12 months compared with the 45 per cent advance of the S&P 500.
Amazon founder Jeff Bezos, the world's richest man, has gotten US$11.7 billion richer this
year, according to the Bloomberg Billionaires Index, adding to about US$120 billion of wealth
gains during the Trump presidency. Mark Zuckerberg's net worth rose US$8.1 billion yesterday
alone on the strength of Facebook's first-quarter results.
Google's Larry Page has added US$26.6 billion this year after the California-based company
posted record profit last year, while the wealth of Tesla Inc.'s Elon Musk has grown US$5.1
billion since January.
Finance billionaires such as Warren Buffett and Blackstone Group Inc.'s Stephen Schwarzman
have also been major beneficiaries of stock market rises.
In his first 100 days, Biden has moved quickly to propose sharp tax hikes for the rich and
programs to funnel trillions of dollars to middle- and lower-class Americans in the form of new
infrastructure, social spending and stimulus checks. He laid out those policies in his first
address to Congress on Wednesday.
"Sometimes I have arguments with my friends in the Democratic Party," Biden said. "I think
you should be able to become a billionaire or a millionaire. But pay your fair share."
Under his "American Families Plan" announced Wednesday, the top rate of personal income tax
would increase to 39.6 per cent for the highest 1 per cent of earners from the current 37 per
cent, while the capital gains rate would be raised to the same level for those earning above
US$1 million, wiping out the discrepancy between income and capital gains tax rates that has
benefitted many of the ultra-rich.
The wealthiest 1 per cent currently pay 40 per cent of all federal income taxes, according
to Internal Revenue Service data, an amount that doesn't include payroll taxes.
"When you ask the American people what they want, they want corporations and millionaires
and billionaires to pay higher taxes," said Erica Payne, founder of the Patriotic Millionaires,
a group of progressive high-net-worth individuals. "It is politically a winner, it is
economically the right thing to do and it is morally a no-brainer."
Corporate tax hike
The White House has also proposed a plan to hike corporate taxes to fund infrastructure
spending. In a surprise this month, Bezos issued a statement saying he supports the general
idea. "We look forward to Congress and the administration coming together to find the right,
balanced solution that maintains or enhances U.S. competitiveness," he said.
Conservatives say boosting spending by adding a greater burden on the wealthy can
backfire.
"Government investments are often sold to the public with the promise that they will improve
lives and improve the economy," Scott Hodge, president of the Tax Foundation, argued in
testimony before Congress this week. "In every case, the economic harm caused by the taxes
would swamp any of the benefits from the new spending, leaving taxpayers and the economy worse
off."
Despite the pandemic, Fed data show all groups gained wealth last year. The top 1 per cent
did best, however, adding US$4 trillion in 2020 and bringing their total net worth to almost
US$39 billion, more than the bottom 90 per cent of Americans combined. Personal incomes in the
U.S. jumped a record 21 per cent in March, surging after households received a third round of
relief checks.
In his speech to Congress, Biden emphasized his efforts to create good-paying jobs,
especially those that don't require a college degree. The increasing dominance of tech giants,
however, won't necessarily help middle-class Americans. As a proportion of their market
capitalization, most technology companies employ relatively few Americans compared with their
older listed peers, concentrating wealth in the hands of a select few.
"The whole retail distribution system is changing," said Robert Miller, professor of
economics and statistics at Carnegie Mellon University. "Recent technology has been hollowing
out some parts of middle management, so you can see parts of the middle class slipping
away."
Tax loopholes
Democrats in Congress are pushing other plans to close loopholes and tax wealth. To claw
back gains made by America's richest during the pandemic, Senator Elizabeth Warren, a
Massachusetts Democrat, proposed an Ultra Millionaire tax, a new version of the wealth tax she
floated as a presidential candidate. Under her proposal, those with fortunes exceeding US$50
million would face a 2 per cent tax on their wealth, increasing to 3 per cent for those worth
more than US$1 billion. The plan is unlikely to become law, given opposition from Biden and
other Democrats.
Higher taxes aren't "going to have very much effect in the long term on redistributing
wealth," Carnegie Mellon's Miller said. "This focus on how we're going to get the money is a
bit misplaced – we should be thinking more about how we want to help the people that need
help."
SUBSCRIBER 2 hours ago Borrowing money to gamble on the stock market is not
a very smart thing to do in my opinion. Like thumb_up 7 Reply reply Share link Report flag
R
Individual investors are holding more stocks than ever before as major indexes climb to
fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets in
April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve
data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that investors'
allocations to the stock market hit around a three-year high of 70% in March. And margin
debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over the
past year. At some point, given how high their equity allocation is, the risk is they decide to
get out and take profits," said Mr. Panigirtzoglou, a managing director at JPMorgan. "That is
effectively what happened before in 2000."
Individual investors are holding more stocks than ever before as major indexes climb to
fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets in
April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve
data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that investors'
allocations to the stock market hit around a three-year high of 70% in March. And margin
debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over the
past year. At some point, given how high their equity allocation is, the risk is they decide to
get out and take profits," said Mr. Panigirtzoglou, a managing director at JPMorgan. "That is
effectively what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not sure th@t all the
day traders from 2020 have actually put aside enough money to pay their taxes . Those gains
were all short term ordinary income .
We won't crash , we will have just put a high in that may not be breached for many years . Of
course all bets are off if Biden pays every one's taxes for them and gives them an extra "
stimmy" .
Individual investors are holding more stocks than ever before as major indexes climb to
fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets in
April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve
data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that investors'
allocations to the stock market hit around a three-year high of 70% in March. And margin
debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over the
past year. At some point, given how high their equity allocation is, the risk is they decide to
get out and take profits," said Mr. Panigirtzoglou, a managing director at JPMorgan. "That is
effectively what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not sure th@t all the
day traders from 2020 have actually put aside enough money to pay their taxes . Those gains
were all short term ordinary income .
We won't crash , we will have just put a high in that may not be breached for many years .
Of course all bets are off if Biden pays every one's taxes for them and gives them an extra
" stimmy" .
Individual investors are holding more stocks than ever before as major indexes climb to
fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets in
April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve
data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that investors'
allocations to the stock market hit around a three-year high of 70% in March. And margin
debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over the
past year. At some point, given how high their equity allocation is, the risk is they decide
to get out and take profits," said Mr. Panigirtzoglou, a managing director at JPMorgan. "That
is effectively what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not sure th@t all
the day traders from 2020 have actually put aside enough money to pay their taxes .
Those gains were all short term ordinary income .
We won't crash , we will have just put a high in that may not be breached for many
years . Of course all bets are off if Biden pays every one's taxes for them and gives
them an extra " stimmy" .
Individual investors are holding more stocks than ever before as major indexes climb
to fresh highs. They are also upping the ante by borrowing to magnify their bets or
increasingly buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets
in April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal
Reserve data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that
investors' allocations to the stock market hit around a three-year high of 70% in March.
And margin debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over
the past year. At some point, given how high their equity allocation is, the risk is they
decide to get out and take profits," said Mr. Panigirtzoglou, a managing director at
JPMorgan. "That is effectively what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not sure
th@t all the day traders from 2020 have actually put aside enough money to pay
their taxes . Those gains were all short term ordinary income .
We won't crash , we will have just put a high in that may not be breached for
many years . Of course all bets are off if Biden pays every one's taxes for them
and gives them an extra " stimmy" .
Individual investors are holding more stocks than ever before as major indexes
climb to fresh highs. They are also upping the ante by borrowing to magnify their
bets or increasingly buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial
assets in April, the highest level on record. That is according to JPMorgan Chase &
Co. and Federal Reserve data going back to 1952 that includes 401(k) retirement
accounts.
... A survey by the American Association of Individual Investors showed that
investors' allocations to the stock market hit around a three-year high of 70% in
March. And margin debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities
over the past year. At some point, given how high their equity allocation is, the
risk is they decide to get out and take profits," said Mr. Panigirtzoglou, a
managing director at JPMorgan. "That is effectively what happened before in
2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not
sure th@t all the day traders from 2020 have actually put aside enough
money to pay their taxes . Those gains were all short term ordinary
income .
We won't crash , we will have just put a high in that may not be breached
for many years . Of course all bets are off if Biden pays every one's
taxes for them and gives them an extra " stimmy" .
Individual investors are holding more stocks than ever before as major
indexes climb to fresh highs. They are also upping the ante by borrowing to
magnify their bets or increasingly buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total
financial assets in April, the highest level on record. That is according
to JPMorgan Chase & Co.
and Federal Reserve data going back to 1952 that includes 401(k) retirement
accounts.
... A survey by the American Association of Individual Investors showed
that investors' allocations to the stock market hit around a three-year
high of 70% in March. And margin debt -- or money that investors borrow
to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority
figures show.
... "Retail investors have made a lot of money on many things including
equities over the past year. At some point, given how high their equity
allocation is, the risk is they decide to get out and take profits," said
Mr. Panigirtzoglou, a managing director at JPMorgan. "That is effectively
what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th
. I'm not sure th@t all the day traders from 2020 have actually
put aside enough money to pay their taxes . Those gains were
all short term ordinary income .
We won't crash , we will have just put a high in that may not
be breached for many years . Of course all bets are off if
Biden pays every one's taxes for them and gives them an extra "
stimmy" .
Individual investors are holding more stocks than ever before
as major indexes climb to fresh highs. They are also upping the
ante by borrowing to magnify their bets or increasingly buying on
small dips in the market.
Stockholdings among U.S. households increased to 41% of their
total financial assets in April, the highest level on record.
That is according to JPMorgan Chase
& Co. and Federal Reserve data going back to 1952 that
includes 401(k) retirement accounts.
... A survey by the American Association of Individual
Investors showed that investors' allocations to the stock market
hit around a three-year high of 70% in March. And margin debt
-- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory
Authority figures show.
... "Retail investors have made a lot of money on many things
including equities over the past year. At some point, given how
high their equity allocation is, the risk is they decide to get
out and take profits," said Mr. Panigirtzoglou, a managing
director at JPMorgan. "That is effectively what happened before
in 2000."
I believe there is 60% chance we put in a top
before May 17 th . I'm not sure th@t all the day
traders from 2020 have actually put aside enough
money to pay their taxes . Those gains were all
short term ordinary income .
We won't crash , we will have just put a high in
that may not be breached for many years . Of course
all bets are off if Biden pays every one's taxes
for them and gives them an extra " stimmy" .
Individual investors are holding more stocks than
ever before as major indexes climb to fresh highs.
They are also upping the ante by borrowing to magnify
their bets or increasingly buying on small dips in
the market.
Stockholdings among U.S. households increased to
41% of their total financial assets in April, the
highest level on record. That is according to
JPMorgan
Chase & Co. and Federal Reserve data going
back to 1952 that includes 401(k) retirement
accounts.
... A survey by the American Association of
Individual Investors showed that investors'
allocations to the stock market hit around a
three-year high of 70% in March. And margin debt
-- or money that investors borrow to buy securities
--
stood at a record as of March , Financial
Industry Regulatory Authority figures show.
... "Retail investors have made a lot of money on
many things including equities over the past year. At
some point, given how high their equity allocation
is, the risk is they decide to get out and take
profits," said Mr. Panigirtzoglou, a managing
director at JPMorgan. "That is effectively what
happened before in 2000."
I believe there is 60% chance we put
in a top before May 17 th . I'm not
sure th@t all the day traders from
2020 have actually put aside enough
money to pay their taxes . Those
gains were all short term ordinary
income .
We won't crash , we will have just
put a high in that may not be
breached for many years . Of course
all bets are off if Biden pays every
one's taxes for them and gives them
an extra " stimmy" .
Individual investors are holding
more stocks than ever before as major
indexes climb to fresh highs. They are
also upping the ante by borrowing to
magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households
increased to 41% of their total
financial assets in April, the highest
level on record. That is according to
JPMorgan Chase & Co. and
Federal Reserve data going back to 1952
that includes 401(k) retirement
accounts.
... A survey by the American
Association of Individual Investors
showed that investors' allocations to
the stock market hit around a
three-year high of 70% in March. And
margin debt -- or money that investors
borrow to buy securities --
stood at a record as of March ,
Financial Industry Regulatory Authority
figures show.
... "Retail investors have made a
lot of money on many things including
equities over the past year. At some
point, given how high their equity
allocation is, the risk is they decide
to get out and take profits," said Mr.
Panigirtzoglou, a managing director at
JPMorgan. "That is effectively what
happened before in 2000."
I believe there is
60% chance we put in
a top before May 17
th . I'm not sure
th@t all the day
traders from 2020
have actually put
aside enough money to
pay their taxes .
Those gains were all
short term ordinary
income .
We won't crash , we
will have just put a
high in that may not
be breached for many
years . Of course all
bets are off if Biden
pays every one's
taxes for them and
gives them an extra "
stimmy" .
Individual investors
are holding more stocks
than ever before as
major indexes climb to
fresh highs. They are
also upping the ante by
borrowing to magnify
their bets or
increasingly buying on
small dips in the
market.
Stockholdings among
U.S. households
increased to 41% of
their total financial
assets in April, the
highest level on
record. That is
according to
JPMorgan Chase
& Co. and Federal
Reserve data going back
to 1952 that includes
401(k) retirement
accounts.
... A survey by the
American Association of
Individual Investors
showed that investors'
allocations to the
stock market hit around
a three-year high of
70% in March. And
margin debt -- or money
that investors borrow
to buy securities --
stood at a record as of
March , Financial
Industry Regulatory
Authority figures
show.
... "Retail
investors have made a
lot of money on many
things including
equities over the past
year. At some point,
given how high their
equity allocation is,
the risk is they decide
to get out and take
profits," said Mr.
Panigirtzoglou, a
managing director at
JPMorgan. "That is
effectively what
happened before in
2000."
I
believe
there
is
60%
chance
we
put
in a
top
before
May
17 th
. I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
... A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
-- or
money
that
investors
borrow
to
buy
securities
--
stood
at a
record
as of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock market
used to take years, sometimes decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however, stocks regained record highs in
only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's the
fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according to Dow
Jones Market Data. Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be cautious.
These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If anyone
should come through the sharpest market decline in decades unperturbed, it's the people in this
survey -- typically about 60 years old, with about $225,000 in Vanguard investments, roughly
70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into early
2020 with the highest expectations for stock returns in the upcoming year. They ended up
reducing their exposure to stocks much more sharply during the crash of February and March 2020
than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold -- but not
until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks
aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go up
" so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing interest
rates toward zero and by buying more than $2.5 trillion in
Treasury securities since February 2020, along with other massive
interventions . Meanwhile, emergency government programs pumped trillions of dollars of
stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation below
.
Fund managers fruitlessly complained about how these policies were distorting markets, but
individual investors simply followed the old Wall Street adage: Don't fight the Fed. So long as
the central bank is drenching the markets with liquidity, why not buy stocks -- and why fear
another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52 billion
to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy them;
otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock market
used to take years, sometimes decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however, stocks regained record highs in
only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's the
fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according to Dow
Jones Market Data. Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be cautious.
These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If anyone
should come through the sharpest market decline in decades unperturbed, it's the people in this
survey -- typically about 60 years old, with about $225,000 in Vanguard investments, roughly
70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into early
2020 with the highest expectations for stock returns in the upcoming year. They ended up
reducing their exposure to stocks much more sharply during the crash of February and March 2020
than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold -- but not
until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks
aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go up
" so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing interest
rates toward zero and by buying more than $2.5 trillion in
Treasury securities since February 2020, along with other massive
interventions . Meanwhile, emergency government programs pumped trillions of dollars of
stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation below
.
Fund managers fruitlessly complained about how these policies were distorting markets, but
individual investors simply followed the old Wall Street adage: Don't fight the Fed. So long as
the central bank is drenching the markets with liquidity, why not buy stocks -- and why fear
another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52 billion
to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy them;
otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to present msft is up
1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has surpassed the Dot com
peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is nothing left to buy
) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT buy . Cash is a
wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too early"
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock market
used to take years, sometimes decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however, stocks regained record highs in
only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's the
fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according to Dow
Jones Market Data. Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be cautious.
These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If anyone
should come through the sharpest market decline in decades unperturbed, it's the people in this
survey -- typically about 60 years old, with about $225,000 in Vanguard investments, roughly
70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into early
2020 with the highest expectations for stock returns in the upcoming year. They ended up
reducing their exposure to stocks much more sharply during the crash of February and March 2020
than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold -- but not
until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks
aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go up
" so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing interest
rates toward zero and by buying more than $2.5 trillion in
Treasury securities since February 2020, along with other massive
interventions . Meanwhile, emergency government programs pumped trillions of dollars of
stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation below
.
Fund managers fruitlessly complained about how these policies were distorting markets, but
individual investors simply followed the old Wall Street adage: Don't fight the Fed. So long as
the central bank is drenching the markets with liquidity, why not buy stocks -- and why fear
another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52 billion
to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy them;
otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to present msft is
up 1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has surpassed the Dot com
peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is nothing left to
buy ) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT buy . Cash is a
wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too early"
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock market
used to take years, sometimes decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however, stocks regained record highs in
only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's the
fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according to
Dow Jones Market Data. Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be cautious.
These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If anyone
should come through the sharpest market decline in decades unperturbed, it's the people in
this survey -- typically about 60 years old, with about $225,000 in Vanguard investments,
roughly 70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into
early 2020 with the highest expectations for stock returns in the upcoming year. They ended
up reducing their exposure to stocks much more sharply during the crash of February and March
2020 than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold -- but
not until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks
aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go
up " so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing interest
rates toward zero and by buying more than $2.5 trillion in
Treasury securities since February 2020, along with other
massive interventions . Meanwhile, emergency government programs pumped trillions of
dollars of stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation
below .
Fund managers fruitlessly complained about how these policies were distorting markets, but
individual investors simply followed the old Wall Street adage: Don't fight the Fed. So long
as the central bank is drenching the markets with liquidity, why not buy stocks -- and why
fear another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52
billion to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy them;
otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to present msft
is up 1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has surpassed the Dot
com peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is nothing left
to buy ) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT buy . Cash is a
wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too early"
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock
market used to take years, sometimes decades, to recover its prior peak after the start
of a bear-market decline. After last year's 34% meltdown, however, stocks regained record
highs in only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's
the fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according
to Dow Jones Market Data. Recoveries to previous highs have typically taken almost three
years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be
cautious. These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If
anyone should come through the sharpest market decline in decades unperturbed, it's the
people in this survey -- typically about 60 years old, with about $225,000 in Vanguard
investments, roughly 70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into
early 2020 with the highest expectations for stock returns in the upcoming year. They
ended up reducing their exposure to stocks much more sharply during the crash of February
and March 2020 than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold --
but not until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that
stocks aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go
up " so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing
interest rates toward zero and by buying more than $2.5 trillion
in Treasury securities since February 2020, along with other
massive interventions . Meanwhile, emergency government programs pumped trillions of
dollars of stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation
below .
Fund managers fruitlessly complained about how these policies were distorting markets,
but individual investors simply followed the old Wall Street adage: Don't fight the Fed.
So long as the central bank is drenching the markets with liquidity, why not buy stocks
-- and why fear another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52
billion to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market
crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy
them; otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to present
msft is up 1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has surpassed
the Dot com peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is nothing
left to buy ) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT buy .
Cash is a wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too early"
From commnets: "Barrons reports that as of Friday the total value of stocks v
GDP has surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time
record
margin loans at all time record . 200 day moving average at high for 95% of
stocks"
...That's what some investors seem to believe -- and who can blame them? The
stock market used to take years, sometimes decades, to recover its prior peak after
the start of a bear-market decline. After last year's 34% meltdown, however, stocks
regained record highs in only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009,
that's the fastest-ever recovery to a prior peak. The S&P 500 has fallen at
least 20% -- the conventional definition of a bear market -- 26 times in the past
nine decades, according to Dow Jones Market Data. Recoveries to previous highs have
typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be
cautious. These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky.
If anyone should come through the sharpest market decline in decades unperturbed,
it's the people in this survey -- typically about 60 years old, with about $225,000
in Vanguard investments, roughly 70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went
into early 2020 with the highest expectations for stock returns in the upcoming
year. They ended up reducing their exposure to stocks much more sharply during the
crash of February and March 2020 than those who had been expecting lower
returns.
They also tended to turn around and buy back much of the stock they had just
sold -- but not until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery
that stocks aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks
only go up " so often that it began to seem like a magic incantation. And, for
the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing
interest rates toward zero and by buying more than $2.5
trillion in Treasury securities since February 2020, along with other
massive interventions . Meanwhile, emergency government programs pumped
trillions of dollars of stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the
conversation below .
Fund managers fruitlessly complained about how these policies were distorting
markets, but individual investors simply followed the old Wall Street adage: Don't
fight the Fed. So long as the central bank is drenching the markets with liquidity,
why not buy stocks -- and why fear another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks,
command in excess of $2.8 trillion, according to Morningstar Inc. Investors added
$52 billion to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make
market crashes
self-correcting . The more stocks fall, the more the target-date funds have to
buy them; otherwise, the portfolios would fall below their mandated ratios of
stocks to other assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to
present msft is up 1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is
nothing left to buy ) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT
buy . Cash is a wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too
early"
From commnets: "Barrons reports that as of Friday the total value of
stocks v GDP has surpassed the Dot com peak in early 2000 .Case Schiller PE
is at all time record
margin loans at all time record . 200 day moving average at high for 95% of
stocks"
...That's what some investors seem to believe -- and who can blame them?
The stock market used to take years, sometimes decades, to recover its
prior peak after the start of a bear-market decline. After last year's 34%
meltdown, however, stocks regained record highs in only 126 trading
days.
With the exception of a 100-day rebound after an interim drop in early
2009, that's the fastest-ever recovery to a prior peak. The S&P 500 has
fallen at least 20% -- the conventional definition of a bear market -- 26
times in the past nine decades, according to Dow Jones Market Data.
Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend
to be cautious. These people often follow the philosophy of the firm's late
founder,
Jack Bogle , who preached patience and repeatedly warned that stocks
are risky. If anyone should come through the sharpest market decline in
decades unperturbed, it's the people in this survey -- typically about 60
years old, with about $225,000 in Vanguard investments, roughly 70% in
stocks.
Yet they didn't all sit tight. One group in the survey stood out: those
who went into early 2020 with the highest expectations for stock returns in
the upcoming year. They ended up reducing their exposure to stocks much
more sharply during the crash of February and March 2020 than those who had
been expecting lower returns.
They also tended to turn around and buy back much of the stock they had
just sold -- but not until prices had already shot above the March
lows.
Investors elsewhere seem to have concluded from the swiftness of the
recovery that stocks aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks
only go up " so often that it began to seem like a magic incantation.
And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by
squashing interest rates toward zero and by buying more than
$2.5 trillion in Treasury securities since February 2020, along with
other massive interventions . Meanwhile, emergency government programs
pumped trillions of dollars of stimulus into the economy.
SHARE YOUR
THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the
conversation below .
Fund managers fruitlessly complained about how these policies were
distorting markets, but individual investors simply followed the old Wall
Street adage: Don't fight the Fed. So long as the central bank is drenching
the markets with liquidity, why not buy stocks -- and why fear another
crash?
What's more,
target-date funds , which continually seek to keep a predetermined
exposure to stocks, command in excess of $2.8 trillion, according to
Morningstar Inc.
Investors added $52 billion to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped
make market crashes
self-correcting . The more stocks fall, the more the target-date funds
have to buy them; otherwise, the portfolios would fall below their mandated
ratios of stocks to other assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 ,
from2009 to present msft is up 1000% dwarfing my loss in WAMU
.
Barrons reports that as of Friday the total value of stocks v
GDP has surpassed the Dot com peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation
: there is nothing left to buy ) .
The course of action is clear ..Don't sell but whatever you do
..Do NOT buy . Cash is a wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by
selling too early"
From commnets: "Barrons reports that as of Friday the total
value of stocks v GDP has surpassed the Dot com peak in early
2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high
for 95% of stocks"
...That's what some investors seem to believe -- and who can
blame them? The stock market used to take years, sometimes
decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however,
stocks regained record highs in only 126 trading days.
With the exception of a 100-day rebound after an interim drop
in early 2009, that's the fastest-ever recovery to a prior peak.
The S&P 500 has fallen at least 20% -- the conventional
definition of a bear market -- 26 times in the past nine decades,
according to Dow Jones Market Data. Recoveries to previous highs
have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard
investors, who tend to be cautious. These people often follow the
philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that
stocks are risky. If anyone should come through the sharpest
market decline in decades unperturbed, it's the people in this
survey -- typically about 60 years old, with about $225,000 in
Vanguard investments, roughly 70% in stocks.
Yet they didn't all sit tight. One group in the survey stood
out: those who went into early 2020 with the highest expectations
for stock returns in the upcoming year. They ended up reducing
their exposure to stocks much more sharply during the crash of
February and March 2020 than those who had been expecting lower
returns.
They also tended to turn around and buy back much of the stock
they had just sold -- but not until prices had already shot above
the March lows.
Investors elsewhere seem to have concluded from the swiftness
of the recovery that stocks aren't risky at all. After last
spring's rebound,
Dave Portnoy , a social-media celebrity, declared "
Stocks only go up " so often that it began to seem like a
magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped
markets by squashing interest rates toward zero and by buying
more than $2.5 trillion in Treasury securities since February
2020, along with
other massive interventions . Meanwhile, emergency government
programs pumped trillions of dollars of stimulus into the
economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not?
Join the conversation below .
Fund managers fruitlessly complained about how these policies
were distorting markets, but individual investors simply followed
the old Wall Street adage: Don't fight the Fed. So long as the
central bank is drenching the markets with liquidity, why not buy
stocks -- and why fear another crash?
What's more,
target-date funds , which continually seek to keep a
predetermined exposure to stocks, command in excess of $2.8
trillion, according to Morningstar
Inc. Investors added $52 billion to target-date funds in
2020.
The popularity of these portfolios has -- so far, anyway --
helped make market crashes
self-correcting . The more stocks fall, the more the
target-date funds have to buy them; otherwise, the portfolios
would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU
in 2008 , from2009 to present msft is up 1000%
dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value
of stocks v GDP has surpassed the Dot com peak in
early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks (
translation : there is nothing left to buy ) .
The course of action is clear ..Don't sell but
whatever you do ..Do NOT buy . Cash is a wonderful
hedge .
When asked how he got so rich Bernard Baruch
replied " by selling too early"
From commnets: "Barrons reports that as of Friday
the total value of stocks v GDP has surpassed the Dot
com peak in early 2000 .Case Schiller PE is at all
time record
margin loans at all time record . 200 day moving
average at high for 95% of stocks"
...That's what some investors seem to believe --
and who can blame them? The stock market used to take
years, sometimes decades, to recover its prior peak
after the start of a bear-market decline. After last
year's 34% meltdown, however, stocks regained record
highs in only 126 trading days.
With the exception of a 100-day rebound after an
interim drop in early 2009, that's the fastest-ever
recovery to a prior peak. The S&P 500 has fallen
at least 20% -- the conventional definition of a bear
market -- 26 times in the past nine decades,
according to Dow Jones Market Data. Recoveries to
previous highs have typically taken almost three
years,
often much longer .
... ... ...
That complacency takes a toll -- even among
Vanguard investors, who tend to be cautious. These
people often follow the philosophy of the firm's late
founder,
Jack Bogle , who preached patience and repeatedly
warned that stocks are risky. If anyone should come
through the sharpest market decline in decades
unperturbed, it's the people in this survey --
typically about 60 years old, with about $225,000 in
Vanguard investments, roughly 70% in stocks.
Yet they didn't all sit tight. One group in the
survey stood out: those who went into early 2020 with
the highest expectations for stock returns in the
upcoming year. They ended up reducing their exposure
to stocks much more sharply during the crash of
February and March 2020 than those who had been
expecting lower returns.
They also tended to turn around and buy back much
of the stock they had just sold -- but not until
prices had already shot above the March lows.
Investors elsewhere seem to have concluded from
the swiftness of the recovery that stocks aren't
risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared
"
Stocks only go up " so often that it began to
seem like a magic incantation. And, for the past
year,
just about every stock has gone up .
That's largely because the Federal Reserve has
backstopped markets by squashing interest rates
toward zero and by buying
more than $2.5 trillion in Treasury securities
since February 2020, along with
other massive interventions . Meanwhile,
emergency government programs pumped trillions of
dollars of stimulus into the economy.
SHARE
YOUR THOUGHTS
Have you lost your fear of a bear market? Why
or why not? Join the conversation below .
Fund managers fruitlessly complained about how
these policies were distorting markets, but
individual investors simply followed the old Wall
Street adage: Don't fight the Fed. So long as the
central bank is drenching the markets with liquidity,
why not buy stocks -- and why fear another crash?
What's more,
target-date funds , which continually seek to
keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar
Inc. Investors added $52 billion to target-date funds
in 2020.
The popularity of these portfolios has -- so
far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more
the target-date funds have to buy them; otherwise,
the portfolios would fall below their mandated ratios
of stocks to other assets.
Mr. Sinclair is correct . While I
lost 100% in WAMU in 2008 , from2009
to present msft is up 1000% dwarfing
my loss in WAMU .
Barrons reports that as of Friday the
total value of stocks v GDP has
surpassed the Dot com peak in early
2000 .
Case Schiller PE is at all time
record
margin loans at all time record .
200 day moving average at high for
95% of stocks ( translation : there
is nothing left to buy ) .
The course of action is clear ..Don't
sell but whatever you do ..Do NOT buy
. Cash is a wonderful hedge .
When asked how he got so rich Bernard
Baruch replied " by selling too
early"
From commnets: "Barrons reports that
as of Friday the total value of stocks
v GDP has surpassed the Dot com peak in
early 2000 .Case Schiller PE is at all
time record
margin loans at all time record . 200
day moving average at high for 95% of
stocks"
...That's what some investors seem
to believe -- and who can blame them?
The stock market used to take years,
sometimes decades, to recover its prior
peak after the start of a bear-market
decline. After last year's 34%
meltdown, however, stocks regained
record highs in only 126 trading
days.
With the exception of a 100-day
rebound after an interim drop in early
2009, that's the fastest-ever recovery
to a prior peak. The S&P 500 has
fallen at least 20% -- the conventional
definition of a bear market -- 26 times
in the past nine decades, according to
Dow Jones Market Data. Recoveries to
previous highs have typically taken
almost three years,
often much longer .
... ... ...
That complacency takes a toll --
even among Vanguard investors, who tend
to be cautious. These people often
follow the philosophy of the firm's
late founder,
Jack Bogle , who preached patience
and repeatedly warned that stocks are
risky. If anyone should come through
the sharpest market decline in decades
unperturbed, it's the people in this
survey -- typically about 60 years old,
with about $225,000 in Vanguard
investments, roughly 70% in stocks.
Yet they didn't all sit tight. One
group in the survey stood out: those
who went into early 2020 with the
highest expectations for stock returns
in the upcoming year. They ended up
reducing their exposure to stocks much
more sharply during the crash of
February and March 2020 than those who
had been expecting lower returns.
They also tended to turn around and
buy back much of the stock they had
just sold -- but not until prices had
already shot above the March lows.
Investors elsewhere seem to have
concluded from the swiftness of the
recovery that stocks aren't risky at
all. After last spring's rebound,
Dave Portnoy , a social-media
celebrity, declared "
Stocks only go up " so often that
it began to seem like a magic
incantation. And, for the past year,
just about every stock has gone up
.
That's largely because the Federal
Reserve has backstopped markets by
squashing interest rates toward zero
and by buying
more than $2.5 trillion in Treasury
securities since February 2020,
along with
other massive interventions .
Meanwhile, emergency government
programs pumped trillions of dollars of
stimulus into the economy.
SHARE
YOUR THOUGHTS
Have you lost your fear of a bear
market? Why or why not? Join the
conversation below .
Fund managers fruitlessly complained
about how these policies were
distorting markets, but individual
investors simply followed the old Wall
Street adage: Don't fight the Fed. So
long as the central bank is drenching
the markets with liquidity, why not buy
stocks -- and why fear another
crash?
What's more,
target-date funds , which
continually seek to keep a
predetermined exposure to stocks,
command in excess of $2.8 trillion,
according to
Morningstar Inc. Investors added
$52 billion to target-date funds in
2020.
The popularity of these
portfolios has -- so far, anyway --
helped make market crashes
self-correcting . The more stocks
fall, the more the target-date funds
have to buy them; otherwise, the
portfolios would fall below their
mandated ratios of stocks to other
assets.
Mr. Sinclair is
correct . While I
lost 100% in WAMU in
2008 , from2009 to
present msft is up
1000% dwarfing my
loss in WAMU .
Barrons reports that
as of Friday the
total value of stocks
v GDP has surpassed
the Dot com peak in
early 2000 .
Case Schiller PE is
at all time
record
margin loans at all
time record .
200 day moving
average at high for
95% of stocks (
translation : there
is nothing left to
buy ) .
The course of action
is clear ..Don't sell
but whatever you do
..Do NOT buy . Cash
is a wonderful hedge
.
When asked how he got
so rich Bernard
Baruch replied " by
selling too early"
From commnets:
"Barrons reports that
as of Friday the total
value of stocks v GDP
has surpassed the Dot
com peak in early 2000
.Case Schiller PE is at
all time record
margin loans at all
time record . 200 day
moving average at high
for 95% of stocks"
...That's what some
investors seem to
believe -- and who can
blame them? The stock
market used to take
years, sometimes
decades, to recover its
prior peak after the
start of a bear-market
decline. After last
year's 34% meltdown,
however, stocks
regained record highs
in only 126 trading
days.
With the exception
of a 100-day rebound
after an interim drop
in early 2009, that's
the fastest-ever
recovery to a prior
peak. The S&P 500
has fallen at least 20%
-- the conventional
definition of a bear
market -- 26 times in
the past nine decades,
according to Dow Jones
Market Data. Recoveries
to previous highs have
typically taken almost
three years,
often much longer
.
... ... ...
That complacency
takes a toll -- even
among Vanguard
investors, who tend to
be cautious. These
people often follow the
philosophy of the
firm's late founder,
Jack Bogle , who
preached patience and
repeatedly warned that
stocks are risky. If
anyone should come
through the sharpest
market decline in
decades unperturbed,
it's the people in this
survey -- typically
about 60 years old,
with about $225,000 in
Vanguard investments,
roughly 70% in
stocks.
Yet they didn't all
sit tight. One group in
the survey stood out:
those who went into
early 2020 with the
highest expectations
for stock returns in
the upcoming year. They
ended up reducing their
exposure to stocks much
more sharply during the
crash of February and
March 2020 than those
who had been expecting
lower returns.
They also tended to
turn around and buy
back much of the stock
they had just sold --
but not until prices
had already shot above
the March lows.
Investors elsewhere
seem to have concluded
from the swiftness of
the recovery that
stocks aren't risky at
all. After last
spring's rebound,
Dave Portnoy , a
social-media celebrity,
declared "
Stocks only go up "
so often that it began
to seem like a magic
incantation. And, for
the past year,
just about every stock
has gone up .
That's largely
because the Federal
Reserve has backstopped
markets by squashing
interest rates toward
zero and by buying
more than $2.5 trillion
in Treasury
securities since
February 2020, along
with
other massive
interventions .
Meanwhile, emergency
government programs
pumped trillions of
dollars of stimulus
into the
economy.
SHARE
YOUR THOUGHTS
Have you lost
your fear of a bear
market? Why or why not?
Join the conversation
below .
Fund managers
fruitlessly complained
about how these
policies were
distorting markets, but
individual investors
simply followed the old
Wall Street adage:
Don't fight the Fed. So
long as the central
bank is drenching the
markets with liquidity,
why not buy stocks --
and why fear another
crash?
What's more,
target-date funds ,
which continually seek
to keep a predetermined
exposure to stocks,
command in excess of
$2.8 trillion,
according to
Morningstar Inc.
Investors added $52
billion to target-date
funds in 2020.
The popularity of
these portfolios has --
so far, anyway --
helped make market
crashes
self-correcting .
The more stocks fall,
the more the
target-date funds have
to buy them; otherwise,
the portfolios would
fall below their
mandated ratios of
stocks to other
assets.
Mr.
Sinclair
is
correct
.
While
I
lost
100%
in
WAMU
in
2008
,
from2009
to
present
msft
is up
1000%
dwarfing
my
loss
in
WAMU
.
Barrons
reports
that
as
of
Friday
the
total
value
of
stocks
v
GDP
has
surpassed
the
Dot
com
peak
in
early
2000
.
Case
Schiller
PE
is
at
all
time
record
margin
loans
at
all
time
record
.
200
day
moving
average
at
high
for
95%
of
stocks
(
translation
:
there
is
nothing
left
to
buy
)
.
The
course
of
action
is
clear
..Don't
sell
but
whatever
you
do
..Do
NOT
buy
.
Cash
is
a
wonderful
hedge
.
When
asked
how
he
got
so
rich
Bernard
Baruch
replied
"
by
selling
too
early"
From
commnets:
"Barrons
reports
that
as of
Friday
the
total
value
of
stocks
v GDP
has
surpassed
the
Dot
com
peak
in
early
2000
.Case
Schiller
PE is
at
all
time
record
margin
loans
at
all
time
record
. 200
day
moving
average
at
high
for
95%
of
stocks"
...That's
what
some
investors
seem
to
believe
--
and
who
can
blame
them?
The
stock
market
used
to
take
years,
sometimes
decades,
to
recover
its
prior
peak
after
the
start
of a
bear-market
decline.
After
last
year's
34%
meltdown,
however,
stocks
regained
record
highs
in
only
126
trading
days.
With
the
exception
of a
100-day
rebound
after
an
interim
drop
in
early
2009,
that's
the
fastest-ever
recovery
to a
prior
peak.
The
S&P
500
has
fallen
at
least
20%
--
the
conventional
definition
of a
bear
market
-- 26
times
in
the
past
nine
decades,
according
to
Dow
Jones
Market
Data.
Recoveries
to
previous
highs
have
typically
taken
almost
three
years,
often
much
longer
.
...
...
...
That
complacency
takes
a
toll
--
even
among
Vanguard
investors,
who
tend
to be
cautious.
These
people
often
follow
the
philosophy
of
the
firm's
late
founder,
Jack
Bogle
, who
preached
patience
and
repeatedly
warned
that
stocks
are
risky.
If
anyone
should
come
through
the
sharpest
market
decline
in
decades
unperturbed,
it's
the
people
in
this
survey
--
typically
about
60
years
old,
with
about
$225,000
in
Vanguard
investments,
roughly
70%
in
stocks.
Yet
they
didn't
all
sit
tight.
One
group
in
the
survey
stood
out:
those
who
went
into
early
2020
with
the
highest
expectations
for
stock
returns
in
the
upcoming
year.
They
ended
up
reducing
their
exposure
to
stocks
much
more
sharply
during
the
crash
of
February
and
March
2020
than
those
who
had
been
expecting
lower
returns.
They
also
tended
to
turn
around
and
buy
back
much
of
the
stock
they
had
just
sold
--
but
not
until
prices
had
already
shot
above
the
March
lows.
Investors
elsewhere
seem
to
have
concluded
from
the
swiftness
of
the
recovery
that
stocks
aren't
risky
at
all.
After
last
spring's
rebound,
Dave
Portnoy
, a
social-media
celebrity,
declared
"
Stocks
only
go
up
" so
often
that
it
began
to
seem
like
a
magic
incantation.
And,
for
the
past
year,
just
about
every
stock
has
gone
up
.
That's
largely
because
the
Federal
Reserve
has
backstopped
markets
by
squashing
interest
rates
toward
zero
and
by
buying
more
than
$2.5
trillion
in
Treasury
securities
since
February
2020,
along
with
other
massive
interventions
.
Meanwhile,
emergency
government
programs
pumped
trillions
of
dollars
of
stimulus
into
the
economy.
SHARE
YOUR
THOUGHTS
Have
you
lost
your
fear
of a
bear
market?
Why
or
why
not?
Join
the
conversation
below
.
Fund
managers
fruitlessly
complained
about
how
these
policies
were
distorting
markets,
but
individual
investors
simply
followed
the
old
Wall
Street
adage:
Don't
fight
the
Fed.
So
long
as
the
central
bank
is
drenching
the
markets
with
liquidity,
why
not
buy
stocks
--
and
why
fear
another
crash?
What's
more,
target-date
funds
,
which
continually
seek
to
keep
a
predetermined
exposure
to
stocks,
command
in
excess
of
$2.8
trillion,
according
to
Morningstar
Inc.
Investors
added
$52
billion
to
target-date
funds
in
2020.
The
popularity
of
these
portfolios
has
-- so
far,
anyway
--
helped
make
market
crashes
self-correcting
. The
more
stocks
fall,
the
more
the
target-date
funds
have
to
buy
them;
otherwise,
the
portfolios
would
fall
below
their
mandated
ratios
of
stocks
to
other
assets.
Mr.
Sinclair
is
correct
.
While
I
lost
100%
in
WAMU
in
2008
,
from2009
to
present
msft
is
up
1000%
dwarfing
my
loss
in
WAMU
.
Barrons
reports
that
as
of
Friday
the
total
value
of
stocks
v
GDP
has
surpassed
the
Dot
com
peak
in
early
2000
.
Case
Schiller
PE
is
at
all
time
record
margin
loans
at
all
time
record
.
200
day
moving
average
at
high
for
95%
of
stocks
(
translation
:
there
is
nothing
left
to
buy
)
.
The
course
of
action
is
clear
..Don't
sell
but
whatever
you
do
..Do
NOT
buy
.
Cash
is
a
wonderful
hedge
.
When
asked
how
he
got
so
rich
Bernard
Baruch
replied
"
by
selling
too
early"
I don't really. I estimate total fuel consumption for light and heavy vehicles (road only)
worldwide in 2018, then I simply assume the non-land transport demand for C+C (for farm
equipment, water transport, air transport, and everything else that isn't for road vehicles
(heavy trucks, buses, motorcycles, and light vehicles). I simply assume that quantity remains
fixed (greater need for miles travelled by air and water matched by less fuel use due to
efficiency improvements so the two factors exactly offset).
Essentially it is just a simplifying assumption. NICK G IGNORED04/26/2021 at
7:55 pm
Dennis,
So you're assuming that global land transport oil consumption (excluding farm, rail, buses,
heavy off-road trucks, motorcycles, chainsaws, etc) is 55 Mb/d, or 64% of all C&C? That
seems a little high. How did you estimate that? DENNIS COYNE IGNORED04/27/2021 at
6:52 am
Nick,
I used US data for average fuel economy for heavy trucks and light vehicles, then I used a
1300 million global fleet size, assumed average miles driven was about 10k per year, did
something similar for commercial (heavy truck) fleet globally. It is a rough estimate, BP has
gasoline and diesel consumption for World at 52 Mb/d in 2019, I assume most of that is for
light vehicles and heavy trucks, not sure how much is used in ships (I assumed they mostly use
fuel oil/bunker/residual fuel).
Also see figure 2 on page 6 of EIA document below, 55 Mboe/d in 2020 looks about right, and
they estimate about 57 Mboe/d in 2025, my estimate is about 56 Mboe/d, with decreases starting
in 2028.
The model is no doubt imperfect and does not account for the drop in demand in 2020 due to
pandemic (the model was done in 2019 before the pandemic).
It's interesting how quickly this 2017 study has become out of date:
" The combined share of electric and plug-in hybrid electric vehicles in OECD countries
increases from less than 1% in 2015 to 10% in 2040. In non-OECD countries, diesel, natural gas,
and electric and plug-in hybrid electric vehicles experience a three-to-five percentage point
increase in the total share of LDVs sold in non-OECD countries. In 2040, diesel and natural gas
vehicles each represent approximately 11.5% of the total LDV new sales market in non-OECD
countries, and electric and plug-in hybrid electric vehicles combined represent 4.5%."
They thought EVs would be about 10% in 2040, while diesel and NG vehicles would each be
about 11.5%. Based on how quickly car makers are abandoning diesel and NG and adopting EVs, I'd
say EVs will take pretty much all of the 23% projected for diesel and NG and, of course, much
more. LIKBEZ04/30/2021 at 1:12
pm
Dennis,
I know that you are EV enthusiast, and even own Tesla, but still we need to be
realistic.
For heavy trucks transporting goods over long distances the switch to EV is very problematic
and might never happen. The switch to natural gas is a possibility but this is an expensive
solution. For local trucks the problem is the cost of the battery and it might happen but very
slowly, as gradual displacement due to high gas prices. Even in this case natural gas will eat
lithium.
Three large users of fuel that you did not account are military, airplanes and agricultural
machinery. In the USA we also need to add trains as the level of electrification of railroads
leaves much to be desired.
Those three categories of consumers of fuel are not switching to EV in foreseeable future.
If you account for the growth of population the demand actually might increase until the price
of fuel will come into play.
Globally Africa, China, India (and Asia in general), xUSSR space very rapidly add personal
cars so those areas will experience growth of fuel demand. And cars in those regions often run
for 15-20 years not 12 like in the USA. .
And that will affect African producers and, especially Russia. So when talking about Russia
it is important to understand that the internal consumption will grow (Russia adds around 1.5
million cars a year) and that will cut exports https://knoema.com/atlas/Russian-Federation/Primary-energy-consumption
although many Russian cars are running of natural gas as it is cheaper.
The initial fascination with EV as passenger cars will soon pass as outside places like
California with no winter they are very problematic during winter periods. I would say they are
dangerous.
Currently they are kind of status symbol in certain circles and IMHO represent "conspicuous
consumption." Conspicuous consumption is a term coined by American economist and sociologist
Thorstein Veblen.
I wonder whether Tesla stock will be able to sustain the current crazy valuation in
three-five years period. (139 minutes and 25 seconds) DENNIS COYNE IGNORED04/27/2021 at 5:17
pm
Hickory,
Here is a transition scenario that assumes the 37% growth rate in plug in sales continues,
personally I think this is too optimistic, sales for light vehicles is 100% plugin by 2031 and
the ICE light vehicle fleet is replaced 100% by 2044 with plugin vehicles. Interesting that you
believe this is pessimistic. Also interesting that Ovi believes my original EV scenario is too
optimistic, I seem to be somewhere between your optimism and the pessimism of Ovi. It will be
interesting to watch (and I hope you are right).
We shall see. It seems to me that at a certain point, there is going to be a very rapid
realization that we are in new territory. Most of the manufacturers now get it, and are
scrambling to react.
It will be very interesting to see if there is a component supply crunch ( I think likely) in
the late decade.
A big piece of the unknown on this this is the general state of the world economy.
If there is stability and resumed growth after pandemic, the transition to plugin vehicles will
be quicker.
If there is economic stagnation/contraction- it will be much slower as people hold on to what
they've got.
And of course, the price oil will play a leading role in the incentive/disincentive
equation.
I also think it is important to acknowledge that we are talking about percent of new sales,
but not the absolute magnitude of sales. That may be more important. Vehicles last so much
longer now, and if petrol is available at reasonable price, the best bet for most people
financially will be to milk their current vehicle for as long as possible. But after that, the
next one will probably have a plug. STEPHEN HREN IGNORED04/28/2021 at 3:32
pm
At some point people will stop buying ICE vehicles even if no EV option is available.
Operating a gas station, especially in an urban environment, is a low margin, high regulation
enterprise. As gas stations in urban areas either go out of business or give up on selling gas,
gas cars will lose most of their appeal for urban and suburban residents because of "range
anxiety" – i.e. not enough places to fill up. I would guess that at about 20-30% EV
saturation, selling gas will no longer become profitable in any given area. This will add to
the spiral of concerns about resale value for ICE cars as the inevitability of the EV
transition becomes ever more apparent. HICKORY IGNORED04/28/2021 at
10:31 pm
This kind of action is hard to predict from past performance, but get used to these kind of
news items-
Germany March 2021
"The number of new passenger plug-in car registrations increased to 65,681 (up 232%
year-over-year), which is 22.5% of the total [new car]market. That's more than one in five new
cars!" OVI IGNORED04/26/2021 at 5:17
pm
Dennis
To me the EV market is bifurcated. From what I can see there are four concentrated EV
markets in the world.
– California due to its history with car pollution.
– Norway using its massive oil revenues to heavily subsidize EVs along wth other
perks.
– China with their heavy EV sales mandate and getting away from its achilles heal,
oil.
– Japan also wants to reduce dependence on oil.
Looking at what is happening in two US states provides some insight on how fast the EV take
up will occur in the US. California with a population of 39.5 M sold 133,000 EVs in 2020 or put
another way 3,360 EVs per million population. New York with a population of 19.45 M sold 21,000
EVs in 2020 or 1,080 EVs per million population. That is a ratio of three to one. it would be a
lot higher in other states.
Total US 2020 sales were 296,000. California accounts for 45% of US sales.
My point is that these 4 concentrated regions are not representative of the rest of the
world. The only region that will continue to grow at a significant pace will be China with its
sales mandate and I think with an eye to becoming a world leader in EV design. EVs are coming,
no doubt, but at a pace that is slower than most prognosticators are forecasting, primarily
because of cost.
"... nobody, myself included, knows when this is going to end. We just watch the things that would normally indicate an end. ..."
"... "I think we should recognize we're pulling demand forward and that the longer-term outlook is not particularly favorable, in my view," he said. Cooperman said he expects Federal Reserve Chairman Jerome Powell, who has described a recent pickup in price pressures as "transitory," will ultimately be surprised by inflation, forcing the central bank to signal action before the end of 2022. ..."
Billionaire investor Leon Cooperman says he's a "fully invested bear" with "an eye on the exit.
'I suspect the market will be lower a year from today. But I
don't have to make that guess now. This is not going to end well.'
-- Leon Cooperman, Omega Family Office
That's self-described "fully invested bear" Leon Cooperman,
who told CNBC
on Friday that given a coming rise in taxes, inflation and a "reasonably richly appraised market," he has "an eye
on the exit."
Cooperman, the chair of the Omega Family Office, added that "
nobody, myself included, knows when this is going to end. We
just watch the things that would normally indicate an end.
"
Stocks were
weaker Friday
, on track for a mixed weekly performance despite a hectic week of corporate results that featured blowout
results for some of the world's largest tech-related companies. The Dow Jones Industrial Average
DJIA,
-0.54%
was down more than 200 points, dragging the blue-chip gauge lower for the week. The S&P 500
SPX,
-0.72%
was down 0.7% for the session, while the Nasdaq Composite
COMP,
-0.85%
was down 0.5%.
Cooperman warned that the pace of market gains since bottoming out in March 2020 following
the pandemic-induced bear market plunge can't continue indefinitely.
"I think we should recognize we're pulling demand forward and that the longer-term outlook is not particularly favorable,
in my view," he said. Cooperman said he expects Federal Reserve Chairman Jerome Powell, who has described a recent pickup in
price pressures as "transitory," will ultimately be surprised by inflation, forcing the central bank to signal action before the
end of 2022.
dougc
1 hour ago
If he is a fully invested BEAR he should be invested FOR the pullback and not eyeing an exit. If
he's fully invested now in a bull market strategy, he's lying about his expectations.
Reply
1
1 reply
Jolly
2 hours ago
The fed and biden are committed to endless cash until we go bankrupt or bonds pricing go way up and
this thing is forced to crash. you stay in the market and make the fed raise rates.
1Economist
4 hours ago
Popcorn: Do intelligent people erase Glass/Steagall, and uptick rule? At the same time powers in charge are unable to
grasp the significant loss of market makers, the progress of Ai & dark pools. Throw in new monetary policy that debt
doesn't matter and you get huge liquidity and a big BANG!
John
31 minutes ago
Saw the exact same thing in the 1990's. Everyone knew it was a bubble, but they all thought they could get out before
everyone else if they had to.
aaa
1 hour ago
I would never trust the epitome of greed, when it comes to investments that they can go long or
short...into a decree of direction. You have to ask yourself how and why entities like this have
accumulated billions on the market....
Reply
1
Scott
3 hours ago
Leon Cooperman says he has an "eye on the exit?" So? Anyone who doesn't at all times have an eye on
the exit is a fool. Tell me something I don't know, Leon.
C
49 minutes ago
Another shorter trying to manipulate the market
"Retail clients were the only buyers last week, while institutional and hedge fund clients sold," said Bank of America strategists
led by Jill Carey Hall. "Retail clients have been buyers for the eighth straight week, while hedge fund clients sold for the third
straight week."
The team at Bank of America notes that cumulative equity flows last week totaled a net $5.2 billion worth of outflows, the largest
one-week move out of stocks since November and the fifth-largest on record. In the past, these kinds of exoduses from the market
have portended shaky periods for investors.
"In the prior times weekly flows were this (or more) negative, the subsequent week's returns were -1% on avg/median with negative
returns 75% of the time," the firm notes. "Four-week average flows have been trending lower in recent weeks and have now turned negative
for the first time since mid-Feb, suggesting a pause to increasingly euphoric sentiment."
...But data from strategists on the Street does show that retail's participation in this market is not what it once was. The strategy
team over at Deutsche Bank led by Binky Chadha published a report late last week showed that single-stock call options â€"
a core part of the YOLO trade
powered by retail â€" has been declining in recent weeks.
The recent calm in the Treasury market contrasts with early-year selling that pushed yields to their highest levels since the
pandemic started.
... Foreign investors purchased around $135 billion worth of long-term Treasuries on a net basis in January and February, according
to data recently compiled by Citiâ€"the best two-month start to a year since 2012.
...But buying from foreign investors and even pension funds may not be enough to quell a rise in yields, said Mr. Goldberg. His firm
is forecasting the 10-year yield to rise to 2% by the end of the year, supported by improving economic data and passage of a fiscal
package later this year.
After thirteen months, the BLS still cannot count the Unemployed. Headline U.3
Unemployment also remained deep in non-recovery territory. The BLS acknowledged continuing
misclassification of some "unemployed" persons as "employed," in the Household Survey. Where
the count of the understated unemployed had an "upside limit" of 636,000 persons in March 2021,
the February 2021 upside estimate of understated unemployed was 756,000. The difference would
be a potential headline U.3 of 6.44% instead of today's headline 6.05%, which was down from a
headline 6.22% in February. Fully adjusted for COVID-19 disruptions, based on BLS side-surveys
of Pandemic impact, and with more than six million people missing from the headline U.S. labor
force, actual headline U.3 unemployment still should be well above 10%, the highest
unemployment rate since before World War II, outside of the Pandemic and possibly at the trough
of the 1982-1983 recession. Broader March 2021 headline U.6 unemployment [including some
decline in short-term discouraged workers and those employed part-time for economic reasons]
eased to 10.71% from 11.07% in February. Including long-term discouraged/ displaced workers,
the March 2021 ShadowStats Alternate Measure –- moving on top of the decline in U.6
–- notched minimally lower to 25.7%, from 25.8% in February 2021, reflecting some modeled
transition of "short-term" to "long-term" discouraged workers, with the Pandemic having passed
its 12-month anniversary. The latest Unemployment Rates are posted on the ALTERNATE DATA
tab (above).
I don't share David P. Goldman's ideology and convictions. They are almost the polar
opposite of mine's.
But he has something I don't have, something that only a bourgeois specialist can give:
insider information.
I once hypothesized here that, if the USA were to collapse suddenly (which I don't think
it ever will, but if it do happen), then it would surely involve an uncontrolled growing
spiral of inflation/hyperinflation. That's the logical conclusion of an hypothetical collapse
of the USD standard.
So far, I can only see a mild rise in inflation. I don't think the USA will ever
experience hyperinflation (four-digit) or even true high inflation (two-digit). Goldman is a
rabid neoliberal, and anything above 2% is hyperinflation for him, so we should take these
kind of analyses with a grain of salt.
DAILY UPDATE (April 29th to May 3rd): • First-Quarter 2021 GDP Annualized Inflation
Jumped to a 31-Year High of 4.1%, With Quarterly Real GDP Growth Hitting a Consensus 6.4%,
Still Shy of Pre-Pandemic Recovery • Monthly March Series Showed Broad Inflation Soaring
on Top of Still-Faltering Jobs and Economic Activity [See the headlined paragraphs in the
LATEST NUMBERS section]
• Fed Chairman Powell - "We've Got a Long Ways to Go" • March 2021 Money Supply
and Monetary Base Growth Continued to Explode • U.S. Government's Financial Condition
Deteriorated Sharply in 2020 [See the headlined paragraphs in the SYSTEMIC RISK section]
• G E N E R A L .. H E A D L I N E S .. -- Pandemic-Driven U.S. Economic Collapse
Continues to Harden in a Protracted "L"-Shaped Non-Recovery
-- Severe Systemic Structural Damage from the Shutdown Is Forestalling Meaningful
Economic Rebound into 2022 or Beyond, Irrespective of the Advances in Coronavirus Vaccines and
Treatments
-- Panicked, Unlimited Federal Reserve Money Creation and Federal Government Deficit
Spending Continue and Will Expand, Triggering Major Domestic Inflation
-- With Fundamental Dollar Debasement Intensifying, Holding Physical Gold and Silver
Protects the Purchasing Power of One's Assets, Irrespective of Any Near-Term Central Bank or
Other Machinations to the Contrary.
Scroll down for the latest ShadowStats outlook, headline economic news and background
information on the U.S. Economy, Financial System (FOMC), Financial Markets and Alternate Data,
also for Publicly Available Special Reports and Contact Information.
• L A T E S T .. N U M B E R S .. Still shy by an annualized quarterly 3.53% gain of
recovering the Pre-Pandemic Peak Gross Domestic Product Activity in Fourth-Quarter 2019,
annualized First-Quarter 2021 Real GDP Growth surged 6.39%, effectively matching market
expectations, picking up from the 4.33% growth pace of Fourth-Quarter 2020 (April 29th,
Bureau of Economic Analysis - BEA). Those 1q2021 and 4q2020 GDP gains followed an annualized
3q2020 rebound of 33.44%, against respective annualized 2q2020 and 1q2020 Pandemic-driven
collapses of 31.38% (-31.38%) and 4.96% (-4.96%). Where activity in 3q2020 and 4q2020 GDP was
boosted heavily by Inventory Building, 1q2021 GDP growth of 6.39% was softened by heavy
Inventory Liquidation. Reflecting same, "Final Sales," which is the GDP net of Inventory
changes, surged to 9.03% in 1q2021, versus 2.96% in 4q2020 and against 26.87% in 2q2020.
Continued Depression in Payroll Activity Belies Some of the Headline Boom in the Heavily
Gimmicked, Overstated Real GDP Numbers. Seasonally adjusted First-Quarter 2021 Payroll
Employment declined year-to-year by 5.6% (-5.6%), following an annual decline of 6.0% (-6.0%)
in Fourth-Quarter 2020. Outside of the current Pandemic-collapsed economy, that 1q2021 annual
Payroll decline was the deepest since the 1946 realignment of the post-World War II U.S.
economy to a peacetime footing. In contrast to collapsed annual Payrolls, 1q2021 Real GDP
gained a headline 0.4% year-to-year. Year-to-year change in Employment is a broad, direct
measure of underlying economic reality, suggestive at present of a much weaker headline GDP
circumstance than is being proffered to the U.S. Public and to the Equity and Currency Markets.
Discussed frequently here, much of the GDP gimmicking is tied to artificially depressed GDP
Inflation, which results in overstated, headline Real (Inflation-Adjusted) numbers. Expanded
detail of the current circumstance will be fully reviewed, along with related graphs in pending
No. 1460 .
First-Quarter 2021 GDP Implicit Price Deflator inflation surged to 31-year high,
annualized quarterly 4.07% (4.1%) Inflation, and 2-year high 1.85% (1.9%) year-to-year
Inflation. Today's (April 29th) then pending GDP release prompted Federal Reserve Chairman
Powell's warning at yesterday's FOMC Press Conference of a "temporary" jump in the FOMC's
targeted "Core" PCE inflation rate. That is the inflation rate for the GDP's dominant [68.2% of
nominal] Personal Consumption Expenditure (PCE) category (less Food and Energy). A subcomponent
of the aggregate GDP Deflator, the FOMC's targeted PCE Inflation Index (Excluding Food and
Energy) jumped to an annualized 2.3% in 1q2021 [above or at the FOMC Target of 2.0%-plus], up
from 1.3% in 4q2020, but down from a one-time spiked 3.4% in 3q2020. The FOMC targeted deflator
hit a one-year high 1.5% year-to-year reading, still well below target. Expanded discussion
follows in Nos. 1460 and 1461 , also see the FOMC discussion in the SYSTEMIC
RISK section.
(April 26) Real March 2021 New Orders for Durable Goods declined 0.2% (-0.2%) in the
month, having declined by 1.0% (-1.0%) in February (Census Bureau). Against
Pandemic-collapsed March 2020 activity, March 2021 Real New Orders surged 20.1%, where February
2021 annual change had been 0.0% against the February 2020 pre-Pandemic peak. Against that
peak, those same March 2021 orders were down by 0.2% (-0.2%), and also were down by 4.9%
(-4.9%) measured with a two-year stacked change (against March 2019), as commonly used with the
Cass Freight Index® (see the discussion in No. 1459 and pending 1460 on
Pandemic disrupted annual growth). Net of a sharp reduction in still-strong Commercial Aircraft
Orders, March 2021 Real New Orders gained 1.6% in the month, having declined by 3.0% (-3.0%) in
February, March activity gained 1.4% from its February 2020 pre-Pandemic peak.
(April 26) 2021 Annual Retail Sales Benchmark Revisions cumulatively reduced headline
annual nominal growth rates by a 10 to 20 basis points per year from 2016 to date (Census).
At the most extreme, the nominal level of March 2021 Retail Sales revised lower by 0.75%
(-0.75%), while the level of the Pandemic collapsed March 2020 number revised lower by 0.85%
(-0.85%). The average downside revision to the headline monthly sales level, in basis points,
was 66 in 2021, 57 in 2020, 48 in 2019, 27 in 2018, 20 in 2017, 8 in 2016, which had the effect
of spreading the easier growth rates over the full period of revision. See the April 15 Retail
Sales paragraph; extended detail and graphs follow in pending 1460 .
(April 16) Seasonally adjusted, the March 2021 Cass Freight Index® gained 3.4% in the
month, recovering its "Polar Vortex," weather driven 3.2% (-3.2%) plunge in February
(CassInfo.com - See detail at
https://www.cassinfo.com/freight-audit-payment/cass-transportation-indexes/march-2021 and
scroll down). The March 2021 unadjusted series gained 10.03% year-to-year, versus a
weather-deflated 4.16% in February and 8.61% in January. That weather driven, downside February
aberration, broke a rising string of annual gains back to 2.43% in October 2020. Such followed
a 1.84% (-1.84%) annual decline in September 2020, which then was the 22nd consecutive
year-to-year monthly decline. The recent monthly annual increases in Freight Activity were the
first since the Federal Reserve's tightening of November 2018 began strangling U.S. Economic
Activity. As much of the economy declined into an unofficial "recession," Freight Activity and
the Cass Freight Index® did, too. As of March 2021, the "Two-Year Stacked Change" in the
Index (March 2021 against March 2019) held negative for the 18th-straight month, albeit
narrowed to a negligible 0.08% (-0.08%) from 3.67% (-3.67%) in February 2021. Given the March
2021 rebound from February weather, ShadowStats estimates that re-stabilizing April 2021
activity could take that two-year stacked change back to an annual decline around 1.5% (-1.5%).
In like manner, March's "Two-Year Stacked Change" in U.S. Industrial Production held negative
for the 15th straight month, down by 3.74% (-3.74%) [see second paragraph following]. Although
Freight Activity and some parts of the U.S. economy [not yet Industrial Production] have
recovered 2020 pre-Pandemic levels, those pre-Pandemic levels already were below actual peak
Freight and Economic Activity at the end of 2018, when the Fed moved to slow the economy.
Freight and related areas such as Production and Manufacturing still have not recovered their
true (albeit unofficial) pre-recession peaks. -- ShadowStats regularly follows and analyzes the
Cass Freight Index® as a highest-quality coincident and leading indicator of underlying
economic reality. We thank Cass for their permission to graph and to use their numbers in our
Commentaries. Full economic analysis of the latest monthly and quarterly economic series
follows in No. 1460
(April 16) March 2021 Housing Starts and Building Permits both showed meaningful monthly
gains, with Starts rebounding sharply from a weather-driven February plunge. As with Real
Retail Sales, April's Starts activity likely will see some pullback from March's catch-up
surge (Census Bureau). March 2021 Building Permits gained a statistically significant 2.7%
in the month (90% confidence interval), having declined by a revised 8.8% (-8.8%) [previously
10.8% (-10.8%)] in February and having gained 10.7% in January. March Housing Starts jumped by
a statistically meaningful 19.4% in the month, rebounding from a weather-driven collapse of
11.3% (-11.3%) [previously 10.3% (-10.3%)] in February, and a revised January decline of 1.7%
(-1.7%) [previously 5.1% (-5.1%). As headlined, March 2021 Building Permits and Housing Starts
respectively gained 30.2% and 37.0% year-to-year against Pandemic-savaged March 2020 activity,
up respectively against their February 2020 pre-Pandemic peaks by 22.8% and 11.0%. That said,
both headline March 2021 Permits and Starts still held shy of ever recovering their pre-Great
Recession peak levels of activity, respectively by 22.0% (-22.0%) and 23.5% (-23.5%).
(April 15) Constrained by Motor Vehicle production issues for a second month, March
Industrial Production came in well below expectations, suggestive of slowing First-Quarter 2021
GDP (Federal Reserve Board). Nonetheless, disrupted by the Pandemic, year-to-year change in
March 2021 Industrial Production turned positive for the first time in 18 months (since
September 2019), gaining 1.02% year-to-year, having declined by 4.77% (-4.77%) in February
2021. Yet, that annual gain was against Pandemic-collapsed activity in March 2020. Against its
pre-Pandemic peak activity of February 2020, headline March 2021 production still declined by
3.40% (-3.40%), more in line with the February 2021 annual decline. A two-year stacked decline
(against March 2019) showed March 2021 activity down by 3.74% (-3.74%), versus 5.00% (-5.00%)
in February 2021. The issues here and the ShadowStats approaches to related reporting and
graphics are detailed in Benchmark Commentary No. 1459 , with extended detail in
Economic Commentary No. 1460 . Otherwise, March 2021 Industrial Production gained 1.44%
in the month (up by 0.89% net of revisions), having declined by 2.62% (-2.62%) in February.
Parallel numbers for March 2021 Manufacturing showed a monthly gain of 2.73% [2.11%
net of revisions], against a monthly drop of 3.73% (-3.73%) in February. Annual growth turned
positive by 3.14% in March 2021, versus 20 straight months of annual decline, from July 2019
through a 4.66% (-4.66%) drop in February 2021. March 2021 activity, however, was down by 2.06%
(-2.06%) against its February 2020 pre-Pandemic peak, and was down in a two-year stacked
decline of 2.34% (-2.34%) in March 2021, versus 4.99% (-4.99%) in February 2021. Mining
showed a monthly gain of 5.66% [5.83% net of revisions], against a monthly drop of 5.62%
(-5.62%) in February. Annual growth held negative at 8.82% (-8.82%) for the 12th month (since
April 2020), down by 10.39% (-10.39%) against its pre-Pandemic and pre-Oil Price War high,
versus a February 2021 annual decline of 15.20% (-15.20%). Utilities showed a record
monthly drop (since 1972) of 11.39% (-11.39%)[down 12.18% (-12.18%) net of revisions], against
a monthly gain of 9.18% in February. A March 2021 annual decline of 0.22% (-0.22%) was seen
there versus a 3.27% (-3.27%) drop against its pre-Pandemic high, and versus a February annual
gain of 9.15%.
(April 15) Extreme monthly Retail Sales volatility is likely to continue for another
month (Census -- see April 26 Benchmark Revision paragraph). ShadowStats standardly removes
growth due to inflation from the headline Retail Sales series, reporting it in Real or
Inflation-Adjusted Terms, deflated by the seasonally-adjusted CPI-U as otherwise calculated by
the St. Louis Fed. On that basis, the headline nominal March 2021 monthly Retail Sales gain of
9.8% was 9.1% in real terms, net of inflation.
Beyond large monthly swings in activity reflecting massive weather disruptions, and despite
intensifying Production issues, surging Motor Vehicle sales reportedly drove that greater than
expected 9.1% surge in Real Retail Sales, rebounding from a 3.1% (-3.1%) weather-driven plunge
in February; watch for a likely stabilizing 2.9% (-2.9%) pullback in April 2021 sales, which
appears likely to bring Real Retail Sales back into balance, with monthly growth stabilizing,
averaging around 0.9%. That said, Real Sales gained year-to-year by 24.4% in March 2021,
against Pandemic collapsed activity in March 2020. Against its pre-Pandemic peak of February
2020, March 2021 activity gained 15.9% (see the related discussion in No. 1459 and
pending 1460 . That annual gain, or change from pre-Pandemic peak activity, followed an
annual gain of 4.9% (previously 4.5%) in February 2021, and a revised 8.1% [previously 8.0%,
initially 6.0%] in January 2021.
(April 13) March 2021 unadjusted year-to-year March 2021 Consumer Price Inflation (CPI-U)
jumped 2.62% -- a one-year high -- as gasoline prices soared, not only fully recovering pre-Oil
Price War levels of a year ago, but also hitting the highest unadjusted levels since May of
2019 (Bureau of Labor Statistics - BLS). Headline March 2021 CPI-U gained 0.62% in the
month, 2.62% year-to-year, against monthly and annual gains of 0.35% and 1.68% in February.
That inflation pickup reflected more than a full recovery in gasoline prices, which had been
severely depressed by the Oil Price War of one year ago. Such had had the effect of depressing
headline U.S. inflation up through February 2021, including suppressing the 2021 Cost of Living
Adjustment (COLA) for Social Security by about one-percentage point to the headline 1.3%. By
major sector, March Food prices gained 0.11% in the month, 3.47% year-to-year (vs. 0.17% and
3.62% in February); "Core" (ex-Food and Energy) prices gained 0.34% in March, 1.65%
year-to-year (vs. 0.35% and 1.28% in February); Energy prices gained 5.00% in March, 13.17%
year-to-year (vs. 3.85% and 2.36% in February), with underlying Gasoline prices gaining 9.10%
in the month, 22.48% year-to-year (vs. 6.41% and 1.52% in February).
The March 2021 ShadowStats Alternate CPI (1980 Base) rose to 10.4% year-to-year, up from
9.4% in February 2021 and against 9.1% in January 2021. The ShadowStats Alternate CPI-U
estimate restates current headline inflation so as to reverse the government's
inflation-reducing gimmicks of the last four decades, which were designed specifically to
reduce/ understate COLAs. Related graphs and methodology are available to all on the updated
ALTERNATE DATA tab above. Subscriber-only data downloads and an Inflation Calculator are
available there, with extended details in pending No. 1460 .
(April 9) March 2021 Producer Prices exploded across the board, with record levels of
annualized First-Quarter 2021 Inflation of 8.99% for Total PPI-FD, 16.04% for PPI-FD Goods
Sector and 5.62% for PPI-FD Services Sector (BLS). Those record levels were in context of
the current PPI historical series that began in November 2009. On the more-meaningful Goods
side, Energy and "Core" inflation hit respective historic annualized quarterly peaks of 78.80%
and 7.11%, while annualized quarterly Food inflation slowed to 5.44% having its earlier
historic peak of 13.68% in Fourth-Quarter 2020. On a monthly basis, March 2021 PPI-FD Goods
gained a stronger than expected 1.67%, versus 1.44% in February, with March 2021 year-to-year
growth jumping to 6.97%, from 3.39% in February. Food, Energy and "Core" (net of Food and
Energy) Sectors respectively gained 0.48%, 0.91% and 5.88% in the month, and 5.05%, 24.26% and
3.47% year-to-year.
(April 7) Continuing sharp deterioration with the headline February 2021 Real Merchandise
Trade Deficit indicated a likely record First-Quarter 2021 trade shortfall, with a
corresponding hit to First-Quarter GDP. (Census / BEA). Still in sharp deterioration
against December 2020 and 4q2020 activity, the January 2021 Real Merchandise Trade Deficit
narrowed minimally in revision, accompanied by initial headline reporting of an accelerated
deepening in the February 2021 Deficit. Those numbers are on track for an historic, record Real
Merchandise Trade Deficit in 1q2021. In turn, that suggests a deepening quarterly hit to the
April 29th release of the "Advance" First-Quarter 2021 GDP. Expanded detail and graphs follow
in No. 1460 .
(April 2) Despite some monthly improvement, March 2021 Labor Details still indicate no
GDP recovery at hand (Bureau of Labor Statistics - BLS). Seasonally-adjusted March 2021
Payroll Employment declined year-to-year by 4.5% (-4.5%) versus a revised 6.1% (-6.1%)
[previously 6.2% (-6.2%)] in February 2021. That narrowed annual decline was helped by initial
year-ago Pandemic impact on labor conditions. February 2020 activity was the pre-Pandemic
series peak, and March 2020 data were net of minimal initial Pandemic hit, in advance of the
massive collapse seen in the April 2020 numbers. Against the Pre-Pandemic peak, March 2021 was
down by 5.5% (-5.5%), versus the headline virus-narrowed 4.5% (-4.5%). Discussed and graphed in
pending No. 1459 , and consistent with recent annual growth comparisons to pre-Pandemic
levels, a 5.5% (-5.5%) drop has not been seen since the 1946 post-World War II war-production
shutdown of the U.S. economy. That circumstances still indicates no imminent recovery in the
U.S. GDP, irrespective of usual reporting games played with the headline GDP series.
After thirteen months, the BLS still cannot count the Unemployed. Headline U.3
Unemployment also remained deep in non-recovery territory. The BLS acknowledged continuing
misclassification of some "unemployed" persons as "employed," in the Household Survey. Where
the count of the understated unemployed had an "upside limit" of 636,000 persons in March 2021,
the February 2021 upside estimate of understated unemployed was 756,000. The difference would
be a potential headline U.3 of 6.44% instead of today's headline 6.05%, which was down from a
headline 6.22% in February. Fully adjusted for COVID-19 disruptions, based on BLS side-surveys
of Pandemic impact, and with more than six million people missing from the headline U.S. labor
force, actual headline U.3 unemployment still should be well above 10%, the highest
unemployment rate since before World War II, outside of the Pandemic and possibly at the trough
of the 1982-1983 recession. Broader March 2021 headline U.6 unemployment [including some
decline in short-term discouraged workers and those employed part-time for economic reasons]
eased to 10.71% from 11.07% in February. Including long-term discouraged/ displaced workers,
the March 2021 ShadowStats Alternate Measure –- moving on top of the decline in U.6
–- notched minimally lower to 25.7%, from 25.8% in February 2021, reflecting some modeled
transition of "short-term" to "long-term" discouraged workers, with the Pandemic having passed
its 12-month anniversary. The latest Unemployment Rates are posted on the ALTERNATE DATA
tab (above).
• S Y S T E M I C .. R I S K -- The April 2021 FOMC Meeting produced no change in
Policy or Outlook (April 28th, Federal Reserve Board's Federal Open Market Committee [FOMC]
Statement and Federal Reserve Chairman Jerome S. Powell's Press Conference). With no shift in
the FOMC economic or inflation outlook, existing stimulus and federal funds rate policies are
expected to continue through year-end 2023, as projected previously at the March 2021 FOMC
Meeting. That said, Chairman Powell forewarned of a possible "temporary" boost to the FOMC's
targeted Inflation Series, as discussed earlier in the second paragraph of the LATEST
NUMBERS section, and opening paragraphs on the GDP.
Today's Federal Reserve Press Release reconfirmed, once again: "The Committee [FOMC] seeks
to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With
inflation running persistently below this longer-run goal, the Committee will aim to achieve
inflation moderately above 2 percent for some time so that inflation averages 2 percent over
time and longer-term inflation expectations remain well anchored at 2 percent. The Committee
expects to maintain an accommodative stance of monetary policy until these outcomes are
achieved."
(April 27) March 2021 Money Supply and Monetary Base Continued to Explode (Federal
Reserve Board - FRB). Where the Pandemic began hitting the system hard in March 2020, the
Federal Reserve responded with a massive influx of Money Supply -- liquidity. Accordingly,
comparative year-to-year change in the various March 2021 Money Supply measures tends to be
depressed, against what otherwise was the February 2020 Pre-Pandemic trough in the various
Money Supply measures, before the March 2020 surge. Here is how the various measures shape up.
ShadowStats "Basic M1" (Currency plus Demand Deposits) gained by a depressed 62.1% year-to-year
in March 2021, versus 69.6% in February 2021, yet March 2021 was up by a record 73.6% against
that February 2020 Pre-Pandemic trough, contrasted versus the February 2021 62.1% change
year-to-year, and against that same February 2020 Pre-Pandemic trough. The Money Supply numbers
have been updated to the ALTERNATE DATA tab. See the detailed discussion and graphs in
No. 1459 and pending No. 1460 .
In like manner, March 2021 versus the February 2020 Pre-Pandemic trough, and February 2021
against the February 2020 Pre-Pandemic trough (and year-to-year) shape up as follows. Newly
redefined headline M1 was up a record 363.9% versus 356.9% (or 34.0% versus 32.1% on what would
be a more-consistent basis going forward). M2 was up 28.6% versus 27.0%, and M3 was up 23.4%
versus 22.5%.
On a parallel basis, although not hitting the record levels of the 2007-2008 Banking System
Collapse, the March 2021 Monetary Base change versus the Pre-Pandemic trough and February 2021
year-to-year change hit 69.0% versus 57.7%, with Currency at a record 17.8% versus 16.9%, and
with Bank Reserves surging 124.6% versus 101.9%, as though it were the 2007-2008 collapse.
The Money Supply Table and Graphs on the ALTERNATE DATA tab, and the data here,
again, reflect March 2021 Money Supply and Monetary Base growth against the February 2020
Pre-Pandemic trough level, which otherwise is muted by the crisis passing beyond its first
anniversary and against surging Money Supply growth in March 2020, as the FOMC entered its
initial panic.
(April 6th) U.S. Government 2020 Financial Statements. -- The deepening
deficit net worth of the U.S. Government's financial condition hit a record shortfall –
negative net worth – of $113.8 trillion in fiscal year 2020 (year-ended September 30),
widening from a $103.4 trillion negative net worth in 2019. That 2020 shortfall reflected
an operating deficit "Net Position" or operating negative net worth of $26.8 trillion in 2020,
widening from a Net Position deficit of $23.0 trillion in 2019, plus deepening unfunded Social
Security and Medicare net liabilities (Closed Group) of $87.0 trillion in 2020, versus $80.4
trillion in 2019. As did her predecessors, Treasury Secretary Janet L. Yellen described the
current "Fiscal Path" as "Unsustainable," with the government's current Debt-to-GDP ratio at
100% in 2020, predicted to go to 623% before the end of the Century. Those indications are
overly optimistic in the extreme. Allowing for the "Unfunded" Liabilities, the Debt-to GDP
ratio was 531% in fiscal 2020. The 2020 Financial Report is available here:
https://www.fiscal.treasury.gov/reports-statements/financial-report/ -- ShadowsStats will
provide extended analysis in pending No. 1461 .
Systemic Turmoil is just beginning, with both the Fed and U.S. Government driving
uncontrolled U.S. dollar creation, between unconstrained Money Supply growth and uncontained
Deficit Spending. Again, continued extraordinary Monetary and Fiscal Stimulus will be
needed at least into 2022, irrespective of the nature of the COVID-19 vaccines. Indeed, likely
leading into accelerating inflation, Hyperinflation, both extreme Monetary and Fiscal stimuli
are underway. Discussions on the inflation threat and re-accelerating money growth are found in
Special Hyperinflation Commentary, Issue No. 1438 , subsequent missives including
particularly No. 1451 and No. 1454 , with a fully updated and expanded review
pending in Benchmark Economic Commentary, Issue No. 1461 .
Economic, FOMC, financial-market, political and social circumstances all continue to evolve
along with the Pandemic and unfolding political circumstances. COVID-19 vaccines and improved
treatment hold out some prospect of limited economic improvement in 2021 or 2022. Still, many
segments and regions of the U.S. economy, and individual, personal circumstances have suffered
severe structural damage from the shutdown, areas that likely will take years to recover fully.
Accordingly, ongoing massive Fiscal and Monetary Stimuli will be needed and likely will expand
well into 2023, per both the current FOMC outlook and the ongoing ShadowStats assessment.
SHADOWSTATS ALERT: In context of the still-evolving Coronavirus Pandemic and related or
economic crises, near-term financial-market risks from negative economic, liquidity and
political issues, are intensified by potential Hyperinflation, long viewed by ShadowStats as
the ultimate fate of the U.S. Dollar. That said, irrespective of recent relative weakness
in gold prices and related Central Bank or other market machinations, the ShadowStats broad
outlook in the weeks and months ahead remains for: (1) A continuing and renewed deepening
(potentially hyperinflationary) U.S. economic collapse, reflected in (2) Continued flight to
safety in precious metals, with accelerating upside pressures on gold and silver prices, (3)
Mounting selling pressure on the U.S. dollar, against the Swiss Franc and other stronger
currencies, and (4) Despite recent extreme Stock Market volatility, continuing high risk of
major instabilities and heavy stock-market selling, complicated by ongoing direct, supportive
market interventions arranged by the U.S. Treasury Secretary, as head of the President's
Working Group on Financial Markets (a.k.a. the "Plunge Protection Team"), or as otherwise gamed
by the FOMC.
• P O S T I N G .. S C H E D U L E .. (Updated April 29th) -- Commentary postings on
www.ShadowStats.com are advised to Subscribers by a coincident e-mail, along with appropriate
links. [Subject to Change] Economic Commentary No. 1460 will post over this weekend,
reviewing recent economic, financial-market and monetary numbers and FOMC developments.
Benchmark Commentary No. 1461 likely will follow over the May 8th Weekend, updating the
ShadowStats Long-Term Economic and Inflation Outlook.
PENDING EVENTS AND DATA: The Census Bureau will publish March 2021 Construction Spending
and annual revisions on May 3rd at 10:00 a.m. ET, ShadowStats coverage should follow by
4:00 p.m. ET.
• ARCHIVES - VIEWING EARLIER COMMENTARIES. ShadowStats postings of December 2020
and before - back to 2004 - are open to all, accessible by clicking on "Archives," at the
bottom of the left-hand column of this ShadowStats homepage.
• ALTERNATE DATA TAB provides the latest headline data, exclusive ShadowStats
Alternate Estimates and related Graphs of Inflation, GDP, Unemployment, Money Supply [just
updated] and the ShadowStats Financial-Weighted U.S. Dollar. Data downloads and the Inflation
Calculator are subscriber only.
Indices such as the Dow Jones Industrial Average (DJIA) and S&P 500 ( ( SPY ) ) are generally viewed
as convenient ways to measure the health of the entire stock market. Indeed, they are the
indicators that most folks in the business media use to determine if there are uptrends,
downtrends, bull markets, or bear markets.
The major indices generally do a good job of measuring overall market health, but there are
times when they can be very misleading. The problem is that there a small number of big-cap
stocks that can move the indices in one direction while hundreds or even thousands of smaller
stocks are moving in the other way.
Over the last 10 weeks, there has been a significant disconnect between the stocks that led
early in the year and the indices. Growth stocks, speculative small-caps, hot theme names, and
other groups have been very weak for a while, but the S&P 500 was hitting a new high
Thursday morning.
For a clearer picture of what is going on out there, a much better indicator is the ARK
Innovation ETF ( ARKK ) . ARKK was in a very strong
uptrend off the March 2020 low and gained nearly 400%. The fund held the stocks that market
participants favored for a very long time. It topped at $160 on Feb. 16 and a week later had
fallen 20% to $128, which is the definition of a bear market.
Since falling into a bear market, ARKK has been in a trading range and continued to
languish. It is down more than 3% Thursday as growth stocks and small-caps are taking it on the
chin again.
This is what is really going on in the market for most individual traders that focus on
stock-picking. The S&P 500 and DJIA are totally disconnected from this action. For most
traders it has been a bear market for over two months now, but we never hear about it in the
media.
This presents the most crucial question right now: What will happen to ARKK and the stocks
that it reflects if there is a major correction in the senior indices? Will they continue to
fall, or will there be some rotational action as money comes out of the names that are
currently at highs?
There is no easy answer, but that is the dilemma we face if we start to see deeper
corrective action in the S&P 500 and DJIA.
Mary 5 days ago As an alternative to PTTRX, which is waning in the current interest rate
environment...
A special deal is available and it's one of the few times you can lock in a great return
with no risk. On May 1, the inflation component on US Treasury I-Bonds will adjust to an
annualized rate of 3.54%. This is a tremendous jump due to inflation ramping up. I-Bonds,
similar to TIPS combine the inflation rate with an interest rate component (currently 0% for
I-Bonds) to get the overall yield. There is a $10k/person/year cap on the amount of I-Bonds
that can be purchased through Treasury Direct. Between the folks living under your roof, that
could amount to a good chunk.
In any case, you can easily set up an account on Treasury Direct and any money going in
on/after May 1 will get the new 3.54% rate. You can't withdraw the funds for 5 years to avoid
penalty. However, with a 3.54% yield, if you do need to withdraw early, the 6 months penalty
still leaves you significantly better off than CDs or other alternatives.
The inflation component adjusts every 6 months, so the yield you get will vary. However,
it's pretty well known that Powell/Treasury are looking to let the economy run hot for a while,
basically committing not to raise interest rates until 2023.
Anyhow, have a look. There's a couple of good articles out there about this situation. I
personally like the one on tipswatch. Mary 2 days ago @DOOGIE1 My pleasure. It's a tough
environment for fixed income investors these days...I take what I can get. I think the I-Bonds
are one of the best inflation hedges out there. TIPS should be good, but again, as a result of
the crazy interest rate environment, the interest rate component on short-term TIPS is
negative! I-Bonds never have negative interest component.
Lastly, re-reviewing terms, if you withdraw earlier than 5 years, penalty is last 3 months
of interest, not 6 - so even better.
After being stuck in their homes for so long, people are itching to get out again. It's a
boon to newly reopening economies, with consumers ready to start spending more at gas stations,
convenience stores, restaurants, hotels and attractions. Daimler AG, BMW AG and Toyota Motor
Corp. all started the year with sales at records, and things are so hot that used car prices in
the U.S. are soaring to all-time highs.
The jump in vehicle sales is a strong sign that this is more than just a passing fad.
Gasoline is the big winner.
Profits from making the fuel are near seasonal five-year highs and are expected to stay
strong as the Northern Hemisphere heads into summer driving season. U.S. refiner Valero Energy
Corp. says gasoline sales are nearly at pre-pandemic levels, and the biggest bulls are
predicting demand could hit a record. The U.S. Energy Information Administration expects summer
fuel prices to be the highest since 2018 this year.
The trouble with this line of reasoning is that it is hard to square with last year's market
logic. A year ago, we were a month into a rebound as the valuations of big technology stocks
soared, something explained at the time by
far lower Treasury yields . That made sense: Lower bond yields make earnings that are
expected to grow far into the future look more attractive, and Big Tech is full of those.
Growth stocks were a great place to be as the longest-dated Treasury yields plumbed new lows.
Valuations should rise when bond yields fall a long way.
Here we come to the problem: Just as lower yields justified a higher valuation for stocks
last year, higher yields should mean a lower price-to-earnings multiple -- albeit a lower
multiple of much higher earnings. Instead, valuations have gone broadly sideways as bond yields
first rose and then this month pulled back a bit. The result is that the stock market's
relationship with the bond market has gone haywire.
The strangeness shows up in the correlation between stocks and bond yields. Since the late
1990s higher yields have typically been good for stocks, so they tended to rise and fall
together daily -- even as over the long run, yields fell and stocks rose.
Last year, this relationship broke down. Investors got into a cycle where bad news on the
economy was good news for stocks, because it resulted in such
extreme support from the Federal Reserve and the government. The effect canceled out the
usual relationship almost entirely, breaking the link between stocks and bonds by late
summer.
The odd relationship of yields up, stocks up...Yields dropped a little and growth stocks
made more new highs. The tendency for both to move in the same direction, measured by the
50-day correlation of growth stocks to bond yields, has reversed and is at its most negative
since the boom times of 1999. Bizarrely, the link between value stocks and bonds has also
turned reversed, although not in such an extreme way, as value stocks also made new highs.
The bearish investor can take this as a sign of over-exuberance.
The trouble with this line of reasoning is that it is hard to square with last year's market
logic. A year ago, we were a month into a rebound as the valuations of big technology stocks
soared, something explained at the time by
far lower Treasury yields . That made sense: Lower bond yields make earnings that are
expected to grow far into the future look more attractive, and Big Tech is full of those.
Growth stocks were a great place to be as the longest-dated Treasury yields plumbed new lows.
Valuations should rise when bond yields fall a long way.
Here we come to the problem: Just as lower yields justified a higher valuation for stocks
last year, higher yields should mean a lower price-to-earnings multiple -- albeit a lower
multiple of much higher earnings. Instead, valuations have gone broadly sideways as bond yields
first rose and then this month pulled back a bit. The result is that the stock market's
relationship with the bond market has gone haywire.
The strangeness shows up in the correlation between stocks and bond yields. Since the late
1990s higher yields have typically been good for stocks, so they tended to rise and fall
together daily -- even as over the long run, yields fell and stocks rose.
Last year, this relationship broke down. Investors got into a cycle where bad news on the
economy was good news for stocks, because it resulted in such
extreme support from the Federal Reserve and the government. The effect canceled out the
usual relationship almost entirely, breaking the link between stocks and bonds by late
summer.
The odd relationship of yields up, stocks up...Yields dropped a little and growth stocks
made more new highs. The tendency for both to move in the same direction, measured by the
50-day correlation of growth stocks to bond yields, has reversed and is at its most negative
since the boom times of 1999. Bizarrely, the link between value stocks and bonds has also
turned reversed, although not in such an extreme way, as value stocks also made new highs.
The bearish investor can take this as a sign of over-exuberance.
Thanks for the insightful article. Yet for the time being the facts don't matter. The Fed has
turned investors--those who put money into the markets for the long term--into
speculators--those who put money into the markets with the hope of selling to a greater fool
in the short to near term. And just as most believe themselves above average, most of these
speculators believe they'll be amongst those who will get out at the top. Never mind that as
the saying goes, "There will be a whole bunch of fat people all trying to get out one skinny
door."
The rise in commodity prices has pushed inflation and that raise questions about the Fed's
assurances that any bump in inflation will be short-lived. Gundlach Says Fed Is Guessing That
Inflation Will Be Transitory
The stock market's recovery from the pandemic may be a mere continuation of the bull market
that preceded this crisis. If so, stocks may be at the end of their run, rather than beginning
an upswing.
It could actually be seen as the end of a longer bull market that began after the 2008-2009
financial crisis. That would mean the 2020 bear market and recession -- a health-induced crisis
rather than one caused by financial excess -- interrupted a bull market that had gone on for
more than a decade.
dopie 3 hours ago Apple....2.2 trillion market cap trading at 35 times EARNINGS? Reply 1 1
Patrick dopie 2 hours ago You think THAT'S a bubble? So that means you don't own any AMZN (P/E
of 82), NFLX (61), or TSLA (695!!) either, right?
"... The temptation to book profits and bail is getting hard to resist after the S&P 500's best 12-month rally since the 1930s. Increasing the anxiety are a mountain of charts signaling a market that's stretched to its limits. ..."
"... Earlier this month, the index soared 16% above its 200-day average, a feat that before December had occurred only a handful times over the past three decades. Moreover, the benchmark's relative strength index has surpassed 70 on both a weekly and monthly basis, a sign that the market has risen too far, too fast. ..."
"... A strategy following RSI signals has dropped 10% this year. The damage occurred as stocks entered the year with unbridled momentum that touched off an order to sell. The trade has since been in place as the S&P 500 never pulled back fast and long enough to flash buy. ..."
"... The moving average convergence/divergence indicator -- better known as MACD -- has suffered a loss of 9.8%. Five of the nine trading signals that the model has produced have been buys, and four of them have lost money. In addition, all four short recommendations have been losers. ..."
(Bloomberg) -- If you bailed because of Bollinger Bands, ran away from relative strength or took direction from the directional
market indicator in 2021, you paid for it.
It's testament to the straight-up trajectory of stocks that virtually all signals that told investors to do anything but buy
have done them a disservice this year. In fact, when applied to the S&P 500, 15 of 22 chart-based indicators tracked by Bloomberg
have actually lost money, back-testing data show. And all are doing worse than a simple buy-and-hold strategy, which is up 11%.
Of course, few investors employ technical studies in isolation, and even when they do, they rarely rely on a single charting technique
to inform decisions. But if anything, the exercise is a reminder of the futility of calling a market top in a year when the journey
has basically been a one-way trip.
"What we've seen this year is a very strong up market that didn't get many pullbacks," said Larry Williams, 78, creator
of the Williams %R indicator that's designed to capture a shift in a security's momentum. A long-short strategy based on the
technique is down 7.8% since the end of December.
"All the overbought and oversold indicators, mine as well as anybody else's, didn't get many buy signals, but a lot of sells,"
he said.
The temptation to book profits and bail is getting hard to resist after the S&P 500's best 12-month rally since the 1930s. Increasing
the anxiety are a mountain of charts signaling a market that's stretched to its limits.
Earlier this month, the index soared 16% above its 200-day average, a feat that before December had occurred only a handful times
over the past three decades. Moreover, the benchmark's relative strength index has surpassed 70 on both a weekly and monthly basis,
a sign that the market has risen too far, too fast.
Add in pundits warning of bubble-like valuations and resurgent coronavirus concerns, and it's a recipe for sell orders. Hedge
funds, for instance, have hit the exits this month, stampeding out of tech stocks just days before Apple Inc. and Amazon.com Inc.
report financial results.
Yet avoiding the stock market for any period of time has proven to be the riskiest wager of all. The S&P 500 has yet to retrench
more than 5% this year. At the same time, missing out on the big up days is more penalizing than ever. Absent the top five sessions,
the index's 11% gain dwindles to 2%.
"To try to guess that this is the right time to be out of the market, you may as well go to Las Vegas," said Mark Stoeckle,
chief executive officer at Adams Funds. "There's just as much risk doing that."
Bloomberg's back-testing model purchases the S&P 500 when an indicator signals a "buy" and holds it until a "sell" is
generated. At that time, the index is sold and a short position is established and kept until a buy is triggered.
A strategy following RSI signals has dropped 10% this year. The damage occurred as stocks entered the year with unbridled momentum
that touched off an order to sell. The trade has since been in place as the S&P 500 never pulled back fast and long enough to flash
buy.
The moving average convergence/divergence indicator -- better known as MACD -- has suffered a loss of 9.8%. Five of the nine trading
signals that the model has produced have been buys, and four of them have lost money. In addition, all four short recommendations
have been losers.
Such is the cost of betting against momentum in a market where the S&P 500 has already eclipsed the average Wall Street strategist's
year-end target.
"Today, and for much of 2020, the overbought conditions have been absorbed by the market with more strength, or at best a pause,"
said Renaissance Macro Research co-founder Jeff deGraaf, who ranked as the top technical analyst in Institutional Investor's
annual survey for 11 straight years through 2015. "Overbought/oversold conditions are useless without first defining the
underlying trend of the market."
Williams, who has been trading since 1962, agrees. Technical analysis tools aren't broken, he says, but in a bull market that's
as resilient as this one, investors need to use them in the right context.
"You have to have a different tool, if you will, for a job you're doing," he said. "I have a hammer that can build a house,
but if I use the hammer to dig a hole in the ground, that's going to be really hard."
For more articles like this, please visit us at bloomberg.com
Subscribe now to stay
ahead with the most trusted business news source.
"... Since 2000, the US debt has increased about $20 trillion, roughly $1 trillion a year in deficit spending. In that same time, inflation adjusted GDP has risen one whole quarter. ..."
"... Throw the super rich into the mix and there is not much left for the little people. ..."
"... This "recovery" is based on liquidity, money printing and debt. May as well just make up the GDP numbers like the inflation numbers. ..."
There is an overly optimistic consensus view about the speed and strength of the United States' recovery that is contradicted
by facts. It is true that the United States recovery is stronger than the European or Japanese one, but the macro data shows that
the euphoric messages about aggregate GDP growth are wildly exaggerated.
Of course, Gross Domestic Product is going to rise fast, with estimates of 6% for 2021. It would be alarming if it did not after
a massive chain of stimuli of more than 12% of GDP in fiscal spending and $7 trillion in Federal Reserve balance sheet expansion.
This is a combined stimulus that is almost three times larger than the 2008 crisis one, according to McKinsey.
The question is, what is the quality of this recovery? The answer is: extremely poor.
The United States real growth excluding the increase in debt will continue to be exceedingly small. No one can talk about a strong
recovery when industry capacity utilization is at 74%, massively below the level of 80% at which it was before the pandemic. Furthermore,
labor force participation rate stands at 61.5%, significantly below the pre-covid level and stalling after bouncing to 62% in September.
Unemployment may be at 6%, but it is still almost twice as large as it was before the pandemic. Continuing jobless claims remain
above 3.7 million in April.
Weekly jobless claims remain above 500,000 and the total number of people claiming benefits in all programs -- state and federal
combined -- for the week ending March 27 decreased by 1.2 million to 16.9 million.
These figures must be put in the context of the unprecedented spending spree and the monetary stimulus. Yes, the recovery is better
than the Eurozone's thanks to a fast and efficient vaccination rollout and the dynamism of the United States business fabric, but
the figures show that a relevant amount of the subsequent stimulus plans have simply perpetuated overcapacity, kept zombie firms
that had financial issues before covid-19 alive and bloated the government structural deficit and mandatory spending.
Would the United States economy had recovered as fast as it has without the deficit-spending stimulus plans? Maybe. I believe
so because the entire recovery, both in markets and the economy, has been driven by the vaccine news and the process of inoculation.
Most of the programs that have been implemented have had a small impact compared to the re-opening of the hospitality sector and
the vaccinations. The entire economic crisis came from the lockdowns and the virus and the entire recovery is the re-opening and
the vaccinations.
My main concern is that this monster deficit and debt program has been set as the minimum for the next crisis. No one has analysed
if the spending plans have been effective. In fact, in the eurozone no one seems to be concerned about the fact that countries that
have spent between 20 to 30% of GDP in stimulus plans are now in stagnation. The mainstream message seems to be that if the spending
plans have not worked it is because they were not large enough. Very few seem to be discussing the waste in public funding when the
number one drivers of the recovery are the vaccine roll-out and the re-opening of the services sector.
It seems that governments want to convince us that they have saved the world when the reality is that the misguided lockdowns
were the cause of the economic debacle and lifting them is the main cause of the recovery. In the process, trillions have been squandered.
It is dangerous to accept that government spending no matter how much and what for is the only solution and even more dangerous to
believe that the shape of the recovery is only a function of the size of the stimulus package. The problem was the virus and the
government-imposed lockdowns, the solution is the vaccine and the re-opening. The problem was caused by government's lack of prevention
and excess of interventionism and the solution is not more intervention.
Bay Area Guy 38 minutes ago
Since 2000, the US debt has increased about $20 trillion, roughly $1 trillion a year in deficit spending. In that same
time, inflation adjusted GDP has risen one whole quarter. The other 19-3/4 years, real GDP declined.
This, despite the aforementioned $20 trillion in deficit spending. The "recovery" is not strong because we never got out of
the recession/depression that was caused by the dot.com bubble bursting as well
as the 2008 financial crisis.
When real GDP declines despite such massive infusions of debt, you're in big trouble. The fact that this also happened at a
time when population (both legal and illegal) was rising means that more people are trying to get a share of an ever-shrinking
pie. It's a recipe for disaster.
jim942 35 minutes ago
Throw the super rich into the mix and there is not much left for the little people.
GlassHouse101 53 minutes ago
"If you could print Prosperity, you would have thought they would have figured it out sometime over the past few hundred years."
- Buffett
khakuda 32 minutes ago (Edited)
This "recovery" is based on liquidity, money printing and debt. May as well just make up the GDP numbers like the inflation
numbers.
GeezerGeek 20 minutes ago
It's never made sense to me why consumer spending should be part of the gross domestic product. If .GOV passed out $20 trillion
and gave people one year to spend it, would the GDP really be increased? If we had to produce those products here in the USSA
it might come close to reality, but if all we spent the money on was stuff from Asia and nothing was produced here, the GDP would
crash in 2022 without another $25 trillion to keep things going.
We should be using a different yardstick for measuring the economy, using things like real production (cars, corn) and non-government
employment.
There are dozens of charts that illustrate how closely today’s financial
bubble resembles its predecessors. But simple is better when expressing a hard truth, so
let’s go with that old standby, margin debt. This is debt created when
over-stimulated investors borrow against their stocks to buy more stocks. At its high extremes,
the result is always the same: A price decline that forces overleveraged investors to liquidate
at any price, turning correction into bloodbath. Note that the steeper the rise in margin debt,
the more severe the resulting plunge in share prices.
The next chart illustrates more clearly the “steep†thing.
The current spike is one for the record books.
Now, during past spikes in margin debt the “investors†who
were swept up in the euphoria of easy money frequently responded to criticism with a variation
on “corporate earnings are about to soar, which will make everything okay.
Plus we know you’re only complaining because you missed the gravy train and
you’re jealous.â€
But corporate earnings almost never completely offset extreme valuations and soaring margin
debt. A useful measure for visualizing this fact is “earnings
yield,†which is the S&P 500 index’s aggregate earnings
expressed as a percentage of its aggregate market cap. This is how much a buyer of the average
stock receives in earnings per dollar invested. Common sense says the more the buyer receives
the better the deal. And history says the less the buyer receives the higher the likelihood of
stock prices falling in the ensuing few years. Today’s yield of 2.36% is the
second-lowest ever. That’s really bad.
Market will definitely collapse sooner or later. But nobody knows when. Especially taking into account FED Plunge protection team activities. If is stupid and irresponsible to talk about June crash...
Dent’s forecast
seems to have struck some kind of chord. For about a week or longer, the article was the most popular article at ThinkAdvisor.com. But although he may be unique in setting a deadline, he’s not the only guru predicting disaster.
Just this week I got a note from Jonathan Ruffer, an eminent money manager in London, with this dire warning: “I take it pretty much
for granted that the 40 year bull market is ending, and that it will be replaced by hard investment times.” And Jeremy Grantham
(also born in England, but long based in the U.S.)
recently
concluded
that stocks, bonds and real estate are all in a bubble and may well collapse together in the next year or two.
Longstanding gloomster John Hussman
estimates
the
S&P 500
SPX,
+1.09%
could
end up losing us all money over the next 20 years even before you deduct inflation, and suspects a quick 25-30% market slump may be
ahead.
I have a guilty secret. I’m a sucker for these warnings (OK, maybe not for Dent’s). They often make for compelling reading. The most
bearish stock market forecasters are generally more intelligent, more freethinking, and more interesting than the average Wall
Street salesman. They usually write much better, too. Hussman’s math and logic are almost unarguable. Why, asked John Wesley, does
the devil have the best tunes? (I am not comparing these people to a religious devil, of course, only to the Wall Street equivalent:
Sinners who may interfere with the business.)
And their arguments make plenty of sense. Maybe not those predicting a market collapse in time for Wimbledon, but those warning us
of grim years ahead. The U.S. stock market is
almost
90% above the level
where the “Warren Buffett Rule” is supposed to trigger red flashing lights and deafening warning sounds. The
so-called
“Shiller”
or
cyclically adjusted price to earnings ratio ], the
Tobin’s
Q
â€" all sorts of measures are telling us some version of Alien’s “Danger! The emergency destruct system is now activated! The
ship will detonate in 30 minutes... 10 minutes ...” Run, don’t walk, to the escape pod. Don’t forget the cat.
And most of the most bullish forecasts we hear from Wall Street involve the simple fallacy of double-counting: The more stocks rise
the better their “historic returns,” which a salesman then cheerfully extrapolates into the future.
... ... ...
It’s not that the bull market salesmen are clearly right. Actually, math and cold hard logic should give anyone cause for concern,
especially about the most euphoric U.S. stocks.
But even if these skeptics turn out to be right, when is it going to happen? Will the market go up another 10% or 20% or 50% before
it turns? Will it happen in June this year â€" or June in 2025?
I always figure that the day I finally decide to tune these guys out altogether will be the moment the Titanic hits the iceberg.
But there are options instead of trying to guess on Boom and Doom. We can just let the market decide for us instead. Money manager
Meb Faber
worked
out
years ago that pretty much every stock market crash or bear market in history has been signaled in advance. If you just
cashed out when the market index first fell below its 200-day moving average, you avoided nearly all the carnage. (OK, in the sudden
1987 one-day crash you got all of a single day’s notice.)
Even if you didn’t end up making more money in the long-term than a buy-and-hold investor, he found, you made pretty much the same
amount … and with far less “volatility“ (and sleepless nights).
Last year this trigger got you out of the S&P 500 on March 2, just before the main implosion. The market rose above the 200-day
moving average again, triggering it was time to get back in, on June 1.
Most people will use the S&P 500 index as their trigger, but Faber found it worked for other assets such as REITs as well. Global
investors may prefer the MSCI All-Country World Index.
Is this system guaranteed to work? Of course not. But nor is anything else. That includes all those bullish predictions that stocks
will earn you inflation plus 6% a year. And those bearish predictions that once the market reaches a certain valuation triggers it’s
heading for disaster. All rules are rely on some assumption that the future will resemble the past.
And using this rule means you can safely and happily ignore all the people predicting the end of the world.
Brett Arends is an award-winning financial writer with many years experience writing about markets, economics and personal
finance. He has received an individual award from the Society of American Business Editors and Writers for his financial
writing, and was part of the Boston Herald team that won two others. He has worked as an analyst at McKinsey & Co., and is a
Chartered Financial Consultant. His latest book, "Storm Proof Your Money", was published by John Wiley & Co.
Amos Library
8 hours ago
It took 19 years and 2 crashes to get to even (inflation adjusted) from the 2000 peak.
James Goodwin
7 hours ago
I've been among the gloomsters for the last decade and evidently wrong. That pessimism (and
lost opportunity) rests on debt and demography which are connected into the future. Our vast
debts are unstainable at these low interest rates unless savings are substantial and
economic growth is high. For now the substantial baby boomer generation (now in their mid
70s and in their mid 50s to 60s) have no alternative but to invest in the stock market. This
is self fulfilling lowering the cost of capital and pushing up returns as central banks can
afford to come to the rescue. That seems to have hit the limits with record low interest
rates and QE now being tested by rising bond yields. But as more retire there will be a
double hit from the higher costs of their health and pensions, and a shrinking workforce
which presents wage bargaining power (technology and globalisation included). That is a
situation which has been slowly developing this last decade (beginning in Japan in the 1990s
and more recently China) and will now accelerate across the developed world (notably in
Italy and Germany). This pivots on Covid caused inflation which seems likely to be more than
a blip. As part of this I am reminded that Japan's Nikkei Index is still 25% below its 1989
high of 38,000. I will retain my wait and see approach while others enjoy themselves talking
and acting like its the roaring 20s.
Reply
6
1
lee Hoffman
James Goodwin
1 hour ago
Well James you will be waiting another 10 years. Your prognostications have been
wrong in the past, and will continue in the future. Bond yields in the US?
What's the bond yields in Germany and Japan? Negative. Yes, the US monetary
policy is suspect. But, compared to what? The Euro? The yen? The Chinese
currency value is tied to ours, not an independent currency at all. Bond yields
here have decelerated mostly because of the ability to arbitrage currency abroad
and buy a 10 year US bond guaranteed by the US at 1.5 as opposed to a German
Bund at negative .30! Yes, there is a wrinkle in the supply chain caused by
Covid, and perhaps exasperated by reluctant workers to return to work, and
frankly an incentive domestically not to go back to work. But the deflationary
levers at work have not abated. The internet, international competition, more
efficient supply chains, and the ability to tap into inexpensive labor worldwide
are still there. You've missed in the last 10 years, by being out of the market
a return of over 500%. Do you really feel qualified to provide investing advice?
Reply
2
David Binkowski
8 hours ago
The ones who treat ever rustle in the grass as a lion, also never become millionaires
because they run every time the grass rustles. Sometimes surviving inhibits thriving.
Reply
6
2
William Howell
David Binkowski
7 hours ago
Wait a minute! Your death also means thriving - for the lion! It's much better
to die as a contributor to vibrant being than to get run over by an inanimate
car. (Message paid for by the Lion's Pride)
Reply
2
Darryl Egbert
David Binkowski
7 hours ago
I became a millionaire through hard work and frugal living and not touching the
stock market (except for some shorts in 2000 and 2008).
Todd Johnson
5 hours ago
In April of this last year 2020 there were many "experts" predicting
an even larger crash after the March 20th bottom from Covid, mainly
due to the economic slowdown and huge jump in unemployment. I felt
that as the pandemic waned the thirst for consumption would
re-emerge so I bought, bought, bought. While Warren Buffet was
selling all his airline stock I was buying them. I made over 50%
return on these investments since then. Not bad!
Reply
2
Mike Mayo
5 hours ago
A homeowner since 1995, I live in St Petersburg, Florida - where
real estate values have exploded over the past few years (since
'17), and there is very little inventory. Without question, this is
NOT a healthy market, and I'm hopeful that prices will in fact
decrease modestly while inventory increases. I have over $400K in
equity in the house, and can't even buy a loaf of bread with it. In
fact, I continue to put money into the house, with repairs,
renovations, etc. Making matters worse, I can't even downsize into
something smaller and less expensive - and bank or invest the
difference - since prices are sky-high and inventory so low. This is
not a healthy or sustainable market. As for the financial markets,
it remains the greatest wealth creator in the history of human-kind.
Markets will always fluctuate, sometimes wildly, but if you keep
cash on the ready, consistently buy the dips and don't sell in a
panic into weakness, you will always make money - and lots of it.
Throughout the bull-market that started in '09, we've had some very
significant down-turns and corrections. December '18 is an excellent
example. The market dropped like a rock, nearly 20% in a month. The
following month, the market came roaring back. I'm confident that at
some point this year, the market will have a 10%+ correction. I will
stay the course, buy that dip aggressively, only to have the market
come roaring back and my net-worth grow.
Reply
2
Paul Johnston
Mike Mayo
5 hours ago
Just curious: If you want to cash out the gains on the
house, why not downsize and buy elsewhere? There are
lots of pleasant places to live besides St Pete, and not
all have low inventory and sky-high prices. Just sayin'....
Reply
don stern
2 hours ago
Since 1793, there has never been a stock market crash
that hasn't resulted, ultimately, in another all time
stock market high.
Reply
2
Thor B
don stern
2 hours ago
The key word is "ultimately"...
Reply
Amos Library
1 hour ago
from a major investment research company V and L weekly
summary 4/30 There are potential flies in the ointment,
however. First, there is a recent jump in inflation,
with the U.S. homebuilding sector and several regional
manufacturing surveys The Value Line View In This Issue
suggesting greater cost pressures. Then, there’s the
troubling uptick in COVID-19 cases, which could slow
progress on the recovery front. Meanwhile, earnings
season is proving to be a solid one so far, with strong
performances from a number of banking giants, as well as
several consumer and tech entities. In all, we think
Corporate America will do well in the coming weeks.
Here, too, there should be further improvement in the
next few quarters. The bull market is rambling on, with
the Dow Jones Industrial Average recently ascending
34,000 for the first time ever while the NASDAQ, off
notably to close the first quarter, is back near 14,000.
What’s more, the recent trends could well continue,
although the high price-earnings ratios and low dividend
yields now in place make the stock market, now priced
for near perfection, vulnerable to unwelcome news. So,
some caution is warranted. Conclusion: We think
investors should proceed with some care, with a wary eye
on price-earnings ratios and dividend yields.
Reply
1
Michael Wilson
2 hours ago
Using both the 50 and 200 DMA as signals works good
also. Sell 1/2 if the 50 is crossed and the other half
if the 200 is crossed. Reverse the method to buy. Worked
great over the last two years.
Jakob Bear
7 hours ago
Well written article thanks.. Growth stocks already crashed though so I'm guessing he is referring to tech and the dow?
Could be, always a good idea to have money on the sidelines to pick up any drastic or non-sensical dips. Dividend stocks
still give dividends also so the economy really would have to crash. Consider we are just coming out of covid and there
is robust growth ahead, it is unlikely the economy is going to crash anytime soon, maybe not grow as fast as
anticipated. But once again bond rates will go down and growth stocks will go up if that happens. Who knows I'll stick
with a few select spec stocks for now they don't follow the market anyways except in short term movements. Good luck
all!
CARLOS T BAEZ
7 hours ago
Discipline always works in the long term. If one treats every
historical proven trigger consistantly, one would do better than
average. The reason that it is called discipline is because it most
be acted upon consistanly. Wealth always runs to where it has been
treated the best historically: Real Estate, US Treasuries,
Commodities (between a cookie brand and a company that provides the
flour, butter, salt and suggar I would always choose the latter),
significant companies' dividend stocks, defensive stocks, major
financial stocks, and major consumer staples stocks. No matter how
the economy/stocks do one has to eat, drink, shelter, utilities,
transportation, communication, health care and die (funeral homes).
If one can not make money (consistantly) with the S&P 500, one can
not make money in any other index consistantly. Never bet against
the USA. We are the Financial/Wealth Heaven in the unniverse.
Reply
2
2
Darryl Egbert
7 hours ago
I really do believe we are now at the point that the Fed cannot
allow assets prices to fall without the real economy taking a huge
nosedive. They have essentially sucked (forced) everyone into the
equities to avoid losing the purchasing power of their savings. If
asset price were to drop by 50%, people would look into their
savings accounts and realize they have to stop consuming and start
saving their a significant income to make up for the losses (the
"wealth effect" that the Fed built the recovery on would go into
reverse). They have said as much in congressional testimony - if a
fall asset prices flows through to the real economy, there is a Fed
"put". One my favorite advisors made a comment this weekend that 20%
fall in equities would be met by the Fed jumping in with $50
billion/month of more QE. He also postulated that they would go find
some good lawyers who could find a loophole around the Federal
Reserve Act, allowing the Fed to directly purchase equities - like
they have been doing in Japan. As Hussman says, even if they could
prevent asset prices from falling materially, the forward returns
will dismal if not negative for decades to come. Fed can postpone -
or maybe even prevent price discovery, but they cannot change the
underlying value of assets. And long as the price of assets exceed
the underlying value, you are swimming against the currents.
Reply
1
William Howell
7 hours ago
Fun article by Brett Arends. This seems to be a basic need of every
human : to carry around at least five "end-of-the-world scenarios"
at all times. Why 5? Because these scenarios have a habit of
[washing out, breaking in two, being mis-placed or forgotten]. But
historically they also become true, even in recent times, and
perhaps to far greater depths than the imaginations of Hollywood?
But one can't stop living for fear of death (or a bad-return year).
At least one of your doomsayers has also been a super-bull on and
off, not a perma-bear.
Reply
1
T Cr
5 hours ago
In the modern data-tracking of stocks, there has never been a
worldwide pandemic coming a few years after a global equities and
banking meltdown. This time right now is unheralded. So, all of the
old "rules" for predicting a turn toward the bears simply can't and
don't count. This is one data point, and you never base a
statistical conclusion on one data point; you need at least 10 for
significance and preferably 20. So, ignore anyone who is using these
old metrics to try to win any argument about upcoming market
conditions. They simply don't even enough data points to base the
future on the past. Instead, look to current forces at play and use
your ability to rank order investment choices for both individual
and institutional investors: inflation and bond yields are
ultra-low, central banks are still involved in some degree of
quantitative easy, federal governments are still stimulating
economic activity, unemployed resources still exist in any number of
sectors (entertainment, food service, vacationing, labor), major
corporations still pay dividends well in excess of inflation (I see
you Verizon and AT&T), and profits in any and all health care
related industries are booming as is residential real estate and IT
(remote learning and work from home). As long as these factors hold,
well chosen stocks or indexes will flourish. Investors don't want
either bonds or CDs, and a tin can in the back yard rarely feels
like a savvy choice.
Reply
michael pyles
3 hours ago
Falling interest rates, decreasing taxes, higher government
spending, rising productivity via automation, and loss of labor
bargaining power via globalization and the destruction of unions,
have all kept the market rising since 1982. Keep your eye of these.
If they begin to change, the outlook for earnings will change. Don't
be a victim to recency bias.
Reply
Amos Library
1 hour ago
Lance Roberts Real investment advice dot com For Jeremy Siegel, making wild
predictions about markets has no consequence. If he is wrong, he makes
another prediction to cover for the first. However, for you, following such
a prediction can have a devastating impact on your short- and long-term
financial goals. The reality is that markets are pushing “rarified air.” It
is unlikely that corporate earnings will achieve the lofty goals set out by
analysts currently. It is also very probable that economic growth may be
weaker than expected. Of course, these are just “concerns” of an overvalued,
extended, and overly bullish market. Sure, the current cyclical bull market
could rise another 30%. Momentum-driven markets are hard to kill in the
latter stages, particularly as exuberance builds. However, they do
eventually end. Will the market likely be higher in another decade from now?
Maybe. However, if interest rates or inflation rise sharply, the economy
moves through a normal recessionary cycle, or if Jack Bogle is
correct, things could be much more disappointing. As Seth Klarman from
Baupost Capital once stated: “Can we say when it will end? No. Can we say
that it will end? Yes. And when it ends and the trend reverses, here is what
we can say for sure. Few will be ready. Few will be prepared.”
Amos Library
1 hour ago
Lance Roberts Real investment advice dot com For Jeremy Siegel,
making wild predictions about markets has no consequence. If he is
wrong, he makes another prediction to cover for the first. However,
for you, following such a prediction can have a devastating impact
on your short- and long-term financial goals. The reality is that
markets are pushing “rarified air.” It is unlikely that corporate
earnings will achieve the lofty goals set out by analysts currently.
It is also very probable that economic growth may be weaker than
expected. Of course, these are just “concerns” of an overvalued,
extended, and overly bullish market. Sure, the current cyclical bull
market could rise another 30%.
Jay Arant
5 hours ago
Dent's thinking sounds dented. We've had quite a few pullbacks since the
beginning of this year and I believe a correction is coming whenever but no one
know exactly WHEN.....Do not put any "stock" into some fringe thinking doomsday
prophesyer which we've all heard before.
Reply
1
1
Gerry Cruzman
Jay Arant
3 hours ago
The US is approaching $30 trillion dollars of National Debt, and we
have a mentally incompetent President and Dems in control of
Congress who have no interest or clue in controlling Federal
spending - and it’s but a matter of time until that massive debt and
uncontrolled spending reeks havoc with our economy...
Reply
1
3
Show 2 more replies
Mike Staples
8 hours ago
When hype runs into reality, there’s a crash. As long as reality is being hid by
money from above, there’s no need to worry.
Reply
Alberto Perez
6 hours ago
With central bankers' feet on the accelerator, it's hard for me to envision a
"crash" anytime soon.
Reply
Maitreya riske
Alberto Perez
5 hours ago
Almost every crash has been caused by the Central Bank trying to
goose the economy. The next one will be also.
Reply
Maitreya riske
6 hours ago
The BIG issue with the market as currently configured is that we are relying on
the FED to save us if something goes wrong even though these are the exactly the
same people who have destroyed all market pricing signals/ pushed us all to the
same side of the boat at the same time/ continually tried to goose the economy
over and over until interest rates have been lowered to zero. Well guess what?
Now they are trapped because how do you engineer a new bull market when you
can't lower rates the next time something bad happens. That's the problem, we're
told everything is fine but its not. If we actually had a real economy based on
savings and investing instead of a giant pozzi game based on IOU's and Debt then
maybe people wouldn't be so worried. You should be worried because trusting
these people is a fool's errand. But don't worry Goldman Sachs will be there
with plenty of cash to buy all your assets for dirt cheap when the time comes.
Reply
T Cr
Maitreya riske
5 hours ago
You see only the FED as a key actor in macro policy. Keynes holds
most of the cards, though, not the FED. Stimulus by the Treasury for
brick and mortar projects is ultimately much more powerful than the
FED, and requires no changes in either taxation or the
buying/selling of Treasuries. Any spending that is needed is simply
done by creating new money via the Treasury, which is its
Constitutional authority. As long as inflation is well under 3%, say
most economists, creating new money nudges innovation, upgrading of
infrastructure, enhanced education for a smarter future work force
and enhanced productivity. Priming the economic pump is not a Ponzi
scheme, since no one has to be "paid back", ever, as in a Ponzi
scheme. There is no "debt" when the Treasury creates new money.
Reply
1
Hey Now
4 hours ago
I just figured loose monetary policy from the Fed would keep this bull market
going.
Reply
Mike Elek
5 hours ago
Somewhere between market doomsday and the never-ending party is the truth. For
those who have warned, "Cash out now!" for the past five years, well, they
missed out on an incredible bull run. Then there are those who post rocket
emojis and expect this bull run to continue forever. I'm OK with a market
downturn, because it's healthy. Fundamentals should win out, because someone
always wins on Wall Street. All of those who short stocks help the market,
because their bearish predictions help to keep stock prices in check (my
theory). Another of my theories is that Trump kept the market in check. Every
time the market seemed ready for a big run-up, he would say something
ridiculous, and the market would slide. I think that this prevented a massive
bubble and crash. His big mouth caused mini-corrections, which in the long run
helped the market. ...
See
more
Reply
Dave N Japan
1 hour ago
I see the market not doing much in he next 4 years, but not a collapse, It all
depends on China and Taiwan I think
Reply
average american
3 hours ago
Please read this info from Indian medical experts regarding COVID triple
mutation. If this is true a market crash is around the corner. Western world
doesn’t want you to know. The Times of India spoke to Vinod Scaria, a researcher
at the CSIR-Institute of Genomics and Integrative Biology in India, who said the
triple-mutant was also an "immune escape variant" â€" a strain that helps the
virus attach to human cells and hide from the immune system. In other words, you
may not be safe from this variant even if you were previously infected by
another strain, or even if you have been vaccinated," Chinnaswamy said.
Reply
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
"... Still, credit risk has been rising in the $1.2 trillion market of below-investment-grade loans, like those Cyxtera took on for its 2017 acquisition by private-equity firms. Issuers of such "leveraged loans" are also being acquired by SPACs. That will likely lead to higher levels of distress among such companies in the next economic downturn, according to Mr. Daigle. ..."
... Conditions are significantly different now than in 1999, when speculative telecommunications companies raised capital by issuing
stock and high-yield bonds, Mr. Daigle said. That bubble enabled companies like Global Crossing Ltd., Iridium LLC and WorldCom Inc.,
to raise billions of dollars
before they went bankrupt .
"The biggest lesson for the leveraged finance market from the late 1990s is that no amount of equity can salvage a bad business
model," Mr. Daigle said.
In contrast, the average credit quality of high-yield bond issuers today is relatively strong. More than half of high-yield bonds
are rated double-B, the highest below-investment-grade rating, compared with a historical average of 35%, Citigroup's Mr. Anderson
said.
Still, credit risk has been rising in the $1.2 trillion market of below-investment-grade loans, like those Cyxtera took on
for its 2017 acquisition by private-equity firms. Issuers of such "leveraged loans" are also being acquired by SPACs. That will
likely lead to higher levels of distress among such companies in the next economic downturn, according to Mr. Daigle.
"It's the opposite of what we saw in the 1990s when the speculative lending was happening in the high-yield bond market,"
he said.
Contra market is a description of an asset or investment that moves against the trend of the broad market. Contra market securities
and sectors tend to have a negative correlation
, or weak correlation, with the broader market index and the general economy. When the economy is weak or stock market indexes
underperform , contra segments
outperform , and vice versa.
Understanding a Contra Market
A contra market stock or sector is one that performs well in bear markets and underperforms in bull markets. For example,
defensive stocks â€"so called because of their
relative immunity to economic cycles â€"such
as large pharmaceuticals and utilities, may outperform (but not necessarily rise in value) during bear markets because of their stable
revenues and cash flows. However, they may not fare as well during bull markets when investors favor riskier stocks and sectors such
as technology and basic materials.
"Safe haven" securities such as U.S. Treasuries
and gold, which have the greatest appeal during economic turmoil, are also classic examples of contra market plays.
KEY TAKEAWAYS
A contra market is one that moves against the trend of the broader market and tends to have a negative correlation with it,
or at least a relatively weak correlation.
Investors utilize contra markets to hedge, make contrarian investment plays, or to diversify holdings.
The advantage of contra markets is that they tend to be out favor when the broader market is doing well, which may provide
some opportunities for value investors to
snatch up some deals.
The disadvantage of contra markets is that investing in them during a broad market rally could mean missing out on big returns
from the broader market.
Contra Market Strategies
Contra market strategies are employed for a variety of reasons. Possibly an investor believes the broader market will decline,
and so they wish to gain some protection, or possibly profit, by moving some or all of their funds into contra markets. Or possibly
the investor is a contrarian , meaning they prefer
to buy or sell assets that go against the flow of the broader market or economy. The investor may also simply want to
diversify and not hold only assets that tend
to move in the same direction.
Hedging: Investors can use simple contra market strategies to
hedge their portfolios. For example, if an investor’s
portfolio has significant exposure to equities, they could purchase an asset class that is typically viewed as a
safe haven , such as gold, to protect against
a severe stock market downturn. Investors can purchase physical gold from government mints, precious metal dealers and jewelers,
or through futures contracts on a commodities exchange. Buying a gold
exchange-traded fund (ETF) like the SPDR Gold Trust
Shares (GLD) is another way that investors can gain exposure to the commodity.
Contrarian Investing: Using contra market strategies can help contrarian investors profit against the crowd. Some fund managers
believe that taking a long position in an aging bull
market is the "crowded trade," meaning there is little room for new money to push the market higher. Instead of taking the obvious
trade, the contrarian investor may look for investment opportunities that outperform if the broader stock market starts to fall,
for instance, purchasing an ETF that returns the inverse performance of the Standard & Poor’s 500 (S&P 500) index. There
are many inverse ETFs that rise in price when the
underlying asset falls in value.
Diversification: Using contra markets can help an investor diversify. Holding only stocks that move in the same direction
may work well when the stock market is rising, but when it falls so will all the holdings in the portfolio. Adding some stocks
or other assets that have a low correlation, or negative correlation, to the stock market may help level out some of the ups and
down in the portfolio's returns.
Advantages of Investing in Contra Market Sectors
During bull markets, cyclical sectors such as technology and financials perform well and get more expensive in terms of price,
while contra market sectors such as consumer staples and utilities underperform. This provides investors with an opportunity to
accumulate contra market stocks at lower prices
and more attractive valuations. For example, as the U.S. economy performed well in the first half of 2018, technology
FANG stocks outperformed the broader market.
1 As a result, utility stocks were out of favor and subsequently cheaper. This may have attracted some contra investors to start
accumulating positions in these underperformers in the hopes that they will perform better in the future.
Disadvantages of Investing in Contra Markets
While contra markets provide a potentially safer or more profitable place to be when the broader market or economy changes direction,
holding contra assets during a major bull market could mean missing out on big returns from the broader market. Over a 5 year period
between May 2014 and 2019, the SPDR S&P 500 (SPY) returned over 50% while the SPDR Gold Trust Shares (GLD) returned -3%. Taking part
in the major bull market in stocks was a more prudent play than hoping gold would find its footing.
Example of a Contra Market: Gold
Gold has a weak correlation with the S&P 500 stock index. At times the correlation is negative, other times it is positive, and
tends to oscillate back and forth. Many investors like to hold gold as it is viewed as an outperformer during tough times for the
stock market. Yet that isn't always the case.
When the S&P 500 rose in 1995 to 2000, gold declined and had a negative correlation. The S&P 500 then fell from 2001 into late
2002. Gold started rising while stocks were falling, trading relatively flat and then picking up steam to the upside in mid-2001.
So in this case, switching to gold would have paid off.
The chart below shows the SPDR S&P 500 ETF versus gold futures (blue line), with the bottom
indicator showing the correlation between the two
assets.
From early 2003 to mid-2007 stocks and gold both rose. Stocks flattened out for most of 2007 while gold rose. For this period,
gold was favorable as stocks where topping . Stocks and
gold both sank in 2008, but gold turned higher earlier than stocks and ran to upside into the 2011 high.
The S&P bottomed in early 2009 and continued to rise into 2019, with several
corrections . Gold peaked between 2011 and 2012,
and then went into a downtrend in 2013. Between 2014 and 2018 gold moved sideways, and did not provide a safe haven during the 2015
stock market correction as gold also fell during that time. In 2018, while stocks experienced a correction, gold also fell, although
it experienced a small rally prior to the stock market bottom.
Printing money has its limits after which the Central Bank loses the control of inflation. The only question is when this limit will be reached.
Notable quotes:
"... The Fed is underestimating the massive amount of money printing it will have to do to finance the largest peacetime spending the U.S. has ever engaged in. Banks, foreign governments and U.S. agenciesâ€"chiefly Social Security, which is no longer running large surplusesâ€"are not going to be the big buyers of bonds, as has previously been the case. That leaves the Fed doing the heavy lifting, and the scale of money creation it will need to do will fire up a sizable inflation. ..."
The stock market
is assuming that the damage the Biden
administration and the Federal Reserve are beginning to inflict on the recovering economy will be limited. This episode of
What’s
Ahead
examines why that happy assumption will explode.
The Fed is
underestimating the massive amount of money printing it will have to do to finance the largest peacetime spending the U.S. has
ever engaged in. Banks, foreign governments and U.S. agenciesâ€"chiefly Social Security, which is no longer running large
surplusesâ€"are not going to be the big buyers of bonds, as has previously been the case. That leaves the Fed doing the heavy
lifting, and the scale of money creation it will need to do will fire up a sizable inflation.
Then there are
the enormous tax increases that Democrats are determined to enact on capital gains, businesses, higher incomes, gasoline, car
mileage, energy, inheritances and more, which will whack the nascent recovery later this year and in 2022.
The economy has
real strengths coming out of the pandemic, but it won’t be able to withstand the magnitude of these abuses.
"... This widespread concern is entirely consistent with a bubble’s formation, according to a definition proposed several decades ago by Robert Shiller, the Yale finance professor and Nobel laureate. According to him, a bubble is “a market situation in which news of price increases spurs investor enthusiasm which spreads by psychological contagion from person to person, bringing in a larger and larger class of investors, who, despite doubts about fundamental value ..."
"... Rather than responding by taking some chips off the table, however, many began freely admitting that a bubble was forming. They no longer tried to justify higher prices on fundamentals, but began justifying it instead in terms of the market’s momentum. Prices should keep going up as FOMO seduces more and more investors to jump on the bandwagon. ..."
"... As a recent Wall Street Journal article outlined , the dogecoin “serves no purpose and, unlike Bitcoin, faces no limit on the number of coins that exist.†Yet investors are flocking to it, for no other apparent reason than it has already gone up so much. Billy Markus, the co-creator of dogecoin, was quoted in that Wall Street Journal article saying “This is absurd. I haven’t seen anything like it. It’s one of those things that once it starts going up, it might keep going up.†..."
"... Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected] ..."
I have no idea whether the stock market is actually forming a bubble
that’s about to break.
But I do know that many bulls are fooling themselves when they think a bubble
can’t happen when so many of us are concerned about one. In fact, one of the
distinguishing characteristics of a bubble is that such concern is widespread.
This seems counterintuitive. You would think that a bubble is most vulnerable to forming and
then popping when investors are oblivious to that possibility. But you would be wrong.
It’s important for all of us to be aware of this bubble psychology, but
especially if you’re a retiree or a near-retiree. That’s
because, in that case, your investment horizon will be shorter than for those who are younger,
and you therefore are less able to recover from the deflation of a market bubble.
To appreciate how widespread current concern about a bubble is, consider the accompanying
chart of data from Google Trends. It plots the relative frequency of Google searches based on
the term “stock market bubble.†Notice that this frequency has
recently jumped to a far-higher level than at any other point over the last five years.
This widespread concern is entirely consistent with a bubble’s
formation, according to a definition proposed several decades ago by Robert Shiller, the Yale
finance professor and Nobel laureate. According to him, a bubble is “a
market situation in which news of price increases spurs investor enthusiasm which spreads by
psychological contagion from person to person, bringing in a larger and larger class of
investors, who, despite doubts about fundamental value , are drawn to the investment
partly through envy of others’ successes and partly through a
gambler’s excitement.†(I italicized the above phrase, not
Shiller.)
Notice that recognition of overvaluation is an integral part of the definition.
This recognition was certainly present during the weeks and months prior to the popping of
the Internet bubble in March 2000. During the early and middle years of the 1990s, you may
recall, it was possible to justify higher prices while keeping a straight face. But that became
less and less possible as prices continued going higher in the late 1990s, and especially as
some dot-com companies went public with huge valuations despite having no assets, revenue or
business plan.
Rather than responding by taking some chips off the table, however, many began freely
admitting that a bubble was forming. They no longer tried to justify higher prices on
fundamentals, but began justifying it instead in terms of the market’s
momentum. Prices should keep going up as FOMO seduces more and more investors to jump on the
bandwagon.
There is no shortage of current analogies, of course. Take dogecoin, which was created as a
joke and has no fundamental value. As a
recent Wall Street Journal article outlined , the dogecoin “serves no
purpose and, unlike Bitcoin, faces no limit on the number of coins that exist.†Yet
investors are flocking to it, for no other apparent reason than it has already gone up so much.
Billy Markus, the co-creator of dogecoin, was quoted in that Wall Street Journal article saying
“This is absurd. I haven’t seen anything like it.
It’s one of those things that once it starts going up, it might keep going
up.â€
Needless to say, things don’t go up forever. Those who nevertheless
continue to invest in such an environment do so with the implicit assumption that they will be
able to recognize it, in advance, when the bubble is about to popâ€"and therefore
able to leave the party before everyone else. This is a dangerous delusion, however; not
everyone can be the first to leave the party.
The bottom line? Far from being a reason why a bubble isn’t forming, the
widespread current concern about a possible bubble is actually a reason to worry that it could
be. Take heed.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat
fee to be audited. He can be reached at [email protected]
Money from stock offerings is flowing into below-investment-grade companies
at a pace not seen since the dot.com boom of the 1990s
The wave of cash raised by
special-purpose acquisition companies is rolling into the junk debt market, aiding
distressed companies and rewarding investors who own their bonds and loans.
SPACs, also known as blank-check companies, have issued roughly $100 billion of stock this
year, a record, to buy private companies and take them public. Some SPACs are targeting
companies with below-investment-grade credit ratings, hoping to use their cash piles to pay
down debt and grow the businesses.
Not since the dot.com-boom two decades ago has stock-market enthusiasm been hot enough
to fuel such activity in debt markets , bond investors and analysts say.
Mutual funds managers that owned WeWork bonds booked paper gains of 25% after the ailing
shared-office provider
started merger talks in January with a SPAC, according to MarketAxess. Companies with junk
credit ratings are typically required to buy back their debt, often at a premium, when a change
of control occurs via a merger. Loans of Cyxtera Technologies Inc.â€"which
credit-rating companies recently warned was in danger of defaultâ€"jumped 16% in
February when the data-center operator
agreed to merge with one of the blank-check companies , according to AdvantageData Inc.
“There’s a lot of deja-vu of the late 1990s happening
in the high-yield market right now,†said Michael Anderson, a managing director for
credit research at Citigroup Inc.
We've been outlining how the Fed and other central banks have unleashed an inflationary
bubble in all assets truly an Everything Bubble.
We've already assessed the impact this is having on commodities, bonds and other asset
classes. Today I want to assess the impact this will have on stocks.
To do that, we need to look at emerging markets.
Inflation is a common occurrence for emerging markets, primarily because more often than not
they devalue their currencies, whether by choice or because the markets lose faith in their
ability to pay off their debts.
Because of this, emerging markets can provide a glimpse into how inflation affects stocks.
So, let's dig in.
Here is a chart of South Africa's stock market since 2003. As you can see, the stock market
rallied significantly until 2010, but has effectively gone nowhere ever since then.
The reason this chart looks so lackluster is because it is priced in U.S. dollars. The $USD
has been strengthening against the South African currency (the Rand) since 2010.
Watch what happens we price the South Africa stock market in its domestic currency (blue
line). Suddenly, this stock market has been ROARING, rising some 750% since 2003. That means
average annual gains of 41%!!!
Let's use another example.
Below is a chart of the Mexican stock market priced in $USD. Once again, we see a stock
market that has done nothing of note for years.
Now let's price it in pesos (actually the exchange rate of pesos to $USD, but close
enough).
You get the general idea. So if hot inflation is in the U.S. financial system, it would make
perfect sense for stocks (denominated in the $USD which is losing value due to inflation) to
ERUPT higher.
Something like I don't know what's happened since mid-2020?
Look, we all know what's going on here. The stock market is erupting higher as inflation
rips into the financial system based on Fed NUCLEAR money printing. And we all know what comes
when this bubble bursts.
On that note, we just published a Special Investment Report concerning FIVE secret
investments you can use to make inflation pay you as it rips through the financial system in
the months ahead.
The report is titled Survive the Inflationary Storm. And it explains in very simply terms
how to make inflation PAY YOU.
We are making just 100 copies available to the public.
Don't believe your lying eyes, will be the message tomorrow from The Fed's Jay Powell as he
hypnotizes investors to believe that "inflation is transitory" and they have "the tools" to
manage it.
'Bond King' Jeff Gundlach is not buying that line and told BNN Bloomberg in an interview
this morning.
"...more importantly, I'm not sure why they think they know it's transitory... how do they
know that?"
"...there's plenty of money-printing that's been going on, and we've seen commodity prices
going up massively... home prices in the US are inflating very substantially... so there's a
lot of inflation that's already baked in to input prices ."
Gundlach does admit that Powell has a point in the very near term as the prints were about
to see "which could be as high as 4% [for CPI]" are off of year-ago, very depressed levels.
"...what he means by transitory is that the base effect will lead to problems in the next few
months but then the base effect will become less problematic."
But, Gundlach adds, "it's not clear to me that inflation is going to go back down to around
2 to 2.5%... we don't know, nobody knows... but we're most concerned with the fact that The Fed
thinks they know."
This is worrisome because The Fed's track record is anything but inspiring...
"when I go back to the global financial crisis, when we almost had a complete meltdown of
the financial system, Ben Bernanke completely missed all of the problems that led to the
crisis."
Bernanke's infamous "contained to subprime... and subprime is only a sliver of the market"
comments could be about to be trumped by Powell's "inflation is transitory" comments as
Gundlach warns "there's plenty of indicators that suggest inflation is going to go higher and
not just on a transitory basis."
The Fed is "trying to paint the picture" of control, but Gundlach tries to make clear:
"they're guessing."
So, what does that mean for markets?
While some fear "we ain't seen nothing yet" in terms of yields rising (and multiple
contraction), Gundlach notes that "it really depends on just how much manipulation the
authorities are willing to do."
The billionaire fund manager notes that yields are "still very low... well below the current
inflation rate... so we have negative yields everywhere on the yield curve."
It's also "hard to figure out who's going to buy the bonds," he notes, "as we are about to
see issuance like we have never seen before." Foreigners have been selling bonds for years and
domestically there is little demand, so Gundlach notes the only one left to soak up all this
extra supply is The Federal Reserve, which has already expanded its balance sheet massively in
the last 12 months.
"Who's going to buy all these many trillions of dollars of bonds? Foreigners have been
selling for years and they've accelerated their selling in the last several quarters,
domestic buyers are not exactly selling, but they're not adding to their holdings. So what's
left to absorb all of the spawn supply is the Federal Reserve ."
"Left to true, free markets, bond yields at the long-end would obviously be higher than
they are now."
And so who will buy all these bonds with negative real yields - The Fed... "and they have
been transparent about their willingness and ability to buy bonds and expand their balance
sheet with no ceiling."
Gundlach is talking about Yield Curve Control, reminding viewers that "The Fed can set the
long-end wherever they want it... there's a precedent for this from back in the 1940s into the
50s," in order to ease the pain of the debt from World War II.
Of course, Gundlach warns ominously, "once they stopped the yield curve control, we went
into a 27 year massive bear market in bonds, because of 'guns-n'butter' policies... which look
like our policies today."
Simply put, he sees "an echo [in current markets and policies] of what happened in the late
1970s into the early 1980s."
His forecast is that "The Fed will allow the market forces to take yields to higher levels
[10Y 2.25%] before stepping in."
The Bond King also note that the US stock market is very overvalued by virtually every
important metric , and especially so versus foreign markets such as Asia and even Europe.
"I bought European equities a couple of weeks ago, literally for the first time in many
years. I can't remember the last time I did it. And that's largely because I think the U.S.
dollar is almost certain to decline over the intermediate to long term."
There's a lot more in the interview on the impact of Biden's stimmies and potential tax
hikes...
https://webapps.9c9media.com/vidi-player/1.9.19/share/iframe.html?currentId=2189621&config=bnn/share.json&kruxId=&rsid=bellmediabnnbprod,bellmediaglobalprod&siteName=bnnb&cid=%5B%7B%22contentId%22%3A2189621%2C%22ad%22%3A%7B%22adsite%22%3A%22ctv.bnn%22%2C%22adzone%22%3A%22ctv.bnn%22%7D%7D%5D
10,571 48 NEVER
Sound of the Suburbs 26 minutes ago
We are going to train you in this Mickey Mouse economics that doesn't consider private
debt and put you in charge of financial stability at the FED.
They don't stand a chance.
Financial stability arrived in the Keynesian era and was locked into the regulations of
the time.
"This Time is Different" by Reinhart and Rogoff has a graph showing the same thing (Figure
13.1 - The proportion of countries with banking crises, 1900-2008).
Neoclassical economics came back and so did the financial crises.
The neoliberals removed the regulations that created financial stability in the Keynesian
era and put independent central banks in charge of financial stability.
Why does it go so wrong?
Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion from
2001 – 2007 and knew there was going to be a financial crisis.
Richard Vague has looked at the data for financial crises going back 200 years and found
the cause was nearly always runaway bank lending.
We put central bankers in charge of financial stability, but they use an economics that
ignores the main cause of financial crises, private debt.
Most of the problems are coming from private debt.
The technocrats use an economics that ignores private debt.
The poor old technocrats don't stand a chance.
WITCH PELOSI 39 minutes ago
42" entry level lawnmower @ Home Depot, spring 2014, $999. Spring 2021 $1549. That's what
I call inflation! And maybe a little greed to boot!
atomp 34 minutes ago
$30 is the new $10.
Sound of the Suburbs 25 minutes ago remove link
In 2008 the Queen visited the revered economists of the LSE and said "If these things were
so large, how come everyone missed it?"
It's that neoclassical economics they use Ma'am, it doesn't consider private debt.
...the overall cash buildup still effectively means that companies have looked at the
investment options available and found them wanting. When a company determines that sitting on
near zero-yielding assets is the best use of their funds, it paints a very dim picture of their
collective view of the economy's future.
... ... ...
The U.S. cash buildup isn't yet in Japan's league, but the situation appears to be heading
that way in Europe. Investors should keep a close eye on where overall levels settle: if they
stay up here where the air is thin, that will be a dispiriting signal about the future.
Whether or not the broader stock market is in a bubble, ultra-growth stocks seem to be,
according to an analyst at JPMorgan.
While some Wall Street analysts are concerned about a broader stock market bubble,
JPMorgan's Eduardo Lecubarri, global head of small- and mid-cap equity strategy, wrote in a
note that ultra-growth equities are the area of most concern. "We have argued since the start
of the year that investors needed to run away from stocks trading on high multiples over rich
growth expectations," said Lecubarri in...
The US dollar could collapse by the end of 2021 and the economy can expect a more than
50% chance of a double-dip recession, the economist Stephen Roach told CNBC on
Wednesday.
The US has seen economic output rise briefly and then fall in eight of the past 11
business-cycle recoveries, Roach said.
Grim second-quarter data cannot be dismissed, he said, pointing out that "the
current-account deficit in the United States, which is the broadest measure of our
international imbalance with the rest of the world, suffered a record deterioration."
Roach last predicted a crash in the dollar index in June, when it was trading at about
96. He said at the time that it would collapse 35% against other major currencies within the
next year or two.
The "seemingly crazed idea" that the
US dollar will collapse against other major currencies in the post-pandemic global economy
is not so crazy anymore, the economist Stephen Roach
told CNBC's "Trading Nation" on Wednesday.
Roach, a former chairman of Morgan Stanley Asia, also said he sees a more than 50%
probability of a double-dip recession in the United States.
He based that prediction on historical evidence, saying that in eight of the past 11
business-cycle recoveries economic output has risen briefly and then fallen.
"It's certainly something that happens more often than not," he said.
Roach
last predicted a dollar crash in June , saying it would collapse 35% against other major
currencies within the next couple of years. At the time, the dollar index traded at about 96.
On Thursday, the index traded at about 94.41.
He said on Wednesday that he expected the collapse to happen by the end of 2021, but he did
not say by how much.
"The current-account deficit in the United States, which is the broadest measure of our
international imbalance with the rest of the world, suffered a record deterioration in the
second quarter," he said.
"The so-called net national savings rate, which is the sum of savings of individuals,
businesses, and the government sector, also recorded a record decline in the second quarter,
going back into negative territory for the first time since the global financial crisis."
Lingering vulnerability and the aftermath of the initial decline are two factors driving the
dollar's ominous future, he said.
"Lacking in saving and wanting to grow, we run these current-account deficits to borrow
surplus saving, and that always pushes the currencies lower," Roach said. "And the dollar is
not immune to that time-honored adjustment."
Additionally, Roach said, new COVID-19 infections and higher mortality rates must be part of
assessing the risk of an aftershock, Roach said.
"As we head into flu season with the new infection rates moving back up again, with
mortality unacceptably high, the risk of an aftershock is not something you can dismiss," he
said. "So that's a tough combination. And I think the record of history suggests that this is
not a time, unlike what the frothy markets are doing, to bet that this is different."
"The current-account deficit in the United States, which is the broadest measure of our
international imbalance with the rest of the world, suffered a record deterioration in the
second quarter," he said.
"The so-called net national savings rate, which is the sum of savings of individuals,
businesses, and the government sector, also recorded a record decline in the second quarter,
going back into negative territory for the first time since the global financial crisis."
Lingering vulnerability and the aftermath of the initial decline are two factors driving the
dollar's ominous future, he said.
"Lacking in saving and wanting to grow, we run these current-account deficits to borrow
surplus saving, and that always pushes the currencies lower," Roach said. "And the dollar is
not immune to that time-honored adjustment."
Additionally, Roach said, new COVID-19 infections and higher mortality rates must be part of
assessing the risk of an aftershock, Roach said.
"As we head into flu season with the new infection rates moving back up again, with
mortality unacceptably high, the risk of an aftershock is not something you can dismiss," he
said. "So that's a tough combination. And I think the record of history suggests that this is
not a time, unlike what the frothy markets are doing, to bet that this is different."
In his 2008 letter to shareholders, Warren Buffett shared an important lesson.
"Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get,'"
Buffett wrote. "Whether we're talking about socks or stocks, I like buying quality merchandise
when it is marked down."
This is one of the most fundamental concepts in investing. No matter how good a company is,
or how fast it's growing, it's always possible to overpay.
This is why analysts talk so much about valuation . The market price gyrates on a
daily basis, especially during a market crash. But over the long term, price and value
ultimately converge.
So where are stocks valued today? Despite the difficult environment, many markets are
trading at historically high multiples.
"The current P/E on the U.S. market is in the top 10% of its history," said GMO Asset
Management co-founder Jeremy Grantham. The Canadian stock market isn't too far behind,
especially when you strip out the ailing fossil fuel industry.
Prices suggest that conditions are in the top 10% of history, but is that actually true?
"The U.S. economy in contrast is in its worst 10%, perhaps even the worst 1%," concluded
Grantham. "In addition, everything is uncertain, perhaps to a unique degree."
Prepare for
a market crash
The numbers are clear. Stock prices are sky-high. The value that you're getting in return,
meanwhile, could be quite low.
At minimum, there's an unprecedented range of outcomes over the next 12 to 24 months. A
complete return to normal could occur. Alternatively, we could slide into a deep and dark
recession.
Just take a look at what some major CEOs are saying about the market crash.
Air Canada CEO Calin Rovinescu said, "It's the darkest period ever in the history of
commercial aviation." He doesn't expect conditions to normalize for three years. Linamar Corp
Linda Hasenfratz warned that the industry must brace for a resurgence of COVID-19. Canadian
Federation of Independent Business CEO Dan Kelly said that just 17% of Canadian restaurants are
reporting an average volume of sales.
Things just don't line up. Whenever the gap between price and value rises, the odds of a
market crash also rise. Grantham thinks we could be experiencing one of the biggest gaps
ever .
"The market's P/E level typically reflects current conditions. Markets have historically
loved fat margins, low inflation, stability and, by inference, low levels of uncertainty," he
explains. Yet prices are high and conditions are terrible.
"This is apparently one of the most impressive mismatches in history," Grantham
concluded.
Most stocks are too expensive, but some still trade at bargain prices.
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The S&P 500's price-to-sales ratio is worryingly high
A second reason to be concerned can be found in the S&P 500's price-to-sales
(P/S) ratio . This ratio describes the value of the S&P 500 index relative to the
aggregate revenue its 500 components are bringing in. As a general rule, the lower the
price-to-sales ratio, the more fundamentally attractive an investment.
As of April 21, the S&P 500's price-to-sales ratio was estimated at 3.06. This is an
unquestioned high point dating back at least 21 years. In fact, the S&P 500's P/S ratio
hadn't ended the year higher than 2 at any point this century prior to 2017. Since the end of
2018, the P/S ratio for the widely followed index has expanded 64%.
On one hand, an increased reliance on technology should allow companies to be more
efficient, thus expanding their operating margins. On the other hand, nothing historically
shows that P/S ratios this high can be sustained.
IMAGE SOURCE: GETTY IMAGES. 3. The S&P 500's price-to-book value spells
trouble
A third metric that could cause warning bells to go off is the S&P 500's price-to-book (P/B)
ratio . This is a measure of the S&P 500's market capitalization divided by the book
value of the equities that make up the index. Like the P/S ratio, a lower value is generally
indicative of an equity or index being undervalued.
As of this past week, the price-to-book-value of the S&P 500 topped 4.5. That's closing
in on the highest level reached this century, 5.06, set back in March 2000. If March 2000 rings
a bell, it's because that's when the dot-com bubble hit its peak. For some context, the average
P/B value over the past 21 years is 2.87.
Although the P/B ratio has lost much of its importance as technology and innovation have
taken over, it's still concerning that the index subsequently lost about half of its value the
last time the ratio was this high.
The fourth worrisome metric is the S&P 500's earnings
yield . Whereas the price-to-earnings ratio is a measure of share price divided by earnings
per share, the earnings yield is earnings per share divided by share price, and multiplied by
100 to yield a percentage.
Since 1870, the average earnings yield for the S&P 500 is 7.31%. That's a lot higher
than what investors can typically generate from bonds, which is why equities are often such a
smart and desirable investment. But as of April 21, the earnings yield of the S&P 500 was a
measly 2.35%. It's been more than halved since the beginning of 2019, when it was 5.1%.
The issue here is that 30-year Treasury bonds sport a nearly identical yield (2.26%).
Although earnings can grow over time and improve the S&P 500's earnings yield, it's worth
hypothesizing that, with historically low lending rates and ongoing fiscal stimulus, earnings
growth won't get any better than it is now. Future earnings growth could slow as dovish
monetary policy is tightened, thereby exposing an unattractive risk-versus-reward ratio with
bonds.
IMAGE SOURCE: GETTY IMAGES. 5. The frequency of double-digit-percentage corrections is a
red flag
Lastly, don't overlook how common double-digit declines are for the benchmark index.
Since the beginning of 1950 (a year I've arbitrarily chosen for the sake of simplicity),
there have been 38 declines of at least 10%. This works out to an
average double-digit decline every 1.87 years . We're already about 1.1 years removed from
the bear market bottom.
Understand, though, that averages are exactly that: averages. Sometimes the market can go an
exceptionally long time without a single 10% correction (1991 through 1996), while other times
they become an annual occurrence (1997-2003, with the dot-com bubble encompassing 2000 through
2002). The point is this: Corrections and/or crashes happen often.
IMAGE SOURCE: GETTY IMAGES. Crashes are blessings in disguise
All five of these metrics would seem to point to one inevitable conclusion: The likelihood
of a stock market crash or double-digit correction is quite high. This might be unnerving to
some, but it's actually great news for investors with a long-term mindset.
Every single crash and correction throughout history has
been a blessing in disguise . That's because investors are trading short-term pain for
long-term gain.
Eventually, every double-digit decline in the S&P 500 has been completely erased by a
bull-market rally. If you buy great companies when emotion-based crashes rear their heads and
you hang on to them for long periods, there's a very good chance you'll build wealth over time.
While it's not normal to see total returns of 88% in 13 months following a crash, an annualized
double-digit total return over the long run is quite possible.
History serves as a warning for the S&P 500's Shiller P/E ratio
Arguably the biggest red flag from a fundamental standpoint is the S&P 500's Shiller
price-to-earnings (P/E) ratio, which is also commonly referred to as the cyclically adjusted
P/E, or CAPE. The Shiller P/E is based on average inflation-adjusted earnings from the previous
10 years.
As of April 21, the Shiller P/E ratio for the S&P 500 was 37.49. That's well over double
its average annual reading of 16.81 since 1870.
What's particularly
concerning is what's happened previously when the Shiller P/E ratio has surpassed and
stayed above 30. In the previous four instances (the Great Depression, the dot-com boom, Q4
2018, and the coronavirus crash), the S&P 500 has lost anywhere from 20% to 89% of its
value. While an 89% loss is very unlikely with the Federal Reserve and federal government
willing to provide seemingly unlimited support to financial markets, a sizable double-digit
correction has become the expectation when valuations extend well past historic norms.
W hat I'm about to say is going to unnerve some of you, but it's the absolute truth: A stock
market crash
might be imminent .
Since hitting a bear-market bottom on March 23, 2020, the three major U.S. indexes have been
virtually unstoppable. Through April 6, 2021, the tech-dependent Nasdaq Composite (NASDAQINDEX:
^IXIC) has doubled, while the benchmark S&P 500 (SNPINDEX: ^GSPC) and iconic Dow Jones
Industrial Average (DJINDICES: ^DJI) were up a respective 82% and 80%. There's not an optimist
on Wall Street who would be dissatisfied with gains like these in just over one year's
time.
The question is whether or not these gains will prove fleeting.
Image source: Getty Images.
Signs point to a potential crash
Right now, there is no shortage of catalysts that could knock this market off its
perch.
In recent months, Wall Street has been
worried about rapidly rising Treasury yields . Keep in mind that when I say "rapidly
rising," some context is needed. Although 10-year Treasury yields have doubled over the last
five months, a 1.7% yield is still historically very low.
Nevertheless, investors are concerned about the potential for higher lending rates, which
could slow the borrowing capacity and growth prospects for the dozens of fast-paced and
innovative companies that have led the stock market higher. It could also signal an uptick in
inflation and force the Federal Reserve to consider raising interest rates earlier than
expected.
Another
chief concern is equity valuations . Dating back 150 years, there have only been five
instances where the S&P 500's Shiller price-to-earnings (P/E) ratio has surpassed and
sustained 30. The Shiller P/E ratio measures average inflation-adjusted earnings from the
previous 10 years and is also known as the cyclically adjusted P/E ratio, or CAPE. On April 6,
the Shiller P/E ratio for the S&P 500 was nearly 36.7, which is well over double its
historic average of 16.8.
Furthermore, in the previous four instances where the S&P 500's Shiller P/E hit 30, the
index lost anywhere from 20% to as much as 89% of its value. Although we're unlikely to see
Great Depression-like losses of 89% ever again,
at least a 20% decline has been the recipe when valuations get extended.
The coronavirus pandemic also remains a concern. Though the light at the end of the tunnel
is now visible, variants of the disease threaten to minimize vaccine efficacy or push herd
immunity (i.e., a return to normal) further down the line.
Image source: Getty Images.
Three things to do right now
So, what's an investor to do?
1. Realize that downside catalysts always exist and
don't overreact
The first thing is to relax and realize that there's always a catalyst waiting in the wings
that could send the market screaming lower. Whether we're mired in a recession or the economy
is firing on all cylinders, I can't recall a time in my more than two decades of investing
where the warning siren hasn't been sounding about one thing or another.
Investors should understand that
stock market crashes and corrections are a normal part of the investing cycle and the
so-called price of admission to the greatest wealth creator on the planet. With the S&P 500
experiencing a double-digit decline every 1.87 years, on average, since the beginning of 1950,
it's important not to overreact to sharp or sudden moves lower in the market. It also helps
knowing that these moves lower
usually don't last very long .
2. Reassess what you own
Secondly, and to build on the previous point, it's always a good time to
reassess your portfolio and reaffirm your investment thesis . In other words, take a closer
look at the companies you own stakes in and revisit the reason(s) why you purchased them in the
first place. There's a very good chance that a stock market crash is going to have little or no
long-term effect on the underlying performance of the companies you've invested in and is
therefore going to have no impact on your investment thesis.
Keep in mind that you don't need to wait for a stock market crash, or even the threat of a
crash, to do this a couple of times a year. Ensuring that your investment thesis still holds
water will minimize the emotional aspects of stock market corrections and crashes and make it a
lot easier to hold on to great stocks.
Image source: Getty Images.
3. Have cash at the ready for when opportunity comes
knocking
The third thing to do is build up a healthy cash position so you can take advantage of the
market's inevitable downturns. You see, despite the S&P 500, Dow Jones Industrial Average,
and Nasdaq Composite undergoing dozens of double-digit corrections and crashes throughout their
history, each and every one of these moves lower has
eventually been erased by a bull market rally .
In fact, data from Crestmont Research shows that
at no point between 1919 and 2020 have rolling 20-year total returns (including dividends)
ever been negative. If you bought an S&P 500 tracking index at any point over the past 102
years and held on to your investment for a minimum of 20 years, you made money.
When the next correction or crash does rear its head, be thankful, because you're being
given an opportunity to buy great companies at a discount.
The current financial world has been reduced to a one-legged bar-stool in a bar where
drinks are on the house. There is no scenario where this does not end well no matter how
euphoric we are in the moment.
[Apr 24, 2021] Why Grantham Says the Next Crash Will Rival 1929, 2000 by further inflating money not by deflating it. So people who warn regular fold about risks are rare and they harm their own business, if they have any. Profit of doom and gloom are not popular and it is precarious occupation
He suggest that SPACs,Tesla, and bitcoin can serve are canary in the mine as for timing of bubble deflation.
This video is over two months old of course and the the market has continued to set new records. Ray Daleo also issued a warning as did Harry Dent. And market still is going up.
Because of the corona epidemic, investments in real production have dried up and the money has instead flooded the stockmarkets. I guess that if the crisis continues the stockmarket bubble can be kept inflated because the money has nowhere else to go!
electrification, especially in cars is a very long shot and here it is unlear if it make sense to invent int he currest companies involvedas they are in a bubble. Just look at Tesla. electrification, especially in cars is a very long shot and here it is unlear if it make sense to invent int he currest companies involvedas they are in a bubble. Just look at Tesla.
Notable quotes:
"... Around 37:30 , Milton Friedman ism at the corporate level, that is sociopath by any definition... : ) ..."
"... People and corporations qho like Frieman professes are driven exclusively by profit motive are "sociopaths" ..."
"... What a refreshing honest interview. The interviewer and Mr. Grantham are professional, easy to follow and are respectful. The topic they are discussing can be disheartening, but it is nice to know someone is looking out for the retail investors instead of fleecing them of their hard earned labor by misleading the retail investor to go all in and go for broke. ..."
"... Many of the big companies are just sucking up cheap money and making it look like profits with clever accounting. The fact that the markets seem unaffected by covid shows how thick the fraud is. ..."
"... SPACs " an excuse for people with reputation and marginal ethics to take 20% and dash around the country for six months" EPIC ..."
"... COVID-19 revealed that there are two kinds of jobs: essential jobs and bullshit jobs. We just eliminated all the bullshit jobs and put them onto UBI/welfare and it removed a drag on the economy. ..."
"... 1929 and 2000? Also 2008. So we have 3 very big bubbles in the space of 20 years. This is a boom / bust economy with each action of the Federal Reserve to mitigate the pain of the bursting of the previous bubble only sews the seeds for the next bubble. ..."
His comment about how workers are treated nowadays is so true and so important. I once saw
a video of a guy who explained that his small company (service online) had made an extra
million the previous year. He went on to explain that he wasn't going to buy another house
or car or TV etc and would probably only need to employ one extra worker. He said that the
"rich" don't create jobs, the lower and upper middle class create jobs. When they have a
secure job and suitable income for the work they do, they will buy more things which will
create more manufacturing, transport, shipping, retail jobs over time which increase the
numbers in stable jobs et al
"The future value of dividends"......I'll try to remember that. He reminds me of Buffett. All I
know is, there are a lot fewer companies paying even 4% than there used to be. You're lucky now
just to get 3% and it will more likely be 2%, if anything.
I never attempt to make money on the stock market. I buy on the assumption that they could close the
market the next day and not reopen it for ten years. –Warren Buffett
I love his refutation of Milton Friedman's idea that corporate management's only job is to maximize
profit and a company has no responsibility to society in general. "If you say, as an individual,' My only
interest is to maximize my advantages,' which is what they say at the corporate level, you're a
sociopath." - Jeremy Grantham
37:20
If you say, as an individual, 'My only interest is to maximize my advantages,' which is what they say at
the corporate level, you're a sociopath.
WOW!
Stop & think about this. I don't think I have
Ever
thought about corporate America this way, but it is 100% true.
The interviewer either was playing Devil's advocate or doesn't believe Grantham. Grantham is old enough to have
seen some bear markets. It's now a game of musical chairs and when the music stops it will be a rush to the
exits. Quote 12 days before the 1929 crash: "Stock prices have reached what looks like a permanently high
plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears)
have predicted. I expect to see the stock market a good deal higher within a few months." – Irving Fisher,
Ph.D. in economics, Oct. 17, 1929
I disagree that nobody saw the 2008 real estate burst coming. I saw it when I sold my house in 2004. I mean it was
unprecedented that the value of my house doubled in 8 years. And the buyers of my house were given a loan of 105% of the
purchase price. Then I read that people had taken out balloon mortgages. Then, I was offered a "no doc" loan to purchase a
condo. I mean the red flags were HUGE
This is a stunning interview beautifully articulated, glad there are others who see through the fog too. We're living in massive,
massively fraudulent times, value is utterly misplaced, and loss has been hidden on a scale never before seen. Extraordinary
times ahead.
Wow a great interview with challenging questions and a calm exchange of ideas! Its been years since I've witnessed something like
this.... Thank you gentlemen!
What he says at the end is the most important of all. A system, a corporate mindset that they have no responsibility to their
workers, to their customers, to their communities or country or the planet, that their only responsibility is to maximize
profits... that's beyond sociopathy and it's incredibly corrosive to society and humanity.
10:10
"When you have reached this level of super-enthusiasm, the bubble has
always,
without exception, broken in the next few months - not a few years." This video was recorded on Jan 22 Today is March 27. My
daughter has been on the point of buying a house for the last 6 months, and I have been telling her to wait, so she bought a van,
and has spent the Winter in it, but with the market getting ever higher, she is starting to think "Dad, you're obviously wrong. I
should buy now. How long can I wait?"
Most newbies usually undermine and neglect the importance of technical analysis with regards to trading. Technical analysis
overly predicts the movement of assets prices regardless of what is happening in the wider or broader market. Essentially, the
procedure involves studying the paths of a particular asset movement in the past so as to establish a sustainable pattern that
can be used to predict future movement of an asset. Doing technical analysis can be quite different which is why most newbies/traders
neglect day trading their coins and stick to holding which is very dangerous as when the market goes bearish, advise any
newbies/traders to buy the dip for traders who are still wondering to enter the market or old time traders who are holders to
seek help from not just any trader but an established trading expert with at least 96% trade accuracy . I underwent series of
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Pinnacle of this year for me, under his careful guide and his signal service I've been able to recover my losses and even grow
my trading portfolio massively from 1.6 BTC to 7 BTC in just 5 weeks. I will advice traders esp newbies to have orientation of
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w,h,a,t,s,a,p,p,(+1 7 8 6 4 3 2 8 3 1 6)
Great
point
34:00
Investing in Infrastructure, more jobs, creating less energy waste....now I waste my stimmy check in the market. Italy is
supporting greening of homes,....ya have too as they begin to look more and more like the colosseum.
People and corporations qho like Frieman professes are driven exclusively by profit motive are "sociopaths"
🤡 Hey no one is
stopping interviewee or interviewing company from giving away all or most of their wealth, yet strangely none of these
do-as-I-say types never do...
Great
Interview. Respect to Mr Grantham for his views on green issues and for investing in these. He sees that unless we begin to
invest heavily into something which actually MATTERS in order for us Humans to inhabit this Planet long term, then we are doomed
as a race. I thought the part referring to "Stuffed Chinese dogs" Sums this up perfectly.
This video aged well. The bubble popping in many EVs, cloud, SPACs, hyper growth techs. Now, money rotated to the junior and big
cap stocks. Nasdaq hitting new highs. Soon they would start dumping the big cap stocks, then the SP500 stocks... its playing out
just like in 2000
The market has appeared to me unreal for a long time. Soaring to ever new heights for no particular reason. Reality will have its
way eventually, perhaps soon.
I guess what this good gentleman is saying the whole system is going to collapse this year and I guess Covid was the safety net
to ease us into it. Fasten your seatbelts folks. God bless Vince in London. Brilliant interview
I just don't get the markets, and investors, we are now at a point where the U.S. has to print money in order to survive, and
printing money will never stop. Yet as far as wallstreet is concerned this is on of the best times America has ever had.
Whenever talking with a financial investor, ALWAYS remember they will encourage what benefits them personally and discourage what
benefits them personally as well.
Long terms bonds are very expensive! I am not agree with the electric cars they are not that green as they say, the good thing
about electric car is, that they aren't noisy!
"long-term discounted value of a future stream of dividends" using what interest rate? The benchmarks are either close to zero or
even negative these days, a simple geometric progression will diverge to infinity.
@
24:00
in... its will never pay a dividend.... your right its CALLED FORKING and everyone whos was in along time ago is quite rich off
the forks alone.
Great interview although I would have asked a couple of questions about the value stocks in emerging markets. I would have asked
for concrete examples. Problem with many emerging markets is that they are riddled with political instability, and they tend to
depend too much on developed economies for their exporting success. I would not bet a dime on Brazil or Russia, for example.
China is a giant scam when it comes to its stock markets. India might be a different story but not sure about the BJP either.
What a refreshing honest interview. The interviewer and Mr. Grantham are professional, easy to follow and are respectful. The
topic they are discussing can be disheartening, but it is nice to know someone is looking out for the retail investors instead of
fleecing them of their hard earned labor by misleading the retail investor to go all in and go for broke.
This is the biggest asset bubble in modern history. Very different than 99' and 08' but the same , an extremely quick increase in
asset values due to available essentially free money. People can get lending as long as they have a job. Jobs go away as soon as
there is an issue. I witnessed this in both 99 and 08. And BTW we did see it coming in 08. Then how do they pay for a mortgage? I
can't say when it will happen, but it will with certainty.
There's
some really useful long term perspective, mixed with nostalgia for dividends which stocks had to have to compete with interest to
match risk free return of government bonds along with magical thinking about total electrification. All this is wound together
with a hypnotic calm like he's imparting facts and received wisdom not opinion. Stay skeptical and take the good and leave the
rest.
"Rival"? I think "dwarf" is the word you are looking for. WW3 is a real possibility. There's a dutch ex-soldier who predicts
there is going to be be a huge war in the years between 2020 and 2022. His name is Ingo Piepers. And he did his research very
thoroughly and had it even verified in multiple peer reviews. If we look back on all the big wars, they were almost always about
money. Now there is a money problem brewing
WORLDWIDE.
Also his research was completely independent from any kind of economic information as far as I am aware, so there's a good chance
he doesn't even know about the economic side of things. But they seem to overlay frighteningly well. I hope it's all going to be
okay without any real war. Here's the video (it's in dutch tho):
https://www.youtube.com/watch?v=9wTX3CGeOJ8
Every administration since Bush knows that if you keep interest rates low, and print money, you creat inflation. Inflation
creates a strong market. TheFed has made the market the only game to invest in.
I feel what is happening at the COMEX is criminal. I feel major banks are hording the silver and trying to drive the price of
silver down for acquisition of the physical. In my mind and my gut tells me they are preparing a large horde of silver for the
automotive markets to produce electrical vehicles(EV's). Look at the price of Palladium and Platinum. P&P sored when it was/is
used for automotive catilittic converters. What is going to be used next for automotives (whispers batteries in huge demand). The
price of silver will sky rocket for automotive use just like Palladium and Platinum. Then you will see Palladium and Platinum
prices tank.
The
"usual" basics of real economy and real life are right. They have been working well for centuries despite bubbles, as well as
rational investment decision did. Mr Grantham is a successful investor that has been making money investing in the pre "New Era
economy". Probably, I think things work different there. So, I think that probably, the way to invest and gain money in markets
would change too in near the future, as it is happening in all markets and industries. Maybe, it would grow the alternative ways
to make lots of money in short periods of time (SPACS, tech startup, complex derivatives, etc..) as it already happened. There
would be investments based on extremely higher business results expectations not correlated with biz fundamentals. There would be
more bubbles. Anyway, I agreed with Mr Grantham on how real life works...
The thing I always ask about pundits and prognosticators is: what has been their record. I believe that Grantham has been bearish
and wrong for many years. I looked at GMO's Global Asset Allocation Fund (GMWAX). Since it started in June 2019, it's up 6%. The
broad market (VTI) is up 43%. Correct me if I'm wrong.
For those complaining about his big payday on QuantumScape while being against SPACs, remember he invested $12 million in
QuantumScape seven years prior to the SPAC deal, he did not have a controlling interest in the company to stop the merger.
The next step is more bond buying to control yields as inflation expectations rise. The final step before the implosion is a
"Credit Choke" where the government orders banks to stop lending to prevent hyperinflation, in tandem with big interest rate
rises that will cause mass bankruptcies in order to purge the excess currency out of the system and stabilise prices
The
correction or crash will come, statistically speaking, it has to at some time eventually. In 2021 though? I'm skeptical of that
given the enormous liquidity being unleashed, the pent up demand, the signs for employee new hire rates and unemployment rates.
All that $ has to go somewhere so business growth will continue, equity growth, EPS and ROIC will continue to lead to further
higher stock prices until they don't and then, maybe this time in 2023 things change but heck 2 years is a long time in business.
Even a broken clock is right twice a day. That being said major US corporations are over leveraged in the bond market and are
barely making interest payments while being down graded to "junk bonds". We need a hero that can trim the fat and save our
country.... excuse me while I put on my super man costume. :)
Hopefully, unlike the no-fault bank, trading, and brokerage house bailouts of the 2008 crisis, the next big market flop
will see people jailed, jumping from high windows a la 1929, and a general deep cull of the ruling and "investing" classes.
Equities traders and corporate bonds issuers have an out-of-control need for Fed support. Cold turkey is coming, not
because regulators won't rightly try to ease their massive subsidies, but because traders will just ride their
over-leveraged positions right in the ground.
It is not crash, it is correction, stock market always goes in cycle of up and down. It is called "fleecing the sheep", sheep
being their clients and the 401k owners, rainse and repeat every 8 to 12 yeas or so.
"We have lost considerable strength in the economy; we have fewer people working, and we have a reduced stream of goods and
services, and yet the [market] price is much higher." "Is it really justified that we have delivered a serious blow to the world
economy and yet the global stock market has gone way up? It doesn't feel right."
"I
don't believe in a law to prevent a man from getting rich; it would do more harm than good. So while we do not propose any war
upon capital, we do wish to allow the humblest man an equal chance to get rich with everybody else." Abraham Lincoln
"I see
in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country... corporations
have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to
prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is
destroyed." Abraham Lincoln
I have listened to this Bloomberg YouTube interview in its entirety with Jeremy Grantham, at least six times now, he shares a
lifetime of accumulated knowledge and wisdom in a time when we need sound logic and direction desperately. THANK YOU!!!!!!!!! Mr.
Grantham.
Many of the big companies are just sucking up cheap money and making it look like profits with clever accounting. The fact
that the markets seem unaffected by covid shows how thick the fraud is.
...Our markets are in whole driven by the central bank printing. Zombie companies and vulture investment firms distort what is
left, value investing is deeply buried in the grave.
13:30
COVID-19 revealed that there are two kinds of jobs: essential jobs and bullshit jobs. We just eliminated all the bullshit
jobs and put them onto UBI/welfare and it removed a drag on the economy.
"You cant predict a market to the week, or even the month" proceeds to say the bubble always pops within months and then
says people are putting in their final in for these last few weeks. This guy doesn't see the whole picture, although i
agree that eventually we will deleverage but this guy has tunnel vision on his view
37:00
If the system demands that the only way a business can make a profit is by providing Goods and Services that make
peoples lives better then what difference does the motivation make? State Power has no such obligation, in fact, the
immoral can pitch groups against each other for advantage and wealth, they can borrow to cover up inefficiencies, they
can empire build pointless departments for personal advancement. Similarly corporations can leverage state power for
advantageous regulations, a truly free market is the only moral system.
Big inflation will hit at the same time. Remember, 40% money supply increase in the last year, and a lot of that money went
into either equities or savings accounts during the uncertainty of covid. People who cash out of equities with a profit will
then spend it and put it into goods as consumer confidence will still be high when this first happens and people will no
longer be looking to hold onto investments during the uncertainty of covid. This is where the newly printed money makes its
way back into the economy and drives prices of commodities up. Simultaneously, you will have the bagholders who got caught up
in the market bubble who made little to no money or even bought in high and suffered massive losses as always happens in a
bubble. This is going to get ugly. It will then turn into hyperinflation if the government's solution is once again to print
their way through a crisis
"Bitcoin is 100% faith. Come the next market phase where faith is at a minimum, what do we think will happen to a stock
whose entire reason for existence is faith and nothing but faith?" - But doesn't that a hundred percent describe the US
dollar too??!
For your average American having a Savings account is .20 of a Percent Interest Investment and Corporations Force people
into 401ks because the Pensions are gone, That must make a big difference in how much money is in the stock market. Normal
people have no choice, The Wealthy Do.
After the disaster in Texas, I'm not so sure renewable energy is great for investment. The picture of the frozen windmills
has become an iconic image in the American mind, however much the windmills may or may not have contributed to the break
down.
1929 and 2000? Also 2008. So we have 3 very big bubbles in the space of 20 years. This is a boom / bust economy with
each action of the Federal Reserve to mitigate the pain of the bursting of the previous bubble only sews the seeds for the
next bubble.
I wonder if there is even another cycle left in this zero %, money printing economy!
I
can see how alluring a video like is... It's hard to disagree with anything that is described in the video, so on the whole
everyone will feel it's truthful, There is a strong feeling that extended rises in any market are illogical, instinctively
investors will always look for a perceived difference between current price and current real value which should be much
higher and expect that eventually prices will rise to eliminate the gap. The problem as always is defining the "imminent"
collapse... Is that supposed to happen today? Next week? Month(s) from now? Years from now? And like most prognosticators
this video doesn't identify a date or even a range of time. Eventually all bubbles burst, and are identified in hindsight.
It's an axiom that hardly anyone can properly identify the day before a bubble bursts, if that were possible than everyone
would have gotten out that day before. A reasonable strategy seems to be outlined in this video which is to always
transition your investments into risk-averse parts of the marketplace, and he identifies green industries that are likely
to become ever more important into the next years, possibly decades. People should realize that discussing an imminent
bubble burst is important, yet ironically the mere discussion by enough people will likely result in behaviors that delay
that very event, perhaps indefinitely.
Next four years, I see extemely slow growth. Maybe slight stock pullbacks (~10%) on tax increases or other event. Raising
interest rates will cause pullback greater than 20% and historically been a sure sign.
Mr. Grantham's hope in the Biden administration doing something good for the country is both sad and misplaced. How can an
intelligent person have any confidence in a corrupt liar who is barely able to read a teleprompter?
Listening to Jeremy Grantham it occurs to me that I have never in my entire life not been able to listen to someone that
says the stock market is going to crash in the near future nor at the very same time not been able to listen to someone
advocating that stocks are the best investment you can make. My conclusion is that the people that say the stock market is
going up are right most of the time but when the people that say the stock market is going down are more right when they
are right.
You all are addicted for money, thats the reason of MMT, it is needed due to your addiction, in the end it will crete
poverty and satisfaction for the bubbles classes...try to free yourself from addiction
If you think a president who has held ZERO press conferences and taken no calls with foreign leaders can fix the stock
market, I'd be better off taking stock advice from Mickey mouse.
He said in this video that a sign of a bubble about to burst is to look for stocks like Tesla and SPACs, and Bitcoin coming
down day after day. One month later this exact thing happened. The writing is on the wall.
The bond yield graph does not take into account the inflation rate. I recall purchasing S&L CDs for 12% back in 1981 but
the inflation rate was 10.5%. If you could find a fixed rate 30 year mortgage the rate was about 18.5%. So the real bond
return was not much different compared to present day.
"I have no confidence and have not had any for over 20 years in price-to-book and PE and price-to-cash flow,
price-to-sales, even, as a measure of true value. a measure of true value is the long-term discounted value of a future
stream of dividends" -Jeremy Gratham
This is great... I'm starting to learn about the current situation.... I lived through 4 booms and busts.. I didn't see the
first one coming because I was young and inexperienced... I was in the land business... I got out at the right time for the
last three busts.. Never waited for the top.... When it starts down its too late... Get out now as he says... Brilliant
guy... Thanx
Greenspan talked of Irrational Exhubberence in Sept 1997 but the market continued to rise till NASDAQ peak in March 2000
and S&P Peak in July 2000. so a few months is way to fast
it really looks like an October crash is coming - looks like it, feels like it, smells like it. People are nearly all
in on the stock and crypto markets, some are taking loans to do it. We are in a frenzy. Even I am all in. I hope I
listen to myself and derisk a bit into cash before the end of the year.
This is pretty revealing interview that systematize know facts about the current bubble. That
does not mean that you can predict when the bubble will deflate and from what level. It might run
for another couple of year or even more. After all stock market is a casino.
The "greatest economy in history" was the USA from the 1950s to about 1975 when its
standard of living was the highest in world history. That was a time when the average man
could afford to buy a nice house and raise a large family on his income alone, and mom stayed
home to manage the family and the home.
One thing I never see addressed by any of the guests here on overvaluation of stock
markets this: aren't markets just pricing in the likelihood of future superinflation? They're
not looking today's earning multiples, they're looking at future earning multiples when
currency is worthless. I feel like most guests are talking out of both sides.
There's both inflation coming and also a crash because of fundamentals. They can't both be
happening at the same time. Either the dollar crashes or the stock market crashes - if both
crash at the same time, then they cancel each other out since share are traded on
dollars.
Another podcast of doom and gloom.. It's informative, truthful, and revealing.. It's also
the same message DS has been delivering for sometime.. Hardly news worthy..
I have respect for Mr Stockman. But he's been very wrong for quite a while. He's been
saying for a long time that the poop is going to hit the fan. Well it will hit the fan. But
nobody knows when.
On today's Wall Street Journal home page, two articles appear side-by-side. One is about how
a heretofore obscure, nearly-valueless cryptocurrency called dogecoin, originally created as a
joke, has soared to the point of being consequential for large sections of the investing
public. And it's not unique:
Last year, stocks with less in the way of fundamentals, and more reliance on telling a
hard-to-disprove story about the future, had a fabulous time.
Profit provides a grounding for a stock, while story stocks can soar on the wings of the
imagination for a long time before being pulled back to earth -- or occasionally confirmed as
true fliers -- by hard business facts.
Dogecoin's combination of get-rich-quick speculators and you-only-live-once Reddit meme
traders is similar to GameStop, which was initially pushed up by a story about a new business
model and then a short squeeze, before nihilistic Redditors took over.
The story stock of the last decade was electric-car maker Tesl a, with the tale being that
there was a gigantic untapped market for self-driving electric cars and clean power that would
eventually both work and be highly profitable.
The danger is that the excess so obvious in dogecoin has spread beyond the story stocks into
mainstream investments, and that when eventually the froth is blown away, the rest of the
market cools suddenly. That would be a bad joke.
The second article notes that something similar is happening in the bond market:
A key measure of the perceived risk in low-rated corporate bonds is hovering around its
lowest level in more than a decade, highlighting investors' mounting confidence in the
economic outlook.
The average extra yield, or spread, investors demand to hold speculative-grade corporate
bonds over U.S. Treasurys dropped below 3 percentage points this month to as low as 2.90
percentage points for the first time since 2007, when it set a record of 2.33 percentage
points, according to Bloomberg Barclays data.
Yields on low-rated corporate bonds already hit a record low of 3.89% in February. That
data point is especially important for businesses, because it signals how cheaply they can
borrow when they issue new bonds. Companies including Charter Communications and United
Airlines Holdings have issued a total of $184.5 billion of speculative-grade bonds this year
through Tuesday, the highest over that period on record, according to LCD, a unit of S&P
Global Market Intelligence.
The spread relative to Treasurys, however, is arguably an even better measure of
investors' outlook for the economy, since it shows how much investors feel they need to be
compensated for the risk that companies may default on their debt.
The narrow speculative-grade bond spreads indicate debt investors think that the economic
environment for businesses over the next several years could be better than at any time since
the 2008-2009 financial crisis -- a striking development after many feared a severe,
long-lasting economic downturn just last year.
So at one end of the financial asset spectrum, a crypto originally created as a joke is
generating the most enthusiasm and biggest capital gains, while way over on the corporate debt
part of the spectrum, junk bonds have never been more richly valued (i.e., they've never
yielded less). Each of these asset categories – cryptos and junk – are "story
stocks" of a sort, securities that are perceived to be attractive because the environment is
going to be nothing short of perfect for years to come. Therefore no need to worry about risk
and every incentive to roll the dice for big returns.
Note the all-important sentence from the junk bond article (bold added):
"The average extra yield, or spread, investors demand to hold speculative-grade corporate
bonds over U.S. Treasurys dropped below 3 percentage points this month to as low as 2.90
percentage points for the first time since 2007 "
Here's what happened to junk bond yields (and, inversely, junk bond prices) after 2007:
One last data point: I got a long-overdue haircut yesterday, and instead of the normal
chitchat about our families and upcoming vacations, the stylist and I talked dogecoin, bitcoin,
Robinhood, and GameStop. She (a 20-something Latina) and her husband are having a ball
speculating on things they hadn't heard of six months ago on exchanges that didn't exist in
2019. So far they – like the "investors" in the above Wall Street Journal articles
– are thoroughly enjoying their newfound wealth.
Lordflin 1 day ago (Edited)
There will come a day... should such a day still have prospect amid the coming chaos...
and historians of that day exist such that they are still recording...
That humans will be forced to ask...
What the holy **** were they thinking...!?
Paul Bunyan 1 day ago (Edited)
It happens frequently to humanity. Real estate a decade ago. Dot com bubble. Merger and
Acquisitions in '87. The inflation crash of the early '80s. So when the system buckles and we
get another crash it's just another bubble of hubris that humans know and truly love. For if
we didn't love creating manic bubbles, we wouldn't do it.
Entertaining1 1 day ago
These are NOT sell signals.
They just look like them. We've had 12 years of head fakes.
You will go broke trading on ZH sell signal articles.
HopefulCynical 23 hours ago
You're sort of correct. They ARE sell signals.
But then the Fed sees them too, and buys stonks, propping up the market until the wave of
selling has passed and the bears are all murdered again.
The Fed then dribbles their stonks back out into the next bull leg up.
Rinse, repeat, wipe hands on pants.
XanII 2 hours ago
If one would just know when the music stops. It's been like this for so so long only old
ones recall how it was to trade stocks. Not stonks that always go up.
Kreditanstalt 1 day ago (Edited)
WHEN the bubble does pop they will find it exceedingly difficult to all fit through that
tiny exit door simultaneously.
The somewhat smarter segment among Bitcoin "investors" have already started selling
archipusz 23 hours ago
I don't think it will pop.
I think it will go parabolic until the currency goes kaput and then you sure as heck will
be glad you are not in the currency.
radical-extremist 1 day ago (Edited)
Everything is the South Sea Bubble. Get out before gravity takes hold.
When the cute Latina chick at the hair cutting place is talking crypto...that's God's way
of telling you it's time.
chunga 1 day ago
The stock market is the bellwether of US health.
Entertaining1 1 day ago
The funny thing is that this all happened a century ago.
In the 1920s, the Dow was the only measure of the economy commonly used.
We came up with GNP, later replaced with GDP, because in 1929 we realized the market is
not America.
Don't worry. We'll get there again. See you in a Hooverville.
chunga 1 day ago
Dmitry Orlov has had the best one sentence quote for two years running.
The Unites States can best be described as a singular, highly integrated, systemically
corrupt scheme.
Chen Zhao, Founding Partner and Chief Strategist of Montreal-based Alpine Macro, has been
analyzing global financial markets for more than thirty years. Numerous investors worldwide
know him as the long-serving Chief Strategist of BCA Research.
Today, Zhao is confident about equity markets. He sees the ingredients for a strong recovery
in the global economy, and he believes fears of higher inflation are overblown. He sees the
potential for the Federal Reserve's monetary policy to inflate a new speculative bubble. "This
bubble is going to be a whole lot bigger than the tech bubble of the late nineties, and it will
probably run a whole lot longer than we think", says Zhao in an in-depth conversation with The
Market NZZ.
Mr. Zhao, in February and March, we have witnessed a sharp upward move in long term US bond
yields, temporarily causing a sell-off in the Nasdaq. What do you make of this?
Whenever bond yields rise, you should conceptually decompose this movement into two
stages. One is reflective, meaning the bond market is trying to tell you something about the
underlying economy. Rising bond yields are reflective of stronger economic growth. However, a
market selloff could also move into a phase where bond yields become too high, constraining
economic activity. In my judgement, what we are witnessing right now is purely reflective.
The ISM manufacturing index is at its highest level since 1983, the world economy is in a
strong recovery mode. Higher yields are consistent with the economy getting stronger. Under
these circumstances, I would be more concerned if bond yields did not rise.
Aren't rising inflation expectations also playing a part?
I don't see a clear breakout in inflation expectations. People forget that during the
decade after the global financial crisis, inflation expectations have fallen apart. Markets
became much more concerned about deflation. Inflation breakeven rates currently are between 2
and 2.2%, whereas the average range during the decade before 2009 was more like 2.5 to 3%. So
inflation expectations are simply in the process of being normalized.
Do you see room for a further rise in yields?
Our model says ten year Treasury yields are pretty much at fair value today, at around
1.5%. But we know that if we have a cyclical move in financial markets, nothing stops at fair
value. Markets always undershoot or overshoot. So I could see yields rise towards 2% or even
a bit more. If they approach 2%, we would be active buyers of long term Treasuries.
Don't you see structural inflation building up?
No, not at all. There is a widespread misunderstanding of this issue. Many people look at
the fiscal position of the United States and see a budget deficit of almost 20% of GDP. The
Fed balance sheet has expanded by $7 trillion since the beginning of the pandemic, M2 has
exploded upward. How can this not be inflationary? Well, in my experience, something that is
too obvious is usually wrong.
How so?
What happened is this: For all of 2020, the US government unleashed $3.5 trillion in
various rescue packages, as a result of which the federal government debt rose by $3.6
trillion. At the same time, the household sector's disposable income increased by $3.5
trillion, and household savings shot up by $5.5 trillion. In other words, American households
not only saved up all the transfer payments they received from the government, but they even
saved $2 trillion more from their own income. These rescue programs did absolutely nothing to
generate aggregate final demand or GDP growth. What we have seen was not a fiscal stimulus to
boost aggregate demand, but a transfer payment. This was no different than a one-time tax
cut. We know that people's spending behaviour is determined by their outlook for sustainable
income. If you give them a one-time tax cut, they will save it. This is what the Permanent
Income Hypothesis says and this is what has happened.
... ... ...
Does that also mean you don't see a structural bear market for bonds, where yields would
drift higher over the coming years?
Correct, I don't see the drivers for structurally higher yields. That's why I think that
ten-year Treasury yields above 2% would represent a good buying opportunity.
play_arrow
Leonine 2 minutes ago
M2 has exploded upward. How can this not be inflationary? Well, in my experience,
something that is too obvious is usually wrong.
Even those with half a brain can twig that JP Morgan are a bunch of crooks. Simply Google
"JP Morgan fines".
Those who are market savvy should Google "JP Morgan fines".
Surely in literally everly market segment the CEO, Jamie Dimond, would be banged up in
prison?!!!!!!!!!!!!!!!!!!
nsurf9 21 hours ago (Edited)
You think this guy understands that, even with more than 50% of the, country in plandemic
lock-down, shutter/closed and/or bankrupt for a solid year, the "markets" have literally
doubled.
This just means that JPM like the other whores have taken their short positions and will
now do everything in their power to ensure that they cash out.
Corporations, especially those headquartered in Georgia, have come out against the
legislation signed by Governor Kemp. Republicans describe the bill as one that addresses
election integrity while Democrats call it a voter suppression law – "Jim Crow 2.0".
Coca-Cola and Delta were among
the first to make a point to virtue-signal after the governor signed the bill, only to be
exposed as taking part in the process and giving input into the legislation. Both were fine
with the law until the governor signed it and grievance activists did their thing. Coke soon
discovered that not all of its consumers think that companies should be making policy –
that 's the job of lawmakers- and now it is trying to clean up the mess it made for itself.
Churches have increasingly played a part in American politics and this is an escalation of
that trend. Evangelical churches have shown support for conservative and Republican candidates
while black churches get out the vote for Democrats. This threat of bringing a large-scale
boycott over state legislation is a hostile action against the corporation. It's political
theatre. Groups like Black Voters Matter, the New Georgia Project Action Fund (Stacey Abrams),
and the Georgia NAACP are pressuring companies to publicly voice their opposition and the
religious leaders are doing the bidding of these politically active groups.
When SB 241 and HB 531 were working through the legislative process, the groups put pressure
on Republican lawmakers and the governor to abandon the voting reform legislation. They also
demanded that donations to any lawmakers supporting the legislation be stopped. The Georgia
Chamber of Commerce tried to remain bipartisan while still voicing support for voting rights
but then caved and expressed "concern and opposition" to some provisions . At the time,
several large Georgia companies were targeted by activists, including Aflac, Coca-Cola,
Delta Airlines, Home Depot, Southern Company and UPS.
The Georgia Chamber of Commerce previously reiterated the importance of voting rights
without voicing opposition against any specific legislation. In a new statement to CNBC, the
Georgia Chamber said it has "expressed concern and opposition to provisions found in both HB
531 and SB 241 that restrict or diminish voter access" and "continues to engage in a
bipartisan manner with leaders of the General Assembly on bills that would impact voting
rights in our state."
Office Depot came out at the time and supported the Chamber's statement. The Election
Integrity Act of 2021, originally known as Georgia Senate Bill 202, is a Georgia law
overhauling elections in the state that was signed into effect by the governor and we know what
happened. Office Depot has not delivered for the activists as they demand so now the company
faces boycott drama. The
religious leaders are taking up where the activist groups left off.
African Methodist Episcopal Bishop Reginald Jackson said the company has remained "silent
and indifferent" to his efforts to rally opposition to the new state law pushed by
Republicans, as well as to similar efforts elsewhere.
" We just don't think we ought to let their indifference stand ," Jackson said.
The leader of all his denomination's churches in Georgia, Jackson had a meeting last week
with other Georgia-based executives to urge them to oppose the voting law, but said he's had
no contact with Home Depot, despite repeated efforts to reach the company.
Faith leaders at first were hesitant to jump into the boycott game. Now the political
atmosphere has changed and they are being vocal. Jackson focused on pressuring Coca-Cola first.
After that company went along to get along, before it realized its error, Jackson moved his
focus onto other companies.
"We believe that corporations have a corporate responsibility to their customers, who are
Black, white and brown, on the issue of voting ," Jackson said. "It doesn't make any sense at
all to keep giving dollars and buying products from people that do not support you."
He said faith leaders may call for boycotts of other companies in the future.
So, here we are with Home Depot in the spotlight. There are
four specific demands leveled at Home Depot in order to avoid further action from the
activists.
Rev. Lee May, the lead pastor of Transforming Faith Church, said the coalition is "fluid
in this boycott" but has four specifics requests of Home Depot: To speak out publicly and
specifically against SB 202; to speak out against any other restrictive voting provisions
under consideration in other states; to support federal legislation that expands voter access
and "also restricts the ability to suppress the vote;" and to support any efforts, including
investing in litigation, to stop SB 202 and other bills like it.
" Home Depot, we're calling on you. I'm speaking to you right now. We're ready to have a
conversation with you. You haven't been ready up to now, but our arms are wide open. We are
people of faith. People of grace, and we're ready to have this conversation, but we're very
clear those four things that we want to see accomplished ," May said.
The Rev. Timothy McDonald III, senior pastor of the First Iconium Baptist Church, warned
this was just the beginning.
"It's up to you whether or not, Home Depot, this boycott escalates to phase two, phase
three, phase four," McDonald said. "We're not on your property -- today. We're not blocking
your driveways -- today. We're not inside your store protesting -- today. This is just phase
one."
That sounds a lot like incitement, doesn't it? Governor Kemp is speaking out, he has had
enough. He held
a press conference to deliver his comments.
"First, the left came for baseball, and now they are coming for Georgia jobs," Kemp said,
referring to MLB's decision to move this year's All-Star Game from Atlanta over the new laws.
"This boycott of Home Depot – one of Georgia's largest employers – puts partisan
politics ahead of people's paychecks."
"The Georgians hardest hit by this destructive decision are the hourly workers just trying
to make ends meet during a global pandemic. I stand with Home Depot, and I stand with nearly
30,000 Georgians who work at the 90 Home Depot stores and 15 distribution centers across the
Peach State. I will not apologize for supporting both Georgia jobs and election integrity,"
he added.
"This insanity needs to stop. The people that are pushing this, that are profiting off of
it, like Stacey Abrams and others, are now trying to have it both ways," Kemp said. "There is
a political agenda here, and it all leads back to Washington, D.C."
The governor is right. The activists are in it to federalize elections, not to look out for
Georgians, who will lose jobs over these partisan actions. The law signed by Kemp increases
voting rights, it doesn't limit them .
New weekly jobless claims likely
edged higher last week after plunging to the lowest level since the start of the pandemic.
The Department of Labor will
release its weekly report on new jobless claims on Thursday at 8:30 a.m. ET. Here were the main metrics expected from the report,
compared to consensus data compiled by Bloomberg:
Initial jobless claims, week ended April
17:
610,000
expected vs. 576,000 during the prior week
Continuing claims, week ended April 3:
3.640 million expected vs. 3.731 million
during the prior week
Last week's new claims came as a
welcome surprise after more than a year of elevated initial filings. At 576,000, new claims broke below the Great Recession-era
high of 665,000 filed in March 2009 for the first time in more than a year. And claims have dropped precipitously from their
all-time high of 6.1 million from last spring.
But the labor market recovery has
still been choppy, and the general downtrend in new jobless claims over the past several months has come with some bumps higher.
Other reports have also underscored the stop-and-start nature of the rebound, with the
Federal
Reserve's latest Beige Book last week
noting that many regions continued to experience labor shortages as well as hiring
challenges over the past several weeks.
^DJI
+0.74%
Jobless claims preview: Another 610,000 Americans likely filed new unemployment claims
Emily McCormick
·
Reporter
Wed, April 21, 2021, 2:00 PM
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NQ=F
+0.54%
^IXIC
+0.74%
SPY
+0.69%
YM=F
+0.78%
+2
New weekly jobless claims
likely edged higher last week after plunging to the lowest level since the start of the pandemic.
The Department of Labor
will release its weekly report on new jobless claims on Thursday at 8:30 a.m. ET. Here were the main metrics expected from
the report, compared to consensus data compiled by Bloomberg:
Initial jobless claims, week ended April
17:
610,000
expected vs. 576,000 during the prior week
Continuing claims, week ended April 3:
3.640 million expected vs. 3.731
million during the prior week
Last week's new claims came
as a welcome surprise after more than a year of elevated initial filings. At 576,000, new claims broke below the Great
Recession-era high of 665,000 filed in March 2009 for the first time in more than a year. And claims have dropped
precipitously from their all-time high of 6.1 million from last spring.
But the labor market
recovery has still been choppy, and the general downtrend in new jobless claims over the past several months has come with
some bumps higher. Other reports have also underscored the stop-and-start nature of the rebound, with the
Federal
Reserve's latest Beige Book last week
noting that many regions continued to experience labor shortages as well as
hiring challenges over the past several weeks.
And even within the jobless
claims report, some metrics have remained stubbornly elevated and pointed to persistently high levels of unemployment.
Nearly 17 million Americans were still receiving unemployment benefits across all programs as of late March, including more
than 12 million Americans on the federal Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation
program, which each expire in September. And some individual states, including Nevada and Alaska, continue to post insured
unemployment rates that are well above the national average.
In a recent note from SocGen's Andrew Lapthorne, the cross-asset strategist summarizes the
ongoing market insanity delightfully, saying that "there is an increasingly large number of
weird and wonderful signs of market excess, from surging crypto currencies started as a joke to
a single New Jersey Deli trading at $100m market cap."
To be sure, it's not just the record liquidity that has pushed the Goldman index of
financial conditions to record easy levels...
... there is also a lot of good news, with the economic narrative improving and vaccination
programs accelerating worldwide, with most now hoping that the worst of the pandemic is behind
us. At the same time, global profit expectations are being revised upwards and earnings growth
is forecast to jump by a third in 2021.
Given this almost euphoric market backdrop, Lapthorne correctly notes that "anything bearish
is met with groans."
But to complete the record, the SocGen strategist adds that even after this profit rebound,
global equities will be trading at over 21x earnings, which is extremely expensive on most
historical measures, and at a stock level, " the distribution of valuations is as extreme as
during the 1999 tech-bubble."
Finally, the amount of global market capitalization that has reported a negative profit
number in the last year and in each of the last three years is higher than at any point during
the past 22 years, and has even surpassed the dot com bubble.
Lapthorne's rhetorical question: " We wonder how the history books will describe 2021."
mailll 6 hours ago (Edited)
Corporate stocks are the new bitcoin. People putting trillions into worthless corporate
assets. Brought to us by free money from the Federal Reserve.
I know one company that had a market cap of about $200 million about 5 years ago. It now
has a market cap of about $2 billion. And as their stocks have been increasing year after
year, their net incomes were becoming more and more in the negative. And in order to finance
their mismanaged company, they have been issuing more stocks. And instead of decreasing the
value of their stocks, their stocks actually doubled. Once again, brought to us by free money
from the Federal Reserve.
But keep in mind, the Fed giveth, and the Fed taketh away. And each time they taketh away
after issuing all of this easy money, they have gained more and more power over our financial
system, and over our government. In fact, the Federal Reserve is now Uncle Sam's new daddy.
And Uncle Sam is loving it. And investors are loving it, many of who don't even realize why
this is happening.
I expect the Fed to taketh it all away sometime in 2022.
istt 3 hours ago
P/E ratio for the NASDAQ are not anywhere close to 1999. But the Buffett Indicator is near
record highs.
(Bloomberg) -- Wall Street banks have long relied on a familiar system to limit the dangers
of trading with big clients: assign sales staff to win deals, and risk controllers to keep them
in check -- even if it sacrifices some profit.At Credit Suisse Group AG, executives had given
the point salesman to Archegos Capital Management on its swaps desk the new responsibility of
instead overseeing risk-taking in the broader prime-brokerage unit, according to people with
knowledge of the matter. This year, Archegos's swap bets spectacularly collapsed, saddling the
bank with a $4.7 billion writedown, and setting it up as the biggest loser to emerge from the
debacle at Bill Hwang's family office.
Parshu Shah -- the salesman who became head of prime-services risk -- hasn't been accused of
any impropriety in previous trades with Archegos. But the bank has faced questions in the wake
of the debacle over whether managers prioritized boosting revenue over managing against
downside. Shah is among a roster of Credit Suisse executives who've been forced to step down
following the blowup, according to an internal memo early this month.
The usually behind-the-scenes functions of risk controls have been thrust into the limelight
after Credit Suisse was left holding the bag on two financial catastrophes in just a few months
-- Hwang's firm and the collapse of Greensill Capital. The Swiss lender's losses have left
investors puzzling over whether it has sufficient checks in place.
In recent years, Credit Suisse Chief Executive Officer Thomas Gottstein and his predecessor
Tidjane Thiam gave the task of resetting risk management and the bank's risk appetite to Lara
Warner, head of risk, who is stepping down as well. She challenged risk managers to stop
thinking only about defending the bank's capital and also look at strategic business
priorities, Bloomberg reported earlier.
While it's not typical for revenue-generating finance employees to switch to risk-oversight
roles, some banks make such shifts.Credit Suisse, the worst-performing major bank stock this
year, is set to disclose first-quarter earnings results on Thursday that are likely to involve
a more-detailed discussion around the Archegos mess. Anna Christensen, a spokeswoman for Credit
Suisse declined to comment for the firm and Shah, or say how long he'd been in the
risk-oversight position.
Shah, who has been with the bank for more than 20 years, was one of the people at the firm
who helped nurture the relationship with Archegos as the fund began growing in size.When Shah
left the swaps desk, his sales role ended and he took over the new oversight position within
the prime-brokerage group. That job included overseeing the risk of several clients, including
Archegos. An existing member of Shah's team was assigned to Hwang's firm for monitoring its
activity on a daily basis, according to a Credit Suisse executive who asked not to be
identified discussing internal matters.
The prime-brokerage risk group was one among several lines of defense set up to shield a
firm of Credit Suisse's size from confronting hefty losses in dealings with any one client. But
the enormity of the bank's exposure coupled with the rapid implosion of Hwang's firm ripped
through the safety net Credit Suisse had set up, leaving management befuddled, the lender's
workforce frustrated and investors furious.
In 2016, under then-CEO Thiam, Credit Suisse underwent a significant restructuring of its
risk functions that led to many people leaving. The risk-control center was shifted to Zurich,
Credit Suisse's headquarters, from New York, where the majority of the bank's
investment-banking and trading activities sit.
Since the restructuring, efforts to cut costs have damped the bank's ability to add talent
and replenish the defense lines, a person familiar with the matter said.
It would be stupid to buy US stocks at those valuations. But it is strange that 401K
investors do not participate, they usually have fixed allocation heavily biased to stocks
providing Wall Street sharks with ample food chain...
Household equity holdings now account for 47% of total assets, according to Citi. That is
the highest level since 1970. Returns were subpar for the next decade.
Brian Sozzi
·
Editor-at-Large
Thu, April 22, 2021, 4:32 PM
If you believe the market is a
forward
looking mechanism
-- and most investors would agree that it is -- then you may want to prepare your portfolios for a sharp
slowdown in economic growth later this year and into 2022 as fiscal stimulus wanes.
U.S. economic growth for this year is "peaking," Goldman Sachs strategists led by Ben Snider warned in a new note on Thursday.
Snider said Goldman's economists predict 10.5% GDP growth for the second quarter, the strongest quarterly growth rate since 1978.
The projection is also near the high-end of most economists on Wall Street.
From there, well, it's all downhill for GDP growth.
Goldman estimates growth in the third and fourth quarters of this year will clock in at 7.5% and 6.5%, respectively. Growth is
then seen slowing in each quarter of 2022 -- by the fourth quarter Goldman is modeling a mere 1.5% GDP increase.
Economic growth is peaking, warns Goldman Sachs.
"Although our economists expect U.S. GDP growth will remain both above trend and above consensus forecasts through the next few
quarters, they believe the pace of growth will peak within the next 1-2 months as the tailwinds from fiscal stimulus and economic
reopening reach their maximum impact and then begin to fade," Snider said.
The economic growth peak could have major implications for investor returns, Snider thinks.
Goldman's research shows decelerating economic growth usually leads to weaker -- though still positive -- equity returns and
greater volatility. Since 1980, the S&P 500 has averaged a monthly return of 0.6% when economic growth was positive but
decelerating. That is half the 1.2% average gain when economic growth was positive and accelerating, points out Snider.
"Decelerating economic growth is also typically accompanied by sector rotations within the equity market,' Snider added.
"Cyclical industries tend to lead the market in environments of positive and accelerating economic growth, but as growth peaks
and decelerates more defensive industries typically outperform."
Bond investors are bewildered after last week's stellar US economic data sparked a rally in
haven US Treasuries -- a market reaction that breaks the typical dynamic for fund managers. The
price of highly rated government bonds tends to jump in response to bad news, pushing down
yields. Mike Riddell, a portfolio manager at Allianz Global Investors, described the market
move as "bonkers".
With politics leaning ever more left on university campuses, I hope Dr Ladapo doesn't lose
his job at UCLA for writing a cogent and concise opinion piece.
RICHARD SANDOR SUBSCRIBER 3 hours ago
Brian : Yes, an expensive university in my largely Democrat-controlled state state has a
student group which wants to ' censor ' the university president for not being focused enough
on ' diversity, inclusiveness and equity . ' Hope the parents realize the high price they are
paying for this left wing indoctrination. mrs
The idea of seasonality is not bad per se, but needs to be applied intelligently. In this
sense, May is not fixed month and can occur during any month of the year when signs of impeding
collapse are prominent. Selling when you (still) have some gains is kind of insurance against the
crash.
"Sell in May and go away," advises the trading maxim. But with stocks at record highs, one
trader at the New York Stock Exchange is recommending the strategy with a twist.
... The full axiom was originally, "Sell in May and go away, and come on back on St. Leger's
Day." It has its roots in the City of
London . Financial professionals would go on holiday in May for approximately four months
to escape the summer heat and return for the St. Leger derby in mid-September. Traders and
bankers in the U.S. appropriated the aphorism over the years and condensed it to its current
form.
Many traders still leave their desks for the summer. Volume dries up, liquidity tends to
wane, and the bearish summer tendencies become a self-fulfilling prophesy -- to an extent. The
likelihood of markets to follow predictable patterns based on the calendar is called
seasonality -- accounting for up to one-third of a market's price movement.
While a powerful indicator at times, there can easily be overriding factors. Entire books
and websites are dedicated to the study, such as The Stock Trader's Almanac , which has been
published since
1967. The author, Jeff Hirsch, has combined seasonality with other technical indicators to
produce a
robust trading strategy over time.
Woods takes account of the current year-to-date gains for the indices and sees the potential
for some cooling off.
"We could see a pause in this market. It seems too obvious, but right now seeing where we've
gone and how strong this rally has been -- a pause would be fine. And you throw in the
seasonality factor where April is the second strongest month over the last 20 years. Now we're
coming into that slowdown. We didn't see it last summer, which was great. But this summer,
rationale would dictate that we're gonna go away," said Jay.
... ... ...
Jared Blikre is an anchor and reporter focused on the markets on Yahoo Finance Live.
Follow him@SPYJared
Kevin 17 hours ago I don't think anyone
can give you good advice about this market. I am 50/50 and unsure...and I think everybody else
is in all honesty. We all know that valuations are high, the market may be over-heated, and the
market is due for a pullback. We all know that. But, in my lifetime, we have never had an
economic reopening after a forced government shutdown during a pandemic. You can make arguments
for a pullback or a continued rally very easily. Both sides make perfect sense. With that being
said, I think you just have to be playing both sides. Stay in the game and keep some dry powder
as well. Yes, I know that is very simplistic and basic, but this thing really could go either
way during the coming months. Frank 22 hours ago Slashing interest rates and backstopping
corporate debt, for example, helped direct money into the financial system. Some of the biggest
beneficiaries were wealthier Americanswho hold investments. As a stark sign of how the rich got
richer in the past 12 months, the number of billionaires on Forbes's 35th-annual ranking grew
by nearly a third, swelling by 660.
BananaBob 22 hours ago It makes sense to sell in Q2 when the markets are at record highs. Q3 is
usually the worst quarter of the year. Lots of companies take their losses in Q3 (at least on
paper) to make their Q4 numbers look better. Then, then they can say 'a gain of x% since last
quarter' to boost their year end numbers and show a hockey stick shaped chart on their annual
reports.
MickinMD 6 hours ago Yahoo should point out here that a "trader" is more of a gambler than an
investor.
While May-Sept. may be bad, history says that people that sell generally miss the optimum
reentry point and buy back at a higher price.
Still, the P/E of the S&P 500 was 18 in 2014 and is 43 now - something not seen since
2000 when Fed Chair Alan Greenspan wisely warned against "irrational exuberance."
The problem with selling stocks today is: where are you going to put the money for the short
term until you reinvest? In 0.1% credit union savings or 0.05% 1-year M&T bank CD (0.025%
is the national avg.)?
A big reason for the big-bubbled market is that the people who tend to invest in the market
also tended not to lose their jobs during the pandemic, they have money to invest, and CD's and
Bonds don't pay anything.
I've taken money out of stocks but only to spend a ton to repair and remodel my house: my
"emergency" CD's pay 2.1% to 2.85% interest and mature in 2024: I'm not going to redeem them
and later replace them with 0.5% CD's.
The clincher for me to sell stocks is because the market is SO overpriced. My personal,
conservative, retiree's stock portfolio's P/E went from 20 in 2014 to 26 now - value stocks are
mostly not in a huge bubble.
So I partially-sold stocks that made big gains last year but tend not to be moving up this
year and have higher than usual P/E's. For ex., Costco (COST) returned 33% last year but is
down 2% this year and it's P/E is 39 - it was 27 to 29 from 2015-18.
Uald NRA 19 hours ago You might want to look at a chart of national debt. Republicans make a
big deal about the debt whenever Democrats are in power, but the moment they are in control
that worry goes away completely. The national debt increased by 186% under Reagan, 101% under
Bush, Obama was 74%. Reality doesn't fit perception when it comes to who actually increases our
debt faster.
a 16 hours ago Don't sell out rather reblance your portfolio to restore your asset allocation
to a what makes sense for you from a risk tolerance standpoint. Also study the previous market
crashes. 1987, 1992, 2000, 2008 and 2020, They all happened for completely different reasons.
History never repeats itself. The next crash will be for something completely different yet
again. Work on possible senarios that might tigger a market crash, for example a run on the
dollar, or crypto goes bust and the leverage take the banks with it, massive inflation, covid
comes back, etc. When you have a few scenarios then look for asset classes that can survive
that crash. That's where you get insight from studying previous crashes. mike s 1 day ago
"Thoughts On the Market" podcast had a bit on this. While it is old, there seems still some
truth in it - but with newer influences and some specific to NOW. Taxes, financial experts
taking vacations, etc. I am more concerned with supply chains slowly coming back as demand is
there, inflation, rising costs in things like corn, lumber (other commodities), etc. Also, I
think many "day-traders" will continue to chase gains with cryptos - not sure what that will
do. I'm only in a little bit with GBTC and RIOT. I've got a decent bit of cash on the side to
buy in if (when - many think) there is another major dip. There are a few areas that have been
slowing down (tech, small caps, SPACs, ARK-type stuff) that I am still buying little bits here
and there - BUT not over-buying (I hope)... Where to buy? Services? Airlines? Shipping? not
sure.. (is anyone? nope)
Hose 22 hours ago Fed banksters and wall st. Analyst Criminals should go to Jail.
David2 1 day ago Sell in May and then pay the capital gains tax in April. Tax harvesting after
a decline seems like a much smarter move
sixpacktwo 5 hours ago I'm older and last year went to dividend paying funds and utilities.
After 50 years I'm letting other people keep me safe. DENNIS S 1 day ago With the S & P at
37.9 times earnings, the highest in history it may be time for some profit taking .
Evolution 6 hours ago The calm before the storm is here. Ultra smart market. Totally
undetectable.
Microsoft buys speech recognition company Nuance in $16B deal, second biggest since
LinkedIn
Nuance has a strong reputation for its voice recognition technology, and it has been
considered an acquisition target for companies like Apple, Microsoft and more for several
years.
The past year or so has been one of the oddest periods ever for the stock market and
economy, with a rare pandemic shutting down businesses and throwing millions of people out of
work.
At the same time, the federal government stepped up with unprecedented amounts of stimulus
payments, free loans to businesses, eviction moratoriums and other aid -- even a delayed
deadline for filing income-tax returns.
Things are off-the-charts unusual. Yet for novice investors who stuck a toe in the stock
market for the first time over the past year or so, it's all they know.
And it's not just a few people, either. Armed with stimulus checks and motivated by boredom
perhaps, millions of people took the stock market plunge last year -- a whopping 15% of all
current stock investors got their start in 2020, according to a new Schwab survey.
Most must be thinking, "This is easy." Here are some reasons why they should think
twice.
The stock market has climbed steadily for the past 13 months, over which time it has nearly
doubled in value. That's rare in itself. But the really unusual part was the extremely short
duration of the preceding bear market or downward spiral, which lasted just five weeks.
No wonder these first-year investors are more optimistic about near- and long-term results
compared to more seasoned market participants, according to the Schwab survey. The newbies also
tend to be younger -- 35 years old, on average, compared to 48 for people who started investing
prior to 2020. They thus can afford to be more optimistic, as they have more time to make up
losses.
It's true that rising or bull markets always spring from the ashes of bear markets, but
usually those preceding downdrafts are much more prolonged. That's the real challenge of
investing -- dealing with month after month, if not year after year, of falling prices, when
disappointment leads to despair and then desperation. If you blinked, you missed the bearish
phase of 2020. The next downward cycle won't be so kind.
... ... ...
Investing, like gambling, isn't so difficult when you're playing with house money. That was
somewhat the case for millions of Americans who received stimulus payments from Uncle Sam or
possibly souped-up unemployment benefits.
Sure, plenty of people used this cash as financial lifelines, to stay afloat. But others
saved their stimulus checks or put them to use in the stock market.
In other words, some new investors probably don't fully appreciate that investing involves
sacrifice: You forego consumption today in hopes that your money will grow enough over time
that higher spending will be possible years down the road.
Stimulus checks don't arrive every year, though there is one form of free money that you can
tap into on an ongoing basis. These are the matching funds available through workplace
401(k)-style funds that employers ante up to encourage workers to invest.
Even the federal government offers limited retired matching funds to lower-income
workers, through the widely underappreciated Retirement Savers tax credit (details at irs.gov).
It's not a huge sum -- a maximum credit of $1,000 annually to the lowest-income workers -- but
it beats the stimulus money you can count on most years.
Don't assume your buddies are right
There's a lot of psychology to investing, and one tendency is that people seek out
confirming views from friends, family members and colleagues. There's something heartening
about having your investing ideas validated by others. The danger is that these other parties
might have even less knowledge than you.
More than in most years, collaborative investing appears to be on the rise. For example, a
survey by MagnifyMoney, a subsidiary of Lending Tree, found that nearly six in 10 investors age
40 or younger are members of online forums such as Reddit. These can be good ways to learn
about finances, but they also might lead you astray.
"It's great that these communities are introducing a lot of people to investing, which is
one of the best ways to build wealth over a lifetime," said Tendayi Kapfidze, LendingTree's
chief economist, in a statement. "A concern is that some are leading to relatively short-term
trading concentrated in a few stocks with hopes of getting rich quick."
Usually, investors are better off thinking for themselves and tuning out the "noise" or
outside distractions. In part, this is because other people often have different goals,
tolerance for risk or other motivations compared to you. Or, they're just wrong.
... .... ...
And rather than concentrate your money in a handful of stocks, Sandoval recommends spreading
it out through low-cost, diversified mutual funds or exchange-traded funds. The market's strong
performance last year, she noted, was driven by a smattering of large, technology-focused
companies including Facebook, Amazon, Apple, Netflix and Google.
But already, there are signs that the market's leadership is shifting. Besides, pinpointing
future hot stocks isn't easy to do, except in hindsight...
The recent run-up in government bond yields is a gift to any fund manager fretting over
market risks ranging from geopolitics to leverage. It is true that the first quarter of this
year was no fun for holders of government bonds, which dropped in price on the largest scale in
four decades. The pullback means that, just as Russia and the US once again lock horns, and as
the Archegos implosion stirs concerns over potentially systemic risks stemming from plentiful
global leverage, government bonds again offer something of a safety net.
At least $120 billion a month of Treasury debt and mortgage-backed securities bought by FED
since last June is around trillion dollars now. This is just putting money from one pocket to
another not a real buy or sell. Essentially the naked emission of dollars -- attempt to export
inflation.
So FED seeks to increase inflation to somewhere between 2 and 3 percent a year. Which means
payment to the forign owners of the US national debt will increase accordingly. And payments to
foreign owners is a real thing as central banks are now reluctant to recirculate supruss dollars
into treasuries and China cuts it purchases of dollar denominated debt.
The Fed has been buying at least $120 billion a month of Treasury debt and mortgage-backed
securities since last June to hold down long-term borrowing costs. Since December, the central
bank has said the economy must make "substantial further progress" toward its goals of maximum
employment and 2% inflation before it scales back those purchases.
"We will taper asset purchases when we've made substantial further progress toward our
goals, from last December when we announced that guidance," Mr. Powell said in a virtual event
held by the Economic Club of Washington, D.C. "That would in all likelihood be before -- well
before -- the time we consider raising interest rates."
The Fed has said it will hold rates near zero until it sees the labor market return to full
employment and inflation rise to 2% and is forecast to moderately exceed that level for some
time. Mr. Powell reiterated that he thinks it is highly unlikely that the Fed would raise
interest rates this year and noted that most central-bank officials see rates remaining near
zero through 2023.
Tuesday's report fueled concerns that inflation, dormant through the record-long economic
expansion from 2009 to 2020, could soon become a challenge for policy makers. Mr. Powell
acknowledged those worries while reiterating that the Fed seeks inflation "that is moderately
above 2% for some time" to make up for the past decade's shortfalls.
Both the Biden administration and the Fed acknowledge the possibility of prices rising
faster than usual in coming months as the economic recovery strengthens and demand for goods
and services temporarily outruns supply. But both expect the acceleration in inflation to prove
temporary.
What has driven bonds lower from 10 year interest around 1.7% to around 1.5%? Which means
around 2% difference in the price of the bonds. This is the question.
Is this about the concerns about the status of dollar as global reserve currency, that were
eased? Or that Biden administration is paralyzed and will not be able to extend the USA debt as
it planed to do.
Treasury yields still remain much higher than where they started the year.
The 10-year finished last year at 0.913%. The yield on the 30-year bond settled Thursday at
2.210%, down from 2.325% Wednesday but up from 1.642% at the end of last year.
"British private schools create a class culture of a kind unknown in the rest of Europe.
The extreme case is the boarding prep schools, which separate children from their parents at
the age of eight in order to shape them into members of a detached elite. In his book The
Making of Them the psychotherapist Nick Duffell shows how these artificial orphans survive
the loss of their families by dissociating themselves from their feelings of love(14).
Survival involves "an extreme hardening of normal human softness, a severe cutting off from
emotions and sensitivity."(15) Unable to attach themselves to people (intimate relationships
with other children are discouraged by a morbid fear of homosexuality), they are encouraged
instead to invest their natural loyalties in the institution.
This made them extremely effective colonial servants: if their commander ordered it, they
could organise a massacre without a moment's hesitation (witness the detachment of the
officers who oversaw the suppression of the Mau Mau, quoted in Caroline Elkins's book,
Britain's Gulag(16)). It also meant that the lower orders at home could be put down without
the least concern for the results. For many years, Britain has been governed by damaged
people.
I went through this system myself, and I know I will spend the rest of my life fighting
its effects. But one of the useful skills it has given me is an ability to recognise it in
others. I can spot another early boarder at 200 metres: you can see and smell the damage
dripping from them like sweat. The Conservative cabinets were stuffed with them: even in John
Major's "classless" government, 16 of the 20 male members of the 1993 cabinet had been to
public school; 12 of them had boarded(17). Privately-educated people dominate politics, the
civil service, the judiciary, the armed forces, the City, the media, the arts, academia, the
most prestigious professions, even, as we have seen, the Charity Commission. They recognise
each other, fear the unshaped people of the state system, and, often without being aware that
they are doing it, pass on their privileges to people like themselves.
The system is protected by silence. Because private schools have been so effective in
moulding a child's character, an attack on the school becomes an attack on all those who have
passed through it. Its most abject victims become its fiercest defenders. How many times have
I heard emotionally-stunted people proclaim "it never did me any harm"? In the Telegraph last
year, Michael Henderson boasted of the delightful eccentricity of his boarding school. "Bad
work got you an 'order mark'. One foolish fellow, Brown by name, was given a double order
mark for taking too much custard at lunch. How can you not warm to a teacher who awards such
punishment? Petty snobbery abounded," he continued, "but only wets are put off by a bit of
snobbery. So long as you pulled your socks up, and didn't let the side down, you wouldn't be
for the high jump. Which is as it should be."(18) A ruling class in a persistent state of
repression is a very dangerous thing."
... the financial markets sometimes feel like a house of cards.
...the more existential questions: what's the right level for a stock market that plunged
33% in about two weeks just a year ago? How much of that gain comes down to policy stimulus
and how much is real? How much of the expected economic rebound is already priced in? What
happens if the vaccine promise falls short? What if this is as good as it gets?
Taken together, it leaves people who manage money, their clients, and the companies that
advise them, just as befuddled as Andersen, with almost as many perceived red flags as there
are theories as to what's causing it all.
"The most common observation we get from clients is that markets don't "feel right", and we
absolutely get that," wrote Nicholas Colas, co-founder of DataTrek Research, in a recent note.
"For us, a big piece of this unease comes from the novelty of seeing capital markets go from
distress to euphoria in such a short period of time."
...there's been a rush for young companies to go public, sometimes before they have the full
business model ironed out and sometimes when profits are still far on the horizon. That means
the stock market resembles a casino some days, with people piling in who are unafraid of, or
just not used to, losing money.
...the current moment, full of Redditors
and memes and
SPACs and
electric cars and Zoom meetings to 1999, when the internet was the wild, wild west and
trading had just moved on line.
...still worth considering. It's simultaneously true that for the past 20 years, any time
any tech stock anywhere gets a little pricy, it prompts a lot of pearl-clutching about the
dot-com bust -- and that there are uncanny similarities that do warrant more attention.
Why do periods of disruption so frequently lead to speculation? Why do we let
snake-oil-sounding financiers sell us whatever they're selling us? ...
... the traditional ways of managing risk -- government bonds, for example --
aren't really up to the job the way they might have been a few decades ago, as yields
remain low and the decades-long bull market comes to an end.
Instead, the muni market "yawned" when the bill was passed, said Eric Kazatsky, Bloomberg Intelligence head municipal strategist, a
signal that the aid money had already been priced in. But muni ETFs are still worth a look, he thinks.
Kazatsky is a fan of the "gorillas" in the marketplace for all the usual reasons -- what he calls "solid" management, low fees,
liquidity and robust inflows. He mentions the $21 billion iShares National Muni Bond ETF
MUB,
-0.06%
,
which
tracks investment-grade bonds. For investors willing to take on a little more risk, there's the VanEck Vectors High Yield Muni ETF
HYD,
-0.02%
,
which
has $3.3 billion under management. For taxable munis, the Invesco Taxable Municipal Bond ETF
BAB,
-0.21%
is
one of the bigger funds.
For investors unfamiliar with the municipal space, "high-yield" is a different animal than in the corporate sector: much safer, with
very infrequent defaults. The space "could actually offer a much bigger reward because there are a lot of bargains to be had from
the market dislocation last year, if you don't think they've run their course," Kazatsky told MarketWatch.
With slightly less risk comes a bit less reward: HYD has a 30-day SEC yield of 2.82% as of March 5 while the largest corporate
junk-bond ETF, the iShares iBoxx $ High Yield Corporate Bond ETF
HYG,
-0.21%
,
has
yielded 3.42%.
The stock market has been breaking records over the last year while the real economy has struggled in the face of the pandemic.
And that discrepancy is starting to make experts a little nervous.
One expert, Suze Orman, would go so far as to say she's now preparing for an inevitable crash.
... ... ...
"I don't like what I see happening in the market right now," Orman said in a video for CNBC. "The economy has been horrible, but
the stock market has been going [up]."
While investing is as easy now as
using
a smartphone app
, Orman is concerned about where we can go from these record highs.
And even with stimulus checks, which are still going out, and the real estate market breaking its own records last year, Orman
worries about what will come with the coronavirus -- especially as new variants continue to pop up.
And given how long the market has been surging, she feels it's just been too long since the last crash to stay this high much
longer. "This reminds me of 2000 all over again," Orman says.
The Buffett Indicator
...
the Buffett Indicator, which is a measurement of the ratio of the
stock market's total value against U.S. economic output, continues to climb to previously unseen levels.
And those in the know are wondering if it's a sign that we're about to see a hard fall.
Even Tesla boss Elon Musk is starting to feel anxious. Musk recently asked investing bigwig Cathie Wood, CEO of Ark Invest, if we
should be expecting a crash.
While Wood initially brushed off any concerns, she did tell Musk she would have her team take a closer look.
HHw to prepare for a rainy day
Freedomz / Shutterstock
Orman has three recommendations for setting up a simple investment strategy to help you successfully navigate any sharp turns in the
market.
1. Buy low
Part of what upsets Orman so much about the furor over meme stocks like GameStop is it goes completely against the average
investor's interests.
"All of you have your heads screwed on backwards," she says. "All you want is for these markets to go up and up and up. What good is
that going to do you?"
She points out that, the only extra money most people have goes toward
investing
for retirement
in their 401(k) or IRA.
Because you probably don't plan to touch that money for decades, the best long-term strategy is to buy low. That way, your dollar
will go much further now, leaving plenty of room for growth over the next 20, 30 or 40 years.
... ... ...
First, prepare for the worst and hope for the best. Since the onset of the pandemic, Orman now recommends everyone have an emergency
fund that can cover their expenses for a full year.
NOTE: At their peak in April 2020,
more than 6 million Americans made first-time claims for unemployment assistance in a single
week. And for 20 weeks in a row, more than a million people filed initial jobless claims.
As of March,
total employment in the U.S. was still more than 8 million below February 2020 levels. In
short, the labor market recovery still has a very long way to go.
"... How much of my retirement portfolio do I really want to gamble on a high-risk, low-profit company that is already valued at over 1,000 times its most recent earnings, plus seven times the peak earnings of its entire industry, and which is controlled and run by a volatile, drug-taking eccentric? ..."
"... You've got nearly five times as much of your retirement portfolio invested in Tesla than you do in the entire U.S. home-building industry. ..."
How much of my retirement portfolio do I really want to gamble on a high-risk,
low-profit company that is already valued at over 1,000 times its most recent earnings, plus
seven times the peak earnings of its entire industry, and which is controlled and run by a
volatile, drug-taking eccentric?
Right now if you hold an S&P 500 or similar stock market index fund you've got more
money invested in Tesla than you do in, say, Ralph Lauren (RL) Molson Coors (TAP) Gap (GPS)
Hasbro (HAS) American Airlines (AAL) United Airlines (UAL) Delta Air Lines (DAL) Campbell Soup
(CPB) Domino's Pizza (DPZ) Hershey (HSY) Wynn Resorts (WYNN) Kellogg (K) General Mills (GIS)
Darden Restaurants (DRI) Clorox (CLX) and many others.
You've got nearly five times as much of your retirement portfolio invested in Tesla than
you do in the entire U.S. home-building industry.
The professional poker player finally points out some of the insane moves observed in
pennystocks in Q1, focusing on a tiny deli owner in rural NJ:
Strange things happen to all kinds of stocks. Last year, on one day in June, the stocks of
about a dozen bankrupt companies roughly doubled on enormous volume. Recently, the Wall
Street Journal reported a boom in penny stocks.
Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New
Jersey. The deli had $21,772 in sales in 2019 and only $13,976 in 2020, as it was closed due
to COVID from March to September. HWIN reached a market cap of $113 million on February 8.
The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be
the wrestling coach of the high school next door to the deli. The pastrami must be amazing.
Small investors who get sucked into these situations are likely to be harmed eventually, yet
the regulators – who are supposed to be protecting investors – appear to be
neither present nor curious.
We don't find it at all surprising that Einhorn's conclusion from his capital markets
observations over the past quarter is identical to ours, when we discussed the insane stock
moves that dominated much of January and February:
"From a traditional perspective, the market is fractured and possibly in the process of
breaking completely."
"Having a large amount of leverage is like driving a
car with a dagger on the steering wheel
pointed at your heart. If you do that, you will be a better driver. There will be fewer
accidents but when they happen, they will be fatal ." Warren Buffett
The Financial Instability Hypothesis (FIH) has both empirical and theoretical aspects that
challenge the classic precepts of Smith and Walras, who implied that the economy can be best
understood by assuming that it is constantly an equilibrium-seeking and sustaining system. The
theoretical argument of the FIH emerges from the characterization of the economy as a
capitalist economy with extensive capital assets and a sophisticated financial system.
In spite of the complexity of financial relations, the key determinant of system behavior
remains the level of profits: the FIH incorporates a view in which aggregate demand determines
profits. Hence, aggregate profits equal aggregate investment plus the government deficit. The
FIH, therefore, considers the impact of debt on system behavior and also includes the manner in
which debt is validated.
Minsky identifies hedge, speculative, and Ponzi finance as distinct income-debt relations
for economic units. He asserts that if hedge financing dominates, then the economy may well be
an equilibrium-seeking and containing system: conversely, the greater the weight of speculative
and Ponzi finance, the greater the likelihood that the economy is a "deviation-amplifying"
system. Thus, the FIH suggests that over periods of prolonged prosperity, capitalist economies
tend to move from a financial structure dominated by hedge finance (stable) to a structure that
increasingly emphasizes speculative and Ponzi finance (unstable). The FIH is a model of a
capitalist economy that does not rely on exogenous shocks to generate business cycles of
varying severity: business cycles of history are compounded out of (i) the internal dynamics of
capitalist economies, and (ii) the system of interventions and regulations that are designed to
keep the economy operating within reasonable bounds.
"... much like the dot-com period, there is a broad subset of stocks (mostly in technology) that have become completely untethered, particularly since the summer of 2020, from business fundamentals like earnings and even sales -- driven higher only by euphoric market participants extrapolating from a past extraordinary trajectory of prices. ..."
"... A lot of today's US stock market has become what I call a "pure price-chasing bubble." Examination of the history of comparable pure price-chasing bubbles shows there has been a set of key causal factors that contributed to these rare (I have found nine in total) market events; the presence of most of these factors has usually been necessary for markets to reach the requisite escape velocity. ..."
"... To fuel the bubble further, there was a rapid expansion of bank money beginning three years before the market peak -- but the expansion of credit was even greater, owing to an explosion of margin credit (with implied annuaized interest rates sometimes reaching 100 percent) through an informal system utilizing postdated checks ..."
"... The US market certainly exhibits an exceptional record of price appreciation, with the S&P 500 having risen by almost 500 percent over more than a decade. In contrast to most other bubbles, however, it is notable that US economic growth over this period has been relatively anemic. ..."
"... Due to a sustained high rate of corporate equity purchases financed with debt, this overarching expansion of credit has also made its way into the last decade's bull market and steepened its price trajectory. ..."
"... The role of message boards and chat rooms -- with their millions of participants, all in instant real-time contact -- has created crowd dynamics in speculative stock market favorites at a pace without parallel in other pure price-chasing bubbles. ..."
"... a peak will be reached, a decline will follow, and the psychological dynamics in play on the way up will go into reverse and will accelerate the fall. ..."
"... Moreover, in the context of a grossly underestimated mass of corporate debt, history tells us the consequences of the bursting of the US stock market bubble should be another financial crisis and another recession ..."
According to Frank Veneroso, a broad subset of today's US stock market has become what he
calls a "pure price-chasing bubble." Examination of the history of comparable pure
price-chasing bubbles shows there has been a set of key causal factors that contributed to
these rare market events.
The most extreme such case was an over-the-counter market in Kuwait called the "Souk
al-Manakh." This exemplar of a pure price-chasing phenomenon may shed light -- albeit
unflattering -- on the current US equity market, Veneroso contends.
Our trade deficit rose 4.8% February, as both our exports and imports decreased, but the
value of our exports fell by almost three times as much as the value of our imports did .the
Commerce Department
report on our international trade in goods and services for February indicated that our
seasonally adjusted goods and services trade deficit rose by $3.3 billion to $71.1 billion in
February, from a January deficit that was revised down to $67.8 billion from the $68.2 billion
deficit reported a month ago in rounded figures, the value of our February exports fell by $5.0
billion to $187.3 billion on $4.8 billion decrease to $131.1 billion in our exports of goods
and a $0.2 billion decrease to $56.1 billion in our exports of services, while our imports fell
$1.7 billion to $258.3 billion as a $2.0 billion decrease to $219.1 billion in our imports of
goods was partially offset by a $0.3 billion increase to $39.2 billion in our imports of
services . export
prices averaged 1.6% higher in February , which means our real exports fell more month over
month than the nominal decrease by that percentage, while import prices rose 1.3%, meaning that
the contraction in real imports was greater than the nominal decrease reported here by that
percentage
For a third consecutive month, everyday prices moved sharply higher with gains led by
motor fuels prices.
On the core services side, significant increases came from motor vehicle insurance (up
3.3 percent for the month), transportation services (+1.8 percent), and motor vehicle
maintenance services (+1.0 percent).
Energy prices continue to drive the Everyday Price Index higher in the early part of
2021.
For a given time-horizon, it has been conventional for those estimating such a "rational"
market forecast of expected inflation to take the appropriate Treasury security nominal yield
of that time horizon (say 5 years) and simply subtract from it the yield on the same time
horizon TIPS, which covers security holders for inflation. So it has long looked like this
difference is a pretty good estimate of this market expectation of inflation, given that TIPS
covers for it while the same time horizon Treasury security does not.
Well, it turns out that there are some other things involved here that need to be taken
account, one for each of these securities. On the Treasury side, it turns out that the proper
measure of the expected real yield must take into account the expected time path of shorter
term yields up to that time horizon. This time path has associated with it a risk regarding the
path of interest rates throughout the time period. This is called the Treasury risk premium, or
trp. It can be either positive or negative, with it apparently having been quite high during
the inflationary 1979s.
The element that needs to be taken into account with respect to the TIPS is that these
securities are apparently not as liquid in general as regular Treasury securities, and the
measure of this gap is the Liquidity premium, or lp. This was apparently quite high when these
were first issues and also saw a surge during the 2008-09 financial crisis. In principle this
can also be of either sign, although has apparently been positive.
Anyway, the difference between the nominal T security yield and the appropriate TIPS yield
is called the "inflation breakeven," the number that used to be focused on as the measure of
market inflation expectations. But the new view is that this must be adjusted by adding (tpr
– lp).
In a post just put up on Econbrowser by Menzie the current inflation breakeven for five
years out is 2.52%. But according to Menzie the current (tpr – lp) adjustment factor is
-0.64%. So adding these two together gives as the market expected inflation rate five years
from now of 1.88%, although Menzie rounded it out to 1.9%.
If indeed this is what we should be looking at it says the market is not expecting all that
much of an increase in the rate of inflation from its current 1.7% five years from now. The Fed
and others are looking at a short term spike in prices this year, but the market seems to agree
with their apparent nonchalance (shared by Janet Yellen) that this will wain later on, with
that expected 5 year rate of inflation still below the Fed's target of 2%.
Certainly this contrasts with the scary talk coming from Larry Summers and Olivier
Blanchard, not to mention most GOP commentators, regarding what the impact of current fiscal
policies passed and proposed by Biden will do to the future rate of inflation. Not a whole lot,
although, of course, rational expectations is not something that always forecasts all that
well, so the pessimists might still prove to be right.
Barkley Rosser
Likbez , April 14, 2021 6:27 pm
Larry Summers is a puppet of financial oligarchy. Everything that he writes should be
viewed via this prism. He also is highly overrated.
IMHO rates are no longer are determined by only domestic factors.
I think that the size of foreign holdings of the USA debt and their dynamics is another
important factor. FED will do everything to keep inflation less then 2% but this is possible
only as long as they can export inflation.
BTW realistically inflation in the USA is probably 30%-60% higher than the official
figure. Look at http://www.shadowstats.com/ :
March 2021 annual Consumer Price Index inflation hit an unadjusted three-year high of
2.62%, as gasoline prices soared to multi-year highs, not seen since well before the 2020
Oil Price War. -- March Producer Price Index exploded, with respective record annualized
First-Quarter PPI inflation levels of 9.0% in Aggregate, 16.0% in Goods and 5.6% in
Services.
• L A T E S T .. N U M B E R S .. March 2021 unadjusted year-to-year March 2021
CPI-U Inflation jumped 2.62% -- a one-year high -- as gasoline prices soared, not only
fully recovering pre-Oil Price War levels of a year ago, but also hitting the highest
unadjusted levels since May of 2019 (April 13th, Bureau of Labor Statistics –
BLS). Headline March 2021 CPI-U gained 0.62% in the month, 2.62% year-to-year, against
monthly and annual gains of 0.35% and 1.68% in February.
That inflation pickup reflected more than a full recovery in gasoline prices, which
had been severely depressed by the Oil Price War of one year ago. Such had had the
effect of depressing headline U.S. inflation up through February 2021, including
suppressing the 2021 Cost of Living Adjustment (COLA) for Social Security by about
one-percentage point to the headline 1.3%. By major sector, March Food prices gained
0.11% in the month, 3.47% year-to-year (vs. 0.17% and 3.62% in February); "Core" (ex-Food
and Energy) prices gained 0.34% in March, 1.65% year-to-year (vs. 0.35% and 1.28% in
February); Energy prices gained 5.00% in March, 13.17% year-to-year (vs. 3.85% and 2.36% in
February), with underlying Gasoline prices gaining 9.10% in the month, 22.48% year-to-year
(vs. 6.41% and 1.52% in February).
The March 2021 ShadowStats Alternate CPI (1980 Base) rose to 10.4% year-to-year, up
from 9.4% in February 2021 and against 9.1% in January 2021. The ShadowStats Alternate
CPI-U estimate restates current headline inflation so as to reverse the government's
inflation-reducing gimmicks of the last four decades, which were designed specifically to
reduce/ understate COLAs.
Related graphs and methodology are available to all on the updated ALTERNATE DATA
tab above. Subscriber-only data downloads and an Inflation Calculator are available there,
with extended details in pending No. 1460 .
In this sense China and Japanese policies will influence the USA rates. If they cut buying
the US debt the writing for higher rates is on the wall. In a way, recent events might signal
that FED can lose the control over rate if and when foreign actors cut holding of the USA
debt.
Behavior of foreign actors is probably the key factor that will determine the rates in the
future.
Hedge fund managed reinvent old tricks on a regular basis. Regulators simply can't catch up and are not willing to catch up as
they are captured by big bonds.
NMR
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Cathy Chan and Steven Arons
Tue, April 13, 2021, 11:36 AM
More content below
NMR
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(Bloomberg) -- The collapse of Archegos Capital Management LP, an investment firm that few even on Wall Street had heard of
until it imploded last month, is changing a lucrative, decades-old part of global banking.
Nomura Holdings Inc. and Credit Suisse Group AG, the two lenders hit hardest, have started to curb financing in the
business with hedge funds and family offices. European regulators are looking at risks banks are taking when lending to
such clients, while in the U.S., authorities started a preliminary probe into the debacle.
Together, steps taken from Washington to Zurich and Tokyo could portend some of the biggest changes since the financial
crisis to a cornerstone of global banking known as prime brokerage. Typically housed in the equities units of large
investment banks, these businesses lend cash and securities to the funds and execute their trades, and the relationships
can be vital for investment banks.
But the collapse of Archegos, the family office of former hedge fund trader Bill Hwang, has underscored the risks banks are
taking with these clients, even when their loans are secured by collateral. Credit Suisse has been the worst-hit so far,
taking a $4.7 billion writedown in the first quarter.
The lender, one of the biggest prime brokers among European banks, is now weighing significant cuts to its prime brokerage
arm in coming months, people familiar with the plan have said.
It has already been calling clients to change margin requirements in swap agreements -- the derivatives Hwang used for his
bets -- so they match the more restrictive terms of other prime-brokerage contracts, people with direct knowledge of the
matter said. Specifically, the bank is shifting from static margining to dynamic margining, which may force clients to post
more collateral and could reduce the profitability of some trades.
Nomura, which is facing an estimated $2 billion from the Archegos fiasco, followed suit, with restrictions including
tightening leverage for some clients who were previously granted exceptions to margin financing limits, Bloomberg reported
on Tuesday. A representative for the Tokyo-based firm declined to comment.
Hwang's family office built positions in at least nine stocks that were big enough to rank him among the largest holders,
fueled by bank leverage that would have been unusual even for a hedge fund. Archegos was able to place outsize wagers using
derivatives and, as a private firm, avoid the disclosures required of most investors. Almost invisibly, he accumulated a
portfolio that some people familiar with his accounts estimate at as much as $100 billion.
While Hwang's financiers had clues about what Archegos was doing and the trades they had financed, they couldn't see that
he was taking parallel positions at multiple firms, piling more leverage onto the same few stocks, according to people
familiar with the matter.
In the U.S., regulators are already privately dropping hints of new rules to come. Securities and Exchange Commission
officials have signaled to banks that they intend to make trading disclosures from hedge funds a higher priority, while
also finding ways to address risk and leverage.
"Hopefully this will cause the prime brokerages of regulated banking organizations (and their supervisors) to re-assess
their relationships with highly leveraged hedge funds," Sheila Bair, a former chairman of the Federal Deposit Insurance
Corp., wrote on Twitter.
In Europe, the top banking regulator has asked some of the bloc's largest banks for additional information on their
exposure to hedge funds, people familiar with the matter said. While the checks by the European Central Bank on lenders
such as Deutsche Bank AG and BNP Paribas SA are standard practice after such a disruptive event, they underscore
regulators' concern, even as most euro-region banks skirted big losses.
"There is a need to scrutinize the reasons why the banks enabled the fund to leverage up to such an extent," ECB executive
board member Isabel Schnabel said in an interview with Der Spiegel last week. "It is a warning signal that there are
considerable systemic risks that need to be better regulated."
The big news continues to be a bifurcation between the currently unfolding Boom, fueled by
the fire hose of monetary and fiscal stimulus, and the fallout in the long leading forecast
based on the increase in interest rates as a result.
Likbez , April 13, 2021 1:50 pm
Basing your investment decisions on indicators derived from the past is like driving
the car using only rear-view mirror :-). I forgot to whom this quote belongs (buffet?)
but there is some truth to that.
Add to this that government stats are distorted (we can debate how much), especially
unemployment stats (U3 vs. U6 vs. reality). That same is true about inflation. Both are
highly politically charged metrics and as such is subject to political pressures both in
methodology and actual stats collection.
When 10 years treasures yield goes down from 1.7%, when stock market goes up and
inflation is up too, that suggests rising level of fear.
Lemming (aka 401K speculators) are pushed from bonds into riskier assets. We saw
this development before.
It is quite probable that stock market will be lifted further while economy as a whole
deteriorates. Then what?
Nothing will revive business that were closed during pandemic. Situation with the
commercial real estate now is very interesting indeed.
The problem in the US economy are systemic and they can't be patched with stimulus.
Financial oligarchy needs to be tamed. Regulations needs to be restored. And some most
obnoxious players jailed or eliminated by other means. Or, at least, the revolving door
needs to be closed for GS and company. As Jesse put it
"THE BANKS MUST BE RESTRAINED, AND THE FINANCIAL SYSTEM REFORMED, WITH BALANCE
RESTORED TO THE ECONOMY, BEFORE THERE CAN BE ANY SUSTAINABLE RECOVERY."
I think leverage in cryptocurrencies is higher then in other sectors, as this is the most
reckless speculators market by definition, so the collapse is quite possible
Our call of the day from Bank of America narrows down where investors see the most risk
these days. Fingers are pointing at the world's most popular cryptocurrency.
[Apr 13, 2021] U.S. Treasury yields slip despite surge in inflation to 2˝-year high by very small number of companies. Treasury yields slipped Tuesday after bond investors shrugged off an increase in U.S. consumer prices in March that sent yearly inflation measures to the highest level in two and a half years. Treasury yields slipped Tuesday after bond investors shrugged off an increase in U.S. consumer prices in March that sent yearly inflation measures to the highest level in two and a half years.
The 10-year Treasury note yield
TMUBMUSD10Y,
1.653%
fell
to 1.659%, down from 1.675% at the end of Monday, while the 2-year note
TMUBMUSD02Y,
0.168%
was
steady at 0.169%. The 30-year bond yield
TMUBMUSD30Y,
2.339%
slid
0.9 basis point to 2.336%.
What's driving Treasurys?
The U.S. consumer price index rose
0.6% in March, while the core gauge that strips out for energy and food prices came in
at an 0.3% increase.
The annual rate of inflation climbed to 2.6% from 1.7% in the prior month, marking the highest level since the fall of 2018.
'The ratio has certain limitations in telling you what you need to
know'
Who wouldn't love to replicate the investing success achieved by billionaire Warren Buffett?
This is why investors are drawn to stories about the "Buffett Indicator."
For those catching up, the Buffett Indicator is the value of a country's publicly traded
stocks divided by its gross national product (and
different people have different ways of
accounting for those
inputs ). This ratio first became associated with Buffett in a 2001
interview with Fortune's Carol Loomis where the investor characterized the ratio as
"probably the best single measure of where valuations stand at any given moment."
At the time he noted, the ratio was very high in the late 1990's, portending the dot-com
bubble which eventually burst.
At the 2017 Berkshire Hathaway ( BRK-A , BRK-B ) annual shareholders meeting,
Buffett fielded a question about the Buffett indicator as well as
Robert Shiller's legendary CAPE ratio . He had this to say: "Every number has some degree
of meaning. It means more sometimes than others...And both of the things that you mentioned get
bandied around a lot. It's not that they're unimportant They can be very important. Sometimes
they can be almost totally unimportant. It's just not quite as simple as having one or two
formulas and then saying the market is undervalued or overvalued ." (Emphasis ours.)
Sometimes it is prudent to stop investing for a while.. And what the author calls savers and investors should properly be called speculators. Petty speculators that serve as the feed for Wall Street sharks.
,,,valuations have never been so stretched at the beginning of an economic cycle. Savers need to plan for lower future returns.
S&P Composite 1500, cyclically adjusted price/earnings ratio
Source:
Prof. Robert Shiller
Note:
Economic troughs are defined by the National Bureau of Economic Research:
.
times
MONTHS
SINCE TROUGH
GDP
trough
1990-2001
2001-07
2007-20
2020-Now
-30
0
30
60
90
120
0
5
10
15
20
25
30
35
40
45
10:05 am ET
The S&P Composite 1500 is trading at a CAPE of 37. That is more than twice the historical average, though still less than the
dot-com bubble peak of 44. It reached 33 before the 1929 crash.
Historical data show that negative returns can happen at almost any level of valuation, but that overall there is still an inverse
correlation between CAPE and future 10-year equity returns. Usually, stocks progressively cheapen after economic growth reaches a
peak. Once they hit a bottom, they slowly become expensive again. In the 2009-2020 cycle, for example, CAPE started at 16 and ended
at 31.
Economic data have been phenomenal lately, lifting the U.S. stock market to new highs as
investors celebrate an end in sight to the global nightmare of the past year.
And so it's an awkward time to be a killjoy, even if just hypothetically.
The fiercest debate among market participants this year has revolved around inflation --
will it or won't...
None of this is to say risk markets are set to crash or that it's time to short
everything.
Parets says, "As long as US Financials are above those 2007 highs, it's tough to make a
structurally bearish case. The weight-of-the-evidence suggests this is just a messy environment
within a larger more macro advance for stocks."
He also highlights the bullish breadth thrusts in stocks over the last year, where large
numbers of stocks all advance simultaneously. "This first wave off the lows last year was
tremendous. All those breadth thrusts we've seen since June, and even through January this year
are characteristic of early cycle behavior. These thrusts historically show up near the
beginning of bull markets, not near the end of them. But one common denominator among all of
these longer-term bullish environments, is that there were corrections along the way."
Markets can correct through both price and time -- eventually working off excesses and
settling into equilibrium, waiting for the next catalyst.
Parets doesn't know how long it will take for markets to set up for the next big move.
However, he is looking at the energy sector for clues. "One tell will likely be how long it
takes for Energy stocks to digest this overhead supply from those former lows in early 2016,"
he says, referencing a chart of the Energy Select Sector SPDR Fund ( XLE ). "We're also looking for Small-caps, Mid-caps
and Micros to get back above those February highs. But again, how long will that take?"
In the meantime, investors may reduce position size...
"There are times to make money in the market, and then there are times to keep your money.
In sports, you play offense and you play defense," says Parets. "Offense sells tickets, but
defense wins championships."
The Bureau of Economic Analysis (BEA) recently published state personal income and GDP data
for the fourth quarter and 2020 calendar year. Most states suffered a massive decline in GDP in
2020's second quarter as governors followed the advice of public-health officials to shut down
businesses to "flatten the curve."
But the new data show that states that allowed businesses to reopen sooner, and maintained
fewer restrictions for the rest of the year, recovered by year-end. Real GDP for private
industries fell 1.3% nationally at an annual compounded rate between the first and fourth
quarters, according to BEA.
Yet there was large variation among the states. Hawaii's economy declined the most (-9.9%)
-- no surprise given its dependence on tourism. Wyoming (-6.6%) and other energy-producing
states were also slow to bounce back. New York's (-5%) recovery was third worst, and even New
Jersey (-2.3%) and Connecticut (-0.3%) fared better. Utah performed the best, growing 4.3%. It
also has the sixth lowest per capita Covid death rate.
More content below More content below More content below More content below More content below
More content below Jared
Blikre Sat, April 10, 2021, 8:22 AM
Warren Buffett's Berkshire Hathaway should scale back its passive investment in the S&P
500 ( ^GSPC ) and plow it
right back into Berkshire stock ( BRK-A , BRK-B) . That's because the environment for stock
picking is ripe for a shift away from passive investing, which could suffer a decade of low or
nonexistent returns.
"This is the single worst time to be a passive investor in since they started passive
investments... The [S&P 500] index is highly likely to not make money over the next 10
years," said Bill Smead, chief investment officer of Smead Capital Management, during the most
recent Yahoo Finance Plus
webinar on Wednesday. "Whether you look at historical price earnings ratios, whether you look
at the normalization of interest rates, whether you look at ridiculously high levels of
participation by individual investors -- compared to household network going back for decades,
it all points to the same thing. The markets are not designed to make the majority
succeed."
'You have to be a deviant to outperform'
In investing parlance, alpha is the return above and beyond a benchmark, such as the S&P
500 -- in other words, a trader's edge. By definition, an investor in an ETF that tracks the
index, such as the SPDR S&P 500 ETF ( SPY ), will see no alpha. But an active trader needs
to find alpha by thinking differently.
"Alpha comes from deviation. You have to be a deviant to outperform -- not a non-deviant,"
said Smead.
Not all stock pickers are alike.
Cathie Wood 's ARK Innovation ETF quickly became the world's largest actively managed ETF,
with $28 billion in assets under management at its February peak. Over the last year, the fund
loaded up on high growth names like Tesla ( TSLA ), Square ( SQ ) and the Grayscale Bitcoin Trust ( GBTC ).
Smead prefers a more value-focused approach that also incorporates growth strategies. He
uses a few recent examples to warn how quickly momentum trades can reverse. "[W]hen money comes
out of popular growth stocks, it's like a fire hose. And the companies that it's going into are
a teacup. You're pouring water from a fire hose into a teacup. And that's also part of what
happened with Reddit and Archegos," he said.
...Part of the runup in stock prices over the past year is due to the rebound in earnings we will see over the next few quarters.
However, now that interest rates, oil prices and the dollar index have each been rising for some time, earnings growth will almost
certainly peak and rollover next year, falling back into negative territory.
As the stock
market discounts fundamentals roughly 18 months into the future, according to Stan Druckenmiller, this bearish reversal in
fundamentals could begin to affect stock prices relatively soon.
Longer-term there is a very real risk to record-high corporate profit margins.
Over
the past decade, corporations have benefitted at the expense of labor to an unprecedented degree. This is already leading to
serious, "political problems," of the sort
predicted
by Warren Buffett
20 years ago. The current administration appears to view rectifying this situation as its primary mandate and
will, apparently, go about fulfilling it by, among other things,
raising corporate income
taxes and boosting a jobs market already showing signs of overheating.
Finally, as
Mehul
Daya
has demonstrated, history shows that rising interest rates regularly act as a bearish catalyst for both markets and the
economy. To the extent that low interest rates and easy money have encouraged and incentivized the unprecedented amount of leverage
supporting risk assets today,
the reversal in rates, which is already more
dramatic than anything we have seen in decades, threatens to reveal just how fragile markets and the economy have now become.
For the rest of the chart book and a more detailed discussion of these issues, check out the
interview, scheduled to be released tomorrow, at
MacroVoices.com
.
That seems to be the mood music at the White House; and the IMF; and the World Bank; and the
Fed, and in fact most central banks. All of them are busy building back better-ly. Ambitious
global tax plans are on the table to wipe tax havens off them; US spending plans are being
pushed; and Treasury Secretary Yellen is talking about "labor vs. capital": perhaps she will
soon add "M > C > MP > C+ > M+" to underline how the economy actually works, which
none of the neoclassical models at the Treasury or the Fed do?
Regardless, US yields are heading lower, the US dollar is heading down, and US stocks are
heading up, in a continuation of their own long-running impossible dream . Let me tell you a
tall tale: perhaps just one man is ultimately responsible for that right now - US Democrat
Senator Joe Manchin. He appears on what some might see as an anti -quixotic quest that may stop
the White House from tilting at any windmills (or solar panels or broader
"infrastructure").
Senator Manchin yesterday reaffirmed via a Washington Post op-ed that he will not back
proposed changes to the Senate filibuster rule (" I have said it before and will say it again
to remove any shred of doubt: There is no circumstance in which I will vote to eliminate or
weaken the filibuste r") or support " shortcutting the legislative process through budget
reconciliation ." Both of those statements, if not negotiating positions, will prove to be
giants obstructing the path of President Biden's domestic agenda. It doesn't mean nothing will
get done – but it means nothing like what some people were recently thinking was going to
get done now will.
If so, as stocks and bonds ebulliently suggest, there is still a white knight to save us,
however : those plodding Sancho Panzas turned would-be dashing Dons, our central banks . It is
they who will continue to chase their own impossible dream of saving the world via yield curve
manipulation and junk asset purchases without lancing price-discovery and capitalism at the
same time. On a related note, Fed Chair Powell spoke yesterday against a backdrop of
supply-chain stresses that mean
Americans can't get ketchup to go with their fries , and explained he isn't worried about
inflation, but infections. As I keep repeating, this stance is only logically consistent if one
really *is* thinking about labour vs. capital: but Fed policy cannot deal with that populist
'red' issue any more than it can with a popular red condiment. It's all fiscal and
political-economy, which seems a dream too far at the moment.
Some might think it remarkable that the fate of the US economy, and hence the world economy,
can really turn on the actions of just one man. Welcome to the absurdity of real life. As
Cervantes noted: "When life itself seems lunatic, who knows where madness lies? Perhaps to be
too practical is madness. To surrender dreams -- this may be madness. Too much sanity may be
madness -- and maddest of all: to see life as it is, and not as it should be!" At least Manchin
was elected. By contrast, who elected central banks? (On which, what happens if the US, or
anywhere, elects an administration which wants to move away from a green economy when their
"independent" central bank has pledged to support the transition towards one? Has anyone
thought about that, or are we all too busy singing from the same hymn sheet to suppose it could
ever happen?)
Interesting combination: Rise of fear in bond market along with rising recklessness in
stoack markets
10-year U.S. Treasury note fall as low as 1.628% for a second straight day as it continues
to back away from a 14-month high of 1.776% hit in late March.
...
The recent pullback in yields has helped high growth names such as those in the technology
sector, the best performing sector on the day, while megacap stocks such as Apple , Microsoft
and Amazon were the biggest boosts to the S&P 500.
The gains have also sent the tech-heavy Nasdaq to a seven-week high and within 2% of its
February 12 record closing high.
The Russell 1000 growth index, which consists of tech-related stocks, gained 1.05%, while
its value counterpart , comprising mostly financials and energy names, slipped 0.11%.
For low-income Americans, it has been a double-whammy of job losses
(the total
number of Americans receiving jobless benefits from the government has basically stagnated for the last four months)...
Source: Bloomberg
...and significant increases in the costs of living.
As
Bloomberg
reports
, while the headline consumer inflation rate in the U.S. remains subdued, at 1.7% - but it
masks
large differences in what people actually buy
.
If you like to eat,
food-price inflation is running at more than double the headline rate
,
and staples like household cleaning products have also climbed.
Source: Bloomberg
if you drive a car,
gas prices have soared
in recent months...
Source: Bloomberg
All of which might explain why confidence among the lowest income Americans is lagging significantly (because
groceries
or gas take up a bigger share of their monthly shopping basket than is the case for wealthier households, and they're items that
can't easily be deferred or substituted
)...
Source: Bloomberg
An analysis by Bloomberg Economics
, which reweighted consumer-price baskets based on the spending habits of different income
groups, found that
the richest Americans are experiencing the lowest level of inflation
.
"On average, higher-income households spend a smaller fraction of their budgets on food,
medical care, and rent, all categories that have seen faster inflation than the headline in recent years, and 2020 in
particular."
The question of who exactly gets hurt most by higher prices could become more urgently concerning as most economists - and even The
Fed itself - expect inflation to accelerate in the next 12 months.
So, in summary, The Fed is telling Americans - ignore "transitory" spikes in non-core inflation (such as food and energy), it's just
temporary and base-effect-driven (oh and we have the "tools" to manage it). However,
despite
all The Fed's pandering and virtue-signaling about "equity" and "fairness", it is precisely this segment of the costs of living that
is crushing most of the long-suffering low-income population ($1400 checks or not)
.
And now all eyes will be on this morning's PPI print which is expected to surge to +3.8% YoY.
Bond markets are firmly in the driving seat. For too long, inflation has disappeared from
investors' radar. The key ones include a hostile environment for trade and globalisation,
business and labour support public programmes and the extraordinary debt burden fuelled by the
pandemic. These are set to create a turning point in the current market regime before long.
My simple solution is to turn the vacant malls into giant marijuana growing operations,and
huge meth labs,and use the revenue from the meth and weed sales to balance the Federal
budget..As an additional plus,you put the Mexican drug cartels out of business,which can't be
a bad thing,either
FurnitureFireSale 26 minutes ago
The smile on the side of the Prime trucks looks like a big wang (Bezos's?) saying "F-U,
take THIS!" to all the small businesses. Once you see it, you cannot unsee it.
Puppyteethofdeath 14 minutes ago
Turn them into homeless shelters.
744,000 Americans filed for 1st time unemployment last week.
Every week the numbers are the same.
no cents at all 5 minutes ago
Yet mall property owners and their ilk have equity prices in the stratosphere. Same with
cruise lines. A mystery. (Although doesn't take scooby doo to understand why)
The situation with office and retail space after COVID-19 is simply bad. There will be no return to previous state. And this situation generall reflact that general situation in the US economy/ In this sense stock market is completely detached from reality, fueled by speculation and 401K inflows. The latter makes passivly managed funds like based on S&P500 index yet another Ponzi scheme.
Office and retail vacancies are up, driving rents down, but the first quarter vacancy
rate at regional and super-regional malls stands out. The
record
11.4% rate
is a 90-basis-point jump from the previous quarter, according to Moody's Analytics REIS.
The vacancy rate at those malls is up 0.4% year over year, with asking rents down 1%
and effective rents (which adds in other variables that affect occupancy cost) down 1.5%.
Given the ongoing structural changes in the U.S. mall sector, that's not likely the
bottom, according to a report from Moody's Analytics Senior Economist Thomas LaSalvia.
... "
Both office and retail are going through a structural change that will continue to
cause many firms to look closely at their respective footprints,"
LaSalvia said
.
"As their leases expire, it is likely some will move or downsize, putting further downward pressure on rents and vacancy rates
through this year and into 2022."
The fate of malls is the most dire. Retailers were already shrinking their footprints,
especially at malls, well before the pandemic. The flight of anchors has also picked up, as department stores like Nordstrom
and Macy's increasingly
shy
away from the mall.
Since the start of the pandemic, with retail businesses scrutinizing their store productivity more
closely than ever, much power has
shifted
away from landlords
, which are making more concessions to lease terms.
..."[R]
etail is slogging through the evolutionary process that started well before the
pandemic,"
LaSalvia said
. "Malls are of more concern than neighborhood centers,
but even then, it is unlikely that we will close down every single mall in the US."
9.1ontherichterscale
34 minutes ago
(Edited)
Who wants
to go to a mall to be immersed in all sorts of diversity?
Malls
were nice in the 1980s.
SMC
13 minutes ago
Strength through diversity expects that each human will on average, provide their best and not be silenced
or restrained by expectations of physical and/or intellectual equality.
Our
ancestors fought and bled so all citizens are free men and women. The virtual chains some citizens wear
today are of their own making. If they are not tossed aside, tomorrow they may real for all.
FurnitureFireSale
30 minutes ago
I
don't feel like dealing with hood rats. Most of America feels the same way, I suspect.
PGR88
26 minutes ago
(Edited)
Our
local mega-mall, when it was functioning "normally" a decade ago, needed an actual army of hired security
on Thursday/Friday/Saturdays to manage the local hood rats who crossed the highway from the ghetto, to
prevent them from tearing the place apart.
CheapBastard
25 minutes ago
Mall
vacancies and business closures all time high under Biden.
Fact
Checked : True ✔️
yerfej
11 minutes ago
Sometimes reality bites.
homeskillet
17 minutes ago
The Malls will also be listed as a Covid fatality, but they had many other underlying causes...
like a
motorcycle accident being listed as a Covid fatality.
itstippy
23 minutes ago
The
big mall in Madison, WI (East Towne Mall) has been dying for a couple decades now, but all kinds of Big Box
stores and chain restaraunts around it have been thriving. As mall traffic diminished every year, Gander
Mountain, Cabellas, Target, and many others built giant retail outlets in the same area stealing the mall's
business. Dozens of chain restaraunts moved in too. Traffic was busy, busy.
Now
the entire area, mall and surrounding retail, is dying. It started before the Covid-19 retail catastrophe
and I doubt it will reverse. People sit at home, buy stuff from Amazon, buy food from Go Grub, and get
social interaction on Twitter & Facebook.
The
mall has nothing left but a Sunglasses Hut and a store that sells cinnamon sticky buns.
arby63
29 minutes ago
Too much has changed for traditional malls to survive. I cannot imagine a solid path forward.
adr
25 minutes ago
(Edited)
You
can go to what was one of the busy high end malls outside Boston, and see half of it empty.
The
stores that are open only allow five to eight customers in at a time, and have a ten minute time limit for
you to spend inside. Stores worth going to have lines of people outside. You are also pretty much forced to
buy something, otherwise the people waiting in line scream at you for wasting their time.
The
food courts are open, but only for takeout. You can't sit in the mall and eat.
It is
just about the worst experience you can have. Then you can't even go to a bar, because all bars in
Massachusetts are still closed. You can only get alcohol if you are eating food.
American savers could once count on bonds to provide meaningful returns with modest risk. Not anymore.
More than a decade of easy money has kept the U.S. economy afloat in times of crisis and fueled an
unprecedented boom in financial markets.
But it's also created a whole new series of risks, especially for savers.
Where there was once a vast pool of safe debt in which they could park their cash and count on annual
payouts of 5% or more -- comfortably above inflation -- today there's little more than a puddle, and a shrinking one at that. In fact,
never has the amount of new government and corporate debt paying even modest yields been so minuscule.
Institutional investors and savers looking for a 5% annual interest rate had plenty of new bond and loan offerings rated BB
and above to choose from prior to the 2008 financial crisis. These included debt from government-sponsored mortgage-loan
companies like Fannie Mae and Freddie Mac.
$932.6B
580 parent issuers
Rating:
BB
BBB
A
AA
AAA
$84.0B
Federal National Mortgage
Association
(Fannie Mae)
$179.4B
Federal Home Loan Banks
$85.2B
Federal Home Loan Mortgage Corp
(Freddie Mac)
By 2019, after a decade in which the Federal Reserve kept benchmark rates near zero, the pool had shrunk dramatically, despite
the fact that issuance of new debt was near record levels. Debt rated A or above paying 5% virtually disappeared, leaving the
vast majority of such offerings rated in the lowest tier of investment-grade, or worse.
$333.0B
301 parent issuers
$7.5B
Altice USA Inc
▼
$11.7B
◀
The Walt Disney Company
Now, after the Fed's unprecedented intervention in bond markets drove rates down even further in the pandemic, finding anything
paying more than 5% has become difficult, except for investors willing to dip into the riskiest parts of the junk-bond market.
While cheap borrowing costs have been a boon for corporate America, the same can't be said for money managers that need to
generate returns that match their long-term obligations.
$131.7B
138 parent issuers
$23.9B
Petroleos Mexicanos
The repercussions -- for pension managers, endowments, insurance companies and 70 million baby boomers starting
their retirements -- are vast. Sure, yields aren't negative like in much of Europe, but many are nonetheless being forced to, as
legendary investor Warren Buffett recently
put it
, "juice the pathetic
returns now available by shifting their purchases to obligations backed by shaky borrowers."
Others may choose to heed the advice of Ray Dalio, the founder of hedge fund giant Bridgewater Associates, who
now recommends
avoiding the U.S. bond market
entirely and focusing on higher-returning, non-debt investments.
Junk's Rock-Bottom Rates
The average yield on bonds rated BB and lower recently fell to a record low.
Average yield
12%
Covid-19
Recession
▶
10
8
6
3.89%
4
2011
2013
2015
2017
2019
2021
While the potential payout is greater, such moves also carry significant risk, especially for groups
previously accustomed to holding only the safest assets.
It's possible that as savers push deeper into lower-rated debt, equities and more esoteric markets, the
reckoning never comes.
But most know that's ultimately unlikely.
"It's a struggle that all of the public pension plans have been facing for a number of years -- there are some
solutions, and there are some hope and pray trades," said Steve Willer, who helps manage $21 billion as deputy chief investment
officer at the Kentucky Public Pensions Authority, which has lowered certain return targets amid the changing investment
environment. "People are having to be more creative in looking at different segments of the debt market. That comes with
different risks."
Source: Bloomberg compilation of government and corporate dollar-denominated bond and loan offerings with a yield of 5% or more
at issue and at least one BB- or higher rating from S&P Global Ratings, Moody's Investors Service or Fitch Ratings. Issuance is for
the six months ended March 31. Debt amounts are aggregated by issuer and ratings tier. Data includes debt issued in exchange for
older bonds and notes linked to currencies that may yield more than traditional securities.
Editors: Boris Korby, Natalie Harrison and Alex Tribou
Judge James C. Ho is absolutely correct to imply it is profoundly offensive to be offered
opportunity based on race rather than merit ("
Notable & Quotable: Judges ," March 27).
When I was approaching graduation and beginning my job search, a friend of the family, who
was Jewish himself, approached me with an opportunity. His accounting firm, one of the "Big
Eight" firms, had inquired if he knew any young Jewish accountants it could hire because it
didn't have any Jews working in the firm. The family friend told me this was a wonderful
opportunity and that I would be made partner and become prosperous. He was shocked when I
responded no, and asked why. I told him if I accepted this offer, I would never know if I was
successful because I was Jewish or because I was talented and skilled.
The Remarkable Accuracy of CAPE as a Predictor of Returns
by
Michael
Finke
,
7/20/20
On
July 21, 2020, this article was corrected to attribute the term "animal spirits" to John Maynard Keynes instead of Adam
Smith.
What return can I expect from my stock investments over the next 10 years?
The most common answer is to use the historical average. The geometric average historical return on the S&P 500 is about
10%.
Is it reasonable, then, to project 10% stock returns?
Another method is to consider the valuation of stocks. If stocks are at a higher price than their historical average as a
multiple of recent earnings, can we then expect a lower return than we have in the past?
Can valuations predict future earnings?
There have been a number of recent criticisms of Robert Shiller's measure of stock valuation – the cyclically-adjusted
price to earnings ratio (CAPE) – as a predictor of future stock returns. A 2017
Advisor
Perspectives
article
pointed
out that the ratio wasn't a realistic measure of future stock returns because 10-year earnings included the global
financial crisis. Others have
argued
that
changes in accounting rules mean that you can't compare today's CAPE to historical CAPE. An
analysis
by
Vanguard found that the R-squared, or predictive ability, of the Shiller CAPE and 10-year returns between 1926 and 2011 was
0.43. Although 0.43 is high for an asset whose returns are assumed to be random, it gives CAPE critics a reason to dismiss
its value.
Care to guess how well the monthly CAPE predicted future 10-year returns between January 1995 and May 2020?
In a period where accounting rules changed and the 2008 global financial crisis decimated profits, CAPE explained 90% of
the variation in 10-year returns. Here's what it looks like when I model 10-year nominal, annualized, geometric returns
starting every month from January 1995 through June 2010 (185 blue dots) as a function of their CAPE value during this
period:
The standard deviation of the error (how far off the prediction was from the actual value) is 1.37%. This is the difference
between the predicted annual return (the yellow dot) and the actual return (the blue dot) at each initial Shiller PE ratio.
In other words, 67% of the time the return was plus or minus 1.37% from the CAPE model prediction; and 95% of the time the
actual return was within 2.74% of the future 10-year predicted returns. CAPE's ability to predict 10-year future returns
during the last 25 years has been remarkable.
As I write this, the S&P CAPE is 29.28. The 10-year return we can expect using the 1995-2020 model is 5.89%, with a 67%
probability that it will be between 4.52% and 7.26%. This is about 1% per year lower than Blackrock's 10-year capital
market
expectations
for
large-cap U.S. stocks, but still in the ballpark.
Over the next 10 years, a hypothetical equity return of 10% is exactly three standard deviations above what the CAPE model
would predict (5.89%). If returns are normally distributed, a 10% S&P return has about a 0.3% chance of occurring (or a
99.7% chance of not happening).
Was the 1995-2020 period different than historical periods? As the Vanguard study notes, CAPE predicted only 43% of the
variation in 10-year S&P returns between 1926 and 2011. You might expect that the recent predictability of CAPE is an
anomaly.
Since 1975, the Shiller CAPE has explained 85% of variation in future stock returns. In fact, CAPE's ability to predict
10-year returns was remarkably strong until just before the Great Depression. The R-squared starting at 1940 is 0.7. It's
hard to dismiss the value of an indicator that can predict 70% of the variation in future stock returns.
The figure below shows CAPE's ability to predict 10-year returns beginning in 1920. I started with the Jan 1995-May 2020
time period and went back in time to estimate how the R-squared changed within various periods. The predictability of the
CAPE model has remained consistent in the post-WW2 era, but the lower predictive power prior to 1975 may mean that the
expected future 10-year return of stocks starting from a CAPE of 20 using the 1940 model may differ from the predicted
return on stocks using the 1975 or 1995 models. Again, it's not much different.
The marginal effect of investing in a higher CAPE stock market today is remarkably similar to investing in high-CAPE
periods through the latter half of the 20th century. For each point increase in CAPE, investors should expect a 10-year
stock return that is just over half a percent lower. Higher stock returns after 1975 pushed the predicted value up slightly
compared to the 1940 model, but not by a huge amount. For example, the predicted S&P return from investing when CAPE values
are 20 is 11.1% in both the 1975-2020 and 1995-2020 periods, and 9.8% in the 1940-2020 period.
An investor can grab the current
CAPE
ratio
online and refer to the table below to estimate (with a surprising degree of confidence) the expected return on
an equity portfolio over the next 10 years. For a one standard deviation range, add plus or minus 2% to the predicted
values for the earlier time periods.
How can stock returns be this predictable? In 1981, economist Robert Shiller rocked the efficient market world when he
asked a simple question: If stock prices are rational, why are they so much more volatile than dividends? Historical
dividends don't bounce around all that much, while stock prices exhibit wild swings in value that don't reflect future
volatility in cash flows. Something must be amiss.
Shiller's article heralded a new stream of literature on the impact of market sentiment, or what John Maynard Keynes
referred to as "animal spirits," on stock prices. Sometimes people are more excited about the idea of investing in stocks,
and other times they lose their nerve. This results in valuation swings that are higher during periods of economic
expansion and positive sentiment, and fall during recessions when investors are pessimistic.
In my own
research
,
I have found that measured risk tolerance of retirement plan participants rises and falls with periods of high and low
market sentiment. During the global financial crisis, risk tolerance, measured using a popular financial planning
instrument, had a
0.9
correlation
with the S&P 500 and a high correlation with other measures of consumer sentiment. Investors' appetite for
investment risk is not constant.
What is a stock return? According to the capital asset pricing model, a stock returns consist of a risk-free return and a
risk premium. The risk premium is the amount of extra expected return that is needed to incent risk-averse investors into
buying a stock instead of a bond. The Sharpe Ratio of the market portfolio is positive because investors are generally risk
averse, but sentiment can drive the reward for risk up or down. What if the price of risk is driven predictably by market
sentiment?
A risk premium that rises and falls with changes in investor risk tolerance has enormous implications for portfolio
construction. When investors are risk averse, the market Sharpe Ratio rises and investors receive a greater reward for
taking investment risk. When investors are risk tolerant, the Sharpe Ratio falls and investors don't get as much juice from
buying stocks instead of bonds.
The predictability of CAPE presents a problem for those who use historical mean returns to project future returns. Although
often considered heresy, return predictability also challenges the investment policy approach of maintaining a constant
asset allocation.
Why? Let's assume two investors – one is a Vulcan and the other a behavioral human whose risk preferences depend on market
sentiment. The Vulcan will simply look at current valuations and adjust asset allocations based on the expected return
being offered by the market. If the CAPE is 34, the expected stock return is between 2% and 4% over the next 10 years. This
paltry compensation for taking investment risk means that the Vulcan will select an optimal portfolio with a lower
percentage of stocks. Conversely, the Vulcan will go all-in on stocks when CAPE ratios revert to the teens.
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The behavioral investor is willing to accept low-return stocks during an economic expansion because they are highly risk
tolerant. During a bear market, they suddenly become risk averse and avoid investing in stocks. A constant equity
allocation can help the behavioral investor rebalance toward risk when markets fall and away from risk when markets rise in
value. Maintaining a constant allocation is better than the alternative, and automatic rebalancing is one of the reasons
target-date fund participants outperform other fund investors.
Constant equity allocations are still not optimal.
Rebalancing toward a desired equity allocation is not optimal because the Vulcan can do better by responding to what
markets are willing to pay for risk. Building valuation-based portfolios is hard because portfolio managers and individual
investors aren't Vulcans. They don't want to take more risk after markets fall. They don't want to reduce risk when markets
rise.
But investors would be wise to think of CAPE as the price of risk. An investor is a price-taker walking through the aisle
of the investment store. When risk is on sale, investors should buy more risk. When risk is expensive, they should buy
less. And they shouldn't expect to eat as well when, like today, nothing in the investment store is on sale.
Michael Finke, PhD, is a professor of wealth management and the Frank M. Engle
Distinguished Chair in Economic Security at The American College of Financial Services.
Looking Back at Jeremy Siegel on the Business Cycle and the Markets
by
Erik
Conley
,
7/10/18
Advisor Perspectives
welcomes guest contributions. The views presented here do not
necessarily represent those of
Advisor Perspectives
Dr. Jeremy Siegel, professor of finance at The Wharton School of the University of Pennsylvania, has done a remarkable
study of the returns of different types of assets over the past 200 years. He published his findings in the book
Stocks
for the Long Run
in 1994. He has updated the book several times, most recently in 2014. It is surely one of the best
books on investing of all time.
This article focuses on chapter 15 in Siegel's book, "Stocks and the Business Cycle." This chapter was a revelation to me
when I first read it in 1994. It makes so much sense, and yet it's rarely discussed in the financial literature. It's as if
Siegel discovered a gold mine and nobody else was interested. I'll give you the short version of this landmark chapter.
Cliff notes for chapter 15 of
Stocks
for the Long Run
Invariably the stock market turns down before a recession hits and rises before it is over. Of the 47 U.S. recessions since
1802, 43 (9 out of 10) have been preceded by stock market declines of 8% or more. The table below is from the book.
Stock Prices and Business Cycle
Peaks, 1948-2017
If an investor went to cash or Treasury bonds four months before each recession, the gains would be significant. The
problem, of course, is knowing when to get back into stocks.
Here's where the real money is
made
I have a voracious appetite for anything related to the stock market, the economy and behavioral science. When I come
across information like what is shown in these tables, I pay attention. Is it just coincidence, or is there something else
going on? Do stock market investors "sense" when a recession is coming, precipitating a market decline? To answer this
question, we also must talk about false signals.
Recession False Alarms by Stock
Market, 1945-2017
The stock market telegraphs the onset of a recession, but it also gives false signals. What are we to make of this?
Market declines that are not followed by a recession (false signals) are notably shorter in duration and less severe than
declines that presage recessions. This is an easy hurdle to clear. When the market is in decline, but the economic
indicators are healthy, investors should stay invested and take the short-term pain that the market is dishing out.
If, on the other hand, the economic indicators are in decline, an aggressive and proactive defensive strategy is warranted.
That might involve cutting back on equity exposure, buying a put on the market or switching from stocks to bonds. Each
investor must decide for him/herself how to play defense.
Why go to all the trouble?
According to Siegel, an investor who correctly plays defense stands to gain as much as 5% per year in returns, versus an
investor who simply stays put throughout recessionary periods. This is more than enough reward for going to all the
trouble. Here is what Siegel had to say in his book:
My studies show that if investors could predict in advance when recessions will begin and end, they could enjoy superior
returns to the returns earned by a buy and hold investor. Specifically, if an investor switched from stocks to cash or
short-term Treasuries 4 months before the start of a recession and back to stocks 4 months before the end of the recession,
he or she would gain almost 5 percentage points over the buy and hold investor.
Gains through timing the business cycle – Part 2
We now move from the theoretical aspects of Siegel's research to the practical realm. We do this by looking at actual
returns, using real clients with real money invested, by applying various investment strategies over the past 20 years.
The numbers in the table below come from actual client accounts, beginning in 2002. Prior to 2002, the numbers come from
back testing, using the identical strategy parameters.
I would like to draw your attention to the 6th strategy in the table – "Recession Defense." This is the strategy I designed
to capture the 4-5% bonus returns from timing the business cycle, as described in Siegel's book.
The returns for the Recession Defense strategy are the same as they are for a traditional buy-and-hold strategy for the
time period that began after the last recession. This is because the strategy is only invoked at the early stages of a new
recession forecast. Most of the time this strategy will remain operating quietly in the background until it's needed.
Once the model raises the alarm for a new recession, the returns for buy-and-hold and Recession Defense start to diverge.
At the end of the full 20-year period, the Recession Defense strategy has outperformed the buy-and-hold strategy by 13% per
year. If that seems hard to believe, consider this. The last 20 years included two severe recessions and two severe bear
markets. All an investor had to do was get out of the way when the warning signs were there and get back into stocks when
the model sounded the all-clear. Yes, it can be and has been done.
As I said earlier, my model isn't perfect (87% accuracy score), and it's not the only one. But it has worked well enough to
add substantial value to my clients' portfolios over time.
If you decide to stand pat during recessions, eventually you will get back to even. This is why the buy-and-hold doctrine
is so appealing, and Siegel is a big advocate of this doctrine. But here's the thing. A bear market may not cost you money
in the long run, but it will certainly cost you time, and lots of it.
For example, those unfortunate souls who bought into the stock market mania in 1929 not only lost their collective shirts
in the downturn, but it took them more than 20 years to get back to even. Do you have 20 years to wait to get back to even?
Recession forecasting
Returning once again to Siegel,
If one could predict in advance when recessions will occur, the gains would be substantial. That is perhaps why billions of
dollars have been spent trying to forecast the business cycle. But the record of those efforts is extremely poor.
My own research agrees with that statement. Forecasting recessions is extremely difficult. But it's not impossible. I know
of at least three recession forecasting services (
here
,
here
and
here
)
that have been around for at least a decade and have accuracy scores of 80% or higher. (I did my own analysis on their
published forecasts to arrive at this accuracy score.) I also have my own recession forecasting model that has an 87%
accuracy score, using the same analysis methods I used for the other three forecasting services.
The benefits of having a contingency plan
Unless you're financially independent, stock market investing is going to play an important part in your retirement
planning. The whole point of financial planning is to find a way to make sure your cash doesn't run out before you do.
But investing in stocks means you're going to go through some harsh market declines. Investors who expect to earn generous
returns while watching their net worth rise smoothly are fooling themselves.
The best way to protect your nest egg from the next bear market is to plan ahead. Having a contingency plan, even a simple
one, will save you from the worst parts of a bear market. You will never be able to sell at the top and buy back in at the
bottom, but if you can avoid the worst months of a bear market, your returns will be significantly higher than a
buy-and-hold investor.
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Perspectives
A contingency plan is an add-on to your strategic plan. Brokers, advisors and planners often don't cover this critical
aspect of investment planning. The advice industry does a good job of designing plans that serve investors well while the
economy and the market are healthy and growing. That's how it is about two-thirds of the time. But what about the other
one-third of the time? Their standard answer is "Don't worry about it, just stay invested and ride the waves."
That's not bad advice for many investors, especially those who don't have the time to fiddle with their investment
accounts. Many others just aren't interested in investing, so not worrying about bear markets or recessions makes perfect
sense for them. For those who do care about bear markets, there is a better alternative: your "plan B."
An example of a contingency plan
A contingency plan doesn't have to be complicated to be effective. What's required is to take some time, perhaps an hour,
and think about what you should do when things start to fall apart. The method I teach my clients is setting up a simple
rules-based tactical plan that tells them exactly what to do, and when to do it. For example
This is a very simplistic example. But with such a plan in place, you don't have to stress about what to do. You just look
at the recession indicator and follow your own instructions.
Final thoughts
Recessions and bear markets are two of the topics about which I'm the most passionate. I've devoted most of my career to
studying the link between the two, and the models I designed are the result of hundreds of hours of effort. I would be
happy to answer any questions you have about this topic, and I encourage you to sign up for the free stuff on my website,
like the weekly newsletter, the mini-courses in investment theory, and the quizzes.
Erik Conley was a trader and portfolio manager from 1975-2001 and former head of equity
trading at Northern Trust Co. in Chicago. He is now a private investor, founder of a nonprofit investor advocacy firm and
private investing coach.
B Bill Hestir SUBSCRIBER 1 day ago Stocks Soar As Bank Aid Ends Fear of Money
Panic
By W. A. Lyon in the New York Herald Tribune on March 28, 1929
The stock market strode out from under the shadow of a panic in call money that so lately
threatened, but was revived in all its old strength yesterday.
Assured that the New York banks were ready with their boundless resources to prevent a
money crisis, the public and the professional trader set out to repair the damage done to
prices on Monday and the major part of Tuesday.
Stocks in the aggregate, though bucking a 15 per cent rate for loans, enjoyed the
greatest advance they have known in a single day in the last two years. Not even the surging
bull markets of the memorable year 1928 saw such a day of heavy buying. Like
thumb_up 8 Reply reply Share link Report
flag
P Peter Hayes SUBSCRIBER 1 day ago This totally looks like 1929 all over again. Maybe we'll
even see "Bidenvilles" popping up at some future date.
[Apr 08, 2021] Financial crises get triggered about every 10 years -- Archegos might be right on time by Paul Brandus Paul Brandus Financial crises are never quite the same. During the late 1980s, nearly a third of the nation's savings and loan associations failed, ending with a taxpayer bailout -- in 2021 terms -- of about $265 billion. In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- Financial crises are never quite the same. During the late 1980s, nearly a third of the nation's savings and loan associations failed, ending with a taxpayer bailout -- in 2021 terms -- of about $265 billion. In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- Long-Term Capital Management (LTCM). Its reach and operating practices were such that Federal Reserve Chairman Alan Greenspan said that when LTCM failed, "he had never seen anything in his lifetime that compared to the terror" he felt. LTCM was deemed "too big to fail," and he engineered a bailout by 14 major U.S. financial institutions. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data.
Here's the potential danger. Family offices generally aren't regulated. The 1940 Investment Advisers Act says firms with
15 clients or fewer don't have to register with the Securities and Exchange Commission. What this means is that trillions
of dollars are in play and no one can really say who's running the money, what it's invested in, how much leverage is being
used, and what kind of counterparty risk may exist. (Counterparty risk is the probability that one party involved in a
financial transaction could default on a contractual obligation to someone else.)
The problem is that only about a third of that, or $10 billion, was its own money. We now know that Archegos worked with
some of the biggest names on Wall Street, including Credit Suisse Group AG
CS,
+0.74%
,
UBS Group AG
UBS,
-0.18%
,
Goldman Sachs Group Inc.
GS,
+1.41%
,
Morgan Stanley
MS,
+1.47%
,
Deutsche Bank AG
DB,
-0.88%
and Nomura Holdings Inc.
NMR,
-1.30%
.
But since family offices are largely allowed to operate unregulated, who's to say how much money is really involved here
and what the extent of market risk is? My colleague Mark DeCambre reported last week that Archegos' true exposures to bad
trades could actually
be closer to $100 billion
.
Danger of counterparty risk
This is where counterparty risk comes in. As Archegos' bets went south, the above banks -- looking at losses of their own
-- hit the firm with margin calls. Deutsche quickly dumped about $4 billion in holdings, while Goldman and Morgan Stanley
are also said to have unwound their positions, perhaps limiting their downside.
So is this a financial crisis? It doesn't appear to be. Even so, the Securities and Exchange Commission has opened a
preliminary investigation into Archegos and its founder, Bill Hwang.
One peer, Tom Lee, the research chief of Fundstrat Global Advisors, calls Hwang one of the "top 10 of the best
investment minds" he knows.
But federal regulators may have a lesser opinion. In 2012, Hwang's former hedge fund, Tiger Asia Management, pleaded
guilty and paid more than $60 million in penalties after it was accused of trading on illegal tips about Chinese banks. The
SEC banned Hwang from managing money on behalf of clients -- essentially booting him from the hedge fund industry. So Hwang
opened Archegos, and again, family offices aren't generally aren't regulated.
Yellen on the case
This issue is on Treasury Secretary Janet Yellen's radar. She said last week that greater oversight of these private
corners of the financial industry is needed. The Financial Stability Oversight Council (FSOC), which she oversees, has
revived a task force to help agencies better "share data, identify risks and work to strengthen our financial system."
Most financial crises end up with American taxpayers getting stuck with the tab. Gains belong to the risk-takers. But
losses -- they belong to us.
To paraphrase Abe Lincoln, family offices -- a multi-trillion dollar industry largely
allowed to operate in the shadows in a global financial system that is more intertwined than ever -- are of the
super-wealthy, by the super-wealthy and for the super-wealthy. And no one else.
The Archegos collapse may or may not be the beginning of yet another financial crisis. But who's to say what thousands
of other family offices are doing with their trillions, and whether similar problems could blow up?
In 2007, I was at a conference
where Paul McCulley, who was with PIMCO at the time, was discussing the idea of a "Minsky Moment." At that time, this idea
fell on "deaf ears" as the markets, and economy, were in full swing.
However, it wasn't too long
before the 2008 "Financial Crisis" brought the "Minsky Moment" thesis to the forefront. What was revealed, of course, was
the dangers of profligacy which resulted in the triggering of a wave of margin calls, a massive selloff in assets to cover
debts, and higher default rates.
Economist Hyman Minsky argued
that the economic cycle is driven more by surges in the banking system, and in the supply of credit than by the
relationship which is traditionally thought more important, between companies and workers in the labor market.
In other words, during periods
of bullish speculation, if they last long enough, the excesses generated by reckless, speculative, activity will eventually
lead to a crisis. Of course, the longer the speculation occurs, the more severe the crisis will be.
Hyman Minsky argued there is
an inherent instability in financial markets. He postulated that an abnormally long bullish economic growth cycle would
spur an asymmetric rise in market speculation which would eventually result in market instability and collapse. A "Minsky
Moment" crisis follows a prolonged period of bullish speculation which is also associated with high amounts of debt taken
on by both retail and institutional investors.
One way to look at "leverage,"
as it relates to the financial markets, is through "margin debt," and in particular, the level of "free cash" investors
have to deploy. In periods of "high speculation," investors are likely to be levered (borrow money) to invest, which leaves
them with "negative" cash balances.
While margin balances did
decline in 2018, as the markets fell due to the Federal Reserve hiking rates and reducing their balance sheet, it is
notable that current levels of "leverage" are still excessively higher than they were either in 1999, or 2007.
This is also seen by looking
at the S&P 500 versus the growth rate of margin debt.
The mainstream analysis
dismisses margin debt under the assumption that it is the reflection of "bullish attitudes" in the market. Leverage fuels
the market rise. In the early stages of an advance, this is correct. However, in the later stages of an advance, when
bullish optimism and speculative behaviors are at the peaks, leverage has a "dark side" to it. As
I
discussed previously:
"At some point, a reversion
process will take hold. It is when
investor
'psychology
'
collides with 'leverage and the problems associated with market liquidity. It will be the equivalent of striking a
match, lighting a stick of dynamite, and throwing it into a tanker full of gasoline."
That moment is the "Minsky
Moment."
As noted, these reversion of
"bullish excess" are not a new thing. In the book, "
The
Cost of Capitalism,
" Robert Barbera's discussed previous periods in history:
The last five major global
cyclical events were the early 1990s recession -- largely occasioned by the U.S. Savings & Loan crisis, the collapse of
Japan Inc. after the stock market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust
cycle at the turn of the millennium and the unprecedented rise and then collapse for U.S. residential real estate in
2007-2008.
All five episodes delivered
recessions, either global or regional. In no case was there as significant prior acceleration of wages and general
prices. In each case, an investment boom and an associated asset market ran to improbably heights and then collapsed.
From 1945 to 1985 there was no recession caused by the instability of investment prompted by financial speculation -- and
since 1985 there has been no recession that has not been caused by these factors.
Read that last sentence again.
Interestingly, it was
post-1970 the Federal Reserve became active in trying to control interest rates and inflation through monetary policy.
"In the U.S., the Federal Reserve has
been the catalyst behind every preceding financial event since they became 'active,' monetarily policy-wise, in the late
70's. As shown in the chart below, when the Fed has lifted the short-term lending rates to a level higher than the
2-year rate, bad 'stuff' has historically followed."
As noted above, "Minsky
Moment" crises occur because investors, engaging in excessively aggressive speculation, take on additional credit risk
during prosperous times, or bull markets. The longer a bull market lasts, the more investors borrow to try and capitalize
on market moves.
However, it hasn't just been
investors tapping into debt to capitalize on the bull market advance, but corporations have gorged on debt for unproductive
spending, dividend issuance, and share buybacks. As I
noted
in last week's MacroView
:
"Since the economy is driven by
consumption, and theoretically, companies should be taking on debt for productive purposes to meet rising demand,
analyzing corporate debt relative to underlying economic growth gives us a view on leverage levels."
"The problem with debt, of course, is
it is leverage that has to be serviced by underlying cash flows of the business. While asset prices have surged to
historic highs, corporate profits for the entirety of U.S. business have remained flat since 2014. Such doesn't suggest
the addition of leverage is being done to 'grow' profits, but rather to 'sustain' them."
Over the last decade, the
Federal Reserve's ongoing liquidity interventions, zero interest-rates, and maintaining extremely "accommodative" policies,
has led to substantial increases in speculative investment. Such was driven by the belief that if "something breaks," the
Fed will be there to fix to it.
Despite a decade long economic
expansion, record stock market prices, and record low unemployment, the Fed continues to support financial speculation
through ongoing interventions.
John Authers recently penned
an excellent piece on this issue
for
Bloomberg:
"Why does liquidity look quite so
bullish? As ever, we can thank central banks and particularly the Federal Reserve. Twelve months ago, the U.S. central
bank intended to restrict liquidity steadily by shrinking the assets on its balance sheet on "auto-pilot." That changed,
though. It reversed course and then cut rates three times. And most importantly, it started to build its balance sheet
again in an attempt to shore up the repo market -- which banks use to access short-term finance -- when it suddenly froze
up in September. In terms of the increase in U.S. liquidity over 12 months, by CrossBorder's measures, this was the
biggest liquidity boost ever:"
While John believes we are
early in the global liquidity cycle, I personally am not so sure given the magnitude of the increase Central Bank balance
sheets over the last decade.
Currently, global Central Bank
balance sheets have grown from roughly $5 Trillion in 2007, to $21 Trillion currently. In other words, Central Bank balance
sheets are equivalent to the size of the entire U.S. economy.
In 2007, the global stock
market capitalization was $65 Trillion. In 2019, the global stock market capitalization hit $85 Trillion, which was an
increase of $20 Trillion, or roughly equivalent to the expansion of the Central Bank balance sheets.
In the U.S., there has been a
clear correlation between the Fed's balance sheet expansions, and speculative risk-taking in the financial markets.
Is Another Minsky Moment Looming?
The International Monetary
Fund (IMF) has been issuing global warnings of high debt levels and slowing global economic growth, which has the potential
to result in Minsky Moment crises around the globe.
While this has not come to
fruition yet, the warning signs are there. Globally, there is roughly $15 Trillion in negative-yielding debt with asset
prices fundamentally detached for corporate profitability, and excessive valuations on multiple levels.
"How else can one explain that the
risky U.S. leveraged loan market has increased to more than $1.3 trillion and that the size of today's global leveraged
loan market is some two and a half times the size of the U.S. subprime market in 2008? Or how else can one explain that
in 2017 Argentina was able to place a 100-year bond? Or that European high yield borrowers can place their debt at
negative interest rates? Or that as dysfunctional and heavily indebted government as that of Italy can borrow at a lower
interest rate than that of the United States? Or that the government of Greece can borrow at negative interest rates?
These are all clear
indications that speculative excess is present in the markets currently.
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However, there is one other
prime ingredient needed to complete the environment for a "Minsky Moment" to occur.
That ingredient is
complacency.
Yet despite the clearest signs that
global credit has been grossly misallocated and that global credit risk has been seriously mispriced, both markets and
policymakers seem to be remarkably sanguine. It would seem that the furthest thing from their minds is that once again
we could experience a Minsky moment involving a violent repricing of risky assets that could cause real strains in the
financial markets."
Desmond is correct. Currently,
despite record asset prices, leverage, debt, combined with slowing economic growth, the level of complacency is
extraordinarily high. Given that no one currently believes another "credit-related crisis" can occur is what is needed to
allow one to happen.
Professor Minsky taught that
markets have short memories, and that they repeatedly delude themselves into believing that this time will be different.
Sadly, judging by today's market exuberance in the face of mounting economic and political risks, once again, Minsky is
likely to be proved correct.
At this point in the cycle,
the next "Minsky Moment" is inevitable.
All that is missing is the
catalyst to start the ball rolling.
Talk about Minsky moment started in 2017 and as of 2021 the bubble did not burst. Warning
from Keynes to short sellers: Market can stay irrational longer then you can stay solvent.
The mere mention of a "Minsky moment" -- a sudden crash of markets
and economies that are hooked on debt -- is enough to send shudders through policy makers. The
theory stems from the work of Hyman Minsky, a U.S. economist who specialized in how excessive
borrowing fuels financial instability. Record debt levels around the world, coupled with
sky-high financial market valuations, have kept Minsky's theory prominent, drawing warnings
from the International
Monetary Fund and others. Before taking over the U.S. Federal Reserve, Janet Yellen
described his work as "
required reading ." 1. What makes a Minsky moment?
The term refers to the end stage of a prolonged period of economic prosperity that has
encouraged investors to take on excessive risk, to the point where lending exceeds what
borrowers can pay off. At that point, Minsky wrote, there's an increase in "speculative and
Ponzi finance." When a destabilizing event as simple as an increase in interest rates occurs,
investors are forced to sell assets to raise money to repay loans. That in turn sends markets
into a spiral amid a demand for cash. There have been attempts to distinguish between a Minsky
moment and a Minsky process that leads up to it. To continue reading
C
C Cook SUBSCRIBER 1 day ago The unanswered question is not if there are a lot of other
Archegos, no doubt there are. But what are the big banks going to do? When one bank gets burned
and execs fired, other bank execs and investors get nervous. Maybe unwind similar investor
deals. Maybe quickly.
There is never just one rat in the basement...
K Kevin H SUBSCRIBER 1 day ago The argument we hear as every bubble inflates is that "this
time is different". Perhaps the reason each bubble deflates is different, but irrational
investor psychology seems to be the driving force behind each lap on the rollercoaster.
Admittedly, the search for yield of any kind has forced many investors to stay more heavily
in the market than they might otherwise consider doing. While risk free (or close to risk free)
returns are usually at least somewhat uninspiring, they're virtually non-existent right
now.
So, the search for any type of yield could be fueling the market's fire for at least a while
longer. Even with that said, the wildly speculative behavior I'm seeing lately does make me a
bit nervous.
It reminds me of the dot com era, and the housing bubble... both were times when people
repeatedly reassured each other with the thought that "it's different, this time".
J James Webb SUBSCRIBER 1 day ago John, an old market saying I'm sure you're familiar with,
"the market can stay irrational longer than you can stay solvent."
Plus identifying market tops are far more difficult than identifying market bottoms. March
2020 was EASY!
A crash will come. This year? Next year? 5 years from now? 20 years from now?
I've gone through four crashes in my life. 1987, 2001, 2008, 2020. 1974 was also during my
life but way before I even knew what the stock market was.
The 1987 and 2020 were very short lived, deep and scary, but were over very quickly. 2001
and 2008 were scary and felt never ending.
Pick an allocation, rebalance and live life. When a crash comes, BUY!
B BA Byron SUBSCRIBER 1 day ago @ LANCE
Because most people see an insane increases in the market as a wonderful thing, rather than
a worrisome trend. They congratulate themselves for buying high in a bull market and they never
learn from their mistakes - because they refuse to admit they made any. It is always those
greedy "others" who did this to them.
It goes like this:
Bull market = " Buy! I'm a genius! "
Bear market = " Sell! Bad luck! "
Rinse wash repeat.
"Investors should remember that excitement and expenses are their enemies. And if they
insist on trying to time their participation in equities, they should try to be fearful when
others are greedy and greedy when others are fearful. " - Warren Buffett
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C Charles Bromley SUBSCRIBER 16 hours ago The old joke: There are two steps that can be
taken to be absolutely sure of making $1M on Wall Street. First Step......start with $2M......
R Richard Hightower SUBSCRIBER 23 hours ago At some point the revelation will be clear, in
all probability after the fact, that the trade Archegos had on, in one variant or the other, is
the same trade that is on in every corner of the markets, and on a global basis. The "trade" is
simple and works like magic to its practitioners, some of whom are quite unwitting.
The underlying is an asset class steadily rising in price devoid of valuation consideration
, levered by leverage upon leverage, and contingent upon low and lower rates - financing rates,
carrying costs, discount rate assumptions, and market derived interest rates. If rates are low
and lower, bravo. If rates rise, the trade unwinds.
The unwind has already started, slowly at first and then spectacularly.
It will truly be a Minsky Moment, with a Dornbusch footnote. Look it up.
Like
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A Anin Nathan SUBSCRIBER 1 day ago The derivatives, options, swaps, margin investing are
effective instruments to skim the cream and leave the traditional investors to sit on the foam.
You may hate to hear that, but that is how the system works. Like thumb_up 8 Reply
reply Share link Report flag
J John Goldin SUBSCRIBER 1 day ago Interesting how everyone frets about "unsophisticated"
individual investors distorting the market, while so called "sophisticated" investors are the
ones with much higher leverage. Individuals levering up is a risky personal choice.
Multi-billion dollar hedge funds levering up 10x (or more) is a systemic risk.
"... That was up 49% from one year earlier, the fastest annual increase since 2007, during the frothy period before the 2008 financial crisis. Before that, the last time investor borrowings had grown so rapidly was during the dot-com bubble in 1999. ..."
"... Significant increases in value without corresponding increases in earnings is the sign of a bubble. The entire S&P 500 has been significantly overvalued for several years now. The cyclically adjusted PE ratio is several times it's historical mean. Historically markets have ALWAYS reverted back to the mean. ..."
As of late February, investors had borrowed a record $814 billion against their portfolios,
according to data from the Financial Industry Regulatory Authority, Wall Street's
self-regulatory arm. That was up 49% from one year earlier, the fastest annual increase
since 2007, during the frothy period before the 2008 financial crisis. Before that, the last
time investor borrowings had grown so rapidly was during the dot-com bubble in 1999.
... some analysts say
run-ups in margin debt contribute to bubbles, and they fear that today's levels of
borrowing will hurt investors if the market has a downturn.
... Leverage combined with internet hype can be dangerous, the Commodity Futures Trading
Commission said in a notice to investors Tuesday.
...It is unclear how many other investment firms have obtained Archegos-style levels of
leverage. Little disclosure is required in the market for total return swaps, which Wall Street
banks privately tailor for clients.
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P Peter Hayes SUBSCRIBER 8 hours ago (Edited) In the year prior to CoVid the S&P grew
21%, from 2,775 to 3,380, meaning it already factored in robust future growth. It plummeted to
2,305 in March 2020, and has since rebounded to 4,080. Are we saying the economy is 20% better
than it was right before CoVid? Are we kidding ourselves? While things in general are much
better than they were last summer, there are still huge segments of the economy which have been
utterly devastated by the shutdowns, i.e. commercial real estate, tourism, hospitality and
restaurant industries, and countless mom-and-pop businesses. The hot housing market masks the
huge number of mortgages which have been forbeared since April 2020, and will continue so to
the end of this year. There's going to be a day of reckoning for all this, probably sooner than
later. The S&P should probably be in the range of 3,000 right now, not 4,000, meaning it's
at least 33% overvalued. Like thumb_up 1 Reply reply Share
link Report flag
K Kim Jady SUBSCRIBER 9 hours ago Remember the Duke brothers in Trading Places? "Margin
call gentlemen." ike thumb_up 3 Reply reply Share link
Report flag
B Bill Payne SUBSCRIBER 10 hours ago Only one thing gives a stock any value; the underlying
company's ability to generate an income stream into the future. If the price/earnings ratio
increases significantly it means that the stock is increasing in value for some reason other
than earnings. There is no valid reason for the stock price to increase other than through
increased earnings. Significant increases in value without corresponding increases in
earnings is the sign of a bubble. The entire S&P 500 has been significantly overvalued for
several years now. The cyclically adjusted PE ratio is several times it's historical mean.
Historically markets have ALWAYS reverted back to the mean. Even though the Fed has kept
the market artificially propped up there will be a massive correction coming at some time
probably followed by a recession. Historically it has always worked this way. We had better
watch out. It's not only limited to one sector of the market like it was in 1999 or 2008. It's
the entire market.
A ANDREW BLENCOWE SUBSCRIBER 12 hours ago 1927 returns
Benjamin Strong cut the Fed's discount rate 0.5% in 1927
So -- it would appear -- the world is currently two years away from its 1929
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K Kamalesh Banerjee SUBSCRIBER 17 hours ago (Edited) The total market capitalization of the
US stock market now is about $41 trillion (that is trillion with a t). Total margin debt of $
814 billion is not a large percentage of the total market cap (under 2%). Thus it is misleading
to say that margin debt is fueling the bull market. Yes, some investors (individuals and hedge
funds) may be over leveraged but the market as a whole is not. Some pockets of the market are
frothy but the market as a whole is not. This is not the roaring 1920s. - yet! Like
thumb_up 2 Reply reply Share link Report
flag
P Paul Smith SUBSCRIBER 9 hours ago (Edited) Interesting! Curious what it was prior to
great depression and great recession, and if similar why was margin blamed, to a great extent,
for great depression? EDIT a quick read indicates in 1928 margin of 2 to 1 was allowed, and
many margin calls wiped people out resulting in a spiralling downward of share prices. So seems
that margin issue perhaps causes an outsize amount of market risk despite it's low overall
percent. Like thumb_up Reply reply Share link Report
flag MARK JURECKI SUBSCRIBER 8 hours ago That's an astute observation. The
potential damage of widespread margin calls is the destruction of the 'buy side' of stock
transactions.
The Great Depression was sometimes described as a failure of the Demand Side. Deflation
causing potential investors to hold onto cash and wait for a better deal. Quashing the market.
R Richard Hightower SUBSCRIBER 23 hours ago At some point the revelation will be clear, in
all probability after the fact, that the trade Archegos had on, in one variant or the other, is
the same trade that is on in every corner of the markets, and on a global basis. The "trade" is
simple and works like magic to its practitioners, some of whom are quite unwitting. The
underlying is an asset class steadily rising in price devoid of valuation consideration ,
levered by leverage upon leverage, and contingent upon low and lower rates - financing rates,
carrying costs, discount rate assumptions, and market derived interest rates. If rates are low
and lower, bravo. If rates rise, the trade unwinds.
The unwind has already started, slowly at first and then spectacularly.
It will truly be a Minsky Moment, with a Dornbusch footnote. Look it up. Like
thumb_up Reply reply Share link Report flag
P PJ L SUBSCRIBER 1 day ago Stocks are up and everyone is buying on margin to get in on the
unprecedented bull market, more millionaires are being created than ever in the entirety of
history.
in the fanatical exuberance disconnected to reality, Every company begins overproducing
goods to fill a demand because look how high the market is! We're in an economic boom, everyone
is going to buy OUR stuff. Make more!
Credit is so cheap, you're missing out if you don't lever up and get in on all this sweet
action...
Sound familiar? Oh wait that's what led to the crash of 1929 and the great depression
thereafter...
As Meme Stock Mania Fizzles, Wall Street Sees 'Big Reckoning'
by
Bailey
Lipschultz
,
4/6/21
The day-trading Reddit crowd turned the first quarter of 2021 into one of the wildest periods of stock market mania in
modern history. Books -- plural -- will undoubtedly be dedicated to the topic in years to come.
But after these small-time speculators banded together to drive up dozens of obscure stocks by hundreds or even thousands
of
percent
--
and in the process burned a few hedge-fund barons betting on declines -- the movement appears to be petering out. An index
that tracks 37 of the most popular meme stocks -- 37 of the 50 that Robinhood Markets banned clients from trading during
the height of the frenzy -- is essentially unchanged over the past two months after soaring nearly 150% in January.
Talk to Wall Street veterans and they'll tell you that this flat-lining is the beginning of what will be an inexorable move
downward in these stocks.
It's not so much about the poor fundamentals of the companies. At least not in the short term. The day-trading zealots have
shown a surprising ability to ignore those facts. It's more that as the pandemic slowly winds down and the economy starts
to open up, many of them will leave their homes and start going back into offices and out to restaurants and embarking on
trips near and far. And as they do, they may stop obsessing about their Robinhood accounts.
Their collective sway on the meme-stock universe, in other words, will wane.
"People are going to be doing other things," said Matt Maley, chief market strategist at Miller Tabak + Co. There will be a
"big reckoning" at some point, he said. "There's no question in my mind."
Of course, the Wall Street set has, broadly speaking, misread the Reddit crowd for weeks earlier this quarter, and it's
possible their analysis is wrong again now. Preliminary data, though, suggests they're right.
Recent reports suggest vaccinated Americans are planning long-awaited vacations with searches for "
Google
flights
" reaching a peak popularity score of 100 this week, according to a Google Trends tracker. The opposite is being
seen for terms like "
stock
trading
" and "
investing
"
which have plunged, Google Trends shows.
"The stimulus check impact on retail trading is waning," said Edward Moya, senior market analyst at Oanda. "Many Americans
are looking to go big on attending sporting events, traveling across the country, vacationing, visiting family and friends,
and revamping wardrobes before going out to restaurants, pubs and returning to the office."
Gamestop Juggernaut
Video-game retailer GameStop Corp. became the poster child for retail traders looking to rage against the hedge fund elite.
However, the stock's
2,460%
roller coaster
alongside other favorites touted on Reddit's WallStreetBets thread caused as much pain as it did joy.
The stock's more than 900% surge this year has drawn a wary eye from the Wall Street analysts that follow it. The average
12-month price target implies the stock will lose more than three-quarters of its value from current levels. Only Jefferies
holds a price target near Thursday's $191.45 close and that call came with the warning that shares are "subject to
volatility beyond fundamentals."
But any sense of GameStop trading on fundamentals has been ignored since it first captivated Wall Street and Reddit users
in the back half of January. Bulls are more than happy to tout their bets on forums as a move to stick it to short sellers
as they buy into a company rebirth delivered by activist investor Ryan Cohen.
Given AMC Entertainment Holdings Inc.'s position as a movie theater many Americans went to at some point, it's not a
complete surprise as to why Reddit users rushed to the company's aide. #SaveAMC trended on Twitter and amateur investors
appeared more than happy to fight against Wall Street's skeptics despite most movie theaters being closed due to the
ongoing pandemic.
The chain's latest rally came amid plans to continue reopening cinemas, however, Wall Street is skeptical. None of the nine
analysts tracking the company rate it a buy and the average price target implies the stock will lose 63% of its value in
the coming year.
Retail euphoria leaked over to a broader range of securities from cult-favorites like Bitcoin, Tesla Inc., and the ARK
Innovation ETF to smaller companies like the clothing retailer Express Inc. Chinese tech company The9 Limited is among the
group's best performers this year with an 860% surge.
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Perspectives
The company's rally has been fueled by recent moves to ride the Bitcoin wave alongside peers like Future FinTech Group Inc.
and Ault Global Holdings Inc.
Zomedica Corp., a small-cap animal health company, has become a cult favorite among retail investors chasing stocks with
low share prices. The Ann Arbor, Michigan-based company started the year worth less than a quarter, but had soared as high
as $2.91.
Trading volume of the company has accelerated this year with an average of 174 million shares changing hands per session,
more than four times the average over the course of 2020. A mention from Tiger King's Carole Baskin helped it go viral in
mid-January.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com
.
The good news is that you can obtain the historical perspective missing from Billion
Dollar Loser with a reading list that is every bit as much fun . Start with
The Smartest Guys in the Room by Bethany McLean and Peter Elkind, the story of the
Enron con. Then travel back into the Roaring Twenties with Frederick Lewis Allen's description
of Samuel Insull's electrical utility empire in The Lords of Creation , then finish up with Edward Chancellor's nonpareil Devil Take the Hindmost , which describes Neumann's most remote business ancestors,
John Blunt of the South Sea Company and the nineteenth century English railway titan, George
Hudson. Finally, for sheer moral turpitude, nothing beats John Carreyrou's exposition of the
Elizabeth Holmes/Theranos disaster, Bad Blood.
Not only will you be entertained, but the WeWork, Enron, Insull, Hudson, Blunt, and Holmes
narratives will alert you to the signs of impending catastrophe: lofty rhetoric, millennial
predictions, and public adulation that almost inevitably give rise to overweening hubris. With
luck you'll be able to immunize your portfolios against the siren song of the never-ending
parade of entrepreneurial heroes served up by your colleagues, your clients, and a breathless
financial press.
Elon Musk and TSLA, anyone?
William J. Bernstein is a neurologist, co-founder of Efficient Frontier Advisors, an
investment management firm, and has written several titles on finance and economic history. He
has contributed to the peer-reviewed finance literature and has written for several national
publications, including Money Magazine and The Wall Street Journal. He has produced several
finance titles, and four volumes of history, The Birth of Plenty, A Splendid Exchange, Masters
of the Word, and The Delusions of Crowds about, respectively, the economic growth inflection of
the early 19th century, the history of world trade, the effects of access to technology on
human relations and politics, and financial and religious mass manias. He was also the 2017
winner of the James R. Vertin Award from CFA Institute.
We all know
that the economy moves in cycles; boom is followed by bust is followed by boom seemingly forever. A question we'd all like the
answer to is: "Where are we now in the cycle?" Economist Hyman Minsky's "financial instability hypothesis" helps answer this
question.
Classical Economics Assumes the Market is Fundamentally Stable
An assumption
underlying classical economic theory is that the economy is fundamentally stable and seeks equilibrium. The theory holds that
as excesses occur, rational market actors see the excesses and act to make money or avoid losing it, and thereby move the
economy back toward equilibrium.
According to
this theory, bubbles and crashes are caused by external shocks to the economy such as disease, wars, and technological
discoveries. While external shocks, such as the OPEC oil embargo of the 1970s or the current pandemic, certainly have
significant economic effects, they don't adequately explain the sequence of booms and busts that we have seen. The dotcom bust
of 2000 and the financial crisis of 2008 weren't caused by external shocks; they illustrate that the economy is not
fundamentally stable.
Minsky Proposed that the Market is Fundamentally Unstable
Hyman Minsky
was an economist at Washington University in St. Louis from 1965 to 1990. He proposed a theory he labeled the financial
instability hypothesis, which holds that the economy creates its own bubbles and crashes. The gist of his theory is that
stable economies sow the seeds of their own destruction because stability, seeming safe, encourages people to take risks. That
risk-taking creates financial instability that eventually results in panic and crisis.
Unfortunately,
during his lifetime, neither Minsky nor his hypothesis was taken seriously. He died in 1996, before the dotcom bubble and the
Great Recession, both of which gave credence to his ideas. His theory is now accepted as a primary explanation for the
boom-and-bust cycles in the economy.
The financial
instability hypothesis is rooted in swings between excessive risk-taking and the panic that follows when the risk-taking
overheats and the economy collapses. Increased risk in the economy can be seen in the terms on which debt is incurred. Minsky
hypothesized three stages of lending he dubbed hedge, speculative, and Ponzi.
During the
hedge stage, lenders and borrowers are cautious because of the losses they incurred in the prior recession. Borrowers are wary
of leverage, and lenders make loans in modest amounts with stringent credit requirements. During this stage, the amount of
debt in the system is reasonable.
In the
following speculative stage, market participants become more confident of a recovery. Borrowers take on greater amounts of
debt, and the economy begins to boom. Lenders grant credit based on ever-lower standards, assuming that asset prices will
continue to rise. During this stage, borrowers can cover the interest on the loans, but become less able to repay the
principal.
By the final
Ponzi stage, lenders and borrowers have forgotten the lessons of the prior crisis. Everyone is sure that asset prices will
continue to rise, and debt is granted with repayments based on that assumption. The economy becomes over-leveraged; debt and
risk-taking have created a financial house of cards.
Finally, a
"Minsky Moment" -- as the Paul McCulley of PIMCO dubbed it -- occurs. Market insiders take profits, everyone panics, and a crash
ensues before the cycle starts over.
The key insight
of Minsky's model is that stability itself is destabilizing (see figure below) because during times of economic stability,
healthy investments lead to speculative euphoria, increasing financial leverage, and over-extending debt, eventually resulting
in a Minsky Moment, which leads to a recession or even a financial crisis.
Minsky's Cycle of the Economy
IMAGE
SOURCE: THE ST. LOUIS TRUST COMPANY
Paradoxically, Minsky's hypothesis teaches us that the time of greatest investment risk is when everything seems good, and
investing is actually least risky when, as Baron Rothschild once put it, there is "blood in the streets."
How Minsky Can Help Us Be Better Investors
Minsky's
financial instability hypothesis is an essential mental model for us to have in our toolkit. Each cycle has its own
characteristics and length. Euphoria and panic can both last longer than we might expect. And outside shocks such as a
pandemic or geopolitical events can have big effects as well. So, we can't predict with precision when the economy will
transition from one part of the cycle to the next.
But knowing
roughly where we are in the cycle can inform good strategies for investors and business owners. As the economy and markets
move from boom to euphoria, it's essential to have a healthy margin of safety in the form of cash and high-quality bonds.
Smart businesses will increase their cash to shore up liquidity and resist the temptation to take on more debt. Then when the
profit-taking and panic occur, they can redeploy their safety margin into bargain-priced risk assets.
The most
important lesson to take from Minsky's hypothesis is not to get caught up in the fear that comes with the panicky part of the
cycle, or the greed that accompanies the euphoria. While it's not possible to accurately time the tops and bottoms of the
market, knowing roughly where we are in the cycle may help you stick with your investment strategy and avoid following the
herd at full speed into a bust.
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Twitter
or
LinkedIn
.
Check
out
my
website
.
John Jennings
I am the chief strategist and president at
The
St. Louis Trust Company
, a multi-family office and boutique trust company that serves wealthy families across the
U.S.
Roubini said that a climb above 2% for the benchmark 10-year Treasury note
TMUBMUSD10Y,
1.628%
,
which
is used to set rates from everything from mortgages to auto loans, could foster further investor blowups.
Rising yields have propelled investors to sell more speculative wagers because higher yields imply that borrowing costs are also
climbing for investors, making such speculative wagers less economically attractive.
Known as "Dr. Doom" in some circles for his bearish predictions, Roubini has been persistently downbeat on his outlook for markets
and the economy since the pandemic took hold in earnest in the U.S. last year. Last year, he said that the V-shaped bounce "is
becoming a U, and the U could become a W if we don't find a vaccine and don't have enough stimulus."
Like thumb_up 10 Reply reply Share link Report
flag
S Sandeep Jain SUBSCRIBER 1 day ago This article is missing the whale in the stock markets.
Individuals borrowing Billions on margins is insignificant compared to corporations borrowing
in the Trillions. US corporate debt now exceeds $22 Trillion. A significant portion of this
debt is used to buy back stock.
C C Cook SUBSCRIBER 17 hours ago ....inside players can use cheap money from the Fed to
lever up 10, 20 times as Archegos did. Where is the SEC? Where are the banking regulators? Are
those investors/speculators that much smarter than all the Ivy lawyers working in the
government?
The Hedges have paid off the DNC to keep the government at bay and the tax preferences safe.
Look who funded Hillary and Biden campaigns.
One week ago, in our initial take on the biggest hedge fund collapse since LTCM, we explained that - in our view - the
catalyst for the failure of the Archegos hedge fund, which had as much as 10x leverage allowing it to hold some $100BN in
positions, was Morgan Stanley and Goldman breaking ranks with their fellow prime brokers, and sparking the biggest margin call
since Lehman and AIG.
Turns out we were right.
In the most detailed account yet of what happened in the fateful 24 hours between March 25 and 26, when many -
but
not all
- of Archegos' big prime brokers starting dumping blocks of Bill Hwang's margined stock,
CNBC's
Hugh Son
writes that "the night before the Archegos Capital story burst into public view late last month, the fund's
biggest prime broker quietly unloaded some of its risky positions to hedge funds, people with knowledge of the trades told
CNBC."
That prime broker was Morgan Stanley and to avoid what could have been up to $10 billion in losses, the bank sold about $5
billion in shares from Archegos' holdings in media and Chinese tech names to a small group of hedge funds late Thursday, March
25, roughly around the time a last ditch negotiation between prime brokers including Credit Suisse failed to reach a
compromise to avoid a firesale.
Morgan Stanley's scramble to "be first" is a previously unreported detail that shows the extraordinary steps some banks took
to protect themselves from incurring losses from a client's meltdown. The moves, Son reports, benefited Morgan Stanley, while
banks that were slow to react such as Credit Suisse and Nomura have seen billions in losses and widespread C-Suite layoffs.
Credit Suisse said Tuesday that it took a $4.7 billion hit after unwinding losing Archegos positions; the firm also cut its
dividend and halted share buybacks.
It was also not previously known that
Morgan Stanley had the blessing of Archegos
itself to shop around its stock late Thursday.
The bank offered the shares at a discount, telling the hedge funds
that they were part of a margin call that could prevent the collapse of an unnamed client.
Alas, all those hedge funds that bought Archegos holdings late on Thursday are now deep underwater on their positions. That's
because Morgan Stanley had information it didn't share with the stock buyers: as CNBC details, the basket of shares it was
selling, comprised of eight or so names including Baidu and Tencent Music,
was merely
the opening salvo of an unprecedented wave of tens of billions of dollars in sales by Morgan Stanley and other investment
banks starting the very next day.
And now, it is Morgan Stanley's other clients - those who bought the Archegos positions when approched by the mega broker -
that are furious at the bank for having been betrayed and not receiving that crucial context, according to one of the people
familiar with the trades. The hedge funds learned later in press reports that Hwang and his prime brokers convened Thursday
night to attempt an orderly unwind of his positions, a task which we reported last week proved to be impossible especially
once word of the conclave got out.
That means that at least some bankers at Morgan Stanley knew the extent of the selling that was likely and that Hwang's firm
was unlikely to be saved, CNBC's sources claim. And, as we explained one week ago in "
Goldman
And Morgan Stanley Broke Ranks
", it was that knowledge that helped Morgan Stanley and rival Goldman Sachs avoid losses
because the firms quickly disposed of shares tied to Archegos.
Morgan Stanley had another reason why it had to be
first,
smartest or cheat:
it was the biggest holder of the top ten stocks traded by Archegos at the end of 2020 with
about $18 billion in positions overall, its prime broker going crazy in how much leverage it allowed Hwang to put on via Total
Return Swaps. Credit Suisse was the second most exposed with about $10 billion, these sources noted. According to CNBC,
that
means that Morgan Stanley could've faced roughly $10 billion in losses had it not acted quickly.
"I think it was an '
oh shit
' moment where
Morgan was looking at potentially $10 billion in losses on their book alone, and they had to move risk fast,"
the
person with knowledge said. Meanwhile, for those who missed it, this is
how
Credit Suisse lost $4.7 billion
.
And while Goldman's sale of $10.5 billion in Archegos-related stock on Friday, March 26 was widely reported after the bank
blasted emails to a broad list of clients, Morgan Stanley's move the night before went unreported until now because the bank
dealt with fewer than a half-dozen hedge funds, allowing the transactions to remain hidden.
Needless to say, all those hegde funds would like nothing more than inflicting major pain on James Godman's bank, although in
retrospect, their losses are their own fault: the clients which comprise a subgenre of hedge funds dubbed "equity capital
markets strategies," don't have views on the merits of individual stocks.
Instead,
they'll purchase blocks of stock from big prime brokers like Morgan Stanley and others when the discount is deep enough,
usually to unwind the trades over time.
Alas, that deep discount would prove to get much more deep in coming days.
After Morgan Stanley and Goldman sold the first blocks of shares with the consent of Archegos, the floodgates opened. Prime
brokers including Morgan Stanley and Credit Suisse then exercised their rights under default, seizing the firm's collateral
and launching a full blown firesale on Friday as CNBC details:
In a wild session for stocks on that Friday in late March came another twist: Some of the hedge fund investors who had
participated in the Thursday sales also bought more stock from Goldman, which came later to market at prices that were 5%
to 20% below the Morgan Stanley sales.
While these positions were deeply underwater
that day, several names including Baidu and Tencent rebounded, allowing hedge funds to unload positions for a profit.
"It was a gigantic clusterf--- of five different banks trying to unwind billions of
dollars at risk at the same time, not talking to each other, trading at wherever prices were advantageous to themselves,"
one
industry source said.
While Morgan Stanley exited most Archegos positions by Friday, March 26 it had one last holding: 45 million shares of
ViacomCBS, which it shopped to clients on Sunday. The bank's delayed disposal of Viacom shares has sparked questions and
speculation that it held onto the stock because it wanted a secondary offering run by Morgan Stanley the week before to close.
A clusterfuck indeed.
Yet in a repeat Wall Street irony, while many funds are furious at Morgan Stanley they will get over it quick: as CNBC
concludes, despite leaving some of its hedge fund clients feeling less-than-thrilled, Morgan Stanley isn't likely to lose them
over the Archegos episode because the funds want access to shares of hot IPOs that Morgan Stanley, as the top banker to the
U.S. tech industry, can dole out.
In other words, half Boiler Room, half Margin Call.... which is a good excuse as any for us to end with one of the best Wall
Street movie clips in the past decade, one which in 2011 predicted with uncanny accuracy everything that would happen to
Archegos and its prime brokers...
delta0ne
16 hours ago
(Edited)
if
this isn't the most obvious case for Insider Trading to avoid big losses than I don't know what Insider
trading is.
The
difference is some boys are allowed to do it, while the rest aren't.
sabaj49
15 hours ago
all those hedge funds that bought Archegos
holdings late on Thursday are now deep underwater on their positions.
isn't that called insider trading and ripe for lawsuits against the MORGAN STANLEY
should be as they WITHHELD VITAL INFORMATION
hey it's not that big risk - we just need to raise more CASH FOR COLLATERAL
of course we didn't mention other 10 banksters needing to unload same
Paul Bunyan
10 hours ago
Sold
$10B of bad investments hours before the margin call. If that's not an inside track I don't know what is.
Not sure what you do for a living yuri, but it ain't trading.
overbet
13 hours ago
Inside
information has nothing to do with order flow knowledge.
Paul Bunyan
10 hours ago
(Edited)
remove
link
Bro
you think MS figured out what hours before a margin call? Order flow knowledge? Do you think the
traders are rain man? They aren't. They are coked out frat boys trying to get any advantage they can,
and Wall Street leaks like a sieve.
Simple1
13 hours ago
The
bankers are the law, they run the government, the markets and print your money.
2+2 ≠ 5
10 hours ago
Morgan
Stanley did a classic pump n' dump with the hedge fund monies!
JR Wirth
14 hours ago
Morgan
Stanley was smart. The fine will be about 500m, the settlements will be about $ 2 Billion. They saved 7.5
billion that night.
BorisTheBlade
7 hours ago
remove
link
I
wouldn't be surprised if they came up with a similar back-of-the-envelope guesstimate hours prior at the
board meeting.
The Ordinal Numbers
PREMIUM
15 hours ago
And
people wonder why we clap when we hear of bankers jumping from buildings.....
Chipper609
15 hours ago
Much
like a bank run....if there is a line....you're too late.
Stackers
16 hours ago
remove
link
"
They
dont lose money. They dont care if everyone else does, but they dont lose money
"
~Will
Emmerson
jamesblazen62
15 hours ago
A
gigantic cluster**** that sent the market to all-time highs.
Overpowered By Funk
15 hours ago
Serious Alice in Wonderland **** going on these days.
pashley1411
14 hours ago
(Edited)
When
facing 11 digit losses; lawyers are cheap, politicians cheaper.
gunner1867
15 hours ago
(Edited)
Why
would those clients continue to do business with Morgan Stanley. MS had to know it was the beginning of the
selling and not a "clean up" situation. They decided that reputation was less important than money.
beaker
15 hours ago
Hence
the truth in the term, "No honor amongst thieves."
GRDguy
9 hours ago
Sociopathic financiers will gang up when it benefits them, but rip each others' face off when need be. Easy
to do when there's no empath nor conscience. Just be first. The movie Margin Call is classic.
mjl975
12 hours ago
Dear
lord..how can you risk $10 billion on any one customer..let alone one with the history of Hwang/Archegos
spanish inquisition
15 hours ago
remove
link
This was a controlled demolition
.
I am guessing they figured out the scam and that it was going to collapse. All that is left is to create an
official narrative.
It
was also not previously known that
Morgan
Stanley had the blessing of Archegos itself to shop around its stock late Thursday.
anti-bolshevik
15 hours ago
It
was also not previously known that
Morgan
Stanley had the blessing of Archegos itself to shop around its stock late Thursday.
Wait a
minute, and this is the salient point here:
Was
Archegos the Stock Owner or were these Security-based Swaps (SBS) / Total Return Swaps (TRS) with Morgan
Stanley as the Counterparty? Morgan also granted leverage to Archegos??
x_Maurizio
15 hours ago
And
therefore the SP500 soared 130 pts...
tobagocat
4 hours ago
Cracks
are beginning to appear in this fraud we call a financial system. Counterfeiting and rigging are losing
their effect. Illusion soon to turn into reality...look out below
Long
story short, Banks and risk managers learned nothing from the financial crisis ....
Meanwhile the SEC is monitoring reddit and Congress was calling diamond hands to testify cuz wrong folks
made money. House of cards.
Just_Sayin_To_Save_Ya
13 hours ago
(Edited)
SEC is
happily and conviniently turning blind eyes to whole Archegos saga. Archegos was actually created and
sponsored by MS & other criminal banks, is quite obvious. The Archegos entiry is to trade off books and off
market in a black box. Now if you think, FED is doing the same thro these banks and playing in this
markets.
The
problem is, no body can invoke margin call on FED. Not main street, not wall street not precious metals or
commodities or bonds or $. They all are in together to squeeze out little guys and make them work for that
retirement dream :) LOL.
Sound of the Suburbs
5 hours ago
Why is it so easy for bankers to
make lots of money?
Henry
Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.
"Simons envisioned banks that would have a choice
of two types of holdings: long-term bonds and cash. Simultaneously, they would hold increased reserves, up
to 100%. Simons saw this as beneficial in that its ultimate consequences would be the prevention of
"bank-financed inflation of securities and real estate" through the leveraged creation of secondary forms of
money."
Existing financial assets, e.g.
real estate, stocks and other financial assets, are traded and bank credit is used to fund the transfers.
This inflates the price.
You
end up with a ponzi scheme of inflated asset prices that will collapse and feed back into the financial
system.
At the end of the 1920s, the US
was a ponzi scheme of inflated asset prices.
The
use of neoclassical economics and the belief in free markets, made them think that inflated asset prices
represented real wealth accumulation.
1929 –
Wakey, wakey time
Why did it cause the US
financial system to collapse in 1929?
Bankers get to create money out of nothing, through bank loans, and get to charge interest on it.
Bankers do need to ensure the vast majority of that money gets paid back, and this is where they get into
serious trouble.
Banking requires prudent lending.
If
someone can't repay a loan, they need to repossess that asset and sell it to recoup that money. If they use
bank loans to inflate asset prices they get into a world of trouble when those asset prices collapse.
As the
real estate and stock market collapsed the banks became insolvent as their assets didn't cover their
liabilities.
They
could no longer repossess and sell those assets to cover the outstanding loans and they do need to get most
of the money they lend out back again to balance their books.
The
banks become insolvent and collapsed, along with the US economy.
When banks have been lending to
inflate asset prices the financial system is in a precarious state and can easily collapse.
What was the ponzi scheme of
inflated asset prices that collapsed in Japan in 1991?
Japanese real estate.
They
avoided a Great Depression by saving the banks.
They
killed growth for the next 30 years by leaving the debt in place.
What was the ponzi scheme of
inflated asset prices that collapsed in 2008?
"It's nearly $14 trillion pyramid of super
leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed
throughout the world"
All the Presidents Bankers, Nomi Prins.
They
avoided a Great Depression by saving the banks.
They
left Western economies struggling by leaving the debt in place, just like Japan.
It's
not as bad as Japan as we didn't let asset prices crash in the West, but it is this problem has made our
economies so sluggish since 2008.
The last lamb to the slaughter,
India
They
had created a ponzi scheme of inflated asset prices in real estate, but it collapsed.
The
movie Margin Call is first and foremost the story of what happened in 2008 when investment banks unloaded on
their unsuspecting clients Mortgage Backed Securities they knew had become worthless.
ToSoft4Truth
13 hours ago
The
Big Short (2015) - Brownfield Fund and Scion Capital unload short positions [HD 1080p]
And the CEO who once called for the US to raise taxes on the rich and adopt more explicitly socialist policies to expand access to
higher education, housing and child care, praised the federal government's response to the economic crisis caused by the COVID
pandemic. Consumers who are now flush with savings will help drive an economic boom,
Dimon
wrote in his 34K-word missive.
"I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential
infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the US economy will likely boom," Dimon
said.
"This boom could easily run into 2023 because all the spending could extend well into
2023."
"Ascertaining the quality of the government's spending will take years, Dimon said, but he has little doubt that "spent wisely,
it will create more economic opportunity for everyone," he said.
Although equity valuations are already "quite high", Dimon aid a multi-year boom may help to
justify current levels, because markets are pricing in economic growth and excess savings that may soon be poured into the market.
Dimon, who built the biggest and most profitable bank in the US, warned shareholders in his industry that disruption by big tech had
finally arrived, as shadow lenders have gained ground, having the benefit of being unconstrained by strict capital requirements that
have forced big banks to hold more capital in reserve.
"Banks have enormous competitive threats - from virtually every angle,"
Dimon
said.
"Fintech and Big Tech are here big time!"
Echoing Jerome Powell and other senior Fed officials, Dimon offered an oblique reference to "froth and speculation" in the market,
but didn't point to any specific areas he saw as threats. He also offered some thoughts on yields and the inflation outlook that,
unlike comments from Jerome Powell, raised the possibility that the rise in inflation might be more than "transitory."
"Conversely, in this boom scenario it's hard to justify the price of US debt (most people
consider the 10-year bond as the key reference point for US debt),"
Dimon said.
"This is because of two factors: first, the huge supply of debt that needs to be absorbed, and second, the not-unreasonable
possibility that an increase in inflation will not be just temporary."
"We need to properly invest, on an ongoing basis, in modernizing infrastructure,"
Dimon
wrote.
"Virtually everyone agrees that we have done a woefully inadequate job investing in our infrastructure – from highways, ports and
water systems to airport modernization and other projects. One study examined the effect of poor infrastructure on efficiency
(for example, poorly constructed highways, congested airports with antiquated air traffic control systems, aging electrical grids
and old water pipes) and concluded this could all be costing us hundreds of billions of dollars per year."
However, while Dimon said he's bullish about the future of the US, some challenges remain, including our increasingly polarized
society. In closing, he wrote: "While I have a deep and abiding faith in the United States of America and its extraordinary
resiliency and capabilities, we do not have a divine right to success. Our challenges are significant, and we should not assume they
will take care of themselves. Let us all do what we can to strengthen our exceptional union."
jamesblazen62
10 hours ago
remove
link
Dimon knows
massive deficit spending can't and won't continue forever. The short-term earnings benefit is more than offset by
the long-term damage to the nation's balance sheet.
He doesn't
care. Cheerlead the cocaine high and leave the consequences to somebody else.
same2u
10 hours ago
Stock market is the food stamps program and UBI for the rich....
And they had it better than ever before over the past 40 years...
Working is for fools...
Brazillionaire
28 minutes ago
Our leaders should be selected from an acceptable pool of globalist elite, that's all. Hard to understand
why the proles would see the need to question that. Seems easy enough to understand. <s>
GreatUncle
32 minutes ago
He does say it eloquently ...
Although
equity valuations are already "quite high"
Just means more 0's added to the number keep 'em coming now where is my stimmy check because I want to see
the more 0's added to that too.
Then he says populism on the left or right should not be allowed to drive policy ... in other words left and
right ...
"you ain't getting what you want so screw you."
Lordflin
10 hours ago
How
these demonic creatures can talk about an economic boom on one hand, and continuing lock downs of the
economy with the other is a marvel...
They
really believe they control the narrative with their media and their celebrity...
Sadly,
in some parts of the country they still do...
In
others the anger is building to an explosive level...
gatorengineer
10 hours ago
I
don't see any anger just sorrow and misery here in pa
Rise Of The Machines
9 hours ago
Take
the FED away and show me the boom!
yogibear
9 hours ago
Dimon
is a bankster/crook, why believe anything he says?
artless
1 hour ago
Well as much as I despise Dimon as a criminal he is the smartest bankster out there and he does tend to
get some things correct like the idea that there will be a boom and it will last until 2023 or so. That
is very likely. Of course the comedown from that high will probably be extraordinarily horrible but...as
the say hedge accordingly.
No
way they will let the thing crash just too soon. Gotta cement the new regime and make the sheeple think
all is going well and that THIS time the folks in charge REALLY care about them and are working in there
interests. There is still a ton of wealth to be extracted from the country-trillions of dollars yet and
these parasites are not going to end their program just yet and miss out on that. I mean, what's M1 these
days again? We are in full fledged LaLa land.
You
have to read all of it and parse out the stuff that indicates his and the rest of the bankster crowd's
intentions then work off that.
But
otherwise, yes, Jamie Dimon should be strung up from the street posts.
FiscalBatman
1 hour ago
Of course the economy will "expand" through 2023. They did everlasting damage with the lockdowns. It
has nowhere to go but up, for now. Until it implodes.
Peak Finance
2 hours ago
remove
link
Didn't
even read his non-sense
remember this guy would literally be a dour-faced walmart greeter if not for the bailouts
this
"master of the universe" has no clothes and clay feet
OldNewB
1 hour ago
Give a
man a gun and he can rob a bank.
Give a
man a bank and he can rob the world.
MommickedDingbatter
1 hour ago
Fed
member bank( JPM for one) gets money for next to nil at a key stroke, loans out said money to XYZ small
bank. As an asset, now loans out said money to hedge fund FUD. As another asset, lends again to 3rd world
country in a derivative contract. Meanwhile, flipping it over in an overnight swap. How this hasn't exploded
is beyond comprehension.
LJC
9 hours ago
"And
then finally, when there's nothing left, when you
can't
borrow
another buck from the bank or buy another case of booze, you bust the joint out. You
light
a
match"
Goodfellas
Bdubs
9 hours ago
I'm
with you... at least in feudal societies, the landed aristocracy has skin in the game, will saddle up and
lead their regiment into the fray.
Dimon
and ilk have an air of vulture.
efrustrated
2 hours ago
Dear
Mr. Dimon,
You
are the living embodiment of everything that has gone wrong with the American economy.
Yours,
The
rest of the world.
Drink Feck Arse Girls @ edifice
1 hour ago
"
China's
leaders believe America is in decline..."
China's leaders might be correct.
2banana
10 hours ago
remove
link
So the
$1 Trillion in obama "shovel ready jobs" was a sham? Who knew?
"We
need to properly invest, on an ongoing basis, in modernizing infrastructure," Dimon wrote. "Virtually
everyone agrees that we have done a woefully inadequate job investing in our infrastructure – from
highways, ports and water systems to airport modernization and other projects.
Be of Good Cheer
10 hours ago
Who is
the "everyone"? Who decided that our infrastructure needed more money? This sounds like COVID rationalizing
all over again. I think our roads and bridges are fine enough, at least the ones I travel. Stop spending.
Buzz-Kill
9 hours ago
Infrastructure Con Job: Only 10% of Bidens stimulus will go into this category.
The
other 90% goes into Green New Deal & Reparations Projects.
But, don't tell anyone the truth about the new scam.
Globalistsaretrash
53 minutes ago
remove
link
America is in decline due to people like Dimon
.
PGR88
1 hour ago
Dimon
says that America's oligarchs and politicians are to blame for intense polarization - with no sense of irony
whatsoever.
MontCar
PREMIUM
1 hour ago
While
the music's playing ya gotta get up n dance. When it stops, turn out the lights.
yerfej
2 hours ago
A
society cannot succeed when it doesn't enforce the rules on half the people because of some level of wealth
or cult affiliation. People who visit the US are astonished at the number of brain dead idioyts wandering
around, they should be in zoo's. Although its as bad in France. When society hands out unlimited free
shyyyit with nothing asked in return it gets the quality of fhreaks the US now produces.
Zeus123
9 hours ago
Is
this Jamie Dude HIGH?
ChromeRobot
9 hours ago
High on himself. He'll do whatever is necessary to make money for his sleazeball bank.
toady
1 hour ago
"We need to properly invest, on
an ongoing basis, in modernizing infrastructure,"
Dimon wrote.
The
first thing that needs to happen is the definition of "infrastructure"... Dimon goes on and on about planes,
trains, and automobiles, while Bribe'm's "infrastructure" bill plows trillions into his cronies pockets,
then throws 10 or 20 billion at "racist highways".
se48s2t8sn
1 hour ago
Jamie
Dimon doesn't understand how hated he is.
t0mmyBerg
1 hour ago
Dimon
supports the same policies that have killed America. Trading with China ==> the hollowing out of the
economy, massive financialization of the economy ==> unproductive debt, skewing of law favoring big
business over small
ThomasJefferson69
2 hours ago
States
"excess savings" and then "
30%
of Americans don't have enough savings
to deal with unexpected expenses that total as little as $400"
This dumbass can't remember the lies he starts with.
onemorething
2 hours ago
(Edited)
JPMorgan's Dimon Admits "
Something
Has Gone Terribly Wrong
" In America...
some people stole something
John
Pierpont Morgan has been dead for 108 years but he still keeps ******* us over.
Jamie
Dimon saying
Something Has Gone Terribly Wrong,
is
like Captain Renault decrying gambling in Casablanca.
(((here are your winnings, sir)))
Francis Uwood
2 hours ago
How
about a wealth tax on people like Dimon and Bezos. They are all for increasing taxes but their wealth is
not based on their salaries. How about a wealth tax on their assets.
JoePesci
2 hours ago
(Edited)
****
yeah, I'm thinking 95% on everything above $1Billion dollars. Nobody is worth more than that. You get a
billion dollars you can use your time to do things other than accumulate wealth, which at that point you
will only continue to do so at the destruction of everyone else.
ChromeRobot
9 hours ago
remove
link
Jamie
D comes on tv and smiles I reach back to make sure I still have my wallet. It's a reflex.
Machido
32 minutes ago
(Edited)
35 K
words. Another 'Das Kapital'
These
guys manipulated markets to get where they are, Now they are all invoking socialism/communism so they can
take charge of looting whats left.
shepnkc
PREMIUM
1 hour ago
remove
link
Always trying to pump the markets....probably hasn't gotten all his shorts in place yet....
Evil-Edward-Hyde
2 hours ago
Dimon
says somethings wrong in the USA
I
don't think the Mega Banks like Chase Bank had anything to do with that 😂
Look
in the Mirror Mr Dimon .
radical-extremist
2 hours ago
Jamie
Dimon has as much authority to weigh in on the Socio-political issues of our time as does the CEO of Coke or
Delta Airlines or MLB. Stay in your lane banker boy.
Verrick
2 hours ago
Although equity valuations
are already "quite high", Dimon aid a multi-year boom may help to justify current levels, because markets
are pricing in economic growth and excess savings that may soon be poured into the market.
"Quite
high" phhh. You sir, are quite high
mickeydouglas
2 hours ago
Jamie
Dimon was the butt boy of Sandy Weill, the man who destroyed the US economy so he could acquire Citigroup.
Herdee
5 hours ago
(Edited)
remove
link
This
guy is nothing but a f * c king crook and a gangster. They just paid a fine of a BILLION dollars for
manipulating the Gold Market. And they even give time for this shyster to even speak?
jamesblazen62
10 hours ago
remove
link
Dimon
is in greed's grasp and he can't escape. He's had 2 brushes with death (cancer and emergency heart
surgery). You'd think a billionaire with more money than he can ever need or want has something better to
do in his life than conniving for more money and playing big corporate games of manipulation and deceit.
Evil-Edward-Hyde
50 minutes ago
J P
Morgan is a crime Syndicate.
They
constantly Break the Laws.
No
Problem for Them,
They
Just Pay The Fines.
Their
secret is they make much much more money on the scam did they have to pay in fines.
FiscalBatman
1 hour ago
remove
link
It's
amazing how out of touch these guys are. They just don't get it. Dimon will be swaying back and forth with
the rest of them at this rate
newworldorder
1 hour ago
(Edited)
The US
Political class is not investing Govt funds, to bolster America and Americans, - the are however investing
in WOKEISM, EQUITY AND DIVERSITY, based on skill color, gender and sexual orientation.
Truce
1 hour ago
remove
link
Rich
man tells nation: if you all work together really well you can make me richer.
Tomdelay
1 hour ago
'And, I've been a big supporter of all the radical Lefties in the Dem party. My tribe contributes 50% of
the annual budget of the DNC & me & my banking Zionists at the Fed have been steadily undermining the USA
for over 100 years. So if you believe a word of the BS I just laid on you, then you haven't been paying
attention and deserve the servitude or death that awaits you.'
Rubicon727
2 hours ago
The
monster problem in the US is: people like Dimon, and all the other ultra-rich-multi-billionaires who have
absolute power. THEY ARE THE PROBLEM and have been since the early 1990s.
Leroy Whitby
2 hours ago
(Edited)
Biden's infrastructure plan is a tax hike plus
USD
180bln for research and development (ONE HUNDRED EIGHTY BILLION fluffy accounting Bull$#!+)
USD
85bln for public transit (probably Bull$#!+)
USD
80bln for Amtrak and freight rail (Bull$#!+ and Berkshire Hathaway)
USD
174bln to encourage EVs via tax credits and other incentives to companies that make EV batteries in the
US instead of China (ONE HUNDRED SEVENTY FOUR BILLION pretend to compete with China while taking their
bribes Bull$#!+)
USD
100bln for broadband (tech sector Bull$#!+)
USD
300bln to promote advanced manufacturing (THREE HUNDRED BILLION Elon Musk type with a dash of hypocrisy
Bull$#!+)
USD
400bln spending on in-home care (FOUR HUNDRED BILLION socialist wet fantasy level Bull$#!+)
USD
46bln in fed procurement programs for government agencies to buy fleets of EVs (environmental crazy type
Bull$#!+)
USD
35bln in R&D programs for cutting-edge, new technologies (Elon Musk squared level Bull$#!+)
USD
50bln in dedicated investments to improve infrastructure resilience (probably Bull$#!+)
USD
16bln program intended to help fossil fuel workers transition to new work (Bull$#!+ from the government
teat)
USD
10bln for a new "Civilian Climate Corps." (stinking piles of utter Bull$#!+)
Anything left for roads and bridges and airports after the ONE TRILLION spent on home care, EV's, and
research?
Bay of Pigs
9 hours ago
Legs
Dimon has always been a serial liar.
He's
incapable of being honest.
One Moment Please
9 hours ago
My
neighbors and I are not experiencing any of this 'economic boom' he speaks of.
Maybe
we abide in some mysterious economic dead zone?
Mr..Lucky
10 hours ago
"Stock
prices have reached what looks like a permanently high plateau," Yale economist Irving Fisher.
"... Lasser said that equates to approximately 59 square feet of shopping center space per U.S. household, less than 62 square feet in 2010. That number is expected to plunge by 2026 as online shopping dominates. ..."
"... UBS estimates 9% of all retail stores will shutter operations by 2026, or about 80,000 retail stores. ..."
"... The bankster crash took tons of auto dealerships with it too. Very little is rising to replace any of it, unless it can be tied to an overpriced underdelivering data-mined subscription. ..."
The retail apocalypse has been well documented for readers (see:
here &
here &
here ) over the years as tens of thousands of brick and mortar stores nationwide have shuttered their doors. The problem today
- is that millions of jobs lost during the pandemic are never coming back - in a consumer-based economy - this sets up for even more
store closures.
UBS analyst Michael Lasser told clients this week that a whopping 80,000 retail stores are estimated to close in the next five
years as the virus pandemic has deeply scarred the economy and resulted in a permanent shift in how consumers shop, that is, online
.
"An enduring legacy of the pandemic is that online penetration rose sharply ," wrote Lasser.
"We expect that it will continue to increase, which will drive further rationalization of retail stores , especially as some
of the unique support measures from the government subside," he said.
UBS found at the end of 2020, there were 115,000 shopping malls, compared with 112,000 in 2010 and 90,000 in 2000.
Lasser said that equates to approximately 59 square feet of shopping center space per U.S. household, less than 62 square feet
in 2010. That number is expected to plunge by 2026 as online shopping dominates.
UBS estimates 9% of all retail stores will shutter operations by 2026, or about 80,000 retail stores.
Lasser assumes during this period that e-commerce sales will jump to 27% of total retail sales by then, up from 18% today.
UBS said many retail stores have been on life support following cheap government loans and a supercharged consumer via
stimulus checks . The short-term artificial boost will be short-lived, which will lead to even more store closures.
Many of the closures will be retailers who sell clothing and accessories. UBS believes 21,000 closures from this industry will
be by 2026. Office supplies and sporting goods businesses are other retailers that will be hit hard.
The good news is that auto parts, home improvement, and grocery retailing will be less susceptible to the retail apocalypse.
However, there is more bad news. The labor market recovery is not robust. The economy is still short 8 million jobs and 19 million
people are collecting some form of unemployment insurance . This is a large swath of the population who have fallen into financial
hardships and are increasingly unlikely to return to their jobs (and thus, absent UBI, in a vicious cycle can no longer spend like
pre-COVID times). play_arrow
RKDS 38 minutes ago (Edited)
Not surprising. The feeling I've been getting more and more is that civilization is receding. My town had a KMart for most,
if not all, of my life. After the Jamesway next town over closed, decades ago, it was the only general merchandise store for 20
miles in either direction. Now it's gone. Schools, grocery stores, power plants, gas stations, you name it, it's closing.
So many stores I used to shop in are gone, general and specialty. The toy stores are all gone. Best Buy is the last (lousy)
electronics retailer standing.
Books, forget about it, may as well go to the library. Art/craft stores are mostly gone except
I guess Michaels which was always the weakest selection.
Want to rent a movie? Too bad. Almost as hard to go watch a movie with
so many theatres having gone under even before the plandemic. Put together a computer or buy software? You're joking, right?
When
that WSB bubble bursts, GameStop will be a dead man walking.
Sears and JCP locations sit idle everywhere. Not even sure where
I'd buy shoes/sneakers if I had to go to a store. The bankster crash took tons of auto dealerships with it too. Very little is
rising to replace any of it, unless it can be tied to an overpriced underdelivering data-mined subscription.
I used to have to order specialty items online. Now it's like everything is online or bust. Even Target and Walmart don't bother
to stock their shelves most of the time. Then we've got that clown of a postmaster general going "herp derp I's gon' raise da'
prices cuz I's don't gots no udder ideas!1" Everything in this country is engineered to maximize problems for working people.
Nothing has been able to shake the new bull market in recent weeks -- not a still elevated 10-year Treasury yield or
threats of higher taxes on the wealthy and corporations by the Biden administration.
But the one thing that has powered the S&P 500 beyond a record 4,000 -- data that indicates a strong post COVID-19
economic
recovery is rapidly building -- may turn out to ruin the rally. And it could play out within three months, warns widely followed
Deutsche Bank Chief Strategist Binky Chadha.
"Very near term, we expect equities to continue to be well supported by the acceleration in macro growth, and see buying
by systematic strategies and buybacks driving a grind higher. But we expect a significant consolidation (-6% to -10%) as growth
peaks over the next three months," Chadha wrote in a new research note on Tuesday.
Chadha calls out peaking ISM data -- which has been coming in hot of late -- as the potential trigger point for a steep market
pullback.
"Our house economics forecast implies a flattening out of the ISMs at elevated levels beginning in Q2 (64) and continuing into
Q3 (63). There are a number of considerations though that suggest the monthly ISMs peak more sharply over the next three months and
slow in keeping with the historical inverted-V shaped pattern. We look for discretionary investor equity positioning to be pared
with a peak in the ISMs and do not expect retail to buy the dip. We then see equities rallying back as our baseline remains for strong
growth but only a gradual and modest rise in inflation," explains Chadha.
Thus far, investors are hardly positioned for any sizable spring/early summer swoon in stocks -- with good reason as the economic
data has been impressive.
The
U.S. economy created 916,000 jobs in March , the Bureau of Labor Statistics reported last week. That crushed Wall Street estimates
for a 660,000 increase. The gain has some economic forecasters telling
Yahoo Finance Live the economy could be on the verge of creating a million jobs a month very soon.
Nothing has been able to shake the new bull market in recent weeks -- not a still elevated 10-year Treasury yield or
threats of higher taxes on the wealthy and corporations by the Biden administration.
But the one thing that has powered the S&P 500 beyond a record 4,000 -- data that indicates a strong post COVID-19
economic
recovery is rapidly building -- may turn out to ruin the rally. And it could play out within three months, warns widely followed
Deutsche Bank Chief Strategist Binky Chadha.
"Very near term, we expect equities to continue to be well supported by the acceleration in macro growth, and see buying by systematic
strategies and buybacks driving a grind higher. But we expect a significant consolidation (-6% to -10%) as growth peaks over the
next three months," Chadha wrote in a new research note on Tuesday.
Chadha calls out peaking ISM data -- which has been coming in hot of late -- as the potential trigger point for a steep market
pullback.
"Our house economics forecast implies a flattening out of the ISMs at elevated levels beginning in Q2 (64) and continuing into
Q3 (63). There are a number of considerations though that suggest the monthly ISMs peak more sharply over the next three months and
slow in keeping with the historical inverted-V shaped pattern. We look for discretionary investor equity positioning to be pared
with a peak in the ISMs and do not expect retail to buy the dip. We then see equities rallying back as our baseline remains for strong
growth but only a gradual and modest rise in inflation," explains Chadha.
Thus far, investors are hardly positioned for any sizable spring/early summer swoon in stocks -- with good reason as the economic
data has been impressive.
The
U.S. economy created 916,000 jobs in March , the Bureau of Labor Statistics reported last week. That crushed Wall Street estimates
for a 660,000 increase. The gain has some economic forecasters telling
Yahoo Finance Live the economy could be on the verge of creating a million jobs a month very soon.
Meanwhile, data from
IHS Markit
and the
Institute for Supply Management on activity in the services sector on Monday blew the doors off analyst estimates as the ISM's
activity index surged to a record high, as Yahoo Finance's Myles Udland wrote in the
Morning Brief
newsletter. IHS Markit's reading was the best in seven years, noted Udland.
And last but not least,
corporate profit estimates for the first quarter have continued to trend noticeably higher amid the acceleration in economic
data.
But if economic data moderates as Chadha expects, the stock market could lose a key catalyst. That's not lost by Chadha's peers
on Wall Street.
"Our view coming into 2021 was that earnings will drive markets higher and valuations will take a backseat, and actually be flat
to down for the year. But the good news is actually starting to get priced in here, and we think it's going to become more challenging
for investors and trickier," said Saira Malik, global equities chief investment officer and global portfolio manager at Nuveen...
That makes Jamie brilliant. play_arrow 5 play_arrow 1
zorrosgato 10 hours ago
"flush with savings"
HA!
Yen Cross 10 hours ago
Jack, ****, Dimon? Which one was it Z/H Google moderator?
I donate at Christmas.
Basil 20 minutes ago
whats gone wrong is the cancer of progressiveism. wokeism, social justice nonsense.
Gadbous 29 minutes ago
Don't you want to just slap these people?
MuleRider 18 minutes ago
You misspelled decapitate.
GrandTheftOtto 2 hours ago
"It was a year in which each of usfaced difficult personal challenges"
boundless hypocrisy...
Mr. Rude Dog 2 hours ago remove link
" Americans know that something has gone terribly wrong, and they blame this country's
leadership: the elite, the powerful, the decision makers - in government, in business and in
civic society," he wrote.
"This is completely appropriate, for who else should take the blame?"
Lets see if he projects the problem back on the citizens...Let's see what happens.
"But populism is not policy, and we cannot let it drive another round of poor planning
and bad leadership that will simply make our country's situation worse."
I knew the so called elites could not take the blame... You know populism always makes bad
decisions with the economy, our monetary system, our infrastructure and just managing our tax
money in general...Yes I knew Jamie could not take the blame..LOL.!!!!
QE4MeASAP 2 hours ago
So Dimon is giving the state of the union instead of Biden?
Budnacho 2 hours ago
Jamie Dimon....Friend of the Little Guy....
Tomsawyer2112 PREMIUM 11 hours ago
He doesn't believe a word of what he just said. But he knows that if he wants his bank to
continue to be an extension of the government and curry favor then he needs to tow the line.
I am sure he also has his eye on a future role as Fed Lead or US Treasurer but might be tough
since he's not a diversity candidate.
oknow 2 hours ago
Someone turn off his mike, dont need your sorry *** confession
Just confiscate his wealth and make him do 9 to 5 jobs for the rest of his life.
ChromeRobot 9 hours ago remove link
This guy is a rarity in the banking industry. He's a billionaire. Running a bank I was
often told in my early years in finance was foolproof. Everybody needs money and they have
it. Hard to fk up. Somehow this "titan" has gamed it to do really well doing something
incredibly easy. Positioning yourself to be a SIFI helps too! Too big to fail has it's
perks.
a drink before the war 10 hours ago
What Jamie is really saying without saying it is " I get paid in stock options however
since the pandemic JPM and other banks haven't been allowed to do stock buy back but come
June we get back to the NORMAL and with the FED printing money and giving it to us we going
to talk this stock WAY up no matter what because I got almost two years of stock options I
gotta get paid for!"
lay_arrow 2
archipusz 10 hours ago
If you want to get to the top, you must speak the party line narrative.
The truth is something different altogether.
Eddie Haskell 10 hours ago
If you want to be a state-approved oligarch you've gotta suck the right dickie. Good
job.
Detective Miller 38 minutes ago
"Jaimie Tells Bagholders To 'Buy Buy Buy!!!'"
Onthebeach6 38 minutes ago
The US is addicted to helicoptor money.
The world looks fine to an addict until the supply is cut off.
sbin 41 minutes ago
Off shore industry
Steal pension funds
Laundering drug money
Regulatory capture.
Jimmy going to lock himself in jail and forfeit his assets?
34k of jerkoff.
Nuk Soo Kow 2 hours ago
How magnanimous of Jamie to blame elitists and civic "leaders" for the structural problems
in America. It was the banksters that pushed NAFTA and helped China engineer it's currency
against the dollar, which led to massive outflows of productive capital. It was the banksters
via the use of financial legerdemain who engineered the collapse in 2008 (not to mention
every other banking panic and collapse prior to). It's high time to throw out this den of
vipers once and for all.
Nature_Boy_Wooooo 2 hours ago
He lost me at.....
We need more cheap immigrant labor...... housing is unaffordable for many.
No **** moron!......you suppressed our wages and increased demand for housing.
PT 10 hours ago remove link
I always consult the fox when I want to know about the state of the hen house.
QuiteShocking 10 hours ago
Economic boom?? Is really just trying to get back to where we were previously before the
pandemic hit with things opening back up etc... More people have been working from home so
different spending patterns are developing.. but could change... Supply chain chaos makes it
seem like shortages and inflation etc... It may only last through 2023?? but with Dems in
charge this is not a given with their anti business slant??
same2u 11 hours ago
UBI for the rich= stock market...
Hope Copy 3 hours ago (Edited)
Jamie knows that the core of Crypto is at the CIA and that the pseudo Republic has far to
much Fascist politics at the core .. There has been a competitive failure at most all levels
of the government in recent times with a 'winner take all' at the cost of keeping competitive
practices alive (not to mention kickbacks).. Of course China is laughing even though they
have a history of cutting corners (and outright fraud) in every economic sector.
Mario Landavoz 20 minutes ago
Banker. That's all ya need to know.
Just a Little Froth in the Market 40 minutes ago
But the CEO was very candid about China...
"China's leaders believe America is in decline... The Chinese see an America that is
losing ground in technology, infrastructure and education – a nation torn and
crippled . . . and a country unable to coordinate government policies (fiscal, monetary,
industrial, regulatory) in any coherent way to accomplish national goals
This is correct.
Joe A 55 minutes ago
He is just mocking and taking a piss at everybody. That America is such a mess is because
of people like him with his scorched earth robber baron rogue capitalism. But there is a way
to redeem yourselves. Just make all your assets available to the American people. And oh,
blow your own brain out.
Abi Normal 3 hours ago remove link
What else is he supposed to say? As long as things don't go bad for Jamie it's cool.
OrazioGentile 3 hours ago
The Banksters, after years of mismanagement, borderline fraud, and endless bailouts now
see that investments in unicorn startups, selling mindless BS to each other, and the quick
buck lead to a burned out husk called America?!? Now?!? Let all of them live in the great
paradise called the Cayman Islands that they helped build and see how far they get selling
"capital instruments" to each other. The last 20 years have taught most Americans that hard
work is meaningless to get ahead IMHO.
Nothing has been able to shake the new bull market in recent weeks -- not a still elevated 10-year Treasury yield or
threats of higher taxes on the wealthy and corporations by the Biden administration.
But the one thing that has powered the S&P 500 beyond a record 4,000 -- data that indicates a strong post COVID-19
economic
recovery is rapidly building -- may turn out to ruin the rally. And it could play out within three months, warns widely followed
Deutsche Bank Chief Strategist Binky Chadha.
"Very near term, we expect equities to continue to be well supported by the acceleration in macro growth, and see buying
by systematic strategies and buybacks driving a grind higher. But we expect a significant consolidation (-6% to -10%) as growth
peaks over the next three months," Chadha wrote in a new research note on Tuesday.
Chadha calls out peaking ISM data -- which has been coming in hot of late -- as the potential trigger point for a steep market
pullback.
"Our house economics forecast implies a flattening out of the ISMs at elevated levels beginning in Q2 (64) and continuing into
Q3 (63). There are a number of considerations though that suggest the monthly ISMs peak more sharply over the next three months and
slow in keeping with the historical inverted-V shaped pattern. We look for discretionary investor equity positioning to be pared
with a peak in the ISMs and do not expect retail to buy the dip. We then see equities rallying back as our baseline remains for strong
growth but only a gradual and modest rise in inflation," explains Chadha.
Thus far, investors are hardly positioned for any sizable spring/early summer swoon in stocks -- with good reason as the economic
data has been impressive.
The
U.S. economy created 916,000 jobs in March , the Bureau of Labor Statistics reported last week. That crushed Wall Street estimates
for a 660,000 increase. The gain has some economic forecasters telling
Yahoo Finance Live the economy could be on the verge of creating a million jobs a month very soon.
Nothing has been able to shake the new bull market in recent weeks -- not a still elevated 10-year Treasury yield or
threats of higher taxes on the wealthy and corporations by the Biden administration.
But the one thing that has powered the S&P 500 beyond a record 4,000 -- data that indicates a strong post COVID-19
economic
recovery is rapidly building -- may turn out to ruin the rally. And it could play out within three months, warns widely followed
Deutsche Bank Chief Strategist Binky Chadha.
"Very near term, we expect equities to continue to be well supported by the acceleration in macro growth, and see buying by systematic
strategies and buybacks driving a grind higher. But we expect a significant consolidation (-6% to -10%) as growth peaks over the
next three months," Chadha wrote in a new research note on Tuesday.
Chadha calls out peaking ISM data -- which has been coming in hot of late -- as the potential trigger point for a steep market
pullback.
"Our house economics forecast implies a flattening out of the ISMs at elevated levels beginning in Q2 (64) and continuing into
Q3 (63). There are a number of considerations though that suggest the monthly ISMs peak more sharply over the next three months and
slow in keeping with the historical inverted-V shaped pattern. We look for discretionary investor equity positioning to be pared
with a peak in the ISMs and do not expect retail to buy the dip. We then see equities rallying back as our baseline remains for strong
growth but only a gradual and modest rise in inflation," explains Chadha.
Thus far, investors are hardly positioned for any sizable spring/early summer swoon in stocks -- with good reason as the economic
data has been impressive.
The
U.S. economy created 916,000 jobs in March , the Bureau of Labor Statistics reported last week. That crushed Wall Street estimates
for a 660,000 increase. The gain has some economic forecasters telling
Yahoo Finance Live the economy could be on the verge of creating a million jobs a month very soon.
Meanwhile, data from
IHS Markit
and the
Institute for Supply Management on activity in the services sector on Monday blew the doors off analyst estimates as the ISM's
activity index surged to a record high, as Yahoo Finance's Myles Udland wrote in the
Morning Brief
newsletter. IHS Markit's reading was the best in seven years, noted Udland.
And last but not least,
corporate profit estimates for the first quarter have continued to trend noticeably higher amid the acceleration in economic
data.
But if economic data moderates as Chadha expects, the stock market could lose a key catalyst. That's not lost by Chadha's peers
on Wall Street.
"Our view coming into 2021 was that earnings will drive markets higher and valuations will take a backseat, and actually be flat
to down for the year. But the good news is actually starting to get priced in here, and we think it's going to become more challenging
for investors and trickier," said Saira Malik, global equities chief investment officer and global portfolio manager at Nuveen...
House prices are seriously insane. Even my kind of crappy little place went up $85k on
zillow in the last two months!
The only people I see buying are people from out of state (mostly Calif, NY and
Oregon---unfortunately) and local government employees who never missed a paycheck during this
entire ****show.
The people selling are private sector economic losers who are down sizing. Even the Family
Doc down the street is selling his business is so slow because people are afraid to sit in an
office+insurance reimbursements are down.
The entire USA economy is now more topsy turvey then ever in my life time.
The International Monetary Fund upgraded its global economic growth forecast for the second
time in three months, while warning about widening inequality and a divergence between advanced
and lesser-developed economies.
The global economy will expand 6% this year, up from the 5.5% pace estimated in January, the
IMF said in its World Economic Outlook published on Tuesday. That would be the most in four
decades of data, coming after a 3.3% contraction last year that was the worst peacetime decline
since the Great Depression.
Market surges on 80,000 retail outlet closings optimism.
[Apr 05, 2021] Financial crises get triggered about every 10 years -- Archegos might be right on time by 14 major U.S. financial institutions. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data.
Here's the potential danger. Family offices generally aren't regulated. The 1940 Investment Advisers Act says firms with 15
clients or fewer don't have to register with the Securities and Exchange Commission. What this means is that trillions of dollars
are in play and no one can really say who's running the money, what it's invested in, how much leverage is being used, and what
kind of counterparty risk may exist. (Counterparty risk is the probability that one party involved in a financial transaction
could default on a contractual obligation to someone else.)
The problem is that only about a third of that, or $10 billion, was its own money. We now know that Archegos worked with some
of the biggest names on Wall Street, including Credit Suisse Group AG
CS,
+1.59%
,
UBS Group AG
UBS,
+1.01%
,
Goldman Sachs Group Inc.
GS,
-1.25%
,
Morgan Stanley
MS,
-0.28%
,
Deutsche Bank AG
DB,
+0.74%
and Nomura Holdings Inc.
NMR,
+1.87%
.
But since family offices are largely allowed to operate unregulated, who's to say how much money is really involved here and
what the extent of market risk is? My colleague Mark DeCambre reported last week that Archegos' true exposures to bad trades
could actually
be closer to $100 billion
.
Danger of counterparty risk
This is where counterparty risk comes in. As Archegos' bets went south, the above banks -- looking at losses of their own -- hit
the firm with margin calls. Deutsche quickly dumped about $4 billion in holdings, while Goldman and Morgan Stanley are also said
to have unwound their positions, perhaps limiting their downside.
So is this a financial crisis? It doesn't appear to be. Even so, the Securities and Exchange Commission has opened a
preliminary investigation into Archegos and its founder, Bill Hwang.
One peer, Tom Lee, the research chief of Fundstrat Global Advisors, calls Hwang one of the "top 10 of the best investment
minds" he knows.
But federal regulators may have a lesser opinion. In 2012, Hwang's former hedge fund, Tiger Asia Management, pleaded guilty
and paid more than $60 million in penalties after it was accused of trading on illegal tips about Chinese banks. The SEC banned
Hwang from managing money on behalf of clients -- essentially booting him from the hedge fund industry. So Hwang opened Archegos,
and again, family offices aren't generally aren't regulated.
Yellen on the case
This issue is on Treasury Secretary Janet Yellen's radar. She said last week that greater oversight of these private corners
of the financial industry is needed. The Financial Stability Oversight Council (FSOC), which she oversees, has revived a task
force to help agencies better "share data, identify risks and work to strengthen our financial system."
Most financial crises end up with American taxpayers getting stuck with the tab. Gains belong to the risk-takers. But losses --
they belong to us. To paraphrase Abe Lincoln, family offices -- a multi-trillion dollar industry largely allowed to operate in the
shadows in a global financial system that is more intertwined than ever -- are of the super-wealthy, by the super-wealthy and for
the super-wealthy. And no one else.
The Archegos collapse may or may not be the beginning of yet another financial crisis. But who's to say what thousands of
other family offices are doing with their trillions, and whether similar problems could blow up?
M Michael OFarrell SUBSCRIBER 3 hours ago Biden, or whoever is actually in charge, is
giving this country away. It will the younger generation that will pay the price. Like
thumb_up 6 Reply reply Share link Report
flag
M Mark A. Rosasco SUBSCRIBER 3 hours ago "A whole generation with a new explanation" ,
history definitely rhymes.
According to John Kenneth Galbraith, financial memory is usually about 20 years, then
lessons need to be re-leaned the hard way, either with financial euphoria or I would say with
tax polices that promote economic growth.
J John Augsbury SUBSCRIBER 4 hours ago It is regrettable that Biden has done less than
nothing to bring the country together. Biden has allowed Nancy Pelosi and Chuck Schumer to set
their own agendas and leadership seems to come from back rooms. Main Stream Media provide
nothing but a cheer leading section or cover for the illegal immigration crisis. Like
thumb_up Reply reply Share link Report flag
S Sharif Ahmed SUBSCRIBER 4 hours ago "he doesn't have a mandate .... no, he doesn't have a
mandate... no mandate....no..," the conservative muttered as he stared blankly at the asylum
walls.
Another 'no mandate' article from the people who continue to disregard a 7 million vote
thrashing. We'll be forced to read these for years to come I guess.
Like thumb_up 3 Reply reply Share link Report
flag Andrew Colin SUBSCRIBER 4 hours ago When they decided to count those *7
million at 4am is when things get sticky Sharif.
Sadly these fringe ideas this joke of a president is pushing will never be mainstream, no
matter how many times the media tells us that they are.
D Daniel Altorfer SUBSCRIBER 3 hours ago Biden has been a life long salaried public tax
absorber for 50 years with nothing to show for it. Maybe your vote is the real comedy here.
Like thumb_up 12 Reply reply Share link Report
flag John Briscoe SUBSCRIBER 4 hours ago This whole piece is an admission
that Republicans have lost any credibility with US Citizens aged less than 60 years. Like
thumb_up 7 Reply reply Share link Report
flag
D Daniel Whitworth SUBSCRIBER 4 hours ago I am under 60 years old and am now a Republican;
formerly a Democrat. I challenge your assessment.
Like thumb_up 19 Reply reply Share link Report
flag Andrew Colin SUBSCRIBER 4 hours ago Former Dem, under 40, now a Repub,
will never vote Dem again after the handling of COVID-19 and the woke mob.
In fairness I don't typically side with Facebook and corporate America on fringe ideas, but
rather actual progressive ideas.
You couldnt be more wrong in your assessment. The Dem party is a collection of underemployed
social media addicts that are typically obese and unhappy... if we want to be accurate. Like
thumb_up Reply reply Share link Report flag
C C F ETTER SUBSCRIBER 4 hours ago
The Bolsheviks, a tiny but ferociously focused minority, proceeded in this way in 1917.
Those who don't know their history are doomed to repeat it. Like thumb_up
14 Reply reply Share link Report flag
J JOHN OWEN SUBSCRIBER 4 hours ago The Bolsheviks led to the rise of Stalin. Like
thumb_up 13 Reply reply Share link Report
flag
M Mary Rhee SUBSCRIBER 5 hours ago I just finished reading "I chose Freedom," by Victor
Kravchenko, published in 1946. He writes about his eventual repudiation of the Communist system
and his escape to the west. Like so many young idealists, he was an ardent believer in the
teachings of Lenin, Marx, and Stalin--until he saw the evils of collectivization and the
subsequent starvation of the peasants, the lying of the press, and the State's justification of
brutality and often murder for "the higher good." In our country today, some of these same
tactics are being implemented. True, they are being implemented on a lesser scale than Victor
Kravchenko experienced, but the seeds of totalitarianism are being groomed, fostered, and even
praised by today's extreme Left. We need to stop this brainwashing. Granted, the extreme Right
has its flaws, too, but they don't control the press, universities, or Silicon Valley. Both
parties need to dump their extremists so that we can get our country back. Like thumb_up
3 Reply reply Share link Report flag
C C F ETTER SUBSCRIBER 4 hours ago It wasn't stolen. It was manipulated. Manipulated by the
press, by social media, the FDA, the FBI and our intelligence 'professionals' of the past and
present and Covid was the blessing bequeathed upon the Democratic Party by the Chinese
communists.
S Susan Lynch-Smith SUBSCRIBER 4 hours ago Also, news media with their selective coverings,
especially with Hunter Biden and Biden himself, of whom is an idiot. But wait, we the people
are the idiots as it is a runaway train now with you do not speak out unless it is for the
administration and the left-wing ideologies.
Over the months there have been letters to the editor regarding academia,
"Academic Freedom Long Ago Withered Away" (Letters, March 5) being a case in point. I find
it interesting that for the most part they are written by professors emeriti or retired
academics, not active ones with a job to lose. This is very telling in and of itself.
David Zeiler's
post
("How
We Know Stock Market Crash Is Coming") was one of several crash predictions in the first quarter of 2021. And yet, the first day of
the second quarter ended with the S&P 500 breaking through 4,000 to close at an all-time high of 4,019.87. Rounding up, that's four
thousand twenty reasons to ignore
permabears
.
It's one thing to hedge against downside risk - we've been big advocates of that (more on that below) - but betting on a collapse
because you're negative about politics or the government is a recipe for losing money.
There were certainly reasons to be cautious at the end of last year - there always are. But if you bet against the market and the
dollar and bet on gold then, you've taken L's on all three since.
The Markets Versus The Real World
Markets impact the real world and vice-versa. George Soros spends lots of words explaining this under his theory of "
reflexivity
",
but it's easier to explain with a couple of examples. The real world impacting the market is an easy one: Russia invaded Finland in
1939, and Finish bonds tanked. But markets impact the real world too. A recent example was the WallStreetBets crowd bidding up the
price of AMC shares. That enabled AMC to float a secondary offering, raising money to keep the theater chain in business. Thanks to
a bunch of Robinhood traders, movie theaters stayed open in the real world.
Although markets and the real world impact each other to some extent, markets are not the real world. A lot of negative things that
happen in the real world have no impact on the market, and vice-versa. For example, we've written recently about the
anarcho-tyranny
in
America's cities, and how depraved teens
murdered
an
immigrant working a sub-minimum wage in our capital. Terrible stuff, but it has no impact on the stock market, and another new high
in the S&P 500 won't impact it either.
Japan As Another Example
Japan offers another example of the distinction between markets and the real world. In February, the Nikkei 225, Japan's main stock
index, crossed above the 30,000 level for
the
first time
since 1990. For thirty years, Japanese stocks went nowhere, but that doesn't mean Japan went nowhere. They kept
improving their enviable country. Compare, for instance, their bullet train network in 1990...
To their network in 2020.
Lost in translation
10 hours ago
Stop
investing; instead, cash out, go Galt.
Stop
supporting a system that hates you and wants you dead.
Orlov
warned us ...
philipat
5 hours ago
I
really like Orlov, he makes some very smart observations. One of his most brilliant I thought was to point
out that "
A large part of the US economy depends on selling over-priced services to ourselves, which
ultimately doesn't amount to much
". How very true..
philipat
13 hours ago
2020 GAAP Earnings have a forward P/E of 40X. That's unprecedented and absurd, especially since there is no
recovery and the economy will collapse after the "stimulus" ends.
Agreed
about Silver, especially now FINALLY more people have understoof what a scam the paper PM derivatives
"markets" are and are buying physical. It's collapsing at the edges, with the Perth Mint leading the way in
exposed fraud!!
Automatic Choke
PREMIUM
8 hours ago
(Edited)
ok.
an interesting read, though, is "This Time Its Different". a very thorough evaluation of all financial
crises since the stone age. they ask the question, "is it possible to borrow your way out of a debt
crisis?" spoiler: "no".
your
argument says that the fed must keep spiking the punchbowl harder and harder to keep the party going. i
don't disagree. i only claim that there is a limit, and all of history agrees.
(edit)
by the way...how old are you? i was around when people were buying home mortgages at 18%, and it wasn't
pretty.
philipat
5 hours ago
(Edited)
I
think the Fed has nothing left. All it can do is jawbone and QE (Or QE in the slightly different form of YCC).
And it will until it collpases or there is the reset - whichever comes first. The economy started turnong
down in 4Q2018 and became noticeable in Sept 2019 with the Repo events. Well before Covid, which is just the
excuse and cover for many things. So if Covid goes away, as soon as the "stimulus" ends, the economy will
turn down again.
I'm
old enough to remember that too. But luckily never had a mortgage. Moved around the world with MNCs and had
accommodation paid for until I designed and built my own place in the tropics and by then was able
to pay cash.
Abuse of "Family office" was the only invention of Bill Hwang. and he was not the first to
exploit this loophole to accumulate unsustainable level of leverage.
One of them walks for hours through New York's Central Park listening to recordings of the
Bible and embraces a new, 21st-century vision of an age-old ideal: that of a modern Christian
capitalist, a financial speculator for Christ, who seeks to make money in God's name and then
use it to further the faith. A generous benefactor to a range of unglamorous, mostly
conservative Christian causes, this Hwang eschews the trappings of extravagant wealth, rides
the bus, flies commercial and lives in what is, by billionaire standards, humble surroundings
in suburban New Jersey.
That same Bill Hwang, it turns out, is also a backer of one of Wall Street's hottest hands
of late, Cathie Wood of Ark Investments. Like Hwang, Wood is known to hold Bible study meetings
and figures into what some refer to as the "faith in finance" movement.
And here, at last, is where the Bill Hwangs collide. The fortune he amassed under the noses
of major banks and financial regulators was far bigger and riskier than almost anyone might
have thought possible -- and these riches were pulled together with head-snapping speed. In
fact, it was perhaps one of the greatest accumulations of private wealth in the history of
modern finance.
And Hwang lost it all even faster.
... ... ...
But before the next success, Tiger Asia ran into more trouble -- this time, trouble big
enough to bring Hwang's days as a hedge fund manager to an end.
When Tiger Asia pleaded guilty to wire fraud in 2012, the SEC said the firm used inside
information to trade in shares of two Chinese banks. Hwang and his firm ended up paying $60
million to settle the criminal and civil charges. The SEC banned him from managing outside
money and Hong Kong authorities prohibited him from trading there for four years (the ban ended
in 2018).
Shut out of hedge funds, Hwang opened Archegos, a family office. The firm, which recently
employed some 50 people, initially occupied space in the Renzo Piano-designed headquarters of
the New York Times. Today it's based further uptown, by Columbus Circle, sharing its address
with the Grace & Mercy Foundation.
"My journey really began when I was having a lot of problems in our business about five or
six years ago," Hwang said in a 2017 video. "And I knew one thing, that this was a situation
where money and connections couldn't really help. But somehow I was reminded I had to go to the
words of the God."
That belief helped Hwang rebuild his financial empire at dizzying speed as banks loaned him
billions of dollars to ratchet up his bets that unraveled spectacularly as the financial firms
panicked. What ensued was one of the greatest margin calls of all time, pushing his giant
portfolio into liquidation. Some of the banks may end up with combined losses of as much as $10
billion, according to analysts at JPMorgan Chase & Co.
... ... ...
Doug Birdsall, honorary co-chairman of the Lausanne Movement, a global group that seeks to
mobilize evangelical leaders, said Hwang always likes to think big. When he met with him to
discuss a new 30-story building in New York for the American Bible Society, Hwang said, "Why
build 30 stories? Build it 66 stories high. There are 66 books in the bible."
Before so much went so wrong so fast, Archegos appeared to be ramping up. A year ago, Hwang
petitioned the SEC to let him work or run a broker-dealer; the SEC agreed.
It's impossible to say where Bill Hwang, the hard-charging financial speculator, ends, and
Bill Hwang, the Christian evangelist and philanthropist, begins. People who know him say the
one is inseparable from the other. Despite brushes with regulators, staggering trading losses
and the question swirling around his market dealings, they say Hwang often speaks of bridging
God and mammon, of bringing Christian teaching to the money-centric world of Wall Street.
By 2024 world output will still be 3% lower than was projected before the pandemic, with
countries reliant on tourism and services suffering the most, according to the IMF.
... "The Biden stimulus is a two edged sword," said former IMF chief economist Maury
Obstfeld, who is a now senior fellow at the Peterson Institute for International Economics in
Washington. Rising U.S. long-term interest rates "tighten global financial conditions.
Whether "working from home" is a temporary fad or a permanent "new normal" remains to be seen; what becomes more evident is
the mounting supply glut of corporate space in Manhattan, according to
Bloomberg
,
citing a new report from real estate firm Savills.
Savills said the amount of office space available in Manhattan is at a three-decade high. The report, released on Thursday,
said the availability rate soared to 17.2% in the first quarter. The rise in the rate was primarily due to a massive surge
in sublease space, which now stands at 22 million square feet, or 62% higher than 2019 levels.
"Abundant short- and long-term options are driving price reductions," Savills noted. "Many owners are proposing
historically aggressive rates, concessions, and flexibility to secure tenants amid so much competition."
Savills said rents fell for the fifth consecutive quarter to around $76.27 a square foot, down 9% from a year earlier.
These cheaper rents are creating a massive opportunity for companies who want to enter the city.
Desperate landlords were offering generous concessions for long-term leases at newly constructed buildings: "Average tenant
improvement allowances jumped 16% and free rent surged 17% to an average of 13.5 months. The tenant-friendly market is
expected to last for at least the next 12 to 18 months," Savills said.
The Manhattan office market continues to struggle more than one year after the pandemic hit, which has emptied Manhattan's
skyscrapers. And since most employees are still working from home, just around 24.21% of workers in the New York
metropolitan area were back at their desks as of this week.
Even with the vaccine rollout now reaching 100 million Americans, companies are still opting for "hybrid" work as remote
working
dominates
.
In a past report, Jim Wenk, a vice chairman at Savills North America, said commercial real estate in the borough will have
a "very choppy period for the foreseeable future."
A
recent
survey
from the Partnership for New York City found 66% of Manhattan's most prominent employers would allow employees
to work under hybrid work arrangements, meaning they would Manhattan's most prominent employers.
As more proof the work environment is rapidly changing, major magazine publisher Conde Nast (who owns brands such as ARS
Technica, GQ, Teen Vogue, The New Yorker, Vanity Fair, Vogue, Wired, among other popular magazines) is a major anchor
tenant in the new World Trade Center, recently
skipped
out
on rent as it asked for rent discounts and a reduction in square footage.
Last month, JP Morgan was
reportedly
looking
to sublet hundreds of thousands of square feet at 4 New York Plaza in the financial district and 5 Manhattan West in the
Hudson Yards area.
To make matters worse, Hudson Yards, a massive complex on Manhattan's Far West Side with condos, office space, and
retailers built over an enormous railroad yard had investors panic because the company
refuse
d to
open its books. The combination of work-at-home and folks moving to suburbs has left Hudson Yards and other places across
the borough a 'ghost town.'
This all suggests that the virus pandemic has brought years of technological change to the work model that has possibly
made companies more productive and cut costs as employees work from home or adopt a hybrid work model. Without office
workers returning to the borough, there can't be a robust recovery in the near term.
...Economists do expect inflation to rise to above 2% as more states reopen and then stay
there. And the St. Louis Fed is forecasting a 2.35% rate for the next 10 years.
...China's economy has dynamics that could raise the U.S. inflation rate over time. Key to
the argument are China's aging population and the value of the country's currency, the Yuan.
First, age. Today, the average age in China is 38, the same as in the U.S. By 2040, though, the
number skyrockets to 47 in China and dips to 37 here.
The shift means fewer Chinese workers and upward pressure on pay. Higher wages probably
would cause Chinese manufacturers to raise prices of exports, which could be passed onto
American consumers.
Now, the Yuan. The currency bottomed at 7.12 per dollar in late 2019 after a more than
five-year down-trend. China wants a weaker currency so its exports are more competitive --
cheaper -- for global buyers. Since the end of 2019, the Yuan has risen to 6.50 per dollar. If
the trend continues, U.S. importers might raise prices because the cost of their imports are
higher.
"Over the next decade, Asia's growth will slow dramatically, its wages will rise, its
factories will close, its surpluses will melt and its currencies will rise sharply," wrote
Vincent Deluard, global macro strategist at StoneX in a note. "For the rest of the world, this
will be a massive and unexpected inflationary shock."
Bill Gross expect that it will end the year at 2.5% Gross said he bet against the 10-year Treasury through
the futures market and remains short, anticipating a combination of rising commodity prices, a weaker dollar and stimulus-driven demand
will spark inflation. "Inflation, currently below 2%, is not going to be below 2% in the next few months," Gross said. "I see a 3% to
4% number ahead of us."
Bloomberg
"It is a dimension as vast as space and as timeless as infinity. It is the middle ground
between light and shadow, between science (reality) and superstition (bubbles), and it lies between the pit of man's fears
and the summit of his knowledge (fundamentals). This is the dimension of (economic) imagination. It is an area which we
call The Twilight Zone."
-
Rod Serling, introduction to the TV series, 1959 [our comments in ( )]
Our economy has entered the twilight zone. Today, economic leaders base policies on a hoped-for
utopia
with
bubbles called 'growing markets' and greed termed 'good valuations'. The
twilight zone
economy
is a place where fundamentals have disappeared. It is a utopian world of no moral hazard for business, financial
or economic mistakes. In the last year, the Federal Reserve has injected over $4.1T into the banking, hedge fund, Wall Street
complex of the financial elite. Vast injections of dollars have sent stock valuations to record highs. Yet, the
pandemic-driven economy is real for 19M Americans out of work, others who lost 540,000 loved ones, and millions carrying
housing debt due to missed rent and house payments.
Policymakers Disconnected From the Real Economy
Yet, policymakers continue to become further disconnected from the real economy where people work and spend. These leaders
imagine an economy of full employment forever, risk assets continually rising in price (not value) with virtually no market
corrections. It is an economic wonderland for corporations to use low-cost debt to finance infinite profits and stock
buybacks. Wall Street is only too pleased to hype this corporate financial engineering. Goldman Sachs forecasts a GDP surge
to 8% in the 4th quarter of this year due to the $1.9T American Rescue Bill. Bond king Bill Gross predicts interest rates
surge to 3 – 4 % by year end.
Does all this monetary and fiscal stimulus result in a
healthy solid economy or the most catastrophic inflationary bubble in modern times
? Our post identifies the dimensions of
the Twilight Zone Economy.
Astronomical Public Debt Drags Growth
The country is drowning in low-interest debt. But, this liquidity 'soma' drug is putting investors to sleep, thinking
everything will be ok. Now, public debt is at levels not seen since WWII and projected to go to 200% of GDP by 2051.
Source: CBO, The Daily Shot – 3/15/21
During WWII, debt supported production capacity for building weapons, planes, and infrastructure to support the war effort.
When the war was over, the US was the only major economy intact, leading to a high growth productive economy. The investment
in productive industries increased the standard of living for most Americans.
Sources: Blackrock, IMF, OECD, The Daily Shot – 3/15/21
Are the present monetary debt and fiscal stimulus programs of relief payments resulting in productive investment? This chart,
by Lance Roberts, shows how increasing public debt has resulted in a continuing decline in real economic growth.
Source: RIA, Lance Roberts, 3/17/21
Public debt not used for solid investments in infrastructure, basic research for innovation, or productivity has resulted in
an ever-growing debt level to achieve a continuing decline in economic growth. This cycle of low-cost ballooning debt to
finance debt service and transfer payments will likely result in economic stagnation or worse.
Negative Yielding Debt Triggers Speculation
Sovereign negative-yielding debt reached a record high of $17.8T last month. Thus, a massive level of worldwide debt is not
repaying the entire principal to debt holders. Correlated to soaring negative-yielding debt is the meteoric rise of trader
speculation in Bitcoin and other cryptocurrencies.
Sources: Daily Feather, Bloomberg – 3/22/21
Such parabolic moves in debt and speculative digital currencies like Bitcoin are candidates for a significant reversion in
value at some date in the near future.
Equity Markets Are In An Alternate Reality
Why is a firm like Tesla valued at the same level as the next six largest car companies or the oil industry's total market
capitalization? Isn't Tesla's valuation in the economic twilight zone? Analysts value Tesla at $1M per vehicle produced versus
GM at $5000 per vehicle. While VW is building six battery factories in the EU, and vows by 2025 to produce over 1.2M EVs in
2022, matching Tesla's total output. VW has now taken over the dominant market share in Europe and is opening EV plants in
Asia and North America.
There are 15 major car manufacturers, including GM, Ford, Toyota, Honda, Nissan, BMW, Mercedes, investing billions into EV
production plants and battery facilities. Tesla may have a first-mover advantage in the EV market, but it may wind up like
Yahoo, losing out to Google in the internet search sector. The following chart shows S&P valuations at Dotcom Crash levels in
2000.
The following chart shows the record valuation of stocks as a percentage of GDP back to 1952!
Sources: Charles Schwab, Bloomberg – 12/31/20
Traders are using ever-increasing levels of margin to buy stocks. Corporate executives with record levels of cash are
resuming stock buybacks as the Dow and S&P continue to set new record highs. Yet, corporate sales and economic fundamentals
don't support this extreme valuation case.
This chart from Real Investment Advisors notes the divergence of stock valuations growing to 164% versus corporate sales
growth of 42% and GDP growth at 22% since 2007.
Source: Real Investment Advisors – 3/20/21
Investors, executives, and the Federal Reserve are addicted to low-interest rates. And just like physical addiction, the time
will come when the zero-interest economic drug won't work anymore, and withdrawal sets in spiraling into a market crash.
Bubbles Bubbles Everywhere
Another sign of an alternative reality is bubbles in non-financial markets. For example, Christie's just sold a digital work
of art by an artist known as Beepie for $69.3M with a non-fungible (exchangeable) token (NFT) when the bidding started at just
$100. NFT collectible prices have sky rocked, providing the buyer with ownership rights indicating their purchase is
authentic. Beepi knows he's riding a soaring market, observing, 'Absolutely it's a bubble, to be honest."
An NFT buyer purchased 351 Top NBA Shot videos for $5,000 last January in the video clip market. Based on social media
chatter, Momentranks.com values the videos at $67,000 today. Sneaker reselling has soared as the collectible marketplace,
StockX, announced that Nike Dunks sold for $33,400 two months ago. StockX disclosed that a Tom Brady rookie trading card sold
for a record $1.3M in January. Even innocuous things like Twitter CEO Jack Dorsey's first tweet sold for $2.9M. Venture
capitalists Marc Andreessen and Ben Horowitz note what motivates mania buyers at a collectible forum:
Andreessen:
"A big part of the entire
point of life is aesthetics. The way that we live and the design of things around us and artistic creativity."
Horowitz:
"It's a feeling. You're buying
a feeling. And what's that worth?"
Writer Ben Carlson notes in his analysis of bubble markets that:
"We're
emotional. We lead with our feelings. We're superstitious."
Superstition is a characteristic of the Twilight Zone Economy.
Core City Life Is Changed Forever
Many think life will go back to the way things were in February 2020. We disagree. Life has changed forever in America. The
lack of commuters changes core city life where they are the heartbeat of neighborhoods surrounded by office towers. Millions
of small businesses and restaurants dependent on commuter patronage are scrambling to survive. When they had the opportunity,
millions of workers worked from home and found they could perform successfully remotely. Hundreds of thousands of workers
left cities to move to another less costly city or region. Some analysts think 99% of commuters will come back to city
offices.
Yet, surveys show that from 20 – 25 % of professionals in dense city centers like New York and San Francisco want to work from
home at least 3 – 4 days a week or work from home full time. Based on remote worker management experience companies are
restructuring their reporting hierarchy. Global corporations to startups are moving to a distributed worker organization,
further flattening the reporting structure for improved performance and business agility.
The lack of office workers leaves 20% of offices in core cities vacant, putting banks and commercial office space landlords at
risk for billions of dollars in lease income. Plus, small businesses in these core cities have lost 50- 60% of their sales.
Business owners hold billions of dollars in lease debt which must be paid off even after 80% of commuters return. Innovative
new small businesses and restaurants will emerge to support these commuters. Plus, new attractions and business models will
bring back visitors crucial for the leisure and hospitality sectors.
Millions of Workers Are Long Term Unemployed
About 19M workers collect continuing unemployment, of which 39.5% have been unemployed over 27 weeks. These permanently
unemployed workers will have a difficult time finding their next job. While Indeed reports that job openings are up 3.7 %
from January 2020, millions of workers are still unemployed. Many of these workers do not have the job skills to be hired for
many new manufacturing and services jobs. Bank of America completed an analysis of unemployment pre – COVID to the trajectory
of employment post COVID showing a lingering decline in the labor force.
Sources: Bank of America, CBO, Zerohedge, Real Investment Advisors – 2/12/21
The BofA analysis shows a permanent loss of employment in labor force size in Phase 3 of the recovery. The reality of the
economy that workers and consumers will likely live in is an economy of debt dragging economic growth with poor job prospects.
Job prospects for millions of workers will be limited by their lack of marketable skills. A major workforce segment faces a
long financial recovery time from either the loss of their business or job. Lack of consumer spending by the permanently
unemployed will slow the recovery.
Corporate Executives Join In the Party
In the 1950s, CEO pay to average worker pay was 50 times. Today, CEO pay is 350 times average worker pay, with Wall Street
applauding stock buybacks totaling 1.4T in 2019. While buybacks fell to $450B in 2020, Bloomberg forecasts stock buybacks to
resume $150B per quarter in 2021. Stock buybacks create overvalued markets. Ned Davis Research estimates the SPX as overvalued
by at least 20% due to stock buybacks distorting prices in 2019. A company gooses prices by using cash to purchase shares in
the open market, thereby reducing the stock pool for public investors. If demand stays the same, prices go up.
Yet, the company has not increased in substantive value. Many executives used low-cost debt to make stock purchases that
saddle the company with major debt obligations. Executives must refinance these debt obligation or pay them off in the near
future. In January 2020, corporate debt hit a 30-year record 49% of GDP, while interest rates were low. Fitch forecasts a
jump in corporate loan defaults in 2021 to 8 – 9% from a 2020 default range of 5 – 6%.
Sources: Fitch Ratings, Vuk Vukovic – 9/22/20
A significant default storm looms in the coming years as interest rates rise.
Another cash flow squeeze is developing in profit margins. Prices paid for goods and services are increasing at a rate far
faster than corporations can raise end customer prices in the following chart.
Sources: Mizuho Securities, The Federal Reserve Bank of Philadelphia, The Daily Shot –
3/19/21
Note the gap between prices paid and prices received in 2009 just before the 2009 fall. A similar cash flow squeeze seems to
be strengthening.
Policy Makers Are Missing Solid Economic Landmarks
To pilot a ship along a coast and into a safe harbor, a captain needs recognizable landmarks and beacons.
Our
policy – captains are in a twilight zone fog.
Many key economic indicators do not actually measure what policymakers tell
us they do. Stock earnings per share reports are financially manipulated by stock buybacks misleading investors as to the
actual earnings per share compared to pre-buybacks. The Fed holds interest rates artificially low with the resulting
liquidity injections distorting debt markets. Unemployment rates are not accurate when the Bureau of Labor Statistics shows a
rate of 6.7%. But, according to state unemployment reports, 19M workers are on continuing unemployment. Thus, the unemployment
rate is more like 12.6%.
The Fed's inflation consumer price index figures exclude 'volatile energy and food prices, which are expenses consumers
experience every day. Since the federal government in 1999 changed to a 'consumer lifestyle buying pattern' approach rather
than a standard price comparison, inflation has consistently been under-reported. In 1998 the Bureau of Labor Statistics
shifted to an 'owner equivalent rental cost' for homeownership. Using the Case-Shiller Home Price Index since 2019 shows the
BLS OER-based approach understates CPI dramatically at 1.0% vs. the Case-Shiller model at 2.5%.
Industry Research On The Real Economy Is More Accurate
Chapwood Investments publishes a biannual index including 50 cities comparing consumer goods and services prices on 500
consumer items. Their analysis showed the top ten cities in the US with an average inflation rate of 10% in the second half of
2020. A marketing industry research firm compared price changes for 220 often purchased consumer products at Target and
Walmart comparing 2018 to 2019 prices on average, the increase was 5 – 6% for both stores. Corporate marketing executives
must have accurate information to make reasonable sales forecasts and plans for investment. Our policy leaders can learn from
their example.
The Way Out of the Twilight Zone
To leave the Twilight Zone grip requires policymakers to recognize financial and real
economy fundamentals. They need to drop the no economic pain utopia model.
Policymakers need to get real with their
statistics and tracking systems to base their policy initiatives on the real economy. Analysts need to use fundamentals for
stock market and financial valuations. The Fed should stop rescuing failing hedge funds, zombie companies and end the
addiction to low-cost debt. Washington can start paying for new spending programs with increased focused taxes, ending
government waste and lower spending. The focus needs to be on a monetary and fiscal set of policies sustaining
entrepreneurship, hard work, and allowing the economic consequences of business failure to run their course.
To avoid the inevitable market crash, these programs need to be phased in over several
years to allow for investors, executives, and consumers to make adjustments to their portfolios.
It
is as if economic leaders have sent investors up an infinite 'wall of price' like a free solo climber, with no safety rope
leaving them to the inevitable fate of fundamental economic gravity
.
takeaction
3 hours ago
(Edited)
I stopped right
here...
" who lost 540,000 loved ones "
People die
every day...and it is NOT from the scamdemic...
In regards to
this economy...with Biden being propped up, the printing will not stop...
So watch asset
prices continue to explode. Don't short anything right now.
There will be a
time to short...but IMO not now..you will get crushed.
mrktwtch2
PREMIUM
3 hours ago
remove
link
I live
in a small suburb north of Chicago in the county of mchery il we r 12 miles south of the Wisconsin
border..my wife paid 139k for her town home in 2002 it went down to 78k during the crash but now its worth
195..since the joggers burned the cities down everyone is trying to move out of the city..strange times
indeed
USAllDay
3 hours ago
The
stupidity is just getting started. Yield curve control, price fixing, never ending eviction and foreclosure
moratorium extensions, constant stimulus for fat alcoholic/meth addicted "single mothers". The collapse will
be beautiful. Nothing this dirty should exist.
SMC
27 minutes ago
The
thing we can do is enjoy every day to the fullest and not help them peddle their idiocy and fear.
If we
are right, they are destroying themselves.
Mathematics, Physics and Chemistry may be "*-ist" but they combined with staying in shape, focus and
dedication are key to our survival.
There's a saying that bull markets climb a wall of worry.
Investors are always looking for something to go wrong when things are going right. With
stocks at or near all-time highs, investors have begun to fret over higher interest rates and
their potentially negative impact on economic growth, coming inflation and what higher rates
portend for stock-market valuations.
Higher rates, however, probably won't kill the bull market. Corporate management teams might
do that all on their own. New stock sales by companies already flush with cash is sending a
coded message to investors that things might be as good as they get.
Interest rates are always a concern for the market and the overall economy. Higher interest
rates make everything more expensive including home mortgages and car payments. It also makes
it harder to start and grow businesses.
For the market, higher interest rates tend to depress price-to-earnings multiples. The
reason is, essentially, math. If investors can make more interest on their bonds, they demand
more return from stocks. Higher returns tomorrow means paying less for stocks today.
Here's the thing. Inflation isn't running wild. The yield on the 10-year Treasury bond is
about 1.7%, up from recent lows, but lower than where yields finished 2019. That isn't a high
enough rate to choke off economic growth. At 3% and higher, the oxygen intake could start to
get cut off.
Inflation expectations aren't out of line with history either. Inflation expectations can be
measured by the difference in traditional government bonds yields and the yield on government
inflation protected securities. Essentially, the face value of an inflation protected bond goes
up by the consumer price index. The difference in yield between the traditional bond and the
inflation protected bond is the level of inflation required to make an investor the same return
on both.
Today, the 10-year yield is at roughly 1.7%. The 10-year inflation protected yield is
negative 0.7%. So inflation has to average about 2.4% for both bond holders to get the same
return.
Investors should watch out for inflation, but they should be more concerned with recent
stock sales by companies flush with cash.
While a robust domestic recovery is great news for corporate profits, it might not be for
stock prices if bond yields keep climbing -- especially technology stocks, which have proven to
be especially sensitive to yields recently. Back in December when vaccine and stimulus plans
were known, economists thought that the 10 year note's yield would be 1.08% in June. It
jumped to 1.72% on Friday in response to the jobs report. Some forecasters see it topping
2% this year for the first time since the summer of 2019.
If we are to believe authorities the USA. added 916K jobs in March, and the official
unemployment rate is at 6% (note the word official; the current official U6 unemployment rate as
of March 2021 is 10.70%; so the real number is probably much higher than 10%)
Fudging data became as prominent as it was in the USSR. The neoliberal empire can't afford objective stats.
Notable quotes:
"... monthly data is collected over a brief timeframe - just a few days - and that the calculations are seasonally adjusted. ..."
"... Yes, at least half the sheep population think they are real. It's insane how dumb people are today. ..."
I spent the last 2 weeks digging into the numbers - especially timing of the surveys and
data collection. I get the fact that weekly claims don't reflect new hires. I also realize
that monthly data is collected over a brief timeframe - just a few days - and that the
calculations are seasonally adjusted.
But let's be reasonable - how is it possible to have 700K - 800K initial jobless claims
every week and create nearly a million new jobs? Does anyone really believe any of these numbers?
Globalistsaretrash
Yes, at least half the sheep population think they are real. It's insane how dumb people
are today.
Not only was the March payrolls report a blockbuster, golidlocks number, much higher than expected but not
too
high
to spark immediate reflation/hike fears thanks to subdued wage inflation, job growth in March was also widespread unlike
February, where 75% of all new jobs
were
waiters and bartenders
. By contrast, in March the largest gains occurring across most industries with the bulk taking
place in leisure and hospitality, public and private education, and construction.
Here is a full breakdown:
Employment in leisure and hospitality increased by 280,000 in March,
as
pandemic-related restrictions eased in many parts of the country. Nearly two-thirds of the increase was in food services
and drinking places (+176,000). Job gains also occurred in arts, entertainment, and recreation (+64,000) and in
accommodation (+40,000). Employment in leisure and hospitality is down by 3.1 million, or 18.5 percent, since February
2020.
In March, employment increased in both public and private education,
reflecting
the continued resumption of in-person learning and other school-related activities in many parts of the country. Employment
rose by 76,000 in local government education, by 50,000 in state government education, and by 64,000 in private education.
Employment is down from February 2020 in local government education (-594,000), state government education (-270,000), and
private education (-310,000).
Construction added 110,000 jobs in March,
following job losses in the
previous month (-56,000) that were likely weather-related. Employment growth in the industry was widespread in March, with
gains of 65,000 in specialty trade contractors, 27,000 in heavy and civil engineering construction, and 18,000 in
construction of buildings. Employment in construction is 182,000 below its February 2020 level.
Employment in professional and business services rose by 66,000 over the month.
In
March, employment in administrative and support services continued to trend up (+37,000), although employment in its
temporary help services component was essentially unchanged. Employment also continued on an upward trend in management and
technical consulting services (+8,000) and in computer systems design and related services (+6,000).
Manufacturing employment rose by 53,000 in March,
with job gains occurring
in both durable goods (+30,000) and nondurable goods (+23,000). Employment in manufacturing is down by 515,000 since
February 2020.
Transportation and warehousing added 48,000 jobs in March.
Employment
increased in couriers and messengers (+17,000), transit and ground passenger transportation (+13,000), support activities
for transportation (+6,000), and air transportation (+6,000). Since February 2020, employment in couriers and messengers is
up by 206,000 (or 23.3 percent), while employment is down by 112,000 (or 22.8 percent) in transit and ground passenger
transportation and by 104,000 (or 20.1 percent) in air transportation.
Employment in the other services industry increased by 42,000 over the month,
reflecting
job gains in personal and laundry services (+19,000) and in repair and maintenance (+18,000). Employment in other services
is down by 396,000 since February 2020.
Social assistance added 25,000 jobs in March,
mostly in individual and
family services (+20,000). Employment in social assistance is 306,000 lower than in February 2020.
Employment in wholesale trade increased by 24,000 in March,
with job gains
in both durable goods (+14,000) and nondurable goods (+10,000). Employment in wholesale trade is 234,000 lower than in
February 2020.
Retail trade added 23,000 jobs in March.
Job growth in clothing and
clothing accessories stores (+16,000), motor vehicle and parts dealers (+13,000), and furniture and home furnishing stores
(+6,000) was partially offset by losses in building material and garden supply stores (-9,000) and general merchandise
stores (-7,000). Employment in retail trade is 381,000 below its February 2020 level.
Employment in mining rose by 21,000 in March,
in support activities for
mining (+19,000). Mining employment is down by 130,000 since a peak in January 2019.
Financial activities added 16,000 jobs in March.
Job gains in insurance
carriers and related activities (+11,000) and real estate (+10,000) more than offset losses in credit intermediation and
related activities (-7,000). Financial activities has 87,000 fewer jobs than in February 2020.
It's hardly a surprise that with the US reopening, the one industry seeing the biggest hiring remains leisure and hospitality
where jobs rose by 280,000, as pandemic-related restrictions eased in many parts of the country, with nearly two-thirds of the
increase in "food services and drinking places", i.e., waiters and bartenders, which added +176,000 jobs in March.
And another notable change was in the total number of government workers, which surged by 136K in March, reversing the 90K
drop in February, as a result of 49.6K state education workers and 76K local government education workers added thanks to the
reopening of schools around the country.
Here is a visual breakdown of all the March job changes:
Finally,
courtesy
of Bloomberg
, below are the industries with the highest and lowest rates of employment growth for the most recent month.
7
play_arrow
Jack Offelday
1 hour ago
The "V" recovery. Where Food Service jobs are the new "Golden Age".
Creamaster
47 minutes ago
(Edited)
My wife is a nurse in an outpatient office under a large hospital umbrella here. Normally these outpatient
spots go within days to a week.
Currently they have 2 openings they have been trying to fill for a few months now. Combine that with the
fact my wife got 3 years worth of raises in a single shot, recently and out of the blue for no reason, tells
me the hospitla is really screwed trying to fill nursing spots.
After this pandemic crap, it has likely scared alot of people away from entering healthcare, and if a nurse
was on the fence about retirement , likely decided to call it quits after all this BS.
newworldorder
45 minutes ago
There are an estimated, 30 million illegals currently in the USA waiting legalization.
WHEN legalization happens, they will bring into the USA (by historical averages,) another 60 to 90 million
of their family members in 10 years.
And all of them US Minority workers, by current US Diversity Laws, - same as all Black Americans.
"It is a dimension as vast as space and as timeless as infinity. It is the middle ground
between light and shadow, between science (reality) and superstition (bubbles), and it lies between the pit of man's fears
and the summit of his knowledge (fundamentals). This is the dimension of (economic) imagination. It is an area which we
call The Twilight Zone."
-
Rod Serling, introduction to the TV series, 1959 [our comments in ( )]
Our economy has entered the twilight zone. Today, economic leaders base policies on a hoped-for
utopia
with
bubbles called 'growing markets' and greed termed 'good valuations'. The
twilight zone
economy
is a place where fundamentals have disappeared. It is a utopian world of no moral hazard for business, financial
or economic mistakes. In the last year, the Federal Reserve has injected over $4.1T into the banking, hedge fund, Wall Street
complex of the financial elite. Vast injections of dollars have sent stock valuations to record highs. Yet, the
pandemic-driven economy is real for 19M Americans out of work, others who lost 540,000 loved ones, and millions carrying
housing debt due to missed rent and house payments.
Policymakers Disconnected From the Real Economy
Yet, policymakers continue to become further disconnected from the real economy where people work and spend. These leaders
imagine an economy of full employment forever, risk assets continually rising in price (not value) with virtually no market
corrections. It is an economic wonderland for corporations to use low-cost debt to finance infinite profits and stock
buybacks. Wall Street is only too pleased to hype this corporate financial engineering. Goldman Sachs forecasts a GDP surge
to 8% in the 4th quarter of this year due to the $1.9T American Rescue Bill. Bond king Bill Gross predicts interest rates
surge to 3 – 4 % by year end.
Does all this monetary and fiscal stimulus result in a
healthy solid economy or the most catastrophic inflationary bubble in modern times
? Our post identifies the dimensions of
the Twilight Zone Economy.
Astronomical Public Debt Drags Growth
The country is drowning in low-interest debt. But, this liquidity 'soma' drug is putting investors to sleep, thinking
everything will be ok. Now, public debt is at levels not seen since WWII and projected to go to 200% of GDP by 2051.
Source: CBO, The Daily Shot – 3/15/21
During WWII, debt supported production capacity for building weapons, planes, and infrastructure to support the war effort.
When the war was over, the US was the only major economy intact, leading to a high growth productive economy. The investment
in productive industries increased the standard of living for most Americans.
Sources: Blackrock, IMF, OECD, The Daily Shot – 3/15/21
Are the present monetary debt and fiscal stimulus programs of relief payments resulting in productive investment? This chart,
by Lance Roberts, shows how increasing public debt has resulted in a continuing decline in real economic growth.
Source: RIA, Lance Roberts, 3/17/21
Public debt not used for solid investments in infrastructure, basic research for innovation, or productivity has resulted in
an ever-growing debt level to achieve a continuing decline in economic growth. This cycle of low-cost ballooning debt to
finance debt service and transfer payments will likely result in economic stagnation or worse.
Negative Yielding Debt Triggers Speculation
Sovereign negative-yielding debt reached a record high of $17.8T last month. Thus, a massive level of worldwide debt is not
repaying the entire principal to debt holders. Correlated to soaring negative-yielding debt is the meteoric rise of trader
speculation in Bitcoin and other cryptocurrencies.
Sources: Daily Feather, Bloomberg – 3/22/21
Such parabolic moves in debt and speculative digital currencies like Bitcoin are candidates for a significant reversion in
value at some date in the near future.
Equity Markets Are In An Alternate Reality
Why is a firm like Tesla valued at the same level as the next six largest car companies or the oil industry's total market
capitalization? Isn't Tesla's valuation in the economic twilight zone? Analysts value Tesla at $1M per vehicle produced versus
GM at $5000 per vehicle. While VW is building six battery factories in the EU, and vows by 2025 to produce over 1.2M EVs in
2022, matching Tesla's total output. VW has now taken over the dominant market share in Europe and is opening EV plants in
Asia and North America.
There are 15 major car manufacturers, including GM, Ford, Toyota, Honda, Nissan, BMW, Mercedes, investing billions into EV
production plants and battery facilities. Tesla may have a first-mover advantage in the EV market, but it may wind up like
Yahoo, losing out to Google in the internet search sector. The following chart shows S&P valuations at Dotcom Crash levels in
2000.
The following chart shows the record valuation of stocks as a percentage of GDP back to 1952!
Sources: Charles Schwab, Bloomberg – 12/31/20
Traders are using ever-increasing levels of margin to buy stocks. Corporate executives with record levels of cash are
resuming stock buybacks as the Dow and S&P continue to set new record highs. Yet, corporate sales and economic fundamentals
don't support this extreme valuation case.
This chart from Real Investment Advisors notes the divergence of stock valuations growing to 164% versus corporate sales
growth of 42% and GDP growth at 22% since 2007.
Source: Real Investment Advisors – 3/20/21
Investors, executives, and the Federal Reserve are addicted to low-interest rates. And just like physical addiction, the time
will come when the zero-interest economic drug won't work anymore, and withdrawal sets in spiraling into a market crash.
Bubbles Bubbles Everywhere
Another sign of an alternative reality is bubbles in non-financial markets. For example, Christie's just sold a digital work
of art by an artist known as Beepie for $69.3M with a non-fungible (exchangeable) token (NFT) when the bidding started at just
$100. NFT collectible prices have sky rocked, providing the buyer with ownership rights indicating their purchase is
authentic. Beepi knows he's riding a soaring market, observing, 'Absolutely it's a bubble, to be honest."
An NFT buyer purchased 351 Top NBA Shot videos for $5,000 last January in the video clip market. Based on social media
chatter, Momentranks.com values the videos at $67,000 today. Sneaker reselling has soared as the collectible marketplace,
StockX, announced that Nike Dunks sold for $33,400 two months ago. StockX disclosed that a Tom Brady rookie trading card sold
for a record $1.3M in January. Even innocuous things like Twitter CEO Jack Dorsey's first tweet sold for $2.9M. Venture
capitalists Marc Andreessen and Ben Horowitz note what motivates mania buyers at a collectible forum:
Andreessen:
"A big part of the entire
point of life is aesthetics. The way that we live and the design of things around us and artistic creativity."
Horowitz:
"It's a feeling. You're buying
a feeling. And what's that worth?"
Writer Ben Carlson notes in his analysis of bubble markets that:
"We're
emotional. We lead with our feelings. We're superstitious."
Superstition is a characteristic of the Twilight Zone Economy.
Core City Life Is Changed Forever
Many think life will go back to the way things were in February 2020. We disagree. Life has changed forever in America. The
lack of commuters changes core city life where they are the heartbeat of neighborhoods surrounded by office towers. Millions
of small businesses and restaurants dependent on commuter patronage are scrambling to survive. When they had the opportunity,
millions of workers worked from home and found they could perform successfully remotely. Hundreds of thousands of workers
left cities to move to another less costly city or region. Some analysts think 99% of commuters will come back to city
offices.
Yet, surveys show that from 20 – 25 % of professionals in dense city centers like New York and San Francisco want to work from
home at least 3 – 4 days a week or work from home full time. Based on remote worker management experience companies are
restructuring their reporting hierarchy. Global corporations to startups are moving to a distributed worker organization,
further flattening the reporting structure for improved performance and business agility.
The lack of office workers leaves 20% of offices in core cities vacant, putting banks and commercial office space landlords at
risk for billions of dollars in lease income. Plus, small businesses in these core cities have lost 50- 60% of their sales.
Business owners hold billions of dollars in lease debt which must be paid off even after 80% of commuters return. Innovative
new small businesses and restaurants will emerge to support these commuters. Plus, new attractions and business models will
bring back visitors crucial for the leisure and hospitality sectors.
Millions of Workers Are Long Term Unemployed
About 19M workers collect continuing unemployment, of which 39.5% have been unemployed over 27 weeks. These permanently
unemployed workers will have a difficult time finding their next job. While Indeed reports that job openings are up 3.7 %
from January 2020, millions of workers are still unemployed. Many of these workers do not have the job skills to be hired for
many new manufacturing and services jobs. Bank of America completed an analysis of unemployment pre – COVID to the trajectory
of employment post COVID showing a lingering decline in the labor force.
Sources: Bank of America, CBO, Zerohedge, Real Investment Advisors – 2/12/21
The BofA analysis shows a permanent loss of employment in labor force size in Phase 3 of the recovery. The reality of the
economy that workers and consumers will likely live in is an economy of debt dragging economic growth with poor job prospects.
Job prospects for millions of workers will be limited by their lack of marketable skills. A major workforce segment faces a
long financial recovery time from either the loss of their business or job. Lack of consumer spending by the permanently
unemployed will slow the recovery.
Corporate Executives Join In the Party
In the 1950s, CEO pay to average worker pay was 50 times. Today, CEO pay is 350 times average worker pay, with Wall Street
applauding stock buybacks totaling 1.4T in 2019. While buybacks fell to $450B in 2020, Bloomberg forecasts stock buybacks to
resume $150B per quarter in 2021. Stock buybacks create overvalued markets. Ned Davis Research estimates the SPX as overvalued
by at least 20% due to stock buybacks distorting prices in 2019. A company gooses prices by using cash to purchase shares in
the open market, thereby reducing the stock pool for public investors. If demand stays the same, prices go up.
Yet, the company has not increased in substantive value. Many executives used low-cost debt to make stock purchases that
saddle the company with major debt obligations. Executives must refinance these debt obligation or pay them off in the near
future. In January 2020, corporate debt hit a 30-year record 49% of GDP, while interest rates were low. Fitch forecasts a
jump in corporate loan defaults in 2021 to 8 – 9% from a 2020 default range of 5 – 6%.
Sources: Fitch Ratings, Vuk Vukovic – 9/22/20
A significant default storm looms in the coming years as interest rates rise.
Another cash flow squeeze is developing in profit margins. Prices paid for goods and services are increasing at a rate far
faster than corporations can raise end customer prices in the following chart.
Sources: Mizuho Securities, The Federal Reserve Bank of Philadelphia, The Daily Shot –
3/19/21
Note the gap between prices paid and prices received in 2009 just before the 2009 fall. A similar cash flow squeeze seems to
be strengthening.
Policy Makers Are Missing Solid Economic Landmarks
To pilot a ship along a coast and into a safe harbor, a captain needs recognizable landmarks and beacons.
Our
policy – captains are in a twilight zone fog.
Many key economic indicators do not actually measure what policymakers tell
us they do. Stock earnings per share reports are financially manipulated by stock buybacks misleading investors as to the
actual earnings per share compared to pre-buybacks. The Fed holds interest rates artificially low with the resulting
liquidity injections distorting debt markets. Unemployment rates are not accurate when the Bureau of Labor Statistics shows a
rate of 6.7%. But, according to state unemployment reports, 19M workers are on continuing unemployment. Thus, the unemployment
rate is more like 12.6%.
The Fed's inflation consumer price index figures exclude 'volatile energy and food prices, which are expenses consumers
experience every day. Since the federal government in 1999 changed to a 'consumer lifestyle buying pattern' approach rather
than a standard price comparison, inflation has consistently been under-reported. In 1998 the Bureau of Labor Statistics
shifted to an 'owner equivalent rental cost' for homeownership. Using the Case-Shiller Home Price Index since 2019 shows the
BLS OER-based approach understates CPI dramatically at 1.0% vs. the Case-Shiller model at 2.5%.
Industry Research On The Real Economy Is More Accurate
Chapwood Investments publishes a biannual index including 50 cities comparing consumer goods and services prices on 500
consumer items. Their analysis showed the top ten cities in the US with an average inflation rate of 10% in the second half of
2020. A marketing industry research firm compared price changes for 220 often purchased consumer products at Target and
Walmart comparing 2018 to 2019 prices on average, the increase was 5 – 6% for both stores. Corporate marketing executives
must have accurate information to make reasonable sales forecasts and plans for investment. Our policy leaders can learn from
their example.
The Way Out of the Twilight Zone
To leave the Twilight Zone grip requires policymakers to recognize financial and real
economy fundamentals. They need to drop the no economic pain utopia model.
Policymakers need to get real with their
statistics and tracking systems to base their policy initiatives on the real economy. Analysts need to use fundamentals for
stock market and financial valuations. The Fed should stop rescuing failing hedge funds, zombie companies and end the
addiction to low-cost debt. Washington can start paying for new spending programs with increased focused taxes, ending
government waste and lower spending. The focus needs to be on a monetary and fiscal set of policies sustaining
entrepreneurship, hard work, and allowing the economic consequences of business failure to run their course.
To avoid the inevitable market crash, these programs need to be phased in over several
years to allow for investors, executives, and consumers to make adjustments to their portfolios.
It
is as if economic leaders have sent investors up an infinite 'wall of price' like a free solo climber, with no safety rope
leaving them to the inevitable fate of fundamental economic gravity
.
takeaction
3 hours ago
(Edited)
I stopped right
here...
" who lost 540,000 loved ones "
People die
every day...and it is NOT from the scamdemic...
In regards to
this economy...with Biden being propped up, the printing will not stop...
So watch asset
prices continue to explode. Don't short anything right now.
There will be a
time to short...but IMO not now..you will get crushed.
mrktwtch2
PREMIUM
3 hours ago
remove
link
I live
in a small suburb north of Chicago in the county of mchery il we r 12 miles south of the Wisconsin
border..my wife paid 139k for her town home in 2002 it went down to 78k during the crash but now its worth
195..since the joggers burned the cities down everyone is trying to move out of the city..strange times
indeed
USAllDay
3 hours ago
The
stupidity is just getting started. Yield curve control, price fixing, never ending eviction and foreclosure
moratorium extensions, constant stimulus for fat alcoholic/meth addicted "single mothers". The collapse will
be beautiful. Nothing this dirty should exist.
SMC
27 minutes ago
The
thing we can do is enjoy every day to the fullest and not help them peddle their idiocy and fear.
If we
are right, they are destroying themselves.
Mathematics, Physics and Chemistry may be "*-ist" but they combined with staying in shape, focus and
dedication are key to our survival.
'The world will never be the same:' Coursera CEO on learning post pandemic
Reggie Wade
·
Writer
Fri, April 2, 2021, 12:43 PM
More content below
More content below
^IXIC
+1.76%
COUR
+1.73%
The online learning platform
Coursera
(
COUR
)
saw a big pop following its Nasdaq (
^IXIC
)
debut this week. Coursera revenue was up 60% last year, and CEO Jeff Maggioncalda predicts online learning is here to stay even
after the pandemic eventually winds down.
"The world needs more access to high-quality learning. ... There will be a new normal that emerges. We don't know what that will
look like either in terms of how we work remotely versus in an office and how we will learn online and also on campus. But it's
pretty clear that the world will never be the same again and that online learning will be a big part of it," he told Yahoo
Finance Live.
"So we really think about the long term, all the structural reasons why people will need to learn continuously through their
lives to learn new skills as the world goes more digital," he said.
Dec 27, 2019 Mountain View / CA / USA - Coursera headquarters in Silicon Valley; Coursera is an American online learning
platform that offers massive open online courses, specializations, and degrees
One area that Coursera is looking to expand is its degree and certification programs. Maggioncalda tells Yahoo Finance that the
company can use technology to shake up traditional degree offerings.
"What we've seen for centuries is that college degrees are the most meaningful, recognized learning credential that there is, and
the credential type hasn't really innovated that much over the last period of history. We think with technology, the ability to
create not only degrees but other types of credentials," he said.
"It will be a portfolio of credentials. We believe that will serve lifelong learning needs in a world where people need to keep
learning, even as they're working," he added.
Bloomberg News recently published an article,
Amazon
Fights Union Drive With Fact-Free Bombast
, discussing Amazon's alleged use of misinformation to prevent employees from
unionizing. In the same manner Kailash recused itself from having a "bull" or "bear" thesis on Bitcoin, we will recuse ourselves
from any discussion of unions. What we would like to draw our readers' attention to however is the method by which Amazon pays
many senior executives.
In the Bloomberg article it noted that the former head of Amazon's
logistics business was awarded stock compensation worth $160 million dollars.
In the wake of the scandals that occurred during the financially profligate dot.com bubble, rule FAS123 was passed requiring stock
compensation be expensed in a company's income statement. In papers written both in the professional and academic worlds, Kailash
has used Amazon as an example of how cash flow accounting contradicts the intent of FAS123. The Kailash note found
here
showed
how Amazon's well explained and GAAP compliant use of lease and stock comp accounting could potentially cause confusion among
analysts. Kailash's academic expert on stock compensation put his work,
Stock
Compensation Expense, Cash Flows and Inflated Valuations
through peer review. His work made it painfully clear that this GAAP
compliant accounting method diminished the information value of traditional calculations of free cash flows.
Authored by Vassilis Karamanis, FX and rates strategist who writes for Bloomberg
Albert Einstein is widely credited as saying that
insanity is doing the same thing over and
over again and expecting a different result.
The phrase keeps coming to my mind as I read story after story on the Archegos
Capital Management saga and look at a series of charts on the euro. At first, the two might seem unrelated, but they both hold
relevant lessons about market complacency.
The story reads as expected -- or feared: The firm, little known outside finance circles, had amassed tens of billions of dollars in
stocks bets, much of it using opaque derivatives and borrowed funds, including some giant bets on a small group of equities. And
then it all went awry.
The acronym LTCM doesn't mean much, it seems, to some market participants. Common sense either. Maybe Margin Call, J.C. Chandor's
2011 movie, should be trending in streaming services, serving as a healthy reminder.
Those of us who still remember the spectacular collapse of the U.S. hedge fund Long-Term
Capital Management in the late 1990s though are probably asking ourselves how this happened again.
Was it a regulatory issue, a market inherently at fault or just human nature? Will the story simply be forgotten again, especially
given the few signs of lasting damage on markets? Or maybe we are all grown ups now and can move on quietly and in peace instead of
obsessing over every set back. At least until the next tail risk comes knocking on our door, that is.
So what does the euro have to do with any of this?
It's not that there is a secret correlation with stocks that unveiled itself amid the Archegos turmoil. But I'd argue that there's a
link.
And it's that some investors or managers are losing sight of reality and sustainable
value-at-risk levels.
The common currency hit its lowest level in nearly five months today. Fair enough, right? The yield on 10-year U.S. notes reached
its highest level since January 2020 Tuesday, and is now just a whisker away from halving its decline since 2018, so it makes sense
for the dollar to keep applying pressure on euro bulls.
Darth Vader
5 hours ago
I think it's
unfair to mix Albert Einstein up with these grubby little thieves.
The game is
rigged and they're picking winners and losers. Best not to play their game.
Misesmissesme
5 hours ago
I
think these fit better:
Only two things are infinite,
the universe and human stupidity, and I'm not sure about the former. A Einstein
The difference between genius
and stupidity is that genius has its limits. A Einstein
OrazioGentile
5 hours ago
Still
waiting for a movie on the collapse of Bear Stearns or Lehmann- fact I'm sure will be loads more
entertaining than fiction!
Former regulators and financial-reform advocates say one rule change, in particular,
could have prevented the debacle : requiring greater disclosures of the bets that investors
such as Archegos place on companies using swaps.
Bloomberg News recently published an article,
Amazon
Fights Union Drive With Fact-Free Bombast
, discussing Amazon's alleged use of misinformation to prevent employees from
unionizing. In the same manner Kailash recused itself from having a "bull" or "bear" thesis on Bitcoin, we will recuse ourselves
from any discussion of unions. What we would like to draw our readers' attention to however is the method by which Amazon pays
many senior executives.
In the Bloomberg article it noted that the former head of Amazon's
logistics business was awarded stock compensation worth $160 million dollars.
In the wake of the scandals that occurred during the financially profligate dot.com bubble, rule FAS123 was passed requiring stock
compensation be expensed in a company's income statement. In papers written both in the professional and academic worlds, Kailash
has used Amazon as an example of how cash flow accounting contradicts the intent of FAS123. The Kailash note found
here
showed
how Amazon's well explained and GAAP compliant use of lease and stock comp accounting could potentially cause confusion among
analysts. Kailash's academic expert on stock compensation put his work,
Stock
Compensation Expense, Cash Flows and Inflated Valuations
through peer review. His work made it painfully clear that this GAAP
compliant accounting method diminished the information value of traditional calculations of free cash flows.
After mixed messages in last week's claims data (low initial claims, record high pandemic
continuing claims), analysts expected a further fall in first time jobless benefit seekers but
were disappointed as claims rose from 684k the previous week to 719k last week.
... Total return swaps are brokered by Wall Street banks. They provide investors with
exposure to the profits or losses of stocks or other assets, without the investor actually
holding the underlying shares. Archegos's strategy backfired in recent weeks after ViacomCBS
and other stocks sold off. Mr. Hwang's firm was unable to meet its obligations to its banking
partners, which in turn liquidated large chunks of stock they had amassed to underpin the
trades. Among the banks
now facing steep losses are Credit Suisse Group AG and Nomura Holdings Inc.
...history shows that one messy unwind can easily spread. The U.S. Office of Financial
Research finds that the ten largest hedge funds were leveraged
far more heavily than the next 40 largest funds, as of June. And many family offices may
not be counted in these statistics at all, which mostly rely on disclosure forms they are able
to avoid.
There are some obvious responses for regulators, such as mandating disclosure of the
total return swaps that allowed Archegos to build big positions out of the public eye. But
there are no easy answers to the wider challenge of overseeing leverage within the broadest
financial complex when debt is almost free.
The system has held up under the latest strain, but this isn't a victory. Archegos means one
who leads the way. Regulators must do what they can to ensure as few as possible follow.
Swiss rival Credit Suisse expects a hit in the billions of dollars from Archegos, people
with knowledge of the matter have said, while Nomura Holdings Inc. has signaled it may lose as
much as $2 billion. Analysts at JPMorgan Chase & Co. estimate the Archegos blowup may cause
as much as $10 billion of combined losses for banks.
David Herro, chief investment officer of Harris Associates -- one of Credit Suisse's biggest
shareholders -- said on Bloomberg Television on Wednesday that the Archegos incident was a
"wake-up call" for Credit Suisse and should lead to sweeping changes to its culture and
oversight practices.
Shares of Credit Suisse tumbled 21% this week on concern over the size of its potential
Archegos hit. Deutsche Bank is down 2.9%.
...High-yield bonds rated in the CCC tier, usually the lowest-graded bonds that trade,
gained 3.58% year-to-date, according to Bloomberg Barclays index total return data. They
performed better than leveraged loans, which saw returns of 1.78%, and high-grade bonds, which
posted a 4.65% loss. They outperformed mortgage bonds and Treasuries too.
The higher coupons that the securities pay can offer insulation against the sting of rising
yields. CCC notes average coupons of 7.7%, compared with 5.9% for high yield debt overall and
3.7% for investment-grade corporate notes, according to Bloomberg Barclays index data.
"The lower quality trade still has some legs," said Scott Kimball, co-head of U.S. fixed
income at BMO Global Asset Management. "Investors typically look to high-yield securities,
particularly CCCs, when yields are on the rise. Now, we see record positive revisions for U.S.
growth by economists being further boosted by record fiscal stimulus expectations."
Casino capitalism is the fertile ground for the most sleazy types of speculators. The stock
market has become a giant slot machine financed by 401K lemmings. The marks here are 401K
investors.
Excessive leverage is a immanent feature of the pre-collapse stage of Minsky cycle. So those
who argue that we are close to another crash get some additional confirmation due to this event.
The Masters of the Universe rediscovered the hidden areas of huge risk, and like in 2008 are
afraid but can't and do not want to anything.
TBTF such as Goldman and Morgan aid the most sleazy types as they bring outsized profits for
them. So this a catch 22 as Goldman and other TBFT controls SEC not the other way around.
It would be prudent to view banksters as a special type of mafia and treat accordingly and
prohibit for them serving in government. But this is impossible under neoliberal as financial
oligarchy has all political power.
The question is: Is there another fund that's larger, that's more leveraged with the same
characteristics that could prove to be a more systemic event? That's the major concern right
now." Wall Street's hottest trades such as pure-tech plays and high-flying tech/media like the
ones bet on by Hwang -- could be unwound. The Hwang blowup wakes up investors to the realization
that many parts of the market are overvalued and it's time to sell -- and quickly as yields are
going up. For the the FAANGS, the Tesla's out there -- the fundamentals don't support the stock.
So it would be logical to a large correction.
Notable quotes:
"... The idea that one firm can quietly amass outsized positions through the use of derivatives could set off another wave of criticism directed against loosely regulated firms that have the power to destabilize markets. ..."
Much of the leverage used by Hwang's Archegos Capital Management was provided by banks
including Nomura Holdings Inc. and Credit Suisse Group AG through swaps and so-called
contracts-for-difference, according to people with direct knowledge of the deals. It means
Archegos may never actually have owned most of the underlying securities -- if any at all.
While investors who own a stake of more than 5% in a U.S.-listed company usually have to
disclose their holdings and subsequent transactions, that's not the case with positions built
through the type of derivatives apparently used by Archegos. The products, which are transacted
off exchanges, allow managers like Hwang to amass exposure to publicly-traded companies without
having to declare it.
The swift unwinding of Archegos has reverberated across the globe, after banks such as
Goldman Sachs Group Inc. and Morgan Stanley forced Hwang's firm to sell billions of dollars in
investments accumulated through highly leveraged bets. The selloff roiled stocks from Baidu
Inc. to ViacomCBS Inc., and prompted Nomura and Credit Suisse to disclose that they face
potentially significant losses on their exposure.
One reason for the widening fallout is the borrowed funds that investors use to magnify
their bets: a margin call occurs when the market goes against a large, leveraged position,
forcing the hedge fund to deposit more cash or securities with its broker to cover any losses.
Archegos was probably required to deposit only a small percentage of the total value of
trades.
The chain of events set off by this massive unwinding is yet another reminder of the role
that hedge funds play in the global capital markets. A hedge fund short squeeze during a
Reddit-fueled frenzy for Gamestop Corp. and other shares earlier this year spurred a $6 billion
loss for Gabe Plotkin's Melvin Capital and sparked scrutiny from U.S. regulators and
politicians.
The idea that one firm can quietly amass outsized positions through the use of
derivatives could set off another wave of criticism directed against loosely regulated firms
that have the power to destabilize markets.
Bob 2 days ago This is another major reminder that the stock market is not as rational as we
want to believe. A small group of very large, leveraged funds can have far more impact on the
market than dozens or hundreds of well thought out and researched programs. Sigh. Take your
lumps and move on. Hasso 2 days ago 2008 - Hwang's Tiger Asia suffered losses from the
Volkswagen short, 2012 - Hwang's Tiger Asia paid $44M to settle insider trading charges, banned
2014- Hong Kong fined him $5.3M & banned him for four years. 2021 - And here we are
again.
Tyrone 2 days ago Gee, Credit Suisse involved in sleezy investments. Again. I'm shocked, just
shocked!
Manohar 2 days ago Banks haven't learnt anything yet...you know why? Because its other people's
money and the no one gets prosecuted when they are caught with hand in the cookie jar.
killer klown 2 days ago it's a sign that the market and it's regulators have learned
nothing.........to even pretend that a penny difference in assumed earnings versus actual
earnings using the GAAP accounting (which itself says it's not exact but generally accepted
accounting principles)moves a stock is in itself a joke, this situation of a BIG BLACK BOX
calls for the complete dismantle of the derivatives market which was created to lay off risk.
Bill Hawng should be FLAT Broke his possesions seized, The board of Credit Suisse and Nomura et
all should be unemployed as of 8:31 this morning. But they won't and it's only going to happen
again and again.
Amvet 2 days ago Market manipulators have a free rein in the USA. Are politicians also
involved? Reply 16 3 George 2 days ago Just amazing how some of the world's most sleazy
characters have access to cosmic sums of money and remain under the radar and legal(???). Then
nothing seems to happen except that loads of other folk get burned while they move on to the
next bright idea. Reply 13 1 Rick 2 days ago So clearly limiting those who can purchase these
to exclude amateur players has not been successful. Recklessness is not limited to amateurs.
Mr. H. 2 days ago In 2008 high finance was playing very high risk games with clients money at
the undefined edge between legal and illegal. A bunch of firms went away along with many
billions of dollars because a bunch of players were playing CYA. They came up with the term
"too big to fail" when they were picking winners and losers. "too big to fail" is is fetid
bovine excrement. The SEC, that is the administrative government, was not doing its job! There
were many questions about government employee competence to do those jobs. The government
should have let the market place pick the winners and losers, then the government should have
prosecuted everyone who failed to perform their fiduciary duty and set a major precedent about
high risk play with other people's money; keep it legal or go to jail and lose your shirt. That
is what should happen this time too! Noone 2 days ago Almost like something that is so
dangerous and risky to both the market AND the "investor" that retail traders ARE BANNED from
doing it should.. idk.. BE ILLEGAL FOR EVERYONE? Useless SEC. Do your job right.
Philip 2 days ago Ironic that Hedge Funds are the most unhedged game going.... Dan 1 day ago
The managers of these HFs lack morality, they steal from other companies because they believe
in their twisted little minds if they set up a system whereby they can trade in dark pools with
illegal naked shorting, counterfeit shares and stock manipulation under the radar -- it makes
the crime okay. All of this criminality is been done with the aid of supplementary leverage
ratio (SLR) If they can manage to bankrupt the company they short with Government SLR they end
up paying no tax and pocket the money GME/AMC and more for example.. Bingo the most audacious
robbery attempt in the history of the state. Oh boys did they fail, wow what a spectacular
failure. Now they have to deleverage destabilizing the entire market. Do these HF managers rank
their values differently to the moral code we all live by? Obviously they do! There's no doubt
they'll get lots of time to think about their behaviour when they're in the slammer. Each case
will have to be evaluated on its own merit at some stage of course. On the face of it, all
indications points to a tradeoff that benefits themselves at the disadvantaging of other. Sad
for them! I rest my case!
Jodes 1 day ago The spikes in shares like ROKU, BIDU, SHOP and many more have huge parabolic
spikes at the top accounting for the disfunctional market as we were seeing it at the top. They
had huge buy orders to artificially spike the prices keep them up and then experts come in
after and raise price targets and put a BUY rating on the stock. Then get retail to buy in and
then drop them like a rock. Greedy and dispicibale. All probably done for a huge bonus. While
retail suffers for their greed.
Vince 2 days ago More than 100 Trillion (with a T) are moving around the world in Derivatives
each and every day., some say closer to 200 Trillion! You figure it our when THAT bubble
bursts! Reply 2 1 SniffMopWho 2 days ago Interesting how these guys make millions and billions,
just by pressing keys on a keyboard.
... 2 days ago More sleaze trying to bring down the market by making risky bets with swaps and
derivatives, yet the regulators are caught asleep again. Just more proof of incompetence by
Biden and his hired idiots at the SEC.
TL;DR- Citadel and friends have shorted the treasury bond market to oblivion using the
repo market. Citadel owns a company called Palafox Trading and uses them to EXCLUSIVELY short
& trade treasury securities. Palafox manages one fund for Citadel - the Citadel Global
Fixed Income Master Fund LTD. Total assets over $123 BILLION and 80% are owned by offshore
investors in the Cayman Islands. Their reverse repo agreements are ENTIRELY rehypothecated
and they CANNOT pay off their own repo agreements until someone pays them, first. The ENTIRE
global financial economy is modeled after a fractional reserve system that is beginning to
experience THE MOTHER OF ALL MARGIN CALLS.
THIS is why the DTC and FICC are requiring an increase in SLR deposits. The madness has
officially come full circle.
tnorth 4 hours ago
another month of completely rigged 'markets'
mtl4 4 hours ago remove link
Music is still playing, make sure you have a chair when it stops
this_circus_is_no_fun 1 hour ago remove link
Consider these two points:
Treasuries are claimed to be backed by the "full faith and credit of the United
States".
In Q1, Treasuries suffer their biggest loss in 40 years.
y_arrow
Kreditanstalt 1 hour ago (Edited)
I've always wondered why seemingly contradictory and uncorrelated assets and asset classes
alternately "soar" and "plunge" on different days, usually in random conjunction with
others...
It seems so counterintuitively...MECHANICAL...or theory-driven, rather than rational
"investing".
This is first of all about the corruption of SEC. all this hacking of financil system in not new. So the failure to
prevent it is the failure of regulation.
One of World's Greatest Hidden Fortunes Is Wiped Out in Days
More content below
More content below
VIACA
+4.87%
GSX
+4.75%
Katherine Burton and Tom Maloney
Tue, March 30, 2021, 8:29 AM
More content below
More content below
VIACA
+4.87%
GSX
+4.75%
(Bloomberg) --
From his perch high above Midtown Manhattan, just across from Carnegie Hall, Bill Hwang was quietly building
one of the world's greatest fortunes.
Even on Wall Street, few ever noticed him -- until suddenly, everyone did.
Hwang and his private investment firm, Archegos Capital Management, are now at the center of one of the
biggest margin calls of all time -- a multibillion-dollar fiasco involving secretive market bets that were
dangerously leveraged and unwound in a blink.
Hwang's most recent ascent can be pieced together from stocks dumped by banks in recent days -- ViacomCBS
Inc., Discovery Inc. GSX Techedu Inc., Baidu Inc. -- all of which had soared this year, sometimes
confounding traders who couldn't fathom why.
One part of Hwang's portfolio, which has been traded in blocks since Friday by Goldman Sachs Group Inc.,
Morgan Stanley and Wells Fargo & Co., was worth almost $40 billion last week. Bankers reckon that Archegos's
net capital -- essentially Hwang's wealth -- had reached north of $10 billion. And as disposals keep
emerging, estimates of his firm's total positions keep climbing: tens of billions, $50 billion, even more
than $100 billion.
It evaporated in mere days.
"I've never seen anything like this -- how quiet it was, how concentrated, and how fast it disappeared,"
said Mike Novogratz, a career macro investor and former partner at Goldman Sachs who's been trading since
1994. "This has to be one of the single greatest losses of personal wealth in history."
Late Monday in New York, Archegos broke days of silence on the episode.
"This is a challenging time for the family office of Archegos Capital Management, our partners and
employees," Karen Kessler, a spokesperson for the firm, said in an emailed statement. "All plans are being
discussed as Mr. Hwang and the team determine the best path forward."
The cascade of trading losses has reverberated from New York to Zurich to Tokyo and beyond, and leaves
myriad unanswered questions, including the big one: How could someone take such big risks, facilitated by so
many banks, under the noses of regulators the world over?
part of the answer is that Hwang set up as a family office with limited oversight and then employed financial derivatives to
amass big stakes in companies without ever having to disclose them. Another part is that global banks embraced him as a lucrative
customer, despite a record of insider trading and attempted market manipulation that drove him out of the hedge fund business a
decade ago.
A disciple of hedge-fund legend Julian Robertson, Sung Kook "Bill" Hwang shuttered Tiger Asia Management and Tiger Asia Partners
after settling an SEC civil lawsuit in 2012 accusing them of insider trading and manipulating Chinese banks stocks. Hwang and the
firms paid $44 million, and he agreed to be barred from the investment advisory industry.
He soon opened Archegos -- Greek for "one who leads the way" -- and structured it as a family office.
Family offices that exclusively manage one fortune are generally exempt from registering as investment advisers with the U.S.
Securities and Exchange Commission. So they don't have to disclose their owners, executives or how much they manage -- rules
designed to protect outsiders who invest in a fund. That approach makes sense for small family offices, but if they swell to the
size of a hedge fund whale they can still pose risks, this time to outsiders in the broader market.
"This does raise questions about the regulation of family offices once again," said Tyler Gellasch, a former SEC aide who now
runs the Healthy Markets trade group. "The question is if it's just friends and family why do we care? The answer is that they
can have significant market impacts, and the SEC's regulatory regime even after Dodd-Frank doesn't clearly reflect that."
Valuable Customer
Archegos established trading partnerships with firms including Nomura Holdings Inc., Morgan Stanley, Deutsche Bank AG and Credit
Suisse Group AG. For a time after the SEC case, Goldman refused to do business with him on compliance grounds, but relented as
rivals profited by meeting his needs.
The full picture of his holdings is still emerging, and it's not clear what positions derailed, or what hedges he had set up.
One reason is that Hwang never filed a 13F report of his holdings, which every investment manager holding more than $100 million
in U.S. equities must fill out at the end of each quarter. That's because he appears to have structured his trades using total
return swaps, essentially putting the positions on the banks' balance sheets. Swaps also enable investors to add a lot of
leverage to a portfolio.
Morgan Stanley and Goldman Sachs, for instance, are listed as the largest holders of GSX Techedu, a Chinese online tutoring
company that's been repeatedly targeted by short sellers. Banks may own shares for a variety of reasons that include hedging swap
exposures from trades with their customers.
'Unhappy Investors'
Goldman increased its position 54% in January, according to regulatory filings. Overall, banks reported holding at least 68% of
GSX's outstanding shares, according to a Bloomberg analysis of filings. Banks held at least 40% of IQIYI Inc, a Chinese video
entertainment company, and 29% of ViacomCBS -- all of which Archegos had bet on big.
"I'm sure there are a number of really unhappy investors who have bought those names over the last couple of weeks," and now
regret it, Doug Cifu, chief executive officer of electronic-trading firm Virtu Financial Inc., said Monday in an interview on
Bloomberg TV.
He predicted regulators will examine whether "there should be more transparency and disclosure by a family
office."
Without the need to market his fund to external investors, Hwang's strategies and performance remained secret from the outside
world. Even as his fortune swelled, the 50-something kept a low profile. Despite once working for Robertson's Tiger Management,
he wasn't well-known on Wall Street or in New York social circles.
Hwang is a trustee of the Fuller Theology Seminary, and co-founder of the Grace and Mercy Foundation, whose mission is to serve
the poor and oppressed. The foundation had assets approaching $500 million at the end of 2018, according to its latest filing.
"It's not all about the money, you know," he said in a rare interview with a Fuller Institute executive in 2018, in which he
spoke about his calling as an investor and his Christian faith. "It's about the long term, and God certainly has a long-term
view."
... ... ...
"You have to wonder who else is out there with one of these invisible fortunes," said Novogratz. "The psychology of all that
leverage with no risk management, it's almost nihilism."
Unlike the devastating London Whale debacle in 2012, which was
all
JPMorgan
eventually drawn and quartered quite theatrically before Congress (and was a clear explanation of how banks used Fed reserves
to manipulate markets, something most market participants had no idea was possible), this time JPMorgan was nowhere to be
found in the aftermath of the historic margin call that destroyed hedge fund Archegos. Which is may explain why JPMorgan bank
analyst Kian Abouhossein admits he is quite "
puzzled"
by
the recent fallout from the Archegos implosion (or maybe JPM simply was not a Prime Broker of the notorious Tiger cub), which
however does not prevent him from trying to calculate the capital at risk from the Archegos collapse.
In a note published this morning, Kian writes after Nomura yesterday confirmed (at least) a $2Nn potential claim and fellow
Japanese bank Mitsubishi UFJ Securities Holdings announcing today of another potential $300MM loss - which as the JPM
strategist admits "
for a likely non-material PB player is surprising to us"
–
JPMorgan now
expects losses well beyond normal
unwinding scenario for the industry
: and explains that it now sees "the losses as very material in relation to
lending exposure for a business that is mark-to-market and holds liquid collateral" and makes Nomura's indication of
potentially losing $2bn and press speculation of CSG $3-4bn losses "as not an unlikely outcome" according to the JPM
strategist.
So why is JPM surprised?
Because as Abouhossein writes,
"
in normal
circumstances... we would have suspected industry losses of $2.5-5bn. We now suspect losses in the range of $5-10bn
."
In
other words,
JPM has doubled its max loss estimate to as much as $10BN, a number which
could yet rise.
To get there, JPM estimates that
Archegos was highly leveraged at 5-8x (i.e. $50-80bn
of exposure for $10bn of equity
) - using Total Return Swaps and
Certificates
for Difference
to lever up so massively as we discussed yesterday - and it was this use of equity-swaps tha "tincreased
the inability of PBs to see the concentration risk in holdings within the hedge fund in question."
Even so, Kian admits that he remains "
puzzled why Credit Suisse (CSG) and Nomura have
been unable to unwind all their positions at this point – as we would expect to get an announcement as soon as this is the
case, on the scale of potential losses (especially in the case of CSG which hasn't provided numerical impact)"
although
we have gotten some headlines suggesting the total loss could be as big as $7 billion.
That said the JPM analyst expects full disclosure by the end of the week at the latest from CSG and would keep an eye on
credit agencies statements as well. And in the harshest slam of JPM's competitors, Kian says he suspects
"potentially
poor risk mgmt being an issue here considering i) late unwinding, and ii) possibly significant more leverage than for GS/MS
similar exposures."
Alternatively, one could argue that it was Goldman and Morgan Stanley who rushed to break ranks with the syndicate of Prime
Brokers and started dumping blocks of Archegos shares for one reason or another on Friday morning as we detailed yesterday,
which meant that while they suffered the least losses, those banks - like CS, Nomura and Wells - which were slow to start
selling, would end up with the largest losses (for more see "
How
Goldman And Morgan Stanley Broke Ranks And Triggered The Biggest Margin Call Since Lehman
").
In terms of actual loss estimates with an empahsis on Credit Suisse which so far appears to
be the hardest hit, here is a breakdown from JPMorgan of what is known:
In terms of capital at risk, based on press articles,
Credit Suisse seems to have
bigger issues than Nomura assuming press speculation of $3-4bn are correct and Grensill could potentially lead to additional
litigation cost of $1-3bn.
In the case of Nomura, JPM has reduced the share buyback for FY2020 from Ą75 billion to
Ą10 billion; if the press speculation losses are correct,
it would expect CS at a
minimum will have to cancel its share buyback for 2021, preserving the dividend and we assume no buyback for the next 2 years
assuming Basel 4 implementation as of Jan 2023.
Assuming no RWA growth vs. YE2020 levels, JPM calculates that
CS
can absorb a max. one-time pre-tax hit of c$4.5b
n
(CHF 4.2bn) for Archegos which post-tax is 116bps of CET1
capital offset by 32bps of Retained earnings (1Q Net Income less 1Q dividend accrual of CHF 0.2bn and share buyback of CHF
0.3bn completed YTD) and still reach 12% by end of 1Q 21 which is seen as an acceptable level for S/Hs under Basel 3 – with
further hits to come (see below). The minimum CET1 requirement is 10% and every additional $1bn pre-tax hit is 26bps of CET1
capital based on YE2020 RWAs and
hence "any hits beyond $5bn pre-tax from Archegos will
call into question the capital position in our view", JPM warns.
Separately, Bloomberg adds that March's blowups may - in addition to wiping out more than a year of profits for the bank and
threaten its stock buyback plans - also add add to the reputational hit from the other missteps by bank CEO Thomas Gottstein.
With the shares posting the only decline among Europe's major banks in 2021 and a new chairman starting next month, Chief
Executive Officer Thomas Gottstein is facing questions over whether he and risk chief Lara Warner have a handle on the bank's
exposures.
"Risk control at every level in this bank must be examined and changes made where there are deficiencies," David Herro, chief
investment officer at Harris Associates, one of the biggest investors in the bank, said in an email. "But I state the
obvious?"
As Bloomberg further notes, the hits from Archegos and Greensill have spoiled a plan by Gottstein to start the year with a
clean slate.
The CEO late last year wrote down the value of the bank's stake in hedge fund York Capital and took a hit related to a
long-standing legal case into residential mortgage-backed securities, dealing the bank its first quarterly loss in three
years. The crises have more than overshadowed its best start to the year in a decade.
"While all four events appear idiosyncratic in nature, it inevitably has led investors to
question the strategic decision making at CS and the risk culture of the firm,"
Andrew Coombs, a Citi bank analyst wrote
Tuesday.
While Credit Suisse has not quantified the full damage yet, and has merely said that it faces "highly significant" losses tied
to Archegos, Berenberg analysts pegged the hit at 3 billion Swiss francs, on top of 500 million francs from the Greensill
issues.
* * *
Finally, JPM tries to answer a key question for many investors,
namely what has
happened with holdings (as speculated in the press ) of Archegos Capital?
As Kian writes, the share price of Arhcegos Capital linked stocks fell by -39% on avg. since the beginning of last week.
According to press reports (Bloomberg), Archegos Capital was forced to sell large shareholdings in eight online and
entertainment companies (
GSX Techedu, ViacomCBS, Discovery, iQIYI, Tencent Music,
Vipshop, Baidu, Farfetch)
to cover potential losses after some positions moved against the fund. Once Archegos
Captial failed to meet its margin commitments, the sell-off intensified further as banks started offloading via sizeable block
trades the holdings posted by the fund as collateral, prompting more declines.
Based on the latest publicly available disclosure the banks with the largest exposure to the mentioned companies were Morgan
Stanley, Credit Suisse, Goldman Sachs, Nomura and to a lesser extent UBS and DB (more details below). On Friday alone, both
ViacomCBS and Discovery saw their largest ever daily decline, with each falling by more than -27%. Traded volumes for the
eight companies peaked on Friday with daily volumes being on avg. more than 13x the 90 days moving average. The sell-off
continued on Monday 29th with the aforementioned stocks falling further -6% on average.
Based on latest available public filings, JPM calculates that the banks which had the largest holdings in the eight Archegos
Capital-linked stocks mentioned by the press were
Morgan Stanley, Credit Suisse,
Goldman Sachs and Nomura.
Morgan Stanley exposure was relatively broad based with 5%+ holdings in all but one
companies and with 10%+ stake in both GSX Techedu and iQIYI. Credit Suisse exposure was also broad based with holdings in all
but one companies and with the largest exposure being its 9% stake in Discovery. Goldman Sachs exposure was mainly
concentrated in GSX Techedu (22% stake), while Nomura had exposure in all but one companies and a relatively large holding of
7% in GSX Techedu. Other banks such as Bank of America, Citi, UBS, Deutsche and Barclays also had holdings above 2% in some
the mentioned companies (mainly GSX Techedu and Discovery).
Finally, courtesy of JPM, here is a summary of all the latest publicly available information disclosing what exposure each
bank may have had - and still has - to Archegos:
play_arrow
Calculus99
4 hours ago
(Edited)
If you
listen to the corporate ******** from ALL of these firms, they'll all say the same crap -
"We employ the some of the smartest guys in finance
as well as run cutting edge risk management systems so as to protect our shareholders and (cliche) stake
holders."
Then
something like this happens, ie you let a degen gambler margin up xfold in a highly charged and volatile
market betting on some of the riskiest go-go stocks.
Any
old non-smartest guy with a $10 Casio calculator could have predicted the massive risks they were taking and
the probable fallout.
Smartest guys?
Cutting edge risk management?
Their
words aren't even worth a penny...
bonsai_king
3 hours ago
Thats
just what they post online.
In the
real world, its all backroom deals, tit for tat, exchange of favors kind of BS.
Do you
actually think anyone involved lost their personal fortunes?
101 years and counting
3 hours ago
if
you're running JPM or GS, etc....why wouldnt you leverage everything to the top? if you go boom, Jerome
will save you. afterall, if you dont save us, the "World will end".
john milton
3 hours ago
This
is it in banking, sometimes you win big time and got your big bonuses, sometimes you lose big time and
taxpayers pay your bonuses.
ssgredux
4 hours ago
Wait
till JPM hears about JPM's exposure to derivatives...
I love
the OCC Quarterly. You have to go all the way to the back, to see the good stuff. GS is leveraged, waaay
beyond everybody else!
Kefeer
3 hours ago
remove
link
Banking crisis, artificial chip
shortages, artificial price manipulation of oil
, artificial wuhan-flu war, with artificial experimental
injections, artificial everything - even the clouds above.
What is the plan with all these
working together and add the artificial dementia installed President and you have the recipe for something
huge???
....
So
glad these casinos have Gubmnt subsidized, FDIC insurance.
Great Iota
59 minutes ago
(Edited)
Save
this post ...
The
"Damage" from the Archegos collapse will be a nano piss drop in a rain compared to the damage from the
upcoming cryptocurrency collapse.
Bitcoin alone could cause quadrillion USD damage when you count the worthless underlining asset plus the
100X derivatives. I'm surprised that governments and its citizens have embraced this worthless asset. 1000
Years from know we will be teaching about the "Bitcoin Blowup".
What
can cause Bitcoin to go worthless? Lots!
1 - No
real need (only purpose is its a Ponzi Scheme designed to increase in value).
2 - Unrecoverable (lost your account, password, or remote drive? your SOL)
3 - Uninsurable (no one can return your Bitcoin to you)
4 - Open to program hacks
5 - Not backed by anything
6 - Needs electricity and internet.
7 - Can never be a useful currency
You
people have all gone mad!
stop_the_fraud
43 minutes ago
Saved
and archived.
Great Iota
30 minutes ago
I'm
hoping that the only reason the global leaders are allowing Bitcoin is so it can mop up the trillions of
paper being added to the system to save the system without creating inflation. At the end of the day, it
gives avenue for abusive money printing without inflating a real asset that people need.
Can
you imagine if all the money flowing into crypto was going into housing or food? Look at the stock market
bubble caused by all the low interest money flowing into it.
This madness will end when the fed tightens or the global economy collapse (one will happen for sure).
Cheap Chinese Crap
5 minutes ago
remove
link
You're
crazy. There's nothing wrong with treating an IOU from some anonymous guy on the Internet as a cash
substitute.
Lef-ty
PREMIUM
2 hours ago
Just
another reason to make the banks smaller. How about no derivatives trading other than a hedge book.
Synthetic positions should be part of 5% disclosure rule. The fact that no one knew what was happening is
just another warning signal.
lay_arrow
highwaytoserfdom
3 hours ago
(Edited)
Bring in Kenny Griffin and Bernake from Citadel to front run the whole market...
ROFLMAO While at it bring in Peter Griffin, and Lois; Meg, Chris, and
Stewie and Brian. heck bring in all Quahog, Rhode Island.. Wait a second
Gina M. Raimondo Secretary of Commerce jeez did not think it could get much
worse that Wilber but one of the granny culling governors (oh yea those machines
flipped votes) ..medical murder scam plan demonic reset....
LMAO--------> Look MAO CIA globalony..
Bill of Rights
3 hours ago
The same JPM thats dumping Commercial and Residential Real Estate at a massive clip,
that JPM?
Ozarkian
3 hours ago
10x Leverage caused the 1929 crash. History repeats.
RevIdahoSpud3
1 hour ago
I have just lived through the 2nd Major Coup in my lifetime as a U S Born citizezn.
The first for me was JFK's assassination by government insiders. The Second was the
2020 election with the lunatic Biden
installed
(not
elected) as president of the U S Corporation. Before that may have been the
establishing of the Fed Reserve in 1913 but I wasn't alive yet. Others may have been
WWI, WWII, Viet Nam...and how many others such as 911 and the Patriot Act.
I mention because we are supposed to read news of the banking industry, trade
agreements, border breaches and hundreds of other topics that are supposed to be
events of the day? Spontaneous and not preplanned as if these events have any
relevance to a freeman's life.
Since the Trump coup, there is nothing really noteworthy that the deep state cycles
as news. It's all smoke and mirrors. Perhaps it is to the 'players', the top 1% who
battle each other for world domain in a global chess game who actually care as they
seem to be the ones with something at stake. Their vast fortunes and their need for
more.
At the bottom of the totem it's all irrelevant. This level is just survival of the
fittest. News, fake news, and irrelevant news has no impact on reality.
And yet, how many people dwell/devote their lives and time to being abreast of
Meghan and Harry, Congress, Goldman Sachs, Tesla, Climate cooling/heating, racism,
discrimination, womyns rights... . Such as waste!
denker
2 hours ago
RWA growth ► Risk Weighted Average Growth
CET1 ► Common Equity Tier 1
CSG ► Credit Suisse Group
$300MM ► $300 million
$2Nn ► fark knows?
PB player ► Primary Broker player?
GS/MS
► Goldman
Sachs and Morgan Stanley
S/Hs under Basel 3 ► Share Holders under Basel 3
Cheap Chinese Crap
4 minutes ago
That's 2 nanu-nanus. Mork's account got hacked.
ponchoramic
2 hours ago
Daily Reminder; The financialization of everything sucked the life out of real
capitalism and everything you see right now is a product of that life sucking
parisitical scheme.
King of Ruperts Land
2 hours ago
(Edited)
Don't worry, be happy.
Secret Weapon
3 hours ago
Greedy parasites getting their balls kicked in. Very fun to watch.
scoop2020
3 hours ago
I would imagine all the big losers are putting their numbers out there so they can
take them to the bankruptcy courts and claim GS and MS had privilege(by selling
before the news came out) and try and claw back there benefits. Never brag about
dodging a bullet. It only pisses off the people who didn't dodge the bullet.
NuYawkFrankie
4 hours ago
(Edited)
It's this kind of reckless gambling suggests that we leaned nothing from the
Long Term Capital
Management fiasco
zob2020
4 hours ago
Time to ban asset management and speculation for the same company?
archipusz
4 hours ago
The gov't will take care of it.
They wouldn't take care of robinhood's traders buying gme, but they'll take care of
this to make sure hedge funds can keep trading. Y'see, hedge funds are important.
ted41776
4 hours ago
once they were deemed institutions too big to fail and too big to jail they
became the government
there is nothing they won't get away with now
naro
1 hour ago
There has never been so much margin debt in the history of America, because interest
rates are so low that it seems like almost free money, and that is exactly what led
to the Market collapse on 1929
Nuxx
PREMIUM
3 hours ago
If this had everything to make a LTCM or Lehmann 2.0, how convenient that a ship got
stuck in the mud last week and had everybody and their mother looking towards Egypt
whilst Goldman Sachs and Morgan Stanley unloaded their cargo in the meantime.
tunetopper
3 hours ago
What is the limitation of Friends and Family on Family Offices?
Why did Soros, Cohen, Tudor Jones, Druckenmuller, and Hwang all get an exemption out
of Dodd-frank in 2019.
Omphalos of Delphi
3 hours ago
Don't worry. The Federal Reserve is bailing out the pedophiles while you schmucks
get stuck with the bag-o-crap. Here are some stocks rallying hard on the face of
700.000 a week unemployment claims
Olaf Myfrenzargay
4 hours ago
Total return swaps should be banned outright.
jack-of-all-trades
29 minutes ago
remove
link
Just to add to JPM analyst's comments. It's all pure speculation but...
Other Archegos' equity swaps were most likely linked to the Viacom swaps via
standard legal arrangements (cross default-like). E.g. if Archegos' were to fail on
its obligations to the counterparty on one swap, the counterparty gets the right to
terminate other outstanding swaps with Archegos and sell its underlying hedges in
the open market. This is done firstly to eliminate/reduce counterparty's risk
exposure to Archegos and, secondly, offset any losses the counterparty would
incur on Viacom with [hopefully] gains on other swaps outstanding or, if no gains,
reduce its hedge unwind losses.
Any PB service provider to Archegos knew with 100% certainty early last week that
Archegos would not have a penny left to settle any arising swap liquidation
losses/claims to it the moment Archegos failed to meet its ViacomCBS margin call(s).
MS and GS PB desks knew that, as the US houses, their ECM desks were best positioned
to find buyers for ViacomCBS compared to CS/UBS, not to mention DB and Japanese
houses that have no real ability in most of those names. Coincidentally, it's wrong
to refer to the group of these banks as a "syndicate".
It's likely that many of these PB desks knew other and coordinated things on regular
basis but there certainly wasn't any legal arrangement/obligation among these banks
to coordinate liquidation of any of their Archegos swap hedges. Their
decision-making was straight-forward -- GS/MS, with the best chance to get out
unscathed (lower Archegos exposure, better ECM teams) -- didn't dither and headed
for the exit ASAP. For CS (and perhaps UBS/DB), it was more complicated -- not as
well-placed to find buyers for ViacomCBS stock yet with [much] larger exposures,
they probably tried to coordinate the fire sale but quickly realised that they would
not be the first out the door and ultimately got stuck in the doorframe. For the
Japanese houses, the situation was worse -- without their own ECM teams, they
depended on other banks to place large CBSViacom blocks -- a mission impossible
under the circumstances.
With regards to the huge size of these losses... everyone must be stunned:
The market has been
bullish up until now, despite the recent rollover of top speculative names like
TSLA and other techs and yield rises in longer dated Treasuries -- the mood is
nothing like 2007-08;
Granted, the stock
trading volumes since the GFC time in 2008 have been massively diluted with the
high-speed/algorithmic trading, short-gamma [index] ETFs hedging, etc, etc --
these trading flows are not "real", so to speak. But everyone's market risk
people must have known (or reasonably guessed) how to tweak their risk models for
the above.... Guess they were wrong!!!
It's safe to assume that the terms of every single one of the PB (and not PB) equity
swaps/CFDs/"whatevers" out there will be scrutinised, re-assessed, and renegotiated
when and if possible.
The silver lining to this cloud is that it happened while the sun is still shining,
relatively speaking.
...
Elevated valuations is probably the biggest source of consternation for investors.
... Barclays sees limited upside in the near term. The firm has a 4,000 year-end target for
the S&P, which suggests less than a 1% gain from Friday's close.
A little known hedge fund that blew up last week has sent shockwaves through the world of investment banking.
Shares in Credit Suisse (
CSGN.SW
)
and Nomura (
8604.T
)
sunk over 10% on Monday after both warned they faced potentially billions in losses linked to hedge fund Archegos Capital.
Banks that worked with Archegos and lent it money to buy shares were scrambling to offload Archegos' investments after a handful
of risky bets made by the hedge fund went bad. The rush to exit these positions hit public shares prices, leaving banks with huge
losses.
Hedge funds typically borrow money from banks to invest, a process known as margin trading. This allows funds to leverage up the
cash they hold and increase their positions -- potentially earning far greater returns if their bets come good. However, it also
means hedge funds can theoretically lose more money than they hold in client funds.
If trades made on margin turn sour, banks will ask a client to put up more money as collateral to limit potential losses. This
process is known as a margin call.
Archegos faced margin calls on its positions last week but failed to provide extra cash. As a result, banks began selling off
stocks held on the hedge fund's behalf -- a fire sale known in the City as liquidating positions. The business press reported on
Friday that Goldman Sachs (
GS
)
and Morgan Stanley (
MS
)
were selling huge chunks of shares in businesses including ViacomCBS (
VIAC
),
Discovery (
DISCA
)
and Chinese stocks Baidu (
BIDU
)
and Tencent Music (
TME
).
The block sales are estimated to be worth around $20bn (Ł14.5bn),
according
to the Financial Times
.
Shares in Credit Suisse sunk after it warned of 'significant losses' linked to the blow up at Archegos Capital. Photo:
Fabrice Coffrini/AFP via Getty Images
A little known hedge fund that blew up last week has sent shockwaves through the world of investment banking.
Shares in Credit Suisse (
CSGN.SW
)
and Nomura (
8604.T
)
sunk over 10% on Monday after both warned they faced potentially billions in losses linked to hedge fund Archegos Capital.
Banks that worked with Archegos and lent it money to buy shares were scrambling to offload Archegos' investments after a
handful of risky bets made by the hedge fund went bad. The rush to exit these positions hit public shares prices, leaving
banks with huge losses.
Hedge funds typically borrow money from banks to invest, a process known as margin trading. This allows funds to leverage up
the cash they hold and increase their positions -- potentially earning far greater returns if their bets come good. However, it
also means hedge funds can theoretically lose more money than they hold in client funds.
If trades made on margin turn sour, banks will ask a client to put up more money as collateral to limit potential losses. This
process is known as a margin call.
Archegos faced margin calls on its positions last week but failed to provide extra cash. As a result, banks began selling off
stocks held on the hedge fund's behalf -- a fire sale known in the City as liquidating positions. The business press reported
on Friday that Goldman Sachs (
GS
)
and Morgan Stanley (
MS
)
were selling huge chunks of shares in businesses including ViacomCBS (
VIAC
),
Discovery (
DISCA
)
and Chinese stocks Baidu (
BIDU
)
and Tencent Music (
TME
).
The block sales are estimated to be worth around $20bn (Ł14.5bn),
according
to the Financial Times
.
"Things started going wrong for Archegos when shares of companies such as Viacom started to slide mid-last week," said Michael
Brown, a senior market analyst at Caxton Business. "It was at that point that margins were called, and couldn't be provided,
hence the block sales seen Friday."
A fire sale can have a negative impact on stock prices and shares in both ViacomCBS and Discovery sunk 27% on Friday. Banks
therefore risked making less back from the sales than they lent to clients to fund the investments.
Credit Suisse on Monday warned it was facing "highly significant" losses linked to Archegos that could be "material to our
first quarter results".
The Swiss lender didn't name Archegos but said: "A significant US-based hedge fund defaulted on margin calls made last week by
Credit Suisse and certain other banks."
Credit Suisse said it was "in the process" of selling shares held by Archegos. The bank said it was "premature" to estimate
how much it would likely lose from the crisis.
"We intend to provide an update on this matter in due course," Credit Suisse said.
Shares sunk 13.4% in Zurich.
"One would assume that, judging by the size of positions sold, the 'game is up' for Archegos," Brown said.
He said it was "unlikely" that Archegos would pose a systemic risk to the financial system. Neil Wilson, chief market analyst at
Markets.com, said the hedge fund "appears to have been too concentrated in a number of risky stocks."
A hedge fund blow up is relatively unusual and Archegos' undoing has raised concerns that other funds could find themselves in
similar positions.
"Block equity-trades stemming from margin-calls on Archegos will have sent the market's spidey senses a tingle," said Bill Blain,
a senior strategist at Shard Capital. "Who is next?"
Alex Harvey, a portfolio manager at Momentum, said: "We tend to find out after the event that other funds get caught up as
sometimes hedge funds may be crowded into similar trades."
"When we look at this and think about the GameStop saga and the decline in Tesla as two examples -- what we're seeing are more and
more pockets of very unusual trading activity in some stocks," he said. "You worry that this sort of frothy trading activity in
turn creates pockets of distress among investors and banks that leads to larger unwinds and losses for financials."
Medicaid
expansion enrollment grew nearly 30% year-over-year in 19-state sample, Andrew Sprung,
XPOSTFACTOID, March 17, 2021
An update on Medicaid expansion enrollment growth since the pandemic struck. Below is a
sampling of 19 expansion states through January of this year, and 14 states through
February.
Maintaining the assumption, explained here ,
"relatively slow growth in California would push the national total down by about 2.5
percentage points." These tallies still point to year-over-year enrollment growth of
approximately 30% from February 2020 to February 2021.
If that's right, then Medicaid enrollment among those rendered eligible by ACA expansion
criteria (adults with income up to 138% FPL) may exceed 19 million nationally and may be
pushing 20 million. Assuming the sampling of a bit more than a third of total expansion
enrollment represents all expansion states more or less and again accounting for slower growth
in California.
"... Last week was the 53rd straight week total initial claims were greater than the second-worst week of the Great Recession. (If that comparison is restricted to regular state claims -- because we didn't have PUA in the Great Recession -- initial claims are still greater than the 14th worst week of the Great Recession.) ..."
One year ago this week, when the first sky-high unemployment insurance (UI) claims data of the pandemic were released, I said
"
I
have been a labor economist for a very long time and have never seen anything like this
." But in the weeks that followed,
things got worse before they got better -- and we are not out of the woods yet.
Last
week -- the week ending March 20, 2021 -- another 926,000 people applied for UI. This included 684,000 people who applied for
regular state UI and 242,000 who applied for Pandemic Unemployment Assistance (PUA), the federal program for workers who are
not eligible for regular unemployment insurance, like gig workers.
Last week was the 53rd straight week total initial claims were greater than the second-worst week of the Great Recession. (If
that comparison is restricted to regular state claims -- because we didn't have PUA in the Great Recession -- initial
claims are still greater than the 14th worst week of the Great Recession.)
Figure A
shows continuing claims in all programs over time (the latest data for this are for March 6). Continuing claims
are currently nearly 17 million above where they were a year ago, just before the virus hit.
FIGURE A
Continuing unemployment claims in all programs, March 23, 2019–March 6, 2021
*Use
caution interpreting trends over time because of reporting issues (see below)*
Date
Regular state UI
PEUC
PUA
Other programs (mostly EB and STC)
2019-03-23
1,905,627
31,510
2019-03-30
1,858,954
31,446
2019-04-06
1,727,261
30,454
2019-04-13
1,700,689
30,404
2019-04-20
1,645,387
28,281
2019-04-27
1,630,382
29,795
2019-05-04
1,536,652
27,937
2019-05-11
1,540,486
28,727
2019-05-18
1,506,501
27,949
2019-05-25
1,519,345
26,263
2019-06-01
1,535,572
26,905
2019-06-08
1,520,520
25,694
2019-06-15
1,556,252
26,057
2019-06-22
1,586,714
25,409
2019-06-29
1,608,769
23,926
2019-07-06
1,700,329
25,630
2019-07-13
1,694,876
27,169
2019-07-20
1,676,883
30,390
2019-07-27
1,662,427
28,319
2019-08-03
1,676,979
27,403
2019-08-10
1,616,985
27,330
2019-08-17
1,613,394
26,234
2019-08-24
1,564,203
27,253
2019-08-31
1,473,997
25,003
2019-09-07
1,462,776
25,909
2019-09-14
1,397,267
26,699
2019-09-21
1,380,668
26,641
2019-09-28
1,390,061
25,460
2019-10-05
1,366,978
26,977
2019-10-12
1,384,208
27,501
2019-10-19
1,416,816
28,088
2019-10-26
1,420,918
28,576
2019-11-02
1,447,411
29,080
2019-11-09
1,457,789
30,024
2019-11-16
1,541,860
31,593
2019-11-23
1,505,742
29,499
2019-11-30
1,752,141
30,315
2019-12-07
1,725,237
32,895
2019-12-14
1,796,247
31,893
2019-12-21
1,773,949
29,888
2019-12-28
2,143,802
32,517
2020-01-04
2,245,684
32,520
2020-01-11
2,137,910
33,882
2020-01-18
2,075,857
32,625
2020-01-25
2,148,764
35,828
2020-02-01
2,084,204
33,884
2020-02-08
2,095,001
35,605
2020-02-15
2,057,774
34,683
2020-02-22
2,101,301
35,440
2020-02-29
2,054,129
33,053
2020-03-07
1,973,560
32,803
2020-03-14
2,071,070
34,149
2020-03-21
3,410,969
36,758
2020-03-28
8,158,043
0
52,494
48,963
2020-04-04
12,444,309
3,802
69,537
64,201
2020-04-11
16,249,334
31,426
216,481
89,915
2020-04-18
17,756,054
63,720
1,172,238
116,162
2020-04-25
21,723,230
91,724
3,629,986
158,031
2020-05-02
20,823,294
173,760
6,361,532
175,289
2020-05-09
22,725,217
252,257
8,120,137
216,576
2020-05-16
18,791,926
252,952
11,281,930
226,164
2020-05-23
19,022,578
546,065
10,010,509
247,595
2020-05-30
18,548,442
1,121,306
9,597,884
259,499
2020-06-06
18,330,293
885,802
11,359,389
325,282
2020-06-13
17,552,371
783,999
13,093,382
336,537
2020-06-20
17,316,689
867,675
14,203,555
392,042
2020-06-27
16,410,059
956,849
12,308,450
373,841
2020-07-04
17,188,908
964,744
13,549,797
495,296
2020-07-11
16,221,070
1,016,882
13,326,206
513,141
2020-07-18
16,691,210
1,122,677
13,259,954
518,584
2020-07-25
15,700,971
1,193,198
10,984,864
609,328
2020-08-01
15,112,240
1,262,021
11,504,089
433,416
2020-08-08
14,098,536
1,376,738
11,221,790
549,603
2020-08-15
13,792,016
1,381,317
13,841,939
469,028
2020-08-22
13,067,660
1,434,638
15,164,498
523,430
2020-08-29
13,283,721
1,547,611
14,786,785
490,514
2020-09-05
12,373,201
1,630,711
11,808,368
529,220
2020-09-12
12,363,489
1,832,754
12,153,925
510,610
2020-09-19
11,561,158
1,989,499
10,686,922
589,652
2020-09-26
10,172,332
2,824,685
10,978,217
579,582
2020-10-03
8,952,580
3,334,878
10,450,384
668,691
2020-10-10
8,038,175
3,711,089
10,622,725
615,066
2020-10-17
7,436,321
3,983,613
9,332,610
778,746
2020-10-24
6,837,941
4,143,389
9,433,127
746,403
2020-10-31
6,452,002
4,376,847
8,681,647
806,430
2020-11-07
6,037,690
4,509,284
9,147,753
757,496
2020-11-14
5,890,220
4,569,016
8,869,502
834,740
2020-11-21
5,213,781
4,532,876
8,555,763
741,078
2020-11-28
5,766,130
4,801,408
9,244,556
834,685
2020-12-05
5,457,941
4,793,230
9,271,112
841,463
2020-12-12
5,393,839
4,810,334
8,453,940
937,972
2020-12-19
5,205,841
4,491,413
8,383,387
1,070,810
2020-12-26
5,347,440
4,166,261
7,442,888
1,450,438
2021-01-02
5,727,359
3,026,952
5,707,397
1,526,887
2021-01-09
5,446,993
3,863,008
7,334,682
1,638,247
2021-01-16
5,188,211
3,604,894
7,218,801
1,826,573
2021-01-23
5,156,985
4,779,341
7,943,448
1,785,954
2021-01-30
5,003,178
4,062,189
7,685,857
1,590,360
2021-02-06
4,934,269
5,067,523
7,520,114
1,523,394
2021-02-13
4,794,195
4,468,389
7,329,172
1,437,170
2021-02-20
4,808,623
5,456,080
8,387,696
1,465,769
2021-02-27
4,457,888
4,816,523
7,616,593
1,237,929
2021-03-06
4,458,888
5,551,215
7,735,491
1,207,201
Other programs (mostly EB and STC)
PUA
PEUC
Regular
state UI
Jul
2019
Jan
2020
Jul
2020
Jan
2021
0
10,000,000
20,000,000
30,000,000
40,000,000
Chart
Data
Caution:
Trends over time in PUA claims may be distorted because when an individual is owed retroactive
payments, some states report all retroactive PUA claims during the week the individual received their
payment.
The good news in all of this
is
Congress's passage of the sweeping $1.9 trillion relief and recovery package. It is both providing crucial support to millions
of working families and setting the stage for a robust recovery. One big concern, however, is that the bill's
UI
provisions
are
set to expire the first week in September, when, even in the best–case scenario, they will still be needed. By then, Congress
needs to have put in place long-run UI reforms that include automatic triggers based on economic conditions.
Krugman is is barking on the wrong tree. The question right now is not wage inflation but the
inflation due to weakening dollar as purchases of Treasuries by foreign buyers weakened. That
what probably caused the spike on 10 year Treasuries yield.
Without foreign buyers of the US debt the deficit spending does not work. So it is quite
possible that this time inflationary pressures will come from the weakening of the status of the
dollar as the world reserve currency. As along the this status is unchallenged the USA will be
OK. If dollar is challenged the USA will experience the Seneca cliff.
Paul Krugman argues once's again this morning that any increase in inflation this year as
part of a post-pandemic boom will be transitory:
I agree. I want to elaborate on one point he hasn't emphasized; namely, you can't have a
wage-price inflationary spiral if wages don't participate!
To make my point, let me show you three graphs below, covering wages and prices in three
different periods: (l) the inflationary 1960s and '70's, (2) the disinflationary
Reagan-era 1980s and early '90's, and (3) the low inflation period of the late 1990s to the
present.
In addition to the YoY% change in CPI, I also show CPI less energy (gold), better to show oil
shocks, and also that it takes about a year for inflation in energy prices to filter through to
inflation in other items.
Also, hourly wages were greatly affected (depressed) by the entry of 10,000,000's of women
into the workforce between the 1960s and mid-1990s. This increased median household income, which
would be the better metric, but since that statistic is only released once a year, I've
approximated its impact by adding 1% to the YoY% change in average hourly wages (light blue).
"It took really more than a decade of screwing things up -- year after year -- to get to
that pass, and I don't think we're going to do that again," Krugman said of the inflation
scourge of the 1970s to early 1980s. He spoke in an interview with David Westin for Bloomberg
Television's "Wall Street Week" to be broadcast Friday.
...The worst-case scenario out of the fiscal stimulus package would be a transitory spike in
consumer prices as was seen early in the Korean War, Krugman said. The relief bill is
"definitely significant stimulus but not wildly inflationary stimulus," he said.
...Economists predict that the core inflation measure tied to consumer spending that the Fed
uses in its forecasts will remain under 2% this year and next, a Bloomberg survey shows. A
different gauge, the consumer price index is seen at 2.4% in 2021 and 2.2% next year. The
CPI peaked at over 13% in 1980.
The risk is that policy makers are "fighting the last war" -- countering the undershooting
of the 2% inflation target and limited fiscal measures taken after the 2007-09 financial
crisis, the economists said.
Even so, he argued that "redistributionist" aspects of the pandemic-relief package will
reduce the need for the Fed to keep monetary stimulus too strong for too long in order to
address pockets of high unemployment. Fed Chair Jerome Powell has repeatedly said the central
bank wants to see very broad strengthening in the labor market, not just a drop in the national
jobless rate.
"It's not silly to think that there might be some inflationary pressure" from the fiscal
package, Krugman said. But it was designed less as stimulus than as a relief plan, he
said.
The financial fallout of covid-19 has pushed child hunger to record levels. The need has
been dire since the pandemic began and highlights the gaps in the nation's safety net.
While every U.S. county has seen hunger rates rise, the steepest jumps have been in some of
the wealthiest counties, where overall affluence obscures the tenuous finances of low-wage
workers. Such sudden and unprecedented surges in hunger have overwhelmed many rich communities,
which weren't nearly as ready to cope as places that have long dealt with poverty and were
already equipped with robust, organized charitable food networks.
Data from the anti-hunger advocacy group
Feeding America and the U.S. Census Bureau shows that counties seeing the largest estimated
increases in child food insecurity in 2020 compared with 2018 generally have much higher median
household incomes than counties with the smallest increases. In Bergen, where the median
household income is $101,144, child hunger is estimated to have risen by 136%, compared with
47% nationally.
That doesn't mean affluent counties have the greatest portion of hungry kids. An estimated
17% of children in Bergen face hunger, compared with a national average of around 25%.
But help is often harder to find in wealthier places. Missouri's affluent St. Charles
County, north of St. Louis, population 402,000, has seen child hunger rise by 69% and has 20
sites distributing food from the St. Louis Area Foodbank. The city of St. Louis, pop. 311,000,
has seen child hunger rise by 36% and has 100 sites.
"There's a huge variation in how different places are prepared or not prepared to deal with
this and how they've struggled to address it," said Erica Kenney , assistant professor of public
health nutrition at Harvard University. "The charitable food system has been very strained by
this."
Eleni Towns, associate director of the No Kid Hungry campaign , said the pandemic "undid a decade's
worth of progress" on reducing food insecurity, which last year threatened at least 15 million
kids.
And while President Joe Biden's covid relief plan, which he signed into law March 11,
promises to help with anti-poverty measures such as monthly payments to families of up to $300
per child this year, it's unclear how far the recently passed legislation will go toward
addressing hunger.
"It's definitely a step in the right direction," said Marlene Schwartz , director of the Rudd
Center for Food Policy and Obesity at the University of Connecticut. "But it's hard to know
what the impact is going to be."
Let's just keep spending all that money on our misadventures around the world though. I
believe in a strong defense but just that, defense. I would like to hear the warmongers
justify the ridiculous amounts of money spent on that, yet we can take care of our own to a
basic minimum. What the hell happened to this country over the years
"What the hell happened to this country over the years "
4 to 5 decades of neoliberalism will do that. Its like the nation-state equivalent of
being addicted to a drug. Makes you feel better in the short term: Reagan America worked
great! In the 80s. Long term everything gets screwed over, health wise.
Typical banana republic, spending on war and ridiculous, dysfunctional but grandiose
weapons, usually shown off in parades – lorded over by a rich oligarchy – while
people starve and live in hovels. However, a healthy well-fed population is the source of a
nation's strength, so we are well on the way to fading into a has-been.
"Sierra had to leave her Amazon warehouse job when the kids' school went remote, and
Morales stopped driving for Uber when trips became scarce and he feared getting covid on top
of his asthma".
In other words, our skimpy unemployment insurance systems in man states, plus gaps in the
pandemic special relief, plus the insufferable arrogance of closing the schools with no
financial relief for parents, and here we are.
Sorry guys but this is Failed Nation stuff. I am one of those that happen to believe that
it is the most fundamental duty of a State to protect children and pregnant women. Anything
after that is a bonus if not an embellishment. America is not only the wealthiest country in
the world but is also the wealthiest in history. And yet child hunger is tolerated. And just
to add the bread slices to this s*** sandwich, there are about 800 billionaires in the US at
the moment. How many of them could wake up one day and say to themselves: 'You know what?
I am going to abolish child hunger in America with my money and be remembered forever and
even have statues raised to myself!' But it never happens.
America's incredible success is going to require americans to have a vastly reduced
standard of living to the point that they are equally as poverty stricken as the poors the
world over. Globalisation really makes any other out come unfair, and we must globalize.
Everyone being a poverty stricken gig worker is the plan. Here in this case an amazon worker
and an uber driver, on the dole. In reality, I think the biden admin has just dusted off the
plans that were to be unleashed under hillary, that's one of the reasons it all seems so ham
handed. The TPP was going to keep the world in our orbit and create supra national barriers
to autonomy in order to stop what is in fact happening now where they are free to choose
between china/russia and the US. From this perspective trump really screwed the plans of the
despicables.
1. It in the past
2. It was built on predation against the British Empire
Who needs a German Enemy with friends who help with lend-lease, Cancel the German War
debt, and not their "allies." Combined with subverting the British Empires rule with a
twisted version of self-rule – Governance dependent on not having US Sanctions, aka
imperialism absent responsibility.
This after dispossession the local US natives of the ancestral lands by force, and tricky
legalities.
It's not a failed nation, it's how the US was always designed to work. It might have had
some good years of P.R. and marketing after WWII but it was always a lie. The Constitution
was written by a bunch of wealthy slavers that hated commoners and feared economic democracy
and popular governance. The US became the wealthiest country by starving kids and killing
people the world over; it was forced into a bit of wealth distribution for a few decades by
multi-state steel strikes, the Bonus Army, armed miners unions, tenants unions, the Farmers
Holiday movement, and the contrast of a Soviet Union that was advancing by leaps and bounds
economically while the US festered in a depression. But whether it was the indigenous, the
slaves, the Filipinos, the Haitians, the Chinese, the Nicaraguans, the Mexicans, the
Hondurans, the Iranians, the Guatemalans, the Chileans, the Koreans, the Vietnamese, the
Laotians, the Cambodians, the Russians, the Iraqis, the Libyans, the Syrians, or it's own
citizens, the US has always killed for money. If it runs out of places to take over and
expand it'll just starve the kids at home to make a buck. It'll charge the poor overdraft
fees for having no money then chalk that up as a financial service. It'll have its state
security forces kill you for a traffic stop and then beat every citizen en masse that dares
to object. It'll cannibalize the very infrastructure and fabric of society and hand it over
to oligarchs and private equity. It'll give all the wealth to people who charge usury and own
embroidered pieces of paper but who don't actually do anything useful or necessary. And the
marks that watch US movies and television and news will believe that the US is somehow
benevolent and that they can somehow bend the will of the rapacious through the very
electoralism that the wealthy designed to keep the poor from having a say.
Starving children. Children in concentration camps. Children forced into schools during a
plague. These aren't 'oopsies.' This is how the country is set up to run. Look at how much
money the wealthy gained by letting a pandemic run wild. Look at how the entire investment
class should have gone bankrupt in 2008 but instead workers were fired from jobs and cast out
of their homes by the millions. Now the kids of those sacrificed are starving right next to
the wealthy that should have gone bust. The affluent are literally taking food out of kids
mouths because they won't let their precious stocks or real estate go down in price one iota.
The only good thing about kids starving in wealthy districts is that a Robin Hood won't have
to go to far to find money to give to those kids.
The 800 billionaires consider child hunger in America to be one of their greatest
achievements.
The child hunger in America problem won't be solved until the 800 billionaires and all
their ideological supporters and economic servants have been " rounded up and exterminated",
so to speak.
Thank you, Palaver. All "food" is not equal. Nutrition should be the emphasis.
In my jurisdiction, the Food Bank Industry encourages donations of packaged, processed,
industrialized "food". For example, fifty pounds of oats gives much more nutrition bang for
the buck than the equivalent $$$ amount of Conglomerate Cereals.
At my Conglomerate Stupormarket, they have a bin for unthinking donors to drop in "food"
that was bought in the Stupor. I've seen poptarts, jars of frosting, jello, etc. all sorts of
"food". And why do I think the Stupormarket just recycles a lot of this stuff back onto their
shelves, making a huge profit?
Next time you donate, check out what your Food Bank is actually peddling and who runs it.
Food Banks have become a huge Industry and we know what happens to huge Industries.
My mother gives rides to some of her friends (without expectation of any compensation cuz
friendship). In return, some of the friends give random items from their weekly food bank
allotment.
the food is shelf-stable processed items with produce and baked goods nearing expiration
from the local gourmet independent chain and the local Whole Foods.
Manslow's hierarchy of needs applies obviously and the food banks do truly heroic deeds
daily, but long-term people can't live healthy lives eating boxed Mac 'n Cheese, PBJ
sandwiches and organic cookies every single day.
I say expand WIC spending and eligibility, but as I'm not too familiar with that program,
dunno if that'll do any good.
In the USA, the top one percent of household net worth starts at $11,099,166.
It is seems improbable that the commenter achieved that goal. May be he is thinking of 1%
of Indonesia or Philippines. The reference to tenant farmers also appears to indicate a
country like that. Retiring to live in the Indonesian countryside is not my idea of a good
old age. Correct me please if I am wrong.
The one good thing about bringing back neoclassical economics.
We know what led to Wall Street Crash in 1929. The same mistakes have been repeated
globally.
At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
The financial crisis appears to come out of a clear blue sky when you use an economics
that doesn't consider debt, like neoclassical economics, as it did in 1929.
1929 – US
1991 – Japan
2008 – US, UK and Euro-zone
The PBoC saw the Chinese Minsky Moment coming and you can too by looking at the chart
above. The Chinese were lucky; it was very late in the day. Everyone has made the same
mistake; only the Chinese worked out what the problem was.
The Chinese don't seem too worried about the competition.
Putin and Xi are jealous of Wall Street.
No matter how hard they try, they have never been able to inflict the same level of damage to
the West, Wall Street managed in 2008.
The Chinese know what to look out for to spot a financial crisis coming. They look for the
problems brewing in private debt and inflated asset prices.
This nice Chinese chap tried to warn the Americans the US stock markets was at 1929 levels at
Davos 2018. https://www.youtube.com/watch?v=1WOs6S0VrlA
We know what a correction from 1929 levels looks like.
We have seen it before.
"They've done it again, I can't believe my luck. US stock markets are at 1929 levels,
this isn't going to end well" president Xi
Xi has probably rung Putin up to tell him the good news.
I bet they had a right old laugh.
Luckily for the Chinese, the Americans have no idea what they are doing.
The Chinese have been making all the classic mistakes of neoclassical economics, but have
been learning from them to ensure they don't make the same mistakes again.
We haven't been doing this in the West.
At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
The use of neoclassical economics, and the belief in free markets, made them think that
inflated asset prices represented real wealth.
1929 – Wakey, wakey time
The use of neoclassical economics, and the belief in free markets, made them think that
inflated asset prices represented real wealth, but it didn't.
It didn't then, and it doesn't now.
What was the ponzi scheme of inflated asset prices that collapsed in 2008? "It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of
$1.4 trillion of US sub-prime loans, and dispersed throughout the world" All the
Presidents Bankers, Nomi Prins.
It wasn't real wealth, just a ponzi scheme of inflated asset prices.
Real estate – the wealth is there and then it's gone.
1990s – UK, US (S&L), Canada (Toronto), Scandinavia, Japan, Philippines,
Thailand
2000s – Iceland, Dubai, US (2008), Vietnam
2010s – Ireland, Spain, Greece, India
It wasn't real wealth, just a ponzi scheme of inflated asset prices.
It's been the same since Tulip Mania.
You can inflate asset prices, keeping them inflated is the hard bit.
Oh yeah, we had a system like that where all the wealth stayed at the top. We called it
Feudalism. The Americans are progressing in the reverse direction.
Perhaps certain counter-Feudalist towns, cities, communities, etc. should study up on how
certain Free Towns and Free Republics survived in Europe during the Feudalist Period. And try
to set themselves up as the Free Towns, Free Cities, Free Republics in the midst of a future
Feudalist America.
Thank you, RMO, you summarized US-Russian relations from 1991 to the start of the Putin
era much better than me. We really missed an opportunity to integrate the Russians into the
US-EU alliance (such as it was), especially with regard to NATO.
Bush Jr. compounded this failure by mistaking Putin for an ally in the war against terror,
thinking that our concerns in the middle east paralleled Putin's affairs in Chechen. They
could have, but didn't. Putin was a more strategic thinker.
My sense is that Putin played a waiting game for much of the first two decades of this
century...
"report on January personal income and spending shows just how important the stimulus
packages enacted by the federal government both last spring and last month have been to
sustaining the economy."
The truth of that was confirmed on the back end in this morning's report for February, in
which January's 10% increase in income was followed by a -7.1% decrease (red). January's
increase of 3.4% in spending was also partially reversed by a -1.0% decrease in February
(blue):
... ... ...
Employment is down over 5% since last February, while production is down 4%. Meanwhile,
income is down only 2.5%, and real sales have actually increased by nearly 5%! Most recently,
in the combined two-month period since December, two of the series – payrolls and real
sales – have increased, while the other two – industrial production and income less
government payments – have declined.
Since the Big Texas Freeze impacted probably substantially impacted all of these, the
underlying situation is presumably better.
"... How convinced should anyone be when dismissing the message of metrics like these? To be sure, both the market and economy are in uncharted waters. It's possible -- perhaps likely -- that old standards don't apply when something as random as a virus is behind the stress. At the same time, many a portfolio has been squandered through complacency. Market veterans always warn of fortunes lost by investors who became seduced by talk of new rules and paradigms. ..."
"... At 35, the CAPE is at its highest since the early 2000s. ..."
"... Another indicator raising eyebrows is called Tobin's Q. The ratio -- which was developed in 1969 by Nobel Prize-winning economist James Tobin -- compares market value to the adjusted net worth of companies. It's showing a reading just shy of a peak reached in 2000. T ..."
"... the signal sent by the "Buffett Indicator," a ratio of the total market capitalization of U.S. stocks divided by gross domestic product. ..."
"... Still, it's hard to ignore the risks to underlying assumptions. While rock-bottom rates underpin many of the arguments, this year has shown that the Fed still is willing to let longer-term interest rates run higher. And betting on huge upside earnings surprises is risky too -- it's rare to see a 16% beat historically. Before last year, earnings had exceeded estimates by an average 3% a quarter since 2015. ..."
"... "This happens in every bubble," said Bill Callahan, an investment strategist at Schroders. "It's: 'Don't think about the traditional value metrics, we have a new one.' It's: 'Imagine if everyone did XYZ, how big this company could be.'" ..."
"... To Scott Knapp, chief market strategist of CUNA Mutual Group, abandoning standard valuation measures because the environment has changed places investors in "pretty sketchy territory." Talk of watershed moments rendering traditional metric irrelevant as a signal, he says. "That's usually an indication we're trying to justify something," he said. ..."
Shiller P/E. Tobin's Q. Buffett Indicator. Ignore them all?
It's 'usually an indication we're trying to justify something'
Everywhere you look, there's a valuation lens that makes stocks look frothy. Also everywhere you look is someone
saying don't worry about it.
The so-called
Buffett
Indicator
. Tobin's Q. The S&P 500's forward P/E. These and others show the market at stretched levels, sometimes
extremely so. Yet many market-watchers argue they can be ignored, because this time really is different. The
rationale? Everything from Federal Reserve largesse to vaccines promising a quick recovery.
How convinced should anyone be when dismissing the message of metrics like these? To be sure, both the market and
economy are in uncharted waters. It's possible -- perhaps likely -- that old standards don't apply when something as
random as a virus is behind the stress. At the same time, many a portfolio has been squandered through complacency.
Market veterans always warn of fortunes lost by investors who became seduced by talk of new rules and paradigms.
"Every time markets hit new highs, every time markets get frothy, there are always some talking heads that argue:
'It's different,'" said Don Calcagni, chief investment officer of Mercer
Advisors
.
"We just know from centuries of market history that that can't happen in perpetuity. It's just the delusion of
crowds, people get excited. We want to believe."
Source: Robert Shiller's website
Robert Shiller is no apologist. The Yale University professor is famous in investing circles for unpopular valuation
warnings that came true during the dot-com and housing bubbles. One tool on which he based the calls is his
cyclically adjusted price-earnings ratio that includes the last 10 years of earnings.
While it's flashing warnings again, not even Shiller is sure he buys it. At 35, the CAPE is at its highest since the
early 2000s. If that period of exuberance is excluded, it clocks in at its highest-ever reading. Yet in a recent
post
,
Shiller wrote that "with interest rates low and likely to stay there, equities will continue to look attractive,
particularly when compared to bonds."
Another indicator raising eyebrows is called Tobin's Q. The ratio -- which was
developed
in
1969 by Nobel Prize-winning economist James Tobin -- compares market value to the adjusted net worth of companies.
It's showing a reading just shy of a peak reached in 2000. To Ned Davis, it's a valuation chart worth being wary
about. Still, while the indicator is roughly 40% above its long-term trend, "there may be an upward bias on the ratio
from technological change in the economy," wrote the Wall Street veteran who founded his namesake firm.
Persuasive arguments also exist for discounting the signal sent by the "Buffett Indicator," a ratio of the total
market capitalization of U.S. stocks divided by gross domestic product. While it recently reached its highest-ever
reading above its long-term trend, the methodology fails to take into consideration that companies are more
profitable than they've ever been, according to Jeff Schulze, investment strategist at ClearBridge Investments.
"It's looked extended really for the past decade, yet you've had one of the best bull markets in U.S. history," he
said. "That's going to continue to be a metric that does not adequately capture the market's potential."
At Goldman Sachs Group Inc., strategists argue that however high P/Es are, the absence of significant leverage
outside the private sector or a late-cycle economic boom points to low risk of an imminent bubble burst. While people
are shoveling money into stocks at rates that have signaled exuberance in the past, risk appetite is rebounding after
a prolonged period of aversion, according to the strategists, who also cite low interest rates.
"Today is a very different situation -- I don't think we've got a broad bubble," Peter Oppenheimer, chief global
equity strategist at the firm, said in a recent interview on Bloomberg Television. "Given the level of real rates,
where they are, it's still likely to be broadly supportive for equities versus bonds."
Another rationale employed to dismiss certain valuation metrics is the earnings cycle. Corporate America is just
emerging from a recession, with profits forecast to stage a strong comeback. The strong outlook for profits is why
many investors are giving similarly stretched valuations the benefit of the doubt. Trading at 32 times reported
earnings, the S&P 500 looks quite expensive, but with income forecast to jump 24% to $173 a share this year, the
multiple drops to about 23.
The valuation case becomes more favorable should business leaders continue to blow past expectations. For instance,
if this year's earnings come in at 16% above analyst estimates, as they did for the previous quarter, that'd imply a
price-earnings ratio of less than 20. While that exceeds the five-year average of 18, Ed Yardeni is not troubled by
what he calls "the New Abnormal."
"Valuation multiples are likely to remain elevated around current elevated levels because fiscal and monetary
policies continue to flood the financial markets with so much free money," said the founder of Yardeni Research Inc.
He predicts the S&P 500 will finish the year at 4,300, about an 8% gain from current levels.
Still, it's hard to ignore the risks to underlying assumptions. While rock-bottom rates underpin many of the arguments, this year
has shown that the Fed still is willing to let longer-term interest rates run higher. And betting on huge upside earnings
surprises is risky too -- it's rare to see a 16% beat historically. Before last year, earnings had exceeded estimates by an
average 3% a quarter since 2015.
"This happens in every bubble," said Bill Callahan, an investment strategist at Schroders. "It's: 'Don't think about the
traditional value metrics, we have a new one.' It's: 'Imagine if everyone did XYZ, how big this company could be.'"
Returns of 2%
Valuations are never useful market-timing tools because expensive stocks can get more expensive, as was the case during the
Internet bubble. Yet viewed through a long-term lens, valuations do matter. That is, the more over-valued the market is, the
lower the future returns. According to a study by Bank of America strategists led by Savita Subramanian, things like
price-earnings ratios could explain 80% of the S&P 500's returns during the subsequent 10 years. The current valuation framework
implies an increase of just 2% a year over the next decade, their model shows.
To Scott Knapp, chief market strategist of CUNA Mutual Group, abandoning standard valuation measures because the environment has
changed places investors in "pretty sketchy territory." Talk of watershed moments rendering traditional metric irrelevant as a
signal, he says.
"That's usually an indication we're trying to justify something," he said.
"In a community where the primary concern is making money, one of the necessary rules is to
live and let live. To speak out against madness may be to ruin those who have succumbed to it.
So the wise in Wall Street are nearly always silent. The foolish thus have the field to
themselves."
John Kenneth Galbraith, The Great Crash of 1929
"Foolishness is a more dangerous enemy of the good than malice. One may protest against
evil; it can be exposed and, if need be, prevented by use of force. Evil always carries within
itself the germ of its own subversion in that it leaves behind in human beings at least a sense
of unease.
In conversation with them, one virtually feels that one is dealing not at all with a person,
but with slogans, catchwords and the like that have taken possession of them. They are under a
spell, blinded, misused, and abused in their very being."
Dietrich Bonhoeffer, Prisoner for God: Letters and Papers from Prison
"The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated
communist, but people for whom the distinction between fact and fiction, true and false, no
longer exists."
Hannah Arendt, The Origins of Totalitarianism
"When we trade the effort of doubt and debate for the ease of blind faith, we become
gullible and exposed, passive and irresponsible observers of our own lives. Worse still, we
leave ourselves wide open to those who profit by influencing our behavior, our thinking, and
our choices. At that moment, our agency in our own lives is in jeopardy."
Margaret Heffernan
Today was a general wash and rinse in the markets.
Wax on, wax off.
If you look at the charts you will see the deep plunges in the early trading hours in stocks
and the metals, especially silver.
Simply put, it is called running the stops.
This is not 'the government' doing this.
These are the monstrous financial entities that we have allowed lax regulation and years of
propagandizing to create, in the biggest Banks and hedge funds.
Most will run back to the familiar sources of their ideological addiction, the so-called
'news sites' that thrive on the internet and alternative radio funded by the oligarchs.
If you are one of those who cannot wait to run back to your familiar ideological watering
hole to relieve the tension of thought, you might just be one of the willfully blind and
lost.
Truth is more palatable to the sick at heart when it has been twisted out of shape.
The good news perhaps is that a cleaning out like this often proceeds a resumption of a move
higher.
First they kick off the riff raff. Oh, certainly that does not include you, but those
others, right?
Or not. It is not easy to think like a criminal when you are not privy to the same jealously
guarded information and perverse perspective on life.
On the lighter side I have experienced no side effects from the first dose of the
Coronavirus vaccine which I had the other day.
Let's see if the second shot has the same results.
The whole experience reminded me of 'Sabin Oral Sunday' back in 1960. I don't recall any
anti-vaxxer or ideologically driven whack-a-doodlism back then, but I was too young to
care. And polio shots were no fun. But it beat doing time in an iron lung.
How many people are really out of work? The answer is surprisingly difficult to ascertain.
For reasons that are likely ideological at least in part, official unemployment figures greatly
under-report the true number of people lacking necessary full-time work.
That the "reserve army of labor" is quite large goes a long way toward explaining the
persistence of stagnant wages in an era of increasing productivity.
How large? Across North America, Europe and Australia, the real unemployment rate is
approximately double the "official" unemployment rate.
The "official" unemployment rate in the United States, for example, was 5.5 percent for
February 2015. That is the figure that is widely reported. But the U.S. Bureau of Labor
Statistics keeps track of various other unemployment rates, the most pertinent being its "U-6"
figure. The U-6 unemployment rate includes all who are counted as unemployed in the "official"
rate, plus discouraged workers, the total of those employed part time but not able to secure
full-time work and all persons marginally attached to the labor force (those who wish to work
but have given up). The actual U.S. unemployment rate for February 2015, therefore, is 11 percent .
Canada makes it much more difficult to know its
real unemployment rate. The official Canadian
unemployment rate for February was 6.8 percent, a slight increase from January that
Statistics Canada attributes to "more people search[ing] for work." The official measurement in
Canada, as in the U.S., European Union and Australia, mirrors the official standard for
measuring employment defined by the International Labour Organization -- those not working at
all and who are "actively looking for work." (The ILO is an agency of the United Nations.)
Statistics Canada's closest measure toward counting full unemployment is its R8 statistic,
but the R8 counts people in part-time work, including those wanting full-time work, as
"full-time equivalents," thus underestimating the number of under-employed by hundreds of
thousands,
according to an analysis by The Globe and Mail . There are further hundreds of
thousands not counted because they do not meet the criteria for "looking for work." Thus
The Globe and Mail analysis estimates Canada's real unemployment rate for 2012 was
14.2 percent rather than the official 7.2 percent. Thus Canada's true current unemployment rate
today is likely about 14 percent.
Everywhere you look, more are out of work
The gap is nearly as large in Europe as in North America. The official European Union
unemployment rate was 9.8
percent in January 2015 . The European Union's Eurostat service requires some digging to
find out the actual unemployment rate, requiring adding up different parameters. Under-employed
workers and discouraged workers comprise four percent of the E.U. workforce each, and if we add
the one percent of those seeking work but not immediately available, that pushes the
actual unemployment rate to about 19 percent.
The same pattern holds for Australia. The Australia Bureau of Statistics revealed that its
measure of "extended labour force under-utilisation" -- this includes "discouraged" jobseekers,
the "underemployed" and those who want to start work within a month, but cannot begin
immediately -- was
13.1 percent in August 2012 (the latest for which I can find), in contrast to the
"official," and far more widely reported, unemployment rate of five percent at the time.
Concomitant with these sobering statistics is the length of time people are out of work. In
the European Union, for example, the long-term unemployment rate -- defined as the number of
people out of work for at least 12 months --
doubled from 2008 to 2013 . The number of U.S. workers unemployed for six months or longer
more than tripled from
2007 to 2013.
Thanks to the specter of chronic high unemployment, and capitalists' ability to transfer
jobs overseas as "free trade" rules become more draconian, it comes as little surprise that the
share of gross domestic income going to wages has declined steadily. In the U.S., the share has
declined from 51.5 percent in 1970 to about 42 percent. But even that decline likely
understates the amount of compensation going to working people because almost all gains in
recent decades has gone to the top one percent.
The increased ability of capital to move at will around the world has done much to
exacerbate these trends. The desire of capitalists to depress wages to buoy profitability is a
driving force behind their push for governments to adopt "free trade" deals that accelerate the
movement of production to low-wage, regulation-free countries. On a global basis, those with
steady employment are actually a minority of the world's workers.
Using International Labour Organization figures as a starting point, professors John Bellamy
Foster and Robert McChesney calculate that the "global reserve army of labor" -- workers who
are underemployed, unemployed or "vulnerably employed" (including informal workers) -- totals
2.4 billion. In contrast, the world's wage workers total 1.4 billion -- far less! Writing in
their book The Endless
Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to
China , they write:
"It is the existence of a reserve army that in its maximum extent is more than 70 percent
larger than the active labor army that serves to restrain wages globally, and particularly in
poorer countries. Indeed, most of this reserve army is located in the underdeveloped
countries of the world, though its growth can be seen today in the rich countries as well."
[page 145]
The earliest countries that adopted capitalism could "export" their "excess" population
though mass emigration. From 1820 to 1915, Professors Foster and McChesney write, more than 50
million people left Europe for the "new world." But there are no longer such places for
developing countries to send the people for whom capitalism at home can not supply employment.
Not even a seven percent growth rate for 50 years across the entire global South could absorb
more than a third of the peasantry leaving the countryside for cities, they write. Such a
sustained growth rate is extremely unlikely.
As with the growing environmental crisis, these mounting economic problems are functions of
the need for ceaseless growth. Once again, infinite growth is not possible on a finite planet,
especially one that is approaching its limits. Worse, to keep the system functioning at all,
the planned
obsolescence of consumer products necessary to continually stimulate household spending
accelerates the exploitation of natural resources at unsustainable rates and all this
unnecessary consumption produces pollution increasingly stressing the environment.
Humanity is currently consuming the equivalent of one and a
half earths , according to the non-profit group Global Footprint Network. A separate report
by WWF–World Wide Fund For Nature in collaboration with the Zoological Society of London
and Global Footprint Network, calculates that the Middle East/Central Asia, Asia-Pacific, North
America and European Union regions are each consuming about double their
regional biocapacity.
We have only one Earth. And that one Earth is in the grips of a system that takes at a pace
that, unless reversed, will leave it a wrecked hulk while throwing ever more people into
poverty and immiseration. That this can go on indefinitely is the biggest fantasy.
"Underfunded" is a euphemism for "have students with low test scores." E.g., "Washington
D.C.'s underfunded schools."
D.C. spent around $30,115 per pupil in 2016-17, while in 2017-18, nearby Arlington County
was expected to spend $19,340, the City of Falls Church to spend $18,219; the City of
Alexandria, $17,099; Montgomery County, $16,030; Fairfax County, $14,767; Prince George's
County, $13,816; Loudoun County, $13,688; City of Manassas, $12,846; City of Manassas Park,
$11,242; and Prince William County, $11,222.
"Underfunded" is a euphemism for "have students with low test scores." E.g., "Washington
D.C.'s underfunded schools." Presumably, it means "underfunded relative to some theoretical
amount of money, such as a gajillion dollars, that would be sufficient to raise these
students' test scores to average."
My dad was a school administrator in one of the top county public school systems in the
country. A politically deep-blue part of the country. He retired in the early '80's. I
remember him telling me once after he retired that his school(s) would get constant demands
from the school board to raise black (not many Hispanics then) test scores. He said the
school(s) focused all kinds of resources on black students which yielded no appreciable
results. He then said, "You know how we raised black test scores to the level demanded? We
fudged the numbers."
The EUP is cutting its own throat trying to bully China. I see the move was made as soon
as Blinken arrived and began spreading lies about both Russia and China. I know China and
Russia would like these rogue nations to uphold their honor by obeying the UN Charter, but it
seems too many have caught the Outlaw US Empire's disease and now want to return to their
Colonial ways. If the EUP ends up trashing the Comprehensive Agreement on Investment (CAI)
with China, many individual European nations are going to be very angry. China won't mind if
that's what the EUP does as is explained here :
"After China announced sanctions on 10 individuals and four entities from the EU as a
countermove to EU's unilateral sanctions against China, some people from the EU reacted
strongly, claiming China's countermeasures were "unacceptable." The European Parliament
canceled a meeting on Tuesday to discuss the Comprehensive Agreement on Investment (CAI) with
China. Some members of the European Parliament warned that the lifting of Chinese sanctions
should be a condition to promote talks on CAI. Voices that support to block the agreement in
an attempt to punish China have been hyped by some anti-China forces.
"Yet those forces should be told that the CAI between China and the EU is mutually
beneficial, rather than a gift from the EU to China. If the European Parliament wants to
obstruct the deal, taking it as a bargaining chip in interactions with China, it should first
reach a consensus among European countries. If they all agree, let's just take it as
negotiations between China and the EU never took place last year. But don't blackmail China
with the case. China despises such ugly deeds."
China's saying essentially that it will forego the benefits of trade if it isn't properly
respected and doesn't care if the EU's dire economic condition worsens because it can't stand
up for itself in the face of the world's #1 Bully, which is exactly the same line Russia has
taken.
It is not just Jens Quisling, half (or more) of the European political elite are USA
proxies.
Take for example the European green parties.
I am pretty sure that the Dutch green party is at its core a NATO/military intelligence
operation. It was created as a merger of three parties, all of whom had a distinct pacifist
and socialist signature. The new party, GroenLinks ("GreenLeft") has forgotten all of that
and has limited itself to churning out Big Climate slogans. The party leader is an obviously
hollow puppet in the image of Justin Trudeau. His opinions are handed to him by advisors in
the shade.
A few years ago, an MP for GroenLinks, Mariko Peters was enthousiastically
promoting more military missions in Afghanistan. She was also a board member of the
"Atlantische Commissie", the local Dutch chapter of the Atlantic Treaty Organisation
(the USA chapter is the more well-known Atlantic Council). If you study her antics and
associations more closely, it is pretty obvious that there is nothing green or left about
this lady and that she is an obvious atlanticist diplomat/spy type.
Currently, there are no political parties in the Netherlands that are critical of NATO.
This used to be very
different not even a very long time ago.
What the article does not mention is the association, reputedly for a six-figure salary)
of former Grüne luminary Joschka Fisher to the Nabucco pipeline project (competing with
ns2). Fischer is also a member of the council on foreign relations and a founding member even
of the European chapter ECFR.
"... freedom is material: a human being must be free from material privation, here and now, in life (and not in the mythical afterlife of reincarnation) in order to be really free. In other words, freedom from need is true freedom. ..."
Marx's concept of freedom is completely different from the liberal or pre-liberal concepts
of freedom. For Marx, freedom is material: a human being must be free from material
privation, here and now, in life (and not in the mythical afterlife of reincarnation) in
order to be really free. In other words, freedom from need is true freedom.
Human beings can only be materially free. Don't fall for the moral victories of
liberalism, the snake oil salesmen's promise of a spot in Paradise from the Abrahamics or the
nihilist bullshittery from the Buddhists et al.
Excellent point by vk here. Despite sometimes pretending to myself that I am a Buddhist (I
am really good at meditating!), real freedom is being free from need. Abstract and
metaphysical "freedoms" are luxuries of the wealthy that few under the thumb of the
empire can afford.
I have been surprised by the explosion in the numbers of people locally living in cars and
vans lately. I guess from my Buddhist perspective they have been freed from the attachment to
a residence. Who could have guessed that capitalism would be such a good teacher of the path
to enlightenment?
It's freedom from Want. The Four Freedoms as articulated by FDR in 1941 were:
1.Freedom of speech
2.Freedom of worship
3.Freedom from want
4.Freedom from fear
Earlier this year on the 80th anniversary of FDR's speech, I wrote a series of comments on
the topic. They remain the four main tasks needing to be accomplished for the Common Man to
be genuinely free. At the time, they were to be the main goals of WW2; goals that were
further articulated by Henry Wallace in 1942 & '43 in his speeches and writings.
Currently, several nations have accomplished those four goals; none of them is a
NATO/Neoliberal nation however.
Retirees who have the most money pay the most in taxes, according to a
recent
working paper
, but they're not necessarily rich.
"Most of the tax burden is carried by the top quintile of households,"
Anqi
Chen
, co-author and assistant director of savings research at the Center for Retirement Research at Boston College, told
Yahoo Money. But "it's important to keep in mind that when we think about the top quintile of households -- the top 20% -- they're
not the super wealthy."
Those in the highest quintile are mostly married couples with average combined Social Security benefits of $50,900, 401(k)/IRA
balances of $325,400, and financial wealth of $441,400. When annuitized, those assets and retirement accounts earn account
holders roughly $3,000 per month -- or $36,000 per year -- ostensibly making them middle-income earners, Chen said.
"That's some money but not a ton of money," Chen said, "and these households will have to pay about 11% [in taxes]."
(Photo: Getty)
The highest quintile pays 11.3% on their retirement income, while the top 5% is taxed at 16.4%, and the top 1% is taxed at 22.7%,
according to the analysis. Overall, retired households pay 6% in federal and state taxes on their income.
Researchers used income data from 3,419 individuals and 1,907 households included in the Health and Retirement Study, a
nationally representative longitudinal survey of older Americans. The analysis assumes the retirees follow the required minimum
distributions for their retirement accounts and consume only interest and dividends from their assets.
The heavy tax burden carried by well-off retirees demonstrates that even those who enter their golden years with the most money
are still short on savings, an ongoing problem for many Americans. Roughly 40% of the top quintile of savers are at risk of
maintaining their standard of living, meaning "taxes will make the goal even more difficult to attain," the study said.
For the majority of retired households, "taxes are negligible," Chen said, paying 0% to 1.9%. But they are far from lucky.
Those in the "bottom two-thirds of the income distribution don't have a lot in financial assets" that yield material income in
retirement, she added.
Yahoo Money sister site Cashay has a weekly newsletter.
Stephanie is a reporter for Yahoo Money and
Cashay
,
a new personal finance website. Follow her on Twitter
@SJAsymkos
.
The USA remains is secular stagnation mode caused by neoliberalization of the economy and
2008 financial crisis. Nothing can change that.
When Microsoft and Facebook are called high growth stock the question arise about the sanity
of the author. How they can achieve high growth? Facebook user base probably might even shrink,
not expand due to negative publicity as being a surveillance company and more and more obnoxious
censorship.
Microsoft achieved dominance in desktop long ago and with PC sales basically stagnant how it
can grow in its key market? Connections to PRISM also do not help.
Wall Street speculated on the identity of the mysterious seller behind the massive $10.5
billion in block trades executed on Friday by Goldman Sachs Group Inc. The question is why did
these block trades occur? Does one firm know something others don't or were they somehow forced
to cut risk? Read More: 'Unprecedented'-
Wall Street Ponders Goldman's Block-Trade Spree
Much of the stock market's recent turbulence has been an after-effect of movements in the
bond market, where Treasury yields have been largely climbing since last autumn. Higher yields
can make investors less willing to pay high prices for stocks, with companies seen as the most
expensive taking the most pain. Companies that ask their investors to wait many years for the
payoff of big profit growth have also been hit hard.
The yield on the 10-year Treasury rose to 1.67% from 1.61% late Thursday. But that's still
below where it was last week, when it rose above 1.70% and touched its highest level since
before the pandemic began.
The higher yields helped lift stocks of banks, in part because higher interest rates allow
them to make bigger profits from making loans. Financial stocks also got a boost after the
Federal Reserve said it will soon allow
banks to resume buying back their own stock and to send bigger dividend payments to
shareholders. The Fed restricted such moves last summer to force banks to hold onto cash
cushions amid the coronavirus-caused recession.
Some of Friday's biggest gains came from energy stocks, which benefited from a $2.41 rise in
the price of U.S. oil, settling at $60.97 per barrel.
... ... ...
President Joe Biden is pushing for
big spending on the nation's infrastructure , as many past presidents have done to little
effect. "Whether or not it happens or doesn't happen, the market feels like there's more of a
possibility that it will happen," Plumb said.
... high-growth stocks were turning in a mixed performance on Friday. Apple rose 0.5%, but
only after swinging between gains and losses numerous times through the day. Microsoft rallied
1.8%, and Facebook climbed 1.5%, but Tesla dropped 3.4%.
In the background is a continuing stark
economic situation in the US : After shedding
140,000 jobs in December, the economy added back just 50,000 jobs in January. The country
is still short 10 million jobs from where it was pre-pandemic, and some 4 million workers have
dropped out of the workforce. In that context, it's hard to gauge just how much to worry about
overshooting it on the response.
The Asia times article did it connect the dots for me. china especially is not buying US
bonds anymore. Hence low demand for it , causing the yields to ride to attract buyers.
The 30-year Treasury yield has climbed all the way back to its 2019 level, mainly because
inflation expectations built into the yield have risen to the highest level since 2014. A US
government deficit equal to 20% of GDP, a falling dollar and rising commodity prices mean more
inflation in the future.
The Federal Reserve bought most of the Treasury debt issued in the past year, and will have
to buy most of the Treasury debt issued during the coming year, as Bridgewater's Ray Dalio told
the China Economic Forum on Sunday.
Unlike the period after the 2009 crash, when foreigners financed roughly half of the US
government deficit, foreigners haven't increased their holdings of US debt during the past
twelve months.
Dalio, one of the world's most successful investors, warns that they might start to sell the
debt they already own. "The situation is bearish for the dollar," Dalio concluded.
As the late Herbert
Stein said, anything that can't go on forever won't.
Budan University Professor Bai Gang told China's Observer website last week: "For the
past year, the US has continued to issue more currency to ease its internal situation. The
pressure will eventually seriously damage the status of the US dollar as the core currency in
the international payment system."
"... "Neither the Securities and Exchange Commission [SEC] nor any state securities commission has approved or disapproved of the securities offered in this prospectus, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense " (emphasis mine); and ..."
"... "The trust is not an investment company registered under the Investment Company Act of 1940. The trust is not a commodity pool for purposes of the Commodity Exchange Act, and its sponsor is not subject to regulation by the Commodity Futures Trading Commission as a commodity pool operator, or a commodity trading advisor. ..."
Is it also not a conflict of interest that HSBC bank, a bank that allegedly holds some of
the largest short positions against gold on the COMEX, is the custodian for the SPDR Gold
Trust? If these banks profit when gold and silver drop, and they manage the largest ETFs in the
US regarding these respective metals, is it unreasonable to state that these two banks should
be barred from acting as custodians of the GLD and SLV?
In fact, how is this situation any different than Goldman Sachs's actions in the past when
they originated CDOs and then made a fortune by shorting them, actions that back then, were
apparently unknown even to the firm's own traders? On the surface, it certainly appears to be
another classic case of the fox guarding the hen house.
... ... ...
Some may say that the word delusional is a harsh term, but a mere glance at the GLD and SLV
prospectuses explains my use of this term. Both the GLD and the SLV prospectus contain the
following two statements:
"Neither the Securities and Exchange Commission [SEC] nor any state securities commission
has approved or disapproved of the securities offered in this prospectus, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a criminal
offense " (emphasis mine); and
"The trust is not an investment company registered under the Investment Company Act of 1940.
The trust is not a commodity pool for purposes of the Commodity Exchange Act, and its sponsor
is not subject to regulation by the Commodity Futures Trading Commission as a commodity pool
operator, or a commodity trading advisor.
Furthermore, the SLV prospectus additionally states, "As an owner of iShares, you will
not have the protections normally associated with ownership of shares in an investment
company (emphasis mine) registered under the Investment Company Act of 1940, or the
protections afforded by the Commodity Exchange Act of 1936."
Does anyone else besides me not find it ludicrous that both the SEC and the CFTC have not
examined either the GLD or SLV prospectus to determine if it is truthful or complete, and that
in fact, any claims that the prospectus is truthful and complete is a "criminal offense"? So
with nothing in the marketing materials of how these trusts operate or what exactly they buy on
behalf of shareholders vetted by an independent third party, how is it that both of these
respective trusts are still allowed to cumulatively sell tens of billions of dollars worth of
shares to shareholders based upon a prospectus that could possibly be a complete
fabrication?
And media stocks were monkeyhammered (this was the biggest weekly drop in media stocks since
March 2020) ...
This all had the smell of a major media/tech fund liquidation. ViacomCBS was a total
shitshow...
Momentum stocks melted down...
Source: Bloomberg
SPACs dumped...
Source: Bloomberg
On the week, Staples outperformed as Discretionary dumped and Energy stocks changed their
mind faster than Fauci...
Treasury yields were lower across the curve this week led by the long-end... Is the pullback
in Small Caps relative to Big-Tech implying that rates have peaked for now? 1.60% remains a key
level for 10Y yields...
NightWriter 5 hours ago
We're starting to see bad news causing price drops as opposed to 2020 where the worst
thing imaginable caused more bull runs. If there's some really bad news this weekend, the
market could open up to a new low.
Peak Finance 4 hours ago (Edited)
I expect a flip back to bad news = good market news
word is they going to rig the UE this coming month to some crazy + millions of jobs to
make biden look good just like they did for O, same tricks messing with the "no logner in
workforce" numbers to up the employment rate
which is NOT going to have the effect on the market they think it will
SuperareDolo 2 hours ago
I concluded after Bernanke's printing that the market is able to see alpha (which security
is more valuable than another), but blind to beta (the valuation of the whole market). It can
judge one against another, but is incapable of reacting to overall valuations. Those are a
factor only of how much money is in the financial system. And there's too much.
Iskiab 1 hour ago (Edited)
Well bad news is good news sorta isn't it. Bad economic news means more QE in a situation
where it won't help that much keeping the gravy train going.
I would be careful around momentum stocks. Any deviation from the trendline will be a big
buy signal for algos, they're trained to look for opportunities and ride upward momentum,
then get out faster if things go bad. If it diverges much from the old trend line they might
buy en mass and see if it can create any momentum.
CheapBastard 5 hours ago (Edited) remove link
Dow soars 450 points!
Greatest recover eva!
ok, now get back in the food line for your bowl of soup.
Keltner Channel Surf 4 hours ago remove link
More than half a dozen indices/sectors I follow had very odd charts for the bulk of the
day, VERY tightly wound with suppressed vertical action well into the post-lunch period. If
you think of a tug-of-war game at company picnics that sits at a stalemate until one side
gains the edge, it always snaps hard in one direction.
The amplitude of most Daily candles wasn't terribly out of line with stronger days the
past few weeks -- but the irregular concentration of orders in time certainly was.
If I had to guess, the news of large liquidations may have torqued the spring to a near
black hole density, as machines were spooked (or, more likely, thwarted) by unusual order
patterns, then when the liquidations ended with prices well below VWAP, we break with speed
as most machines end Friday's flat, and the bias starting yesterday afternoon was a weekly
reversion back up.
As I've said before, when less active larger players suddenly become active, more active
daily algos, which control things 80% of the time, see their impact muted or overrun. But
these little devils don't EVER stop so, like a Roomba robot vacuum that hits an obstacle,
once the path is clear, it mindlessly goes where it planned. Again, this is your market on
drugs (or computers).
The UBS economics team holds the out-of-consensus view that annual core PCE inflation won't
exceed the Fed's 2% target until 2024. And what will happen with S&P500 if inflation brakes
3% barrier in late 2021 or 2022. Pumping money into stock market is a Ponzi scheme by definition
so at one point mistki moment might arrive.
Biden hailed the new law's focus on
growing the economy "from the bottom up and the middle out," after decades of supply-side,
or "trickle down" tax policies. It "changes the paradigm" for the first time since President
Johnson's Great Society programs, he said.
But the last time free-spending, inflation-permissive "regime shifts for fiscal and monetary
policymakers" coincided, wrote Deutsche Bank economists David Folkerts-Landau and Peter Hooper,
"such shifts touched off a sustained surge in inflation in the U.S.," beginning in 1966.
Growth in core prices, which exclude food and energy, jumped from well under 2% in 1965 to
nearly 3.5% in 1966 and approached 5% by late 1968, Deutsche Bank noted. Inflation remained
elevated into the early 1970s, even before an oil shock hit in 1973. The pickup was
broad-based, but health care inflation played a key role, going from less than 3% to nearly 7%
by early 1967.
The S&P 500 suffered through a bear market in 1966. Another 19-month bear market began
in late 1968. The Dow Jones made a major top in January 1966. It would take the Dow Jones until
1982 to finally break through that ceiling for good.
Almost everyone expects a notable pickup in inflation this year -- including the Fed.
Monetary policymakers expect the personal consumption expenditures (PCE) price index to rise
2.4% this year. That's vs. 1.5% in the 12 months through January.
Fed Chair Jerome Powell said March 17 that the Fed will discount this year's jump in prices
as a transitory bounce from pandemic-induced weakness. What happens in 2022 will be key. Fed
projections show inflation easing back to 2%. But if pressures don't ease, the Fed will have to
reassess its 2024 timetable for the cycle's first rate hike.
It's easy to see how Fed projections might understate next year's inflation. Policymakers
likely are not factoring in any impact from the Democrats' next massive spending package.
Subdued health care prices might help keep inflation in check, depending on what Congress
does. A 2% hike in Medicare reimbursements is scheduled to lapse in April, but lawmakers appear
set to extend it. A 3.75% increase in Medicare fees for physicians could end in January,
Deutsche Bank said.
Democrats also are eyeing spending curbs to help pay for their infrastructure package.
Letting Medicare negotiate prescription drug prices is high on the list of options.
Longer term, the inflation outlook may depend on whether a
post-pandemic productivity boom offsets upward price pressure as globalization
backslides.
10-Year Treasury Yield Surges On U.S. Economy Growth Outlook
This week, the 10-year Treasury yield has eased to 1.66%, after hitting 1.75% last week, the
highest of the Covid era. Still, the 10-year yield is up 66 basis points since Jan. 5.
Financial market pricing now indicates an expectation that inflation will average 2.35% over
the coming decade. That's the difference between the 10-year Treasury yield and the -0.69%
yield on 10-year Treasury Inflation-Protected Securities, or TIPS.
"Negative real yields seem highly incongruous with the robust economic growth in train,"
Moody's Analytics chief economist Mark Zandi wrote. As real yields rebound, Zandi sees the
10-year Treasury yield reaching 2% by year end, 2.5% in 2022 and 3% by late 2023.
What Do
Taxes, Interest Rates Mean For S&P 500?
As the new fiscal and monetary policy regime takes hold, investors will have a lot to
process. If the era of too-little inflation and ultralow interest rates is drawing to an end,
but earnings growth surges as the economy catches fire, what will that mean for the S&P
500? And how might tax hikes affect stock prices?
... ... ...
The UBS economics team holds the out-of-consensus view that annual core PCE inflation won't
exceed the Fed's 2% target until 2024. Chief U.S. economist Seth Carpenter expects the new
stimulus checks to be largely saved. The next fiscal package might likewise have a "muted" bang
for the buck, while adding just $600 billion to the federal deficit.
... ... ...
Interest Rates: Parker finds that a 50-basis-point rise in the 10-year Treasury yield
compresses price-earnings multiples by six-tenths of a point. Based on the S&P 500's
current forward earnings multiple of about 21.5, that would equate to about a 3% decline in the
S&P 500.
Capital Gains Taxes: Biden has proposed hiking the capital gains tax rate from 20% to 39.6%
for high earners. Parker figures that could slice 1.5 points off the S&P 500 P/E multiple,
potentially a 7% hit. However, UBS expects that not quite half the tax plan will become
law.
Parker arrives at a 19.5 forward earnings multiple for the S&P 500. That also factors in
some compression because the fiscal boost to earnings is bound to slacken...
Absurd NFT PRices Expose a Global Financial House of Cards
BY SKWEALTHACADEMY
FRIDAY, MAR 26, 2021 - 5:59
The
insanity of absurd NFT prices reveals the fraud of the global currency system. The pricing for assets worldwide has gone
insane at a time when the vast majority of the world's population became poorer, not wealthier, over the past 12 months due
to the global economic lockdowns. As an example, there was an article in the Philadelphia Inquirer the other day of
a
cassette tape of hip hop icon Nas's Illmatic album selling for $13,999
. Not a CD, but a cassette tape. A rectangular
piece of cardboard, known as an NBA trading card, for star
Luka
Doncic's rookie trading card, recently auctioned for $4.6M.
Luka Doncic is not a star that played in 1925, and for this
reason, his rookie card is worth so much. Luka Doncic entered the NBA in the 2018-19 season, less than three years ago.
Nostalgic or collector items are simply selling for insane price because, in my opinion, wealthy people have captured so
much of the world's wealth through a global currency system designed and engineered to produce this end result, that they
have no better use for their money than to pay $14,000 for a music item that the vast majority of people do not even have
the necessary hardware to actually play and to pay more than $4.5M for a piece of cardboard. Anyone that truly understands
the difference between a sound and an unsound monetary system realizes that the likelihood, under a sound monetary system,
of people paying exorbitant prices for the types of assets and NFTs described above would be a fraction of the probability
at which they are occurring today.
Banksy, a
UK-based street artist infamous for mocking the very wealthy people that pay millions for his artwork, even titling a piece
"Morons" which depicted an art auction with a framed picture of the words "I can't believe you morons actually buy this
shit". Instead of being offended by the artist's mockery, someone paid nearly 44,000 pounds for it and it recently sold
for nearly 10 times the original purchase price when the piece was destroyed and the act of destruction was turned into an
NFT. By the way Banksy also sold a very simple drawing of a girl with a red balloon that was mounted inside a frame in
which he had hidden a shredder. After it sold for $1.4M, Banksy remotely activated the hidden shredder and shredded his
artwork into thin strips as perhaps "revenge" against the idiocy of narcissistic, wealthy art collectors that can't find
any better use of their money than purchasing stencil created art for which no rational person would ever pay $1.4M. To
demonstrate the idiocy of the art world, Sotheby's immediately coined the shredding of the art piece as "the first work in
history ever created during a live auction", which art collectors worldwide seemed to accept, and thereby increased the
value of the destroyed piece of art to perhaps as high as double the original auction price at the current time and
avoiding a more rational valuation for the art piece to near zero.
I once read
a book called the $12M Stuffed Shark, in which the author revealed that US hedge fund manager Steve Cohen paid $12M to an
artist to kill a shark and put it in a vat of plexiglass sealed formaldehyde that he could display in the foyer of his
house and basically concluded, after a careful introspection into the art world, that pieces of art like pyramids built
from tiny Godiva chocolates and stainless-steel colored balloon animals
($58M
or more)
would be priced at whatever price dealers could convince the dumbest rich person it was worth. Certainly this
conclusion seemed to be supported when someone purchased an
"art
installation" of a banana taped to the wall with duct tape at a Miami Beach art gallery for $120,000 at the end of 2019
.
When people conclude that the best use for $5M or $58M is to buy a piece of cardboard or a steel balloon animal during a
period in which Rome is burning (i.e. exploding homelessness numbers in Los Angeles nearing 70,000 as evidenced
here
and
here
),
either this is a sign of the fraud of the monetary system, the decline of civilization, or both. If you have ever lived in
Los Angeles, as I have, and watch the video referenced in the second link, you will find it astonishing that massive
homeless encampments have sprung up throughout Los Angeles in areas that prior to recent years, had no homelessness.
(depending on the social media platform you may be watching this on, the soaring prices for which art that I consider to be
the lowest form of art that many do not even consider as art is selling for such absurd prices, including NFTs that I will
soon discuss, is certainly reflective of the rapid decline of civilization.
This rapid
decline of civilization is also reflected in the fact that giant titans of the tech world and social media platforms
continue to promote and push the most morally reprehensible content to the top positions of success on their platforms.
When popular YouTube Logan Paul visited the "suicide forest" in Japan and found a dead body hanging from the tree, he
filmed it and mocked the dead person and YouTube quickly promoted his video as one of their top trending videos on their
entire platform for 24 hours, until Logan Paul, not YouTube executives, deleted the video due to the outrage it provoked.
Another popular YouTuber, David Dobrik, has had many of his reprehensible videos monetize bullying and belittling of
others, often promoted on YouTube among the top trending videos. Recently Dobrik came under fire for allegedly monetizing a
video of an actual rape on his channel, and he was roundly mocked when his initial apology consisted of trying to blame the
rape victim, who was allegedly underage and too drunk to consent to sex. In his "apology", Dobrik stated he always gains
consent for his videos, but sometimes people he victimizes consent at first but then change their minds later, and that is
why it appears in many of his videos that he is monetizing morally reprehensible behavior. In any event, YouTube executives
allegedly allowed such morally and cowardly behavior to be monetized to massive sums of income for such YouTubers and seem
to be more focused on demonetizing anyone that challenges a narrative, true or false, forwarded by the oligarchs.
And as
ludicrous as are the prices paid for some of the assets I've mentioned above, the level of insanity paid for NFTs, in my
opinion, are at an even exponentially higher level. For those of you that may not know what are NFTs, Non-Fungible Tokens
are unique blockchain-based digital assets that represent an increasing number of commodities, from art and real estate to
collectibles like sports trading cards. One platform, Original Protocol, recently auctioned off the world's first NFT music
album by American DJ 3LAU. Collectively, the artist's fanbase
paid
out more than $11 million
for 33 NFTs contained on 3LAU's album Ultraviolet. In this case, since musicians are
routinely ripped off by giant record labels and often have such suffocating, unfair contracts that make it near impossible
to earn any significant income from album releases, the digitization of music in the form of NFTs that allow musicians to
control their income is a wonderful aspect of the new digital economy of NFTs.
The
Non-Fungibility of NFTs and Most Cryptocurrencies Disqualify Them for Use in Financial Derivative Currency Swaps
NFTs sell
digital representations of items, including some that used to be represented in the physical world, like trading cards and
pieces of art. As is the case in the fine art world, an NFT's price is the highest price you can convince someone to pay
for it, a pool of clients that often overlaps with the over indulgent, narcissistic people that comprise the bidders for
modern art pieces that sell for millions of dollars. Perhaps the most amazing quality of NFTs is that they actually have a
more meaningful value than any cryptocurrency not backed by any type of hard asset. For example, bitcoin is a digital
asset, but one would be hard pressed to describe its intrinsic value. One cannot say its fungibility is its price because
its price is denominated in fiat currencies with intrinsic values of near zero. Furthermore, for those that constantly and
very wrongly argue that non hard-asset backed cryptocurrencies are sound money, if bankers truly believed that bitcoin even
remotely qualified as sound money, they would have zero problem offering currency swap derivative contracts between any
fiat currency and bitcoin.
Yet, there
is not a single corporation in the entire world that has a currency swap that hedges their corporate cash treasury holdings
with bitcoin. You can never have any type of financial contract without unlimited risk if it is denominated in bitcoin in
which both parties realistically have no idea of the price range of that currency for the maturity of that contract. No
rational party will lock themselves into a contract in which a currency presents unlimited risk to them. The simple
understanding of why there are no derivative currency swaps or hedging contracts denominated in bitcoin should easily
explain to any rational person the very reason why BTC is not considered as sound money by a single banker in the entire
world. On the contrary, even as volatile in price as gold and silver may be, gold and silver mining companies routinely
hedge their inventory risk and their revenue risk of yet-to-be-mined gold and silver ounces by establishing open positions
of gold and silver futures contracts years into the future.
You can't
argue that BTC's intrinsic value is the block of the blockchain that records the transaction, because whether that block is
used to record an NFT, BTC, or ownership of real estate, a photo or song, the price represented by that block could
possibly vary from just a few dollars to several million dollars. So the blockchain has no intrinsic value either. However,
with NFTs, its value, is more uniquely determinable than the block upon which a bitcoin transaction is stored that records
the price of bitcoin, because that value is simply the highest price willing to be paid by all available bidders at any
given time. If there are no available bidders willing to bid on a particular NFT for weeks or perhaps months on end, then
one can assume the price of that NFT, even if the last paid price was $100,000, is likely zero. But even if there is one
available bidder for that NFT at a price of $1,000,000 then the market price of that NFT is $1M. Though one may state that
the bidding mechanism is much more controlled in BTC markets and that BTC could never be priced at zero or $1M per BTC in
such a cavalier manner that mimics the pricing of NFTs, the similarities between the pricing mechanisms based upon lack of
fungibility should not be ignored when considering the inherent risk imbedded in the price of BTC in its near $60,000 per
coin current price. You will either understand this risk and behave accordingly, or ignore this risk and likely expose
yourself to strong downside risk in the future at some point that should be expected but will remain unexpected to those
that cannot, or will not, accept this existing risk.
The five
biggest whales that own BTC in order from top to bottom,
are
believed to be as follows:
(1) The collective of institutions/people called Satoshi Nakamoto; (2) The FBI; (3) The
Winklevoss Twins; (4) Micree Zhan; and (5) Jihan Wu. Other notable owners among the top 10 BTC whales are Huobi, Tim Draper
and the North Korean State. In 2017, Bloomberg reported that only 1,000 people owned 40% of all BTC in the entire world.
Given that in the past two years, it has been reported that the top whales had been cornering the BTC market and increasing
their market share, it would not be surprising if they had increased their market share to 50% or perhaps even higher by
2021. In any event, this translates into 0.00012658% of the world's population likely controlling majority ownership of
BTC. I don't know of any world in which such a statistic does not translate into enormous risk.
Unanswered
Questions
But
fungibility is what reveals why cryptocurrencies like BTC and NFTs cannot ever qualify as sound money. For those that don't
understand why sound money needs to be a fungible asset, take gold for example. Fungibility essentially means that money
should never vary in its qualitative properties but only its quantitative properties. All gold has electroconductivity
properties no matter its form. Electroconductivity is an intrinsic quality of gold. Because all purified four nine gold has
the same density, the same volume will always be measured by the exact same weight in grams, again another fungible quality
of gold. However, depending on how paper gold futures markets are being manipulated and the date, that same gram of gold
will vary wildly in fiat currency price. Fiat currency price, thus can never be the quantitative property used to value
gold. Weight is the constant that should be used for gold's value when it is to be used as sound money, because this
quantitative property is always unwavering, always constant no matter if one is using gold as money in Moscow, Capetown,
Montevideo, Santiago, Montreal, Phoenix, Miami, Mogadishu, Kiev, Paris, Heidelberg, Reykjavik, Chiangmai, or Seoul.
What
quantitative property of bitcoin that is consistent and always the same across all uses? This is a question without an
answer. For this same reason, NFTs could never serve as sound money either. No matter the latest fiat currency price paid
for a Banksy "Morons" drawing set on fire, how can one determine the exchange rate for this NFT and an NFT representing a
Mark Cuban tweet. Should the Banksy NFT be priced 10 million times higher than a Mark Cuban tweet NFT? Is an NBA TopShot
NFT worth 1/1000 the price of a Banksy burning piece of art NFT? And even though NFTs have more uniqueness than say, a
satoshi of BTC, because price assigned to that uniqueness is entirely subjective, the uniqueness leaves it no more fit to
use as sound money than a cryptocurrency that has no backing of a hard asset. Miami-based art collector Pablo Rodriguez-Fraile
proved the absurd pricing mechanism for NFT when he recently sold an NFT that he acquired for $66,666 in October,
a
10-second computer-generated video clip of a slogan-covered giant Donald Trump created by digital artist Beeple
, for
mor than 100 times his original cost at $6.6M.
The last
point of irony in the BTC is the solution to the unsound global fiat currency system narrative is that many HODLers of BTC
are well aware of the oligarch's use of their power consolidation strategy of (1) Create a crisis; (2) Present the solution
to the artificially created crisis; and (3) Implement the solution to consolidate power, yet will never give any type of
consideration to the possibility of how perfectly the creation of BTC, in response to the 2008 global financial crisis,
fits this exact historical narrative that oligarchs have repeatedly implemented, instead choosing to believe that BTC is
the special unique exception to this oft-deployed strategy.
This
despite, three US employees of the Central Bank, Galina Hale, Marianna Kudlyak, and Patrick Shultz, and one US university
professor, Arvind Krishnamurthy, admitting that the premise I presented to my social media followers in December of 2017,
when BTC hit $20,000, that the introduction of the US bitcoin futures market was going to be used to slash the BTC price
drastically, essentially writing the premise for the referenced US Central Banker paper five months before it was written.
In that paper, titled "How Futures Changed Bitcoin Prices", the four authors basically echoed my premise, and stated,
"We suggest
that the rapid rise of the price of bitcoin and its decline following issuance of futures on the CME is consistent with
pricing dynamics suggested elsewhere in financial theory and with previously observed trading behavior. Namely, optimists
bid up the price before financial instruments are available to short the market (Fostel and Geanakoplos 2012). Once
derivatives markets become sufficiently deep, short-selling pressure from pessimists leads to a sharp decline in value.
While we understand some of the factors that play a role in determining the long-run price of bitcoin, our understanding of
the transactional benefits of bitcoin is too imprecise to quantify this long-run price. But as speculative dynamics
disappear from the bitcoin market, the transactional benefits are likely to be the factor that will drive valuation."
While they
did not name the players in the BTC futures markets that drove BTC prices downward from $20,000 to $3,000 in 2018, the
implication is that Central Bankers were involved in this downward spiral. And if Central Bankers were involved in this
downward spiral, the downward price spiral would of course, been far easier to execute, if Central Bankers were also among
the members of the collective that constitutes the largest BTC whale, Satoshi Nakamoto. Even though these dots, though
purely speculative, are clearly possible, most every BTC HODLer that is confident in the achievement of end-year $300,000
BTC prices or higher, will never consider this possibility, even for a nanosecond, despite heavy suggestions of three US
Central Bank employees that Central Bankers were involved in the 2018 BTC price crash. But if one did, as is the rational
and logical thing to do, then one would have far greater difficulties distinguishing the mechanisms that set the price for
NFTs and BTC. And as the introduction of the first BTC ETFs seem to be on the near horizon now, one would be smart to heed
the lessons learned after trading of BTC futures was introduced at the end of 2017. Subscribe to my
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... On December 7, 2009, I sent out a warning from our Managing Director, J. Kim, to
thousands of people via email about the deterioration of the global economy...
...J. Kim: "Despite the weapons of mass financial destruction that bankers have created
and governments worldwide have coddled and shielded from proper regulation, the majority of
people still incredibly do not understand the crime syndicate-like relationships among
governments, corporations and banks. The public sees that the US markets are up a little over
10% this year and many are duped into believing that that the stock market performance means
that the economy is recovering. And this belief is reinforced by idiot talking heads on TV like
Jim Cramer that do nothing but misinform people. Sure, US markets have now risen by more than
36.79% since they crashed in 2008, a figure that sounds impressive on the surface level. Then
combine this impressive sounding figure with US Fed Reserve Chairman Ben Bernanke's national
appearance on 60 Minutes, when he lies to the nation about inflation rates and about continuing
to create more money out of thin air, and you have millions more that are converted into
sheeple. How do I know? Because I talk almost every month to people in the US that tell me they
believe the economy is recovering. So when people believe that inflation is still less than 2%
because the Fed tells them to believe this, they look at a near 37% gain in the US markets in
the last two years and believe that they have made substantial recovery in their pensions and
IRAs and consequently believe the economy must be recovering as well! (by comparison, J. Kim's
Crisis Investment Opportunities newsletter(that he published back then) has returned more than
105.25% over the same time period, clobbering the S&P 500's 36.79% return, and yielding
very substantial REAL gains, even after the inflationary monetary effects of the US Federal
Reserve's schemes)."
James C : "So besides the government and bankers deliberately keeping people in the dark,
why else do you think some, or even many, people believe the economy is recovering?"
J. Kim: "First of all, the Federal Reserve's insane POMO (Permanent Open Market
Operation) schemes this year (2010) are largely responsible for propping up the US market this
year. In 2009, when I stated that the US would experience significant economic shocks in 2010
and 2011, I did not yet know the duration of the Fed's POMO operations and how insane they were
going to be. Although daily POMOs had already reached upwards of $6 billion and $7 billion per
day as of mid-2009 (just for US Treasuries, but up to multiples of these figures when including
US Treasuries and other debt-related financial products), many had speculated that the POMOs
would soon end. Obviously, with projected cumulative POMOs of nearly $1,000,000,000,000 just
between November 2010 and June 2011 (again just for US Treasuries), the Fed Reserve POMO scheme
not only did not end, but it received an injection of steroids in 2010. So POMOs that were used
to buy future contracts of US market indexes is a major factor that has kept the US market
afloat at this juncture and may continue to keep it afloat for several more months. Rising
stock markets have no correlation to a strong economy anymore due to scams run by Central Banks
and due to gains that largely occur due to the devaluing currencies that these markets are
denominated in . The best performing stock market of the past decade has been the Zimbabwe
stock market. Still, it's irrelevant if you made a quadrillion Zimbabwe dollar profit investing
in the Zimbabwe stock market, as by 2008, a loaf of bread would have cost you 1.6 trillion
Zimbabwe dollars."
James C: "If the economy is really not recovering, then can you explain what is really
going on?"
J. Kim: "Let me explain what is really going on with the economy with the following
disaster analogy. In June of 1995, the Sampoong department store, a five-story building with
four basement levels, suddenly collapsed in Seoul, South Korea, tragically killing 501 people
and injuring 937 others. When the Sampoong department store was constructed, the owners, due to
a desire to cut costs, made several fatal decisions. First, they decided to cut away a number
of support columns in the original blueprint in order to install escalators. Secondly, in order
to cut costs, the owners shrunk the original width of the support columns from the required
80cms to only 60 cms, an inadequate width to support the load of the building. In addition, the
original blueprint called for only a four-story building but the owners built an additional
fifth story that housed a restaurant with a very heavy heated concrete base that quadrupled the
load of the original building design.
Two months before the building collapsed, worrisome cracks appeared in the ceiling of the
south wing's floor. On the day of the collapse, cracks as wide as 10 centimeters appeared in
the top floors of the building five hours before the building collapsed, but the owners hid
this information from its patrons and refused to shut down and/or evacuate the building as they
did not want to lose its daily revenue. When it became clear that the building was going to
collapse, senior executives of the department store fled without warning any of the patrons
still inside the building. An alarm to evacuate the building was only sounded when the building
started to make loud cracking sounds, just 7 minutes before its collapse at 5:57 PM despite
signs of an imminent collapse being clearly visible more than five hours prior. City officials
Lee Chung-Woo and Hwang Chol-Min, in charge of overseeing the construction of the building,
were responsible with concealing the illegal changes to the original blueprint designs and were
later charged with and convicted of bribery."
"Amazingly, the above story serves as nearly a perfect analogy for the US economy. The
government and bankers laud a rising stock market as proof that the economy is recovering. They
go on record stating that inflation is less than 2% when in reality it is more than four times
higher. They state unemployment is less than 10% when it is nearly 23% [Editor's Note: These
statistics all apply to the year in which this original interview was conducted, 2010]. Thus,
to many people, the economy appears as the Sampoong department store's exterior appeared to the
public right before its collapse, structurally sound and with a solid exterior. This is the
reason why 40,000 people a day visited the department store despite its fatal structural
integrity problems. The government and bankers are just like the Sampoong department store
owners, actively concealing all warning signs from the public and selling them an illusion that
all is okay when instead, the economy is heading for collapse. Just as the Sampoong department
store owners constructed a crappy building destined to collapse due to excessive greed, bankers
with the help of government officials, constructed dozens of financial derivative products
destined to collapse due to their excessive greed as well."
"The US regulators that also see the impending cracks in the economy, are just like Lee
Chung-Woo and Hwang Chol-Min. They receive inordinate pressure and bribes from the bankers to
look the other way and keep the public in the dark about the impending doom that is coming. In
the case of the Sampoong disaster, when the contractors refused to continue work on the
building when the owners changed structural regulations that endangered the integrity of the
building, the owners fired the contractors and hired ones that would cut corners. US regulators
that are honest and that try to protect the American public, like Brooksley Born, received the
same fate as the original Sampoong contractors and are also fired or forced to resign. When the
entire system is corrupt, even the rare good person can't save disasters from happening. Thus,
the public is none-the-better-off despite the presence of regulators that are supposed to
protect the public's interests and safety, but in reality, protect the greed and profits of
companies that exploit the public's interests."
"And finally, the economy itself is like Sampoong's interior. It is replete with cracks
and fractures that warn us of the disaster ahead. But even so, a large percentage of the masses
still remains ignorant because the banker/corporate/government three-headed monster keeps the
people's vision in a tunnel by pummeling the public with a constant stream of propaganda on
MSNBC, newspapers, and financial talk shows. In Seoul, Sampoong's owners distracted the
public's attention away from the developing disaster with stores fully of luxury goods. So when
the US economy finally experiences shocks in the future more disastrous than those in 2008, as
was the case with the Sampoong department store collapse, many will believe that now warning
signs had existed despite the evidence that exists to the contrary today. And I'm quite certain
the media, just as they did in 2008, will stupidly ask the same questions they did back then,
such as "How did this happen?" when in fact, all the answers stare them in the face right now.
With the Fed's POMO schemes, regulators that aid and abet fraud, and governments and bankers
that conceal truth from the public, the combined effect of these actions is just to delay
disaster for another year or two. So that is why I say now that disaster will visit the US
sometime between 2011-2013."
... As I already stated above, anyone that has a rudimentary understanding of real finance
(meaning finance as it operates in the real world, not finance as taught in MBA programs)
already understood that Central Bankers' massive provisions of liquidity in the overnight repo
market pointed to US banks being undercapitalized in cash
... in my referenced April 2020 article above, I only explained why it was necessary for
Central Bankers to keep interest rates extremely low, and I had not yet realized, as we were
only a few weeks into a global economic lockdown that was promised to last only a few weeks,
that the global economic destruction caused by lockdowns would be the mechanism used to achieve
this goal of keeping interest rates extremely low. In other words, only in hindsight, a few
months into the lockdown, did I connect the dots myself and understand why it was necessary to
keep the economic lockdowns going forever, which is also why I stated at the end of 2020 that
only the extremely naïve and foolish believe that the bankers and politicians would end
the lockdowns in the New Year, as the problem I explained in April 2020 that needs to be
managed to avoid meltdown of the global financial system still very much exists in March of
2021.
I often look at rising US corporate junk bond yields after long periods of decline as the
proverbial "canary in the coal mine" to predict major trouble ahead in global stock
markets.
As you can see, US corporate junk bond yields have just started to rise after nearly a full
year of plunging yields. Is the rise enough to spark concern? In my opinion, the rise in yields
is not significant enough to yet spark major concern, but if they break 5.0% then at this
point, I will dive deeper into the muck to see what I can find.
So stay tuned, and if you have not yet subscribed to my free newsletter, please do so at the
link at the top of this page.
Higher inflation in any country is typically currency negative. Fears of rampant inflation in
the US have gone unfulfilled for years. the current level of deficit spending raises the question
whether some sort of existential crisis for the dollar is in the books. In 2020 the US budget
deficit hit 14.9% of GDP , the highest level since 1945. FEd now owns around 22% of the US beft
-- in essence, one branch of the government buys debt from the another part of government. This
might be a bad news for stocks, bonds and the dollar. The demand for Treasuries from private
investors, including foreign buyers, appears to have weakened recently.
Trust in government statistics, especially such measures as inflation and unemployment hit
new low (see comnets below) and that also spell troble in the long run.
Under neoliberalism financial oligarchy dominates and labor reduced to the role of "debt
slaves" and lacks any wage bargaining power. So the main danger is deficits and eroding trust in
the US economy which supports the role of dollar as world reserve currency. US foreign policy and
sanctions encourages "flight from dollar" for Russia and China.
Notable quotes:
"... the difference between longer-term and shorter-term yields remains far greater in real yields than in nominal yields. This difference over time, known as the yield curve, illustrates how much investors expect interest rates to rise in the future: A steep curve equals more rate rises. ..."
"... For normal Treasury yields, that five-year to 10-year gap was 0.798 percentage points, up from 0.550 percentage points at the end of 2020 ..."
"... Seems like a very effective way to "tax" 401k money indirectly. ..."
The Fed reiterated last week that its rate-setting committee doesn't expect to increase
interest rates until after 2023. However, investors predict that it will, according to
Sebastien Galy, senior macro strategist at Nordea Asset Management.
... the difference between longer-term and shorter-term yields remains far greater in
real yields than in nominal yields. This difference over time, known as the yield curve,
illustrates how much investors expect interest rates to rise in the future: A steep curve
equals more rate rises.
... For normal Treasury yields, that five-year to 10-year gap was 0.798 percentage
points, up from 0.550 percentage points at the end of 2020 .
... ... ...
Some investors also fear that a sharper rise in interest rates later will be more
destabilizing for other assets such as stocks or riskier corporate debt...
... ... ...
Harold Begzos SUBSCRIBER 1 week ago The value of fiat currency is only
as good as the government that prints the paper. We are managing the dollar like a Caudillo
running a banana republic. The U.S. is experiencing a sugar high. When the sugar runs out the
crash will cause harm for the next decade.
A Andy Kives SUBSCRIBER 1 week ago One of my many price increases this year was this
morning from my metal and plastic container wholesaler, who I buy a few hundred thousand pieces
from annually. Prices are only going up 10-26% in April.
What inflation? Like thumb_up 3 Share link Report flag
S Susan Croxton SUBSCRIBER 1 week ago (Edited) The dollar tanked under Trump, like he
wanted Like thumb_up Share link Report flag
G Gerald Garibaldi SUBSCRIBER 1 week ago (Edited) My grandmother was a deft investor, and
her credo when investing was always "Don't ignore what's around you." I'm not her equal, but
what's around me doesn't seem to be middle/working class families and people gearing up to
shoot their stimulus wad on new TV sets and sunglasses. I think growth will after a short
spirt, disappoint. And inflation will hit like a tsunami. EU is not following our example, by
the way. Most inflation will be imported. 1 Share link Report flag
J John Harris SUBSCRIBER 1 week ago (Edited) An included modest understatement of the
year:
"The flip side of this exceptionalism is a growing fear of higher inflation that could
eventually reverse the dollar's fortunes, according to some investors."
J John Harris SUBSCRIBER 1 week ago (Edited) Duh --
Did anybody look at M2 ?? Austin Lowrie SUBSCRIBER 1 week ago The currency debasement will
continue, until morale improves.... Like thumb_up 5 Share link Report
flag
I Ivaylo Ivanov SUBSCRIBER 1 week ago The article misses an important component of the
equation. Various estimates suggest about half of all US cash in circulation, about $700-800
billion, circulates outside US borders. The trigger of a run on the dollar (a collapse, really)
might be these holders, not foreign governments. The moment they realize they are holding
increasingly worthless money they will try to dump it. Often ordinary people figure out the
worthlessness of a currency much faster than governments.
M1 (hot money) has increased by 70% in 12 months. The question is how fast people realize
what that means.
Like thumb_up Share link Report flag Frank Mostek SUBSCRIBER 1 week ago If you drive car, own a home,
require healthcare, have kids and eat - you have noticed plenty of inflation...
L Lester Brown SUBSCRIBER 1 week ago Makes you realize how slanted the CPI measurement is.
1.4% in 2020 - my a $$!!
B Brett M SUBSCRIBER 1 week ago go through the exercise of reconstructing the CPI with
research online. I did. It won't take you long to see that there is no component less than 2%.
you will find edu costs +5% annully for years, medical costs +4% annually for years. 2 Share
link Report flag
B bruce strong SUBSCRIBER 1 week ago So the Federal debt as a percentage of GDP was about
30% in 2001 and it's now around 100%. Seems we are living way beyond our means and this can
only lead to trouble in the coming years. The only question is will Congress do anything to
stop the spending? Forget about worrying about inflation as it;s the least of our concerns.
p 5 Share link Report flag Frank Mostek SUBSCRIBER 1 week ago I think it around 130% now...
T Ted Terry SUBSCRIBER 1 week ago Apparently the Business Kids are surprised at the
strength of the dollar but knowledgeable readers are not that surprised. The Dollar competes
against the Euro and look at where the EU is. They are squabbling at each other over their
ineffective response to the virus and their economies are struggling to break back to normal.
I'm not sure where the Dollar is with respect to the Pound but the Brits too are still more
virus bound than we are.
B bruce strong SUBSCRIBER 1 week ago Japan's been running with a debt load of over 200% and
the Yen has held up quite well. 2 Share link Report flag
S Stephen S S Hyde SUBSCRIBER 1 week ago "The U.S. has a big advantage because the dollar
is the world's most commonly used currency."
This both understates and buries the lede on this seemingly granitic foundation of a
fiscal/monetary system that has allowed us to get away with simultaneously lowering taxes,
explosively expanding borrowings, creating the money to cover it, and then lending it to
ourselves. (Eat your heart out, Argentina.)
Unfortunately, having the world's reserve currency is not a skyhook, as our British cousins
learned with their once indomitable Sterling. Like thumb_up 23 Share link Report
flag
I Ivaylo Ivanov SUBSCRIBER 1 week ago If you do everything in your power to debase your
currency foreigners eventually notice. It will take one big player noticing to bring down the
house (of cards). In the 60-s and the gold backed dollar it was de Gaulle. It will be
interesting to see who will jump the gun this time around. 3 Share link Report
flag
S Stephen S S Hyde SUBSCRIBER 1 week ago You obviously have an informed sense of history.
The dollar's gold backing had been increasingly precarious but relatively stable until de
Gaulle pulled the fatal trigger. David Van Wie SUBSCRIBER 1 week ago
Fears of rampant inflation have gone unfulfilled for years. The U.S. has had low and stable
inflation for nearly three decades.
Indeed. That point can't be emphasized enough. Said differently: for all of our
research, economic theories and modeling, we still don't understand what causes inflation in
our economy.
Is it caused by massive amounts of deficit spending? Nope. We've had lots of that and no
serious inflation. Higher taxes? Lower taxes? No and no. What about high or low trade deficits?
Sorry, try again. No correlations here.
I could go on, but you get my point. All of the things forecasters such as myself rely on to
model inflation all sound like they should be predictive, but they aren't. Intuition creates
cognitive bias, which in turn leads to bad trades that don't work.
We won't figure out what's going on until about 6-12 months after inflation restarts,
unfortunately. Then, everyone will have known it all along! Just don't ask to see their old
forecasts. Like thumb_up 15 Share link Report flag
S Stephen S S Hyde SUBSCRIBER 1 week ago Great comment, Mr. Van Wie. On top of your point
(or underneath it) is the tendency for complex systems to fail not gradually, but suddenly and
catastrophically. Think the Great Depression, the Soviet Union, the Great Credit Crunch, and
Long Term Capital Management (talk about a moniker to challenge the gods!). I don't know when,
how, or why, but I think our lifetimes will witness the opportunity to dig through the ruins of
a once magnificent edifice built on sand. Like thumb_up 10 Share link Report
flag
B Brett M SUBSCRIBER 1 week ago Yes but your whole basis is on the government orgs giving
your inflation information [% year over year ] are telling the truth. They are not. Like
thumb_up Share link Report flag J Domingo SUBSCRIBER 1 week ago Everyone is worried about inflation except
the Fed.
Which is why everyone is worried about inflation except the Fed. Like thumb_up 21
Share link Report flag
I Ivaylo Ivanov SUBSCRIBER 1 week ago
Everyone is worried about inflation except the Fed.
Which is why everyone should be very worried about inflation. The
seeming carelessness of the Fed is the best indication inflation will get out of hand. Like
thumb_up 3 Share link Report flag Stuart Young SUBSCRIBER 1 week ago With the government pumping
trillions of dollars into the economy, anyone who chooses to ignore serious inflation problems
is just fooling themselves. Like thumb_up 11 Share link Report flag
A Anne T SUBSCRIBER 1 week ago Not an investment expert here at all.
But anyone with a mind knows where the Biden-Harris Administration is going and it's worse
than route Obama-Biden took us on.
Seems Democrats still refuse to stop themselves from getting in the way of a budding
recovery.
And learned nothing between 2009-2020. Like thumb_up 6 Share link Report
flag
P Paul Kaufmann SUBSCRIBER 1 week ago Did you happen to notice the debt/gdp graph in the
article? The slope in the past 4 years is so great that it is almost uncalculable...infinite.
Like thumb_up Share link Report flag
A Anne T SUBSCRIBER 1 week ago Yes I did.
From 2008-1016 it soared from 40% to 76% where it pretty much stayed until the Covid stimulus
of 2020. Like thumb_up Share link Report flag
H H S Howell SUBSCRIBER 1 week ago We are already in an inflationary spiral. Don't rely on
gov figures, just take a trip to the local hardware or grocery store. In the past the danger of
big socialist government was Tax and Spend, today it is Print and Spend resulting in an
enormous escalation of Debt (the largest in the world).
China officially holds $1.1 trillion of our debt, but actually much more when counting Hong
Kong, other regions of China. Should China sell (debt dump) their US bonds, it would have the
destabilizing effect of lower bond prices and higher yields, devaluation of the dollar, higher
cost of servicing our debt and a stock market crash.
J Jeffrey Cunningham SUBSCRIBER 1 week ago Seems like a very effective way to "tax"
401k money indirectly.thumb_up Share link Report flag
P Peter Sherman SUBSCRIBER 1 week ago Bond investors are selling.
The Unholy Marriage of the Federal Reserve and Treasury allowing for the implementation of MMT
( Magic Money Tree ) probably create high inflation .
Given the rotten value in bonds now ( negative real yield) and rising odds of higher
inflation, expect to see more selling.
B Brett M SUBSCRIBER 1 week ago (Edited) I read a quote in an article one time
"until the bond market rebels"
It means people become like me - refusing to own US treasuries nor USA bonds. The only
exception is a 529 account I have which limits choices.
If people became like me relatively fast, investors sell bonds off, interest rates shoot
through the roof as the USA gov loses control of their puppet show. Then the government
defaults - and rather quickly, say within a year after.
I personally believe that USA government debt is worthless. I am a big fan of gold right
now.
If China ever moved toward being a reformed country that didn't have George Orwell cameras in
every alley, field and wooded grove, then the dollar would plummet. If there was another
country that was not pathetic financially I would move my money there.
Listen to this article 6 minutes 00:00 / 06:06 1x Earnings, valuation and rampant speculation have all played a role in the extraordinary bull market that began a year ago this week. The latest combination of the three has a troubling reliance on the speculative element. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. Earnings, valuation and rampant speculation have all played a role in the extraordinary bull market that began a year ago this week. The latest combination of the three has a troubling reliance on the speculative element. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. U.S. 10-year Treasury yield Source: Tullett Prebon As of March 24 % Pre-pandemic peak of S&P 500 2020 '21 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 S&P 500 forward price/earnings ratio Source: Refinitiv Note: Weekly data S&P 500 peak 2020 '21 12 14 16 18 20 22 24 The parallel in the stock market is stocks going up when earnings -- or rather the expectation of earnings, since the market looks ahead -- go up. There is a risk of course, just as there is with debt: The earnings might not appear, and the stock goes back down. But earnings offer the least risky form of gains, and one that we should welcome as obviously justified. From the low in the summer, 2020 earnings forecasts jumped more than 10%, and expectations for this year rose more than 8%. Stocks responded. In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The parallel in the stock market is stocks going up when earnings -- or rather the expectation of earnings, since the market looks ahead -- go up. There is a risk of course, just as there is with debt: The earnings might not appear, and the stock goes back down. But earnings offer the least risky form of gains, and one that we should welcome as obviously justified. From the low in the summer, 2020 earnings forecasts jumped more than 10%, and expectations for this year rose more than 8%. Stocks responded. In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The parallel in the stock market is the The parallel in the stock market is the hunt for the greater fool . Sure, GameStop < shares bear no relation to the reality < of the company, but I can make money from buying an overpriced stock if I can find someone willing to pay even more because they "like the stock." Wild bets became obvious this year, as newcomers armed with stimulus, or "stimmy," checks Wild bets became obvious this year, as newcomers armed with stimulus, or "stimmy," checks Wild bets became obvious this year, as newcomers armed with stimulus, or "stimmy," checks drove up the price of many tiny stocks, penny shares and those popular on Reddit discussion boards. Speculative bets such as the solar and ARK ETFs rallied up until mid-February, long after growth stocks peaked in August Price performance Source: FactSet *Russell 1000 indexes As of March 25, 7:02 p.m. ET % Invesco Solar Value* ARK Innovation Growth* Sept. 2020 '21 -25 0 25 50 75 100 125 The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back. The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back. me title= A look at how stocks moved through the pandemic suggests earnings and bond yields are still much more important than the gambling element for the market as a whole, but is still troubling. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. A look at how stocks moved through the pandemic suggests earnings and bond yields are still much more important than the gambling element for the market as a whole, but is still troubling. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. A look at how stocks moved through the pandemic suggests earnings and bond yields are still much more important than the gambling element for the market as a whole, but is still troubling. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. NEWSLETTER SIGN-UP
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Since June the story has reversed. Earnings forecasts have soared, and this year's earnings predictions are now
back up to match where 2020 earnings were expected to be before the recession. The bond yield has leapt almost
a full percentage point, and is higher than it was last February.
Yet, since June, the market's overall valuation is slightly up, and growth stocks are up 23%. Sure, cheap value
stocks responded as expected, rising almost a third and beating growth stocks. But if a lower bond yield
justified the rise in valuations, a higher bond yield ought to mean lower valuations, and probably outright
lower prices for growth stocks.
This is concerning but, directionally at least, is explained by the oddity of August, when bond yields rose
alongside valuation multiples and
the
biggest technology stocks leapt in price
. Measure it from the end of August, instead of the end of June,
and valuations have dropped a bit as bond yields have risen.
But the fall isn't enough to provide much comfort, and worse is that the highly speculative stocks popular with
many individual traders bucked the trend. Notable themes including electric cars, hydrogen, SPACs and wind and
solar power went into ludicrous mode until the middle of February this year, when the rise in bond yields
accelerated and the speculative stocks fell back some.
Share prices propelled more by earnings expectations than bond yields is healthy, while speculation is -- by its
nature -- fickle, and so a poor basis for holding on to a stock for long. My hope is that the contribution of pure
gambling to the overall level of the market is relatively small. But it is hard to explain why stocks should be
so much higher than before the pandemic panic when the earnings outlook is worse and bond yields are back to
where they were.
The investment seeks to track the performance of the Bloomberg Barclays U.S. Treasury
Inflation-Protected Securities (TIPS) 0-5 Year Index. The index is a
market-capitalization-weighted index that includes all inflation-protected public obligations
issued by the U.S. Treasury with remaining maturities of less than 5 years. The manager
attempts to replicate the target index by investing all, or substantially all, of its assets in
the securities that make up the index, holding each security in approximately the same
proportion as its weighting in the index.
Vanguard Short-Term Inflation-Protected
Securities Index Fund ETF Shares (VTIP) NasdaqGS - NasdaqGS Real Time Price. Currency in
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WASHINGTON (Reuters) - Inflation will hit 2.5% this year and not fall much in 2022, which
the Federal Reserve should welcome as a way to reaffirm the central bank's inflation target,
St. Louis Federal Reserve Bank President James Bullard said on Tuesday.
" I am not seeing the inflation rate come down very much in 2022 ... maybe just
slightly, " Bullard said in comments that placed him among the more aggressive Fed
officials in terms of willingness to see inflation move higher this year and remain there
without raising interest rates.
"Part of the goal is to take the increase in inflation that we have this year penciled in
and allow some of that to move through to inflation expectations," and keep them cemented at
the Fed's 2% inflation target.
The real inflation for the past 20 years was probably around 5%: that buypoer of$100
dinimisnes by 50% in 20 years. In some areas like education and healthcare much faster that that.
In some areas slower then that. Official inflation was around half of that (and this discrepancy
is systemic -- due to the desire of any regime based of fiat currency to underestimate inflation
and thus diminish additional payment to Social Security and other linked to inflation budget
items) . Thanks to a massive federal deficit inflation might pick up.
Higher inflation in 2021-2023 is now the consensus,
"The Fed has signaled that its dovish monetary policy is here indefinitely," Mr. Toomey
said, noting a recent uptick in commodity prices and a brightening outlook for economic growth.
"I worry that the Fed will be behind the curve when inflation picks up."
Mr. Powell, however, reiterated that he doesn't expect supply-chain bottlenecks or an
expected surge in consumer demand later this year as the economy reopens to change in long-term
price trends. The Fed generally doesn't alter its policies in response to temporary price
pressures.
"In the near term, we do expect, as many forecasters do, that there will be some upward
pressure on prices," Mr. Powell said. "Long term we think that the inflation dynamics that
we've seen around the world for a quarter of a century are essentially intact. We've got a
world that's short of demand with very low inflation and we think that those dynamics haven't
gone away overnight and won't."
Sen. Richard Shelby (R., Ala.) pressed Ms. Yellen on her changing views on the risks of high
and rising federal debt. Government red ink has swelled over the past year as economic activity
stalled and Congress ramped up spending to combat the pandemic.
Lloyd B. Thomas, Ph.D. University of Missouri Columbia, Mo.
The Federal Reserve is capable of nipping any surge of inflation, but it has made clear it
will be behind the curve as inflation rises. It has announced that it will not boost interest
rates until it is confident we have reached full employment and until inflation substantially
exceeds 2% annually for a considerable period.
Ed Kah, l Woodside, Calif,
The Fed's "foresight" in the 1970s sleepwalked us over 10 years into 14.5% inflation,
18.5% mortgage rates, 7.5% unemployment and a severe recession in 1980. The Fed's repression
of interest rates has already inflated asset prices. It is now favoring spending that will
move the national debt held by the public toward 150% of GDP if the Democrats keep passing
multitrillion-dollar stimulus spending bills in a fast recovering economy.
The big risk comes when interest rates regress to higher historic averages that increase
the cost of government debt. Even a very small rise in short-term rates shook the markets
recently. The Fed should at the very least hedge this risk by lengthening the maturity of
most government debt. They should also caution Congress about the sorry history of countries
whose debt exceeds GDP.
Jacob R. Borden , P.E. Trine University, Angola, Ind.
Prof. Blinder uses macroeconomic anecdotes to argue that upward of 4% inflation is no big
deal. But it is a big deal when you recognize that inflation is a tax on the accumulation of
wealth. Sen. Elizabeth Warren must be smiling.
Even worse, inflation is a regressive tax on wealth. The professional class is already
shifting assets to protect against inflationary headwinds. Mary B. Flyover, on the other
hand, has few such assets and instead spends relatively more of her money on fuel and
groceries, the very elements missing from Mr. Blinder's preferred measure of
inflation.
Every year, inflation saps the spending power of a dollar earned, putting future savings
further out of reach for people already being left behind. What little savings is available
is largely in checking and savings accounts that don't even keep up with current inflation,
let alone just a little more. Then add the compounding impact of inflated incomes on inflated
tax bills. Once 4% inflation is baked in, Ms. Flyover's tax bill will be forever higher,
while her purchasing power will trend ever lower.
Thomas Porth, Hockessin, Del.
The facts that Prof. Blinder doesn't cite are what worry me. When I studied economics at
Princeton in 1981 (using Prof. Blinder's textbook), the yield on the 10-year Treasury stood at
14% as of the end of December, while the CPI-U inflation rate stood at 8.9%. The real risk-free
rate of return was therefore a positive 5.1% or so. In contrast, today the CPI-U stands at 1.7%
(March 10), while the yield on the 10-year Treasury stands at 1.71% (March 18), for a real
risk-free rate of return of what is effectively zero.
Even relying on current measures of inflation, the real rate of return has dropped from
positive 5.1% in 1981 to zero or, let's be serious, less than zero today (when I am retired).
Sorry, Prof. Blinder, but I'm starting to panic.
The Federal Reserve's $3.4 trillion in asset purchases and the roughly $4.5 trillion in Covid
recovery funds Congress approved in 2020 largely succeeded in [reventing the 2020 recession
hitting the stock market. Unemployment increased to the recession level and will stay at this
level.
S&P 500 Thrived During Federal Reserve's Low-Rate Regime. This regime by-and-large
ended.
Almost everyone expects a notable pickup in inflation this year -- including the Fed.
Monetary policymakers expect the personal consumption expenditures (PCE) price index to rise 2.4%
this year. That's vs. 1.5% in the 12 months through January. The 10-year yield is up 66 basis
points since Jan. 5.
Now, as President Joe Biden gets ready to tee up another massive spending package focused on
infrastructure, Wall Street is weighing what unleashed fiscal policy might mean for interest
rates, tax rates and stock prices.
The implications are magnified by the
Federal Reserve's recent about-face on inflation , from standing on guard against it to
trying to stoke it. The combination of easy fiscal and monetary policy may lift the Dow Jones
and S&P 500 in the near term. Yet some on Wall Street think it could mean lower returns in
the future.
The seismic shifts in fiscal and monetary policy are drawing comparisons to another
old-economy moment: the latter half of the 1960s. That era was marked by strong economic
growth. But it also brought rising inflation -- and a long-term stock market top.
S&P
500 Hits Highs While Techs Slip
The Dow Jones and S&P 500 index rallied to new highs this month, though they have pulled
back modestly in recent days. The Nasdaq remains 9% off its Feb. 16 peak, selling off this week
What ails big techs that dominate the Nasdaq, like Apple stock, Amazon.com ( AMZN ) and highly valued
growth names such as Tesla ( TSLA )?
Tech giants are no longer are the only game in town given the bullish outlook for cyclical
and value stocks. Meanwhile, the surge in Treasury yields has led stock market strategists to
rethink growth stock valuations -- and much more.
...If not for Jan. 5, the latest round of fiscal stimulus might have been $1.25 trillion
smaller -- like the $600 billion package pitched by moderate GOP senators.
The Democrats' bill went well beyond $1,400 stimulus checks, emergency jobless aid and funds
for Covid vaccines and testing. Washington also will send $580 billion to state and local
governments. That "is significantly higher than the estimated $85 billion net budget shortfall
facing state and local governments," wrote Moody's Analytics economist Bernard Yaros.
...
Biden also promised "historic investments in infrastructure, manufacturing, innovation,
research and development, and clean energy." These more tangible investments, however, would
involve a one-time appropriation that could be financed with deficits.
The Biden campaign's plan to spend $2 trillion on green-tinted infrastructure over four
years will likely serve as a starting point. The whole package could add up to $4 trillion,
Goldman Sachs estimates.
Money started flowing out of technology stocks that led the market higher for much of the
last year. The sharp increase in bond yields in recent weeks has taken the steam out of
technology stocks
Despite FED cheerleading of stock market money managers are betting that inflation will climb
sharply, and could spur the central bank to raise interest rates or pare back bond
purchases.
This rotation has benefitted the value and cyclical sectors, like industrials ( XLI ), energy ( XLE ) and financial ( XLF ) stocks -- which have all outperformed this year.
Meanwhile, defensive sectors, like consumer staples ( XLP ), health care ( XLV ) and utilities ( XLU ) have been the worst performers.
Tech ( XLK ) is the fourth
biggest sector laggard this year, as attention (and money) has shifted from the high-growth
names like Peloton ( PTON )
and Zoom ( ZM ) to the less
sexy names that are more likely to benefit from a recovery, like Caterpillar ( CAT ), American Airlines ( AAL ) and Goldman Sachs ( GS ).
A record 52% of those surveyed by BofA now think we'll see more of the same over the next
year -- that value will outperform growth.
...if bond yields simply climb higher, problems emerge for the entire market when the moves
in the bonds are too rapid or disorderly. The pace of the rise or fall in yields
matters.
P Paul Avila SUBSCRIBER 8 hours ago U.S. stocks edged higher Wednesday as investors
awaited more testimony from Federal Reserve Chairman Jerome Powell.
Good grief. Is there any way his subordinates could prevent that? Perhaps lock him in a
supply closet until the market closes? Every time he opens his pie hole, I lose money.
W Will Bee SUBSCRIBER 8 hours ago Actually I suspect we are waiting for all the FED and
Treasury "people" to stop jawboning us so Markets can assimilate their irrelevance
Sellers got more than they listed for in 36% of deals in February, according to
Redfin
... the median home price of U.S. residences rose 14.4% last month, to $336,200, compared to
the same time the previous year, the data showed. That marks the biggest jump since July
2013.
Mar.24 -- Senator Elizabeth Warren (D-MA) asks Treasury Secretary Janet Yellen if she would
direct the Financial Stability Oversight Council (FSOC) to consider designating BlackRock as a
firm whose failure could threaten the financial system.
(Reuters) - Treasury Secretary Janet Yellen said on Wednesday it is important to "look
carefully" at systemic risks posed by asset managers, including BlackRock Inc, but said
designating them as systematically important financial institutions may not be the right
approach.
Yellen's remarks came in response to questions from Senator Elizabeth Warren, a longtime
Wall Street critic, who demanded to know why BlackRock and other large asset managers had not
been added to the list of designated institutions.
"I believe it is important to look very carefully at the risks posed by the asset management
industry, including BlackRock and other firms," Yellen, who as Treasury secretary, chairs the
Financial Stability Oversight Council (FSOC), which is charged with making such
designations.
"FSOC began to do that, I believe, in 2016 and 2017, but the risks it focused on were ones
having to do with open-end mutual funds that can experience massive withdrawals and be forced
to sell off assets that could create fire sales. That is actually a risk we saw materialize
last spring in March," she said.
In 2014, BlackRock and other asset managers won a battle in their fight against tighter
regulation when a panel of top financial regulators agreed to revamp their review of
asset-management firms to focus on potentially risky products and activities rather than
individual firms.
"I think that with respect to asset management, rather than focus on designation of
companies, I think it is important to focus on an activity like that and consider what the
appropriate restrictions are," Yellen said.
"The past two administrations in the US, and numerous global regulators, have studied our
industry for a decade and concluded that asset managers should be regulated differently from
banks, with the primary focus being on the industry's products and services," BlackRock said in
a statement.
The collapse of Greensill involved a predicable cast of unwise enablers, but it should
serve as a warning to the growing number of Alternative Asset buyers on the dangers of complex deals which promise much but
deliver less. Due diligence is critical in the highly illiquid alternatives sector.
You really can't make it up when it comes to the collapse of supply chain charlatan Greensill. I suspect it will make a great
film It should also send a judder down our spines, reminding us things are seldom what they seem in complex structured finance:
I'm wondering how many fund managers are quietly nervous about what's really in their alternative asset/direct lending
investment buckets this morning?
If I was a holder of complex European securitisation/receivables deals that promise much, but actually provide very little
information on the performance of underlying assets, then I might suddenly find an anxious desire to check just how they are
REALLY doing.
At least former UK premier David Cameron will be happy. A majority comprising Tory MPs on the UK's Treasury Select Committee
blocked
an inquiry
into Greensill yesterday on the basis it may be politically influenced. The fact
Call-Me-Dave
was
texting chancellor Rishi Sunak pleading for GFC to be a special case for Covid Bailout loans says it all about the dangers of
lobbying. The SNP will be equally delighted at the lack of scrutiny of dodgy dealings up in the Highlands.
The Greensill collapse is unlikely to be the last time financial chicanery is exposed as
sham. And that is why holders of European Alternatives and Asset backed transactions should be nervous. The lessons of the
Greensill deals are multiple:
Don't assume the deals you are sold are what you are told they are,
There is no substitute for deep due diligence.
Companies that look impossible to finance do not suddenly become AAA credits after a sprinkling of magic secured funding dust.
Anything promising of low-risk/high-returns from complex structuring and technical innovation is suspect.
Let's review the unfolding Greensill mess:
There over 1000 holders of the $10 bln plus of defaulted Greensill investment structures packaged and issued by Credit Suisse –
which marketed them as ultra-safe secured investments. Under the law, what the holders recover on these deals will rather depend
on how much the administrator and the courts can jemmy out of Sanjay Gupta's
dead-firm walking
;
steel and commodities business GFC Alliance. (I have no hesitation in saying GFC will go to the wall – there can't be a single
sane financial firm on the planet willing to finance them as the story of its' Greensill relationship emerges and its connected
in-house banking arrangements become clearer – although, apparently, a state rescue is under consideration to save jobs.)
Investors will be lucky to see much more than the 30% recovery already in the pot from non-Gupta related investments in the
Greensill funds – but Credit Suisse may decide to make its investors good. The reputational damage of seeing their private and
investment banking clients clobbered for their stupidity, which would negate their private banking brand, may mean it's worth
taking the hit. No wonder CS staff are very grumpy about their bonuses.
Successful financial scams require willing participants. All the usual fools are there in
the mix.
Yet again the German regulator missed what was going on in Greensill's German bank and its exposures to Gupta. The team at Credit
Suisse who agreed to warehouse Greensill originated "future receivables" and sell them as pristine secured assets have a limited
shelf life. The insurance broker who managed to convince an insurance fund the underlyings were AAA quality looks vulnerable. Or
what about the sales teams in Morgan Stanley who actually marketed the deals. Yet again Softbank is in the frame after it
invested in excess of $1.5 bln at a $4-7 bln valuation, hailing Greensill as a leading Finech, when the actual truth is that its
high-tech driven lending algos were nothing more than basic Excel spread sheets.
Greensill's financial magic was little more than sheer chutzpah – being able to persuade investors that the dull old low margin
conservative business of factoring – short-term secured lending against invoices and accounts receivable, was something
incredibly clever, undervalued and able to generate huge returns based on unique proprietary tech.
Greensill deals went further. Rather than just factoring Gupta's bills to suppliers and its invoices, the firm conjured up
"future receivables" – pledging the company's expected future earnings for lending now. That's not necessarily a bad thing – its
basic credit – but it only works if these earnings were completely predictable like obligated mortgage payments. What Greensill
was doing was lending on future earnings on very volatile commodities. Remember – oil prices went negative in 2020.
In return for funding challenging names we know Greensill took divots out these clients. It made over Ł36 mm financing Gupta's
deals in Scotland, and an amazing $108mm in fees from the $850mm Bluestone coal deals in the US – for which it is now being taken
to court. All these fees gave Lex Greensill the wherewithal for his private Air Greensill fleet – but didn't make the financings
any safer.
Any smart investors would probably have asked questions – but what's not to like about a deal that's secured on receivables,
offers a high coupon, is wrapped with an insurance package from reputable insurer and involves major investment firms like Credit
Suisse banking them, and Morgan Stanley marketing them?
One question is how did Greensill get away with it so long?
It was clear as early as 2017 there were major issues with some of the supply chain financing deals Greensill was putting
together. The following year a major Swiss investment group, GAM, blew up when deals a leading fund manager had bet the shop on
were questioned internally. A review by external investigators discovered a lack of information and documentation on a whole
series of Greensill deals. They questioned how due diligence was done on the deals. The fund manager was suspended and later
dismissed – triggering a redemption run on the fund. The whistle-blower was also shown the door on the back of massive client
exits.
GAM invested in the funds because it's very hard to turn down the promise of a low risk / high return deal that promised so much
more than the tiny yields available in conventional credit markets.
Despite the events at GAM, Credit Suisse went on to package $10 bln plus of Greensill deals. It was all done with an insurance
wrap from a single name put them in its safe bucket. I know other insurance firms refused the deals. The trigger for the collapse
of the Greensill scam was the withdrawl of that critical insurance – causing Credit Suisse to stop. Greensill has known for a
year Tokyo Marine (which sacked the underwriter involved) would not renew and had been unable to find alternative cover.
Perhaps Credit Suisse bought the story and Softbank link that Greensill was a remarkable new Fintech with the Midas touch of
changing dull, conservative factoring into a money machine? All that glitters is not gold.
One of the major developing themes in markets has been a shift from financial assets – which are seriously mispriced due to
monetary distortion and financial asset inflation – into real assets, the so-called alternatives market. Alternative because they
are not stocks or bonds, but cash flows and real assets. The collapse of Greensill will heighten awareness of due diligence risks
in these non-standard, off-market, asset backed alternatives. Alternative asset holders will be looking at holdings for what else
might be wobbly.
For instance, I might urge them not to be hypnotised by the assumptions underlying a well-known fund investing in music
royalties, the basis of which is also being questioned by analysts. (I certainly won't mention the fund by name as the manager is
a well-known litigant.) I have no reason to believe or disbelieve what analysts, the FT and a US investment bank have said about
it overpaying for assets or questioning the valuation hikes it puts on future revenues when it acquires catalogues. Personally I
like music assets, know their value, and, given certain circumstances the fund in question might come good. Equally.. it might
not.
To understand how these deals works its critical to understand exactly what's occurring within the structures – how real are the
assets, how the cash flows, how its accounted, and where it goes. That's why having top notch accountants and lawyers is such an
important requirement for any deal. However, if they are working in the interests of the issuers and bankers – then investors are
the likely patsies. There is a real difference between the way US and European Asset Backed deals are structured – basically US
deals are transparent. European deals tend to be opaque.
Alternative deals based on real assets and tangible cash flows are often, but not always, decorrelated from distorted financial
assets, allowing low risk deals to yield better long- term returns. They tick can the box in terms of risk vs return and provide
significant diversification away from conventional markets. The major negative is there is little pretence they will be liquid
assets. If you want to sell – even in good markets it will not be easy.
The only way you should participate in Alternative type deals is by knowing exactly what's going on. And – yes, my day job is
Head of Alternative Assets. Happy to discuss in depth any time.
Most tax havens are either American possessions or British possessions. Then there are the
tax havens that are firmly under American geopolitical control (Switzerland, Monaco,
Luxembourg, Ireland). Then there is the State of Delaware (of which the present POTUS is from).
There are no tax havens under the control of an enemy of the West.
The USA should stop with that charade. If it wanted to curb on tax evasion, it would've
already done so decades ago.
Capitalism is value that self-valorises. The rich must get richer and the poor must get
poorer over the long term. That's how a healthy capitalist system operates. To try to claim USD
1.4 trillion from their bourgeoisie is not how the American Empire should work. This is a
desperate attempt of the American Federal State to survive.
When the most respected bank in the US feels compelled to publish A 42-page "guide to
bubbles and why we are not in one" in response to what is a clear outpouring of client concerns
that we are, in fact, in one we repsectfully leave it up to readers to read between the lines
and reach the obvious conclusion.
We say that because reading Goldman's actual lines is quite painful: in his (futile) attempt
to convince the bank's clients that US stocks are not, in fact, in a bubble, Goldman strategist
Peter Oppenheimer writes that "in recent weeks there have been growing concerns about a bubble
building up in the equity market and across financial markets in general" before eventually
concluding that "while there are pockets of excessive valuations in equities, and parts of the
market are justifiably de-rating as interest rates adjust, in our assessment only a few of
these common characteristics are currently present or being partially met. Importantly, the
absence of significant leverage (outside of the government sector) and the early stage of the
cycle suggest that the risks of an imminent bubble with systemic risks to the financial system
and economies is relatively low."
... ... ...
But wait, it gets even dumber, because in the very next attempt to refute the existence of a
bubble, Goldman says that there are only "a few" consistent hallmarks of financial bubbles,
with the majority "characterized by many, if not most, of the following":
Excessive price appreciation & extreme valuations
New valuation approaches justified
Increased market concentration
Frantic speculation and investor flows
Easy credit, low rates & rising leverage
Booming corporate activity
New Era narrative and technology innovations
Late Cycle economic boom
The emergence of accounting scandals and irregularities
Hilariously, despite admitting that there are bubble signs of 7 out of 9 categories, Goldman
claims there has been no emergence of accounting scandals and irregularities..
... ... ...
If we had to summarize Goldman's thesis it would be that while pockets of exuberance and
excessive price rises increase, they do not necessarily mean that a broader and systemically
dangerous bubble is forming more broadly.
In the S&P 500 -- the best- performing of the major equity markets -- the rise of
the past few years has been impressive, particularly in technology, but it's not nearly as
extreme as the explosive rise that accrued during the late 1990s
Fundamental EPS for the leading technology companies and for the more widely owned
retail stocks have significantly outstripped those of the rest of the market, so
outperformance has been supported by superior growth and fundamentals
The rally has been based on achieved reality, not purely on hope and possibility
(Goldman must be referring to the 21x forward PE multiple here which is based on some form
of "achieved" future reality).
While high valuations imply lower longer- term returns, they don't point to a
broad-based valuation bubble in equity markets
In any case, it was around point that we gave up on reading more of this drivel, and sent
our condolences to the junior analysts who had to work a soul-crushing 100 hours a week (even
though there are millions of 25-year-olds who would kill to work 200 hour weeks for half the
pay of a Goldman analyst) to put this together.
ay_arrow
JohnGaltsChild 6 hours ago remove link
There is no bubble.
Biden won fair and square.
There is no crisis at the border.
The government never surveils private citizens.
Critical race theory is not racist.
I'm a mindless robot.
Im4truth4all 6 hours ago
Add:
Epstein committed suicide.
The FBI is committed to truth and integrity.
The Supreme Court is committed to truth and integrity.
The democrat/marxists tell no lies.
And the list goes on ad infinitum.
stop_the_fraud 6 hours ago
Bitcoin is the new world currency.
Gold is a worthless pet rock.
EV's are the future.
JohnGaltsChild 6 hours ago
"Who are you going to believe, me or your own eyes?"
Groucho Marx
Art_Vandelay 7 hours ago (Edited)
When the most respected bank in the US.
Respected by whom, again?
Buzz-Kill 6 hours ago (Edited)
Operated by FED thieves, with politicians close behind.
khakuda 6 hours ago (Edited) remove link
Go back to 1999 and you will see all of the street brokers saying the same thing. It's
different this time is basically what they are saying, which is what one always hears during
bubbles.
And the accounting irregularities usually appear after the decline when they can no longer
be hidden...think Madoff or Lehman.
Victory_Rossi 6 hours ago
I don't know why anyone would do business with Goldman at all. Even if you're greedy as
fvkc and think you'll be the special one that GS doesn't screw over, why take a chance? It's
like the parable of the scorpion or snake - you know what they are so why'd you pick it up.
Good luck Muppets!! You're going to need it.
Im4truth4all 6 hours ago remove link
"If you repeat a lie often enough, people will believe it, and you will even come to
believe it yourself." - Joseph Goebbels
Art_Vandelay 6 hours ago
Is Goldman getting into the comedy business now? I was sort of laughing at their analysis
the whole way through.
Watching in Baltimore 6 hours ago
"I have no fears for the future of our country. It is bright with hope."
Herbert Hoover, March 4, 1929
Death2Fiat 6 hours ago
Take a look at the Fed's M* monetary base charts.
It's straight up. 90 degree angle all the way up.
Great Iota 5 hours ago (Edited)
No Bubble? I couldn't find a single stock that was worth investing (value). Think this was
the first time in 25 years that it has happened. All equity is either losing money per share
or for every $100 you invest, you make between .001 cent to $3.50.
I remember the days when you expected companies to earn $10 to $20 per $100 depending on
industry.
Now, you got virtual intangible assets like Bitcoin, which is a total scam, its not a
currency, has no real use, and is an exact definition of a Ponzi scheme. Brilliant idiots who
collect billions from the government for having a green company and at the same time invests
billions in a Ponzi scheme that consumes ridiculous amount of energy.
in 3 months, Bitcoin will undo all the green initiatives the democrats has pushed for in
the last 20 years. Grats morons!
No one knows how to calculate energy use?
cooll 7 hours ago
Goldman = contrarian indicator.
YesWeKahn 6 hours ago
Sure, based on goldman's logics, not only there is no bubble, this is actually a multi
generational bottom, they should sell all their other assets and buy stocks.
Last week the US Federal Reserve raised its growth forecasts for the US economy for this
year and next. Fed officials now reckon the US economy with expand in real terms by 6.5%, the
fastest pace since 1984, a few years after the slump of 1980-2. This is a significant rise from
the Fed's previous forecast. Also, the unemployment rate is expected to drop to just 4.5% by
year-end, while the inflation rate ticks up to 2.2%, above the official target rate set by the
Fed.
Driving this new optimism on growth is the fast roll-out of vaccines to protect Americans
from COVID-19 plus the huge fiscal stimulus package put through Congress that most mainstream
forecasters expect to add at least 1% point to economic growth and bring down unemployment.
But Fed chair Jay Powell made it clear that the Fed had no intention of raising its target
interest rate until 2023 at the earliest even if inflation accelerates. He wants to see the
unemployment rate drop to 3.5% and inflation averaging 2% or so. He would tolerate the economy
"running hot" until that happens because he reckons that any rise in inflation would be
transitory.
The implication of Powell's view was that the US economy was going to have a 'sugar rush'
from the fiscal stimulus and from the 'pent-up' demand of consumers with cash savings ready to
spend on restaurants, leisure, travel etc once the pandemic restrictions were relaxed. But as
every parent knows, giving a child too much sugar leads to a rush of energy. And then comes the
letdown and sleep. That is what Powell worries about, namely that after this burst of energy on
the 'sugar high' of government paychecks and restaurants meals, the US economy will slip back
into the low growth trajectory that applied before the pandemic slump.
Powell is also concerned about a potential relapse in the fight against the virus and
expects fiscal support from the stimulus starting to fade next year and worries that the labour
market will continue to struggle. So he expects 'core inflation' (excluding food and energy
prices) will fall back to 2 per cent next year and 2.1 per cent in 2023. So no inflationary
spiral.
It is significant that the long-term growth forecast by the Fed is just 1.8% a year, which
is hardly any higher than average real GDP growth of 1.7% since the end of the Great Recession
and before the pandemic.
This implies that the Fed reckons the US economy is going to drop back to the rate of growth
experienced in the Long Depression since 2009, and the 'sugar rush' is just that.
What this also implies is that contrary to the views of the Keynesians, the
multiplier effect of the fiscal stimulus will soon dissipate and then the US economy will
depend, not on consumers' pent-up demand but on the willingness and ability of the capitalist
sector to invest. It's investment not consumer demand that will matter in sustaining any
significant recovery; not sugar treats but on new energy in the form of new surplus value (to
use Marx's term for profits).
Financial investors are less convinced that Powell is right. After all, getting the US
economy to achieve a 3.5% unemployment rate and 2% inflation has been achieved only twice since
1960! So 'inflation expectations' among investors have been rising, suggesting an inflation
rate of 2.6% on a five-year view. As a result, US government bond yields have also risen
significantly, as bond yields suffer in real terms if inflation rises.
The view that the US economy may 'overheat' has been argued by Larry Summers, the
arch-Keynesian of several administrations. He fears that the fiscal and monetary stimulus will
lead to 'excess demand' and so drive up prices across the board, eventually forcing the Fed to
raise interest rates. Summers argues this, because this time last year, he was telling the
world that the COVID pandemic would have little long-lasting impact and the economy would
bounce back once it was over, just like seaside towns go to sleep in the winter and then wake
up when the tourist season starts. He seems to think that the US economy will revive of its own
accord and fiscal stimulus is unnecessary. But the experience of the last year has been much
longer and more damaging than a 'winter break'.
At the other end of the argument, Summers has been scathingly attacked by post-Keynesians
and leftists who reckon there is no danger of 'overheating' and rising inflation, because there
is plenty of 'slack' in the economy ie workers needing jobs and businesses needing to start up.
But what this view ignores is the 'hysteresis' effect on the economy from the pandemic slump;
namely that many workers have been forced to leave the workforce for good over the last year
and many small to medium businesses will never return. The Long Depression has seen a steady
reduction in estimates of US productive capacity.
That means the room for economic recovery is reduced unless investment in new means of
production and employment rises significantly. So there could be 'overheating' and higher
inflation, not because of pent-up consumer demand but because of weak productive capacity
– not 'too much demand' but 'not enough supply'.
What the last ten years has shown is that business investment growth has slowed as the
profitability of productive capital has fallen in the US. Cash-rich companies and investors,
borrowing at record-low interest rates, have preferred to speculate in financial assets. The
huge tally of bailouts by central banks and cuts in corporate taxation have been spent on
driving the stock and bond markets to all-time highs while the 'real economy' has stagnated.
The bottom 80% of American households, who drive the bulk of personal consumption expenditures
(PCE), continue to struggle to make ends meet.
And down the road, rising debt cannot be ignored. And it is not so much public sector debt,
which in the US is now well above 100% of GDP; more important is corporate debt. If interest
rates for firms do start to rise because of increased inflation, then debt servicing costs for
a whole swathe of so-called 'zombie' companies will become an excessive burden and bankruptcies
will ensue.
According to Bloomberg, In the US, almost 200 big corporations have joined the ranks of
so-called zombie firms since the onset of the pandemic and now account for 20% of top 3000
largest publicly-traded companies. With debts of $1.36 trillion. That's 527 of the 3000
companies didn't earn enough to meet their interest payments!
As before, the Fed is caught. If it does not end the monetary largesse at some point, then
inflation could rise which will eat into real incomes and drive up corporate debt costs. But if
it acts to curb inflation, it could provoke a stock market crash and corporate bankruptcies.
That is what happens when an economy is in 'stagflation': namely rising inflation and low
growth.
For example, the very sharp fall in stock prices in 1987 did not lead to economic recession
and prices recovered quickly. The reason then was that the profitability of capital in the
major economies had been rising for over five years and was at a relatively high level in 1987
and profitability continued to rise for another decade. But that is not the situation now. The
profitability of capital is near all-time lows and even a recovery in 2021 and 2022 will not
put levels back to that before 1997 or 2006. And corporate debt has never been higher
historically.
These underlying forces suggest that the 'sugar rush' will be just that – a short
burst followed by slumber at best.
"If it does not end the monetary largesse at some point "
There's the rub. Moral hazard is in full effect. Too big to fail has essentially been
codified by the politicians the capitalists have purchased. So, theoretically, how long can
it all go on, assuming the power elite all agree to keep the game up? I'm surprised they've
been able to do it this long
Reply
Doesn't the role of government debt in maintaining the nominal values of fictitious
capital, either directly or by preserving nominal value of the currency, mean that many of
the winners in the depression (those that have capital reserves always win distressed
properties in a depression, no?) will find an excessive debt an unbearable burden long
before they find the gigantic flow into the banks, the stock market and corporate bonds a
threat. Given the perception that the rest of the world will always bear the brunt of US
government contraction, isn't there likely to be a major political demand for
austerity?
If the US weren't the financial nerve center, I would expect a monetary crisis in
exports, but there is no reserve currency to compete. Making a basket of currencies work or
switching to Special Drawing Rights to replace the Fed have the problem of opposing the US
government while coordinating in a kind of monetary union with other states, which is not
what good bourgeois democracies do. Gold and oil, the commodities most likely to be sought
to preserve value are either too scarce or their markets too manipulated by a handful of
players. Although an inflationary crisis/dollar collapse seems unlikely (and fears of
hyperinflation wildly inflated, barring a military defeat of the US,) It's clear to me that
a stagflation scenario is probable.
Reply
I think it is Powell who is having the sugar high. If we examine Retail Sales for the
combined months January and February a strange combination is seen. In terms of adjusted
data, the two months were up by 5.1% on the previous year, but if we examine unadjusted
figures sales were flat. Thus it appears it is all in the adjustment, with the fall in
February effectively wiping out the rise in January. https://www.census.gov/retail/index.html
Thus a $900 billion injection was effective for only one month. Yes there will be a
short term boost from the $1,900 billion ARP Bill, but that has to be set against so many
negative potential events. First and foremost, the issue of interest rates. The 10 year
rate is above, what I called the red line at 1.6%, and markets, while not sneezing have
certainly got itchy noses. I would caution against using 1987 to substantiate the view that
market crashes do not cause recessions. Conditions now are very different and the economy,
because of inequality, is much more dependent on capital gains. Thus a market crash will
wipe out any gains from these relief packages. I have been trying to look up losses in the
global bond market, which amounted to $3 trillion when the rate hit 1.4%. It is likely now
to be in the vicinity of $5 trillion.
Anyway we will know more this Thursday when corporate profits are released. Once again I
will prepare a post which looks at the rate of profit both with and without subsidies.
Reply
Hi Michael, love the blog- I just had a quick question about the US stimulus package I
was hoping you could help with.
It's about the stimulus cheques- if I remember right they're about $1,400 each. This
helicopter money sounds good, but am I not right in thinking that a lot of this will just
go into the pockets of private landlords or other rentiers and will thus have a limited
effect in terms of boosting consumer spending?
But if FED lost control think can became really break soon. Theoretically TIP bought directly
from Treasury might be an escape for misery but currently they are not as their yield right now
is just 0.125% while inflation is somewhere probably between 2 and 6 percent per year. CPI Inflation Calculator
shown that $1K in 200 is equivalent to $1558 now so the official annual inflation is around
2.5%
...The economics of trading from stocks and real estate to interest rates would be turned
upside down if projections of runaway prices are to be believed.
Yet there are clear divisions. Goldman Sachs Group Inc. says commodities have proven their
mettle over a century while JPMorgan Asset Management is skeptical -- preferring to hide in
alternative assets like infrastructure.
Pimco, meanwhile, warns the market's inflation obsession is misplaced with central banks
potentially still set to undershoot targets over the next 18 months.
... There will be rotation into real-economy assets such as small caps, financials and
energy stocks instead of rates and credit, and that will generate a lot of volatility.
... TIPS (only if bought directly from the treasury) offer reasonable insurance for an
inflation overshoot. Commodities and assets linked to real estate should also benefit in an
environment of rising inflation.
Bind vigilanties is a myth... Concerned speculators are real. They would "sell first and ask
questions later", pushing up interest rates and battering bonds and stocks...
The bond vigilantes appear to have returned, punishing not only the Treasury market but also
exacting a toll on the Nasdaq Composite's highfliers. What's different this time is that the
bond vigilantes are fighting the Fed, to mix two market aphorisms. The Federal Reserve just
reiterated its intention to maintain its ultra-accommodative policy until it sees what it deems
as maximum employment and inflation steadily above 2%.
Your editorial "The
Semiconductor Shortage" (March 13) is right that government action is not needed to correct
the short-term supply-demand imbalance causing the global chip shortage, but wrong that the
U.S. can "prod" its way to stronger domestic semiconductor production and more secure chip
supply chains in the long term. Global competitors haven't passed the U.S. as a location for
chip manufacturing by prodding. They've done it by funding ambitious government incentives to
lure semiconductor production to their shores.
As a result, only 12% of global manufacturing is now done in the U.S., down from 37% in
1990.
The IRS uses the information it has on hand to determine your eligibility for a stimulus. If
your income in 2020 was higher than in 2019, you might want to wait to file if the two numbers
straddle the cutoffs for stimulus eligibility, which
are $75,000 for single people and $150,000 for married couples .
This is the first tine the benchmark 10-year note trades up above 1.7% since Covid-19
pandemic began. Though much higher than last year, when it spent months between 0.6% and 0.9%,
the 10-year yield also remains low on a historical basis, It have been above 3% as recently as
2018.
The key problem is that the S&P500 level is in the bubble territory using Shiller metric
and that means that a large correction is a possibility.
As 10-year TSY yields briefly touched 1.75% this morning in the wake of Wednesday's FOMC, an
overnight note from Zoltan Pozsar
predicting the end of SLR relief , and a report by the Nikkei noting that the BOJ would
allow long-term interest rates to move in a slightly larger range of about 0.25%, versus 0.2%
now...
Bank of America warned that ... 10-year yields above that level could become a headwind for
the equity complex. As BofA strategist Savita
Subramanian wrote "history suggests that 1.75% on the 10-yr (the house forecast and ~25bp above
current levels) is the tipping point at which asset allocators begin to shift back to bonds"
and thus sell stocks in the next wave of aggressive liquidations.
Why 1.75%? Because that yield on the 10Y is decisively above the S&P's dividend yield,
and where according to BofA "there is an alternative to stocks", or TIAA.
Separately, in its fund manager survey, Bank of America found that while few believed that
rates at 1.5% would cause an equity correction (which they did as
Nomura originally predicted one month ago ), the move from 1.5% to 2% is critical as 43% of
investors now think 2% is the level of reckoning in the 10-year Treasury that will cause a 10%
correction in stocks .
Ajax_USB_Port_Repair_Service_ 7 hours ago
2.0 is the new 1.75
paid_attention 4 hours ago (Edited)
I've noticed that there hasn't been any down days over 2% in months...
Globalistsaretrash 7 hours ago remove link
Just last week an article said 1.54% would trigger Armageddon.
Boxed Merlot 7 hours ago
...last week...1.54% would trigger Armageddon...
I know this is getting old, but being cursed with a "boomer memory", I still remember when
interest only real estate purchases at 1% of purchase price per month to service one's "note"
was considered a steal. Home loans at 16-18% were common and t-bills were paying a mere
10-12% a year.
What's more, me and mine are still here after all those years, albeit a bit longer in the
tooth, but that's life.
I know, I know, this time is different.
Seasmoke 7 hours ago
So no Ponzi Collapse at 1.65 ?? Because I read that somewhere last week.
Globalistsaretrash 7 hours ago
Me too.
radical-extremist 7 hours ago (Edited) remove link
OMG! I can't decide whether I want a 1.75% yield in treasuries or SPY dividends....just so
I can keep pace with 2.2% inflation of the DXY...of my $1400 stimmie.
nope-1004 7 hours ago remove link
1.75.... lmao. The rigged casino is THAT weak?
mtl4 7 hours ago (Edited) remove link
Everyone was a genius back in the Dot Com era too.......works until it doesn't.
drjd 6 hours ago
Because life is all about the pursuit of profits?
I woke up 7 hours ago
How much more fake money needs to be printed to cover the debt when yields go to 1.75
gcjohns1971 6 hours ago
When everyone is a finacialized zombie, a rotation from stocks bankrupts everyone. If
corporates are deprived of their financial casino takes, then you have until quarterlies to
see that as a GDP bloodbath.
Then the only place to go will be commodities. The inflation the Fed has been searching
for lives there. PPI will go wild, up double and some times triple digits in a matter of
days, spooking everyone.
itstippy 7 hours ago
Does the Fed have some sort of tool in their toolbox they could use to suppress market
yields on the 10 year if needed?
JZimmerman901 7 hours ago
They only have one "tool" and that's to print money. And sure, if they print money to buy
10 years, that would suppress yields.
Chutney ferret Harris 7 hours ago
Correction to the article - "Then again, Goldman has been wrong about virtually everything
it has said publicly in recent years so take the bank's optimism with a metric ton of
salt."
We know privately Goldman knows what is going on and happily collecting its vig from the
taxpayers.
ReadyForHillary 6 hours ago
Why would anyone assume that what GS states publicly is their true opinion?
silverredux 7 hours ago
Goldman has been correct because they've invested in the other side of the argument every
time
Goldman up 152% in 12 months.
Rising rates keep metals in check too. Just a bonus
MrNoItAll 7 hours ago
Goldman Sach bank's optimism is fabricated hope-filled messaging to the "investors" their
mega-bonuses are dependent on.
QE4MeASAP 7 hours ago
Maybe we'll get to see if "Not in my Lifetime" Bernanke was correct.
Everybody All American 7 hours ago remove link
We are now over the 100% debt to GDP ratio barrier and if rates rise from here to any even
small degree it is game, set, match. Since the market top of the 10yr in price there has been
a 7% loss for those who bought as it stands right now. We are talking some big losses.
Remember, no one is buying this stuff for the yield.
incalescent 7 hours ago
While I like to disagree with Goldman on principle. I think there is a better argument
than the dividend yield of S&P500 stocks to account for the upcoming shift. The 2% and 3%
inflections points have more weight with the general trends. This 1.5% number feels like an
exercise in finding a reason to pick the number, not a sharp pin to prick the bubble.
Bubble though, it is, and we live in cactus times.
Calvinharrison 1 hour ago
I put all my pension into government bond funds.. it will drop the least compared to
stocks. And I could enter stocks again later. 30% up on the year is ridiculous and there are
some funds that went up close to 50%.
AUD 3 hours ago
I think it's the volatility of the move which concerns the Fed. If interest rate spreads
stay tight as rates move higher, the casino can stay afloat. If rates move to fast, things
get out of control.
Ozarkian 7 hours ago
Does this mean you can't have your cake and eat it too?
The value of a 30-year Treasury fell 15.6% in just three months. That is the equivalent of
almost a decade of the income it offered three months ago, and it is the flip side of the
sudden rise in yields. Shorter-maturity Treasurys have fallen less, but even for the 10-year
note it will take six years of income to recover the loss of the past three months.
...But the probability of inflation averaging over 3% for the next five years has reached
30%, the highest since the taper tantrum, showing the rising uncertainty about the impact of
stimulus combined with easy money.
Morgan Stanely's chief US equity strategist Mike Wilson told investors Monday in a new
podcast titled "A Tougher Road Ahead for
Small Caps?" that "extraordinary outperformance" of cyclicals and small caps is coming to
an end . He downgraded small caps on Monday to reduce risk.
"From our perspective, the equity market is doing exactly what it should be at this stage
of the recovery. The recent non-linear move in long-term interest rates means equity
investors can no longer ignore this risk. The rates market is mispriced , and now that the
seal has been broken, there's good chance equity markets start to price in the next 50bps
move, even if it's months away. What this really means is that equity valuations are likely
to fall this yea r - a key part of our call for 2021 ," Wilson said.
The downgrade comes as Wilson told investors last week
three reasons why the "stock correction has further to go before it's over." His latest
podcast indicated the "extraordinary outperformance and earnings revisions and valuation
expansion" of small caps is likely "coming to an end."
Wilson warned:
"Falling equity valuations is what always happens at this stage of the recovery , and we
see little reason to think it will be different this time. Having said that, the recent
fiscal stimulus may provide one last final push higher as this money leaks into the market.
We would use that strength to reduce positions in the more expensive parts of the
market."
He said his team upgraded small caps near the pandemic low last April as his core "thesis
was that we would experience a V-shape recovery in the economy, and the government subsidy of
the unemployment cycle would accrue to the bottom line of corporations, especially small caps."
Since then, Russell 2000 has outperformed S&P 500 and Nasdaq 100 by 50% and 40%,
respectively.
With the Russell 2000 down more than 1% and the Nasdaq 100 up more than 1% on Tuesday
morning, one of the most significant shifts from value to growth is underway since late
October.
Lt. Frank Drebin 4 hours ago
Does today appear more and more like the beginnings of the Dot Com bust?
Not that I don't like charts or comparisons (good job Tyler's), but the dot com bust didnt
have trillions of dollars pumped into it to keep it propped up. Little apples to oranges if
you ask me.
yerfej 4 hours ago
There might be some new highs in the next week or two as the cash flows into the market
but it pretty much over. Get out now as the implosion is going to be fast and furious.
You_Cant_Quit_Me 3 hours ago
You have to be crazy to open a small business when the federal or local govt can shut you
down based on no scientific data. Similar story for being a landlord when the govt can ban
evictions for nonpayment of rent. Why risk your capital when those with no skin in the game
can indirectly destroy your life savings.
Mrgior31513 1 hour ago
Because not doing so is leaving money on the table. People open small businesses because
being an employee is not generally the most lucrative option, and higher paying jobs are not
always available. Opening a small business is always extremely risky, now we just have more
added risks to the mix. Federal, state and local governments could always shut you down based
on no scientific data and ridiculous regulations, this is nothing new ~simply wider spread
than it normally is.
radical-extremist 3 hours ago
This analyst has yet to realize we're no longer living in 2005. We're living in world with
previously unfathomable liquidity brought about through Central Banks and perpetually low
interest rates. And our government has just pumped another $1.9 Trillion into everything. You
can't look at one segment and predict it should go lower, without considering the volatility
of the Whole Enchilada.
A worry for retirees: Inflation forecasts hit 8-year high
A worry for retirees: Inflation forecasts hit 8-year high
Brett Arends
Mon, March 15, 2021, 10:01 AM
Nobody suffers more from high inflation than retirees. Back in the 1970s, it was those in retirement living
on fixed income that got hit the hardest as prices rose year after year. The investment returns from their
bonds and cash fell way behind.
Now, let's consider the stark contrast between Biden's presentation and a speech delivered
by Governor Kristi Noem of South Dakota at the CPAC conference. For those who don't know, Noem
is the one bright star in a year of Orwellian darkness and gloom. She's a strait-laced,
plain-talking, clear-thinking conservative who sticks to her principles like glue. She is a
stalwart, red-blooded American girl who believes in God, the Constitution and the United States
of America. Here's an excerpt from her CPAC speech:
"Now everybody knows that almost overnight we went from a roaring economy to a tragic
nationwide shutdown. By the beginning of 2020, President Trump had created 7 million new
American jobs. We had the lowest unemployment rate in over half a century, and unemployment
rates for black, Hispanic, and Asian Americans reached the lowest levels in history. More
than 10 million people had been lifted out of poverty and out of welfare. And all of that
changed in March .
Now, most governors shut down their states . What followed was record unemployment,
businesses closed, most schools were shuttered and communities suffered, and the U.S. Economy
came to an immediate halt. Now let me be clear, COVID didn't crush the economy, government
crushed the economy . And then just as quickly, government turned around and held itself
out as the savior, and frankly, the Treasury Department can't print money fast enough to keep
up with Congress's wishlist. But not everyone has followed this path. For those of you who
don't know, South Dakota is the only state in America that never ordered a single business
or church to close. We never instituted a shelter in place order. We never mandated that
people wear masks. We never even defined what an essential business is, because I don't
believe that governors have the authority to tell you that your business isn't essential.
" (" Kristi Noem
CPAC 2021 Speech Transcript", rev.com)
She's right, isn't she? No elected official has the right to close a business or a church
EVER. Period. We do not bestow those powers on our governors nor are they granted under the
Constitution. Neither war nor pandemic nor any other national emergency or crisis should
ever be used to strip Americans of the liberties that are guaranteed under the Constitution of
the United States . Biden was wrong to say that the "most important function of government
is to protect the American people." That's just wrong. The most important function of
government is to preserve and protect the liberties that are outlined in the Bill of Rights.
That's job#1: Defend Freedom at all cost . Everything else is a footnote. Here's more from
Noem:
"South Dakota schools are no different than schools everywhere else in America, but we
approached the pandemic differently. From the earliest days of the pandemic our priority
was the students, their wellbeing and their education. When it was time to go back to school
in the fall, we put our kids in the classroom. Teachers, administrators, parents and the
students themselves were of one mind to make things work for our children, and the best way
to do that was in the classroom. Now in South Dakota, I provided all of the information
that we had to our people, and then I trusted them to make the best decisions for
themselves, for their families, and in turn, their communities. We never focused on the
case numbers. Instead, we kept our eye on hospital capacity. Now, Dr. Fauci, he told me
that on my worst day I'd have 10,000 patients in the hospital. On our worst day, we had a
little over 600 . Now, I don't know if you agree with me, but Dr. Fauci is wrong a
lot."
Naturally, Noem got a standing ovation when she blasted the duplicitous Lord Fauci, the man,
who more than any other, bears responsibility for almost single-handedly plunging the country
into an unprecedented crisis. Here's more:
"Even in a pandemic, public health policy needs to take into account people's economic and
social wellbeing. Daily needs still need to be met. People need to keep a roof over their
heads . They need to feed their families. And they still need purpose. They need their
dignity . Now my administration resisted the call for virus control at the expense of
everything else. We looked at the science, the data and the facts, and then we took a
balanced approach . Truthfully, I never thought that the decisions that I was making were
going to be unique. I thought that there would be more who would follow basic conservative
principles, but I guess I was wrong."
Yes, she was wrong, but who could have foreseen that every reprobate Democrat governor in
the country would simultaneously take advantage of a public health crisis to impose de facto
martial law? We never saw that coming, although, we have to assume that there must have been
some tacit agreement and coordination among the governors and their paymasters that they would
fall-in-line when the time was right . Ahh, but that's conspiracy talk!
Damn right, it is! Here's more:
"Many in the media, criticized South Dakota's approach. They labeled me as ill-informed,
that I was reckless, and even a denier. The media did all of this while simultaneously
praising governors who issued lockdowns, who mandated masks and shut down businesses,
applauding them as having taken the right steps to mitigate the spread of the virus. At one
point, I appeared on George Stephanopoulos' Sunday Show. He had just wrapped up a segment
with New York Governor, Andrew Cuomo, where he asked Cuomo to give me some advice on how to
deal with COVID." (Loud Laughter)
In South Dakota, we did things differently. We applied common sense and conservative
governing principles. We never exceeded our hospital capacity and our economy is booming.
We have the lowest unemployment rate in the nation. We are number one in the nation for
keeping jobs, keeping businesses open and keeping money in the pockets of our people. The
people of South Dakota kept their hours and their wages at a higher rate than workers
anywhere else in the nation. And our schools are open . Our founding fathers established
our National Constitution, and the people of individual states crafted their own
constitutions that place specific limits on the role of government. Those limits are
essential to preventing government officials from trampling on people's rights."
The people themselves are the ones entrusted with expansive freedoms, the free will to
exercise their rights to work, worship and to earn a living. No governor should ever dictate
to their people which activities are officially approved or not approved. And no governor
should ever arrest, ticket or fine people for exercising their freedoms. Governors, and
members of Congress and the president have a duty to respect the rights of the people who
elected them, but it seems these days that conservatives are the only ones who know what that
means. Personal responsibility is considered a God-given gift in South Dakota. Personal
responsibility is not a term that conservatives have abandoned..
We should illustrate to the world that people thrive when government is limited, and
people's ingenuity and their creativity is unleashed. We should also remind the world what
happens when tyranny and oppression are allowed to thrive. God bless each and every one
of you and may God bless the United States of America."
By now, we should all realize that the greatest threat to personal freedom is always and
everywhere the State; that is the main lesson of this unfortunate Covid fiasco. The Democrat
governors usurped powers and issued edicts for which they had no authority and for which they
should be held to account. They should be impeached and prosecuted. They were undoubtedly
acting on behalf of criminal elites who fill their campaign coffers in return for assistance in
advancing their own self-centered interests.
If you haven't figured it out yet, we are in the fight of our lives with "do goodie"
billionaire climate alarmists who have inserted themselves into the political process and who
have the power to shut down the economy with the flip of the switch. These same buttinskis
have gone to great lengths to create the global health infrastructure along with significant
control of the mainstream media, that allows them to grossly inflate an aggressive but
thoroughly-manageable viral infection and transform it into the Black Plague. This, in turn,
creates the pretext for preventing people from running their businesses or attending school or
gathering with friends or family or traveling at will or doing any of the things that people in
a free country are at liberty to do. There is no way to reason with people who think that
the only way they can achieve their own malicious objectives, is by enslaving, incarcerating or
liquidating the millions of people who stand in the way of their grand design. We must
defend ourselves from these hostile elites by recommitting ourselves to the fundamental
principles upon which this country was founded. These are the same principles that Kristi Noem
has not only articulated so well in her speech, but also put into practice in her home state of
South Dakota.
We should never accept the oppressively dark and dystopian vision of Joe Biden.
That's not for us. We should aspire to Noem's "shining city on a hill", a place where people
can work when and where they please, travel when and where they please, and meet with friends
and family when and where they please. It's not selfish for us to want these things for
ourselves and our families. Freedom is a basic human necessity like eating, drinking or
breathing. We need freedom, just like we need leaders who believe as we do and who are
unshakable in their convictions. We need leaders like Kristi Noem who was as steadfast as
Gibraltar when everyone else went weak-in-the-knees. The woman is a real American hero and
a patriot.
Real inflation in the USA is probably close to 3-4% a year judging from the dynamic of rental
payments and prices on on food. Annual Food inflation was between 3.93%, to 3.78% in December to
February timeframe.
The February 2021 ShadowStats Alternate CPI (1980 Base) increased 9.4% year-to-year, up from
9.1% in January 2021, 9.0% in December 2020 and against 8.8% in November. The ShadowStats
Alternate CPI-U estimate restates current headline inflation so as to reverse the government's
inflation-reducing gimmicks of the last four decades, which were designed specifically to reduce/
understate COLAs.
Inflation may be on many investors' minds, but it has yet to show up in the numbers.
Moreover, a close reading of the data suggests that inflation won't be a problem for some time,
if ever.
The latest reading of the consumer price index shows that Americans' cost of living was only
1.7% higher in February 2021 than a year earlier. That's the fastest inflation reading since
the pandemic began, but still substantially slower than the pre-pandemic average. Exclude
volatile food and energy prices, and inflation is running at 1.3%...
The understatement of housing inflation in the consumer price index has reached a new
milestone.
As reported, the gap between the actual change in house prices and owners' rent, published by the Bureau
of Labor Statistics (BLS), exceeds the "bubble" levels.
In February, BLS reported owner's rent increased 2% over the last 12 months. House price inflation, as reported by the Federal
Housing Finance Agency (FHFA), increased 11.4%. That gap over 900 basis points exceeds the 800 basis point gap recorded during
the housing bubble peak.
The consumer price index was created and designed to measure prices paid for purchases of specific goods and services by
consumers. The CPI was often referred to as a buyers' index since it only measured prices "paid" by consumers.
The CPI has lost that designation.
It
is no longer measures actual prices.
For the past two decades, BLS imputes the owners' rent series, using data from
the rental market, no longer using price data from the larger single-family market.
Imputing prices for the cost of housing services make the CPI a hybrid index or a cross between a price index and a cost of
living index. A hybrid index is not appropriate as a gauge to ascertain price stability, especially when the hypothetical
measure of owner's rent accounts for 30% of the core CPI.
The CPI missed the price "bubble" of the mid-2000s, and the economic and financial fallout was historic.
History
sometimes repeats itself in economics and finance. Policymakers forewarned.
The FED has been inflating a cheap money bubble for 40 years. The response to every
recession is to cut rates. But the Fed never returns rates to pre-recession levels so the
economy ultimately enters one recession after the next at lower and lower rates. Now at near
zero, the gig is up. Dropping rates by nearly 50 basis points per year for four decades has
created the mother of all bubbles.
Greed is King 1 hour ago remove link
USA, the new Roman Empire and just like the old Roman Empire was, the scourge of the
planet.
A Sovereign debt ridden nation, that only survives due to its enormous military that
enables the USA to pillage the resources of other countries via a foreign policy of threat,
intimidation, invasion and occupation; exactly the same tactics used by the original Roman
Empire.
Unfortunately for the USA, the MIC and American armed forces, are the biggest consumer of
all of the income and resources obtained from pillaging and debt, they are a greedy
insatiable monster that continues to grow and demands more and more to be fed.
We`re now in the ludicrous, unsustainable and unacceptable situation of, all of the
countries who are having their resources stolen by the USA, and all of the American tax
payers who are underwriting the debt incurred by the USA are in fact paying for the MIC and
armed forces to repress them.
Here`s a radical idea; why not stop borrowing to feed the MIC monster, and try treating
the rest of planet Earth with respect and cooperation.
Commenter R.J.S. Discuses CPI Rising led by Food, Energy, and Medical
The consumer price index rose 0.4% in February , as higher prices for fuel, groceries,
utilities, and medical services were only partly offset by lower prices for clothing, used
vehicles, and airline fares the Consumer Price Index Summary from the Bureau
of Labor Statistics indicated that seasonally adjusted prices averaged 0.4% higher in February,
after rising by 0.3% in January, 0.2% in December, 0.2% in November, 0.1% in October, 0.2% in
September, 0.4% in August, by 0.5% in July and by 0.5% in June, after falling by 0.1% in May,
falling by 0.7% in April and by 0.3% in March, but after rising by 0.1% in February of last
year .the unadjusted CPI-U index, which was set with prices of the 1982 to 1984 period equal to
100, rose from 261.582 in
January to 263.014 in February , which left it statistically 1.6762% higher than the
258.678 reading of February of last year, which is reported as a 1.7% year over year increase,
up from the 1.4% year over year increase reported a month ago .with higher prices for energy
and foods both factors in the overall index increase, seasonally adjusted core prices, which
exclude food and energy, were up just 0.1% for the month, as the unadjusted core price index
rose from 269.755 to 270.696, which left the core index 1.2826% ahead of its year ago reading
of 267.268, which is reported as a 1.3% year over year increase, down from the 1.4% year over
year core price increase that was reported for January and the 1.6% the year over year core
price increase that was reported for December
The volatile seasonally adjusted energy price index rose 3.9%
in February , after rising by 3.5% in January, 2.6% in December, 0.7% in November, 0.6% in
October, 1.4% in September, 0.9% in August, 2.1% in July, and by 4.4% in June, but after
falling by 2.3% in May, by 9.5% in April, 5.8% in March, and by 2.5% last February, and hence
is only 2.4% higher than in February a year ago the price index for energy commodities was 6.6%
higher in February, while the index for energy services was 0.9% higher, after falling 0.3% in
January .the energy commodity index was up 6.6% on a 6.4% increase in the price of gasoline and
a 9.9% increase in the index for fuel oil, while prices for other energy commodities, including
propane, kerosene, and firewood, were on average 7.3% higher within energy services, the price
index for utility gas service rose 1.6% after falling 0.4% in January and is now 6.7% higher
than it was a year ago, while the electricity price index rose 0.7% after falling 0.2% in
January .energy commodities are now averaging 1.6% higher than their year ago levels, with
gasoline price averaging 1.5% higher than they were a year ago, while the energy services price
index is now up 3.2% from last February, as electricity prices are also 2.3% higher than a year
ago
The seasonally
adjusted food price index rose 0.2% in February, after rising by 0.1% in January and 0.3%
in December, after being unchanged in November, rising 0.2% in October, rising 0.1% in August
and in September, after falling 0.3% in July, rising 0.5% in June, 0.7% in May, 1.4% in April,
0.3% in March, and by 0.3% last February, as the price index for food purchased for use at home
was 0.3% higher in January, after falling 0.1% in January, while the index for food bought to
eat away from home was 0.1% higher, as average prices at fast food outlets rose 0.4% and prices
at full service restaurants rose 0.3%, while food prices at employee sites and schools averaged
12.2% lower notably, the price index for food at elementary and secondary schools was down
13.7% and is now down 32.5% from a year ago
Well, technically, Goldman clients are asking if they should be buying anything at all,
period, in a time of resurgent volatility driven by rising rates and bond market vol, which
sparked a high beta/growth panic in equities two weeks ago but have since seen the influence
fade.
Yet anyone hoping for a quick and painless reprieve from surging rates will be disappointed.
In his latest Weekly Kickstart, Goldman's David Kostin writes that the bank's economists expect
that rates will continue to rise in coming months and forecast 11% real US GDP growth in 2Q
with core PCE inflation rising to 2.3% "suggesting that investors will have to continually
grapple with the anxiety about economic overheating and Fed tightening that has gripped markets
in recent weeks." Goldman also expects the 10-year yield will rise to 1.8% by mid-year and 1.9%
by year-end. At the rate it is going, it may get there next week.
This is a big problem for Goldman because while we already know that equities are extremely
overpriced according to most valuation metrics, with the S&P 500 trading above the 90th
percentile in absolute valuation...
... ... ...
So what else do Goldman's clients think? Well, based on Kostin's client conversations, most
investors share the bank's view that interest rates will continue rise, but many believe that
the equity market rotations that have recently accompanied rising rates have gone too far.
Translation: Goldman clients are desperately trying to convince nobody but themselves that the
turmoil is over (spoiler alert: it is only just starting).
... ... ...
But what may be even more challenging is that value no longer is cheap as it was just a few
weeks ago. Specifically, Kostin notes that this week Goldman's equity analysts' proprietary
Reopening Scale climbed to a 5 on a scale of 1 to 10...... even as the bank's Reopening basket
has already recovered 75% of its decline, suggesting markets have vastly outrun the recovery.
Consider that Goldman's Cyclicals vs. Defensives basket pair has climbed to its highest level
since the post-tax reform surge of early 2018... ... and the relative P/E valuation of the
baskets stands at its highest historical level outside of the post-GFC recovery.
So with many cyclicals and "reopening" stocks no longer trading at depressed levels, and
with growth stocks susceptible to further market turmoil on the back of rising rates, Goldman's
clients ask: " Where is there still value in the US stock market ?"
Well, since Goldman makes its money by making markets, and has a sworn duty to encourage
clients to buy cheap stocks even when there aren't, Kostin answers with a decisive yes .
... In fact, the Goldman strategist admits that valuations today are even more elevated than
they were in 2000. 20 years ago, the aggregate S&P 500 P/E was a similar 24x, but the
median stock traded at 14x. Today, the median firm trades at 21x .
...
Energy - which we have been pounding the table on since last summer (see the Exxon posts) -
has returned 40% YTD and continues to trade with a very close relationship to long-term oil
prices. Goldman's commodity strategists expect Brent crude will rise 8% to $75/bbl next year.
Energy is also the only S&P 500 sector with short interest above its historical average.
This will be key once Quants (which recently covered their energy shorts) go massively long the
energy sector as
we previewed on Friday . Similarly, Financials, the second best sector YTD (16%), trades
closely with Treasury yields. Although it has recently rallied more than its typical
relationship with rates would have implied, relative valuations remain low compared to history
and Goldman expects value to keep outperforming if the economy continues to accelerate and
rates continue to rise. play_arrow
The Count 3 minutes ago (Edited) remove link
Listen to a guy who experienced all crashed since 1987. Whenever you have housewives trade
stocks, futures or real estate over the kitchen table the end is very near. Whenever pundits
say the market cant go down the end is very very near. Whenever people want to buy whatever
hasn't gone up yet the end is just around the corner.
Disposable people are indispensable. Who else would fight the wars? Who would preach? Who
would short derivatives? Who would go to court and argue both sides? Who would legislate? Who
would sell red hots at the old ball game?
For too long disposable people have been misrepresented as destitute, homeless, unemployed,
or at best precariously employed. True, the destitute, the homeless, the unemployed and the
precarious are indeed treated as disposable but most disposable people pursue respectable
professions, wear fashionable clothes, reside in nice houses, and keep up with the Jones.
Disposable people are defined by what they do not produce. They do not grow food. They do
not build shelters. They do not make clothes. They also do not make the tractors used to grow
food, the tools to build shelters or the equipment to make clothes.
Although disposable people do not produce necessities what they do is not unnecessary. It is
simply that the services they provide are not spontaneously demanded as soon as one acquires a
bit of additional income. One is unlikely, however, to engage the services or purchase the
goods produced by disposable people unless one is in possession of disposable income.
Disposable income is the basis of disposable people. Conversely, disposable people are the
foundation of disposable income.
Pandemic-Driven U.S. Economic Collapse Continues in a Hardening, Protracted "L"-Shaped
Non-Recovery
- Severe Systemic Structural Damage from the Shutdown Will Forestall Meaningful Economic
Rebound into 2022 or Beyond, Irrespective of Advances in Coronavirus Vaccines and
Treatments
- Panicked, Unlimited Federal Reserve Money Creation and Federal Government Deficit
Spending Continue and Will Expand, Triggering Major Domestic Inflation
- With Fundamental Dollar Debasement Intensifying, Holding Physical Gold and Silver
Protects the Purchasing Power of One's Assets
Scroll down for the latest ShadowStats outlook, headline economic news and background
information on the U.S. Economy, Financial System (FOMC), Financial Markets and Alternate Data,
also for Publicly Available Special Reports and Contact Information.
Yet anyone hoping for a quick and painless reprieve from surging rates will be disappointed.
In his latest Weekly Kickstart, Goldman's David Kostin writes that the bank's economists expect
that rates will continue to rise in coming months and forecast 11% real US GDP growth in 2Q
with core PCE inflation rising to 2.3% "suggesting that investors will have to continually
grapple with the anxiety about economic overheating and Fed tightening that has gripped markets
in recent weeks." Goldman also expects the 10-year yield will rise to 1.8% by mid-year and 1.9%
by year-end. At the rate it is going, it may get there next week.
HARLEY BASSMAN: Well, that's a good question. I would say that this notion that rates are
exploding higher and bad things are happening, it's not quite the case. I would say that when
10-years were at 0.75, that was the wrong price. All we're doing now is going to the right
price as opposed to where we were before , which is the wrong price. I would push back at you.
We've seen a significant curve steepening. I'm quite certain we're going to talk about that
today quite a bit.
... ... ...
The banking system, maybe there's bad guys in there and certainly there were villains 10
years ago who should have gone to jail, and didn't, but the banking system is the plumbing of
our financial economy, and we need to maintain it. Therefore steeper curve helps that plumbing
system, so the government can do it. The Fed and fiscal policy can be more efficient.
... ... ...
HARLEY BASSMAN: Circling back to our first two sentences here, it's never different this
time. That's my mantra. It's never different this time. I can't explain why or how but I just
do not think that we've reinvented human tragedy. Hubris, greed, ego. We wrote about it, the
Greeks wrote about it, Shakespeare wrote about it. It just hasn't changed, and it's this idea
that we've invented a new paradigm I just don't believe it. It's a different song, but it's
still music and I think that we'll find some way to go and cause trouble, which is why I
believe in inflation ultimately.
Is it next year? No. Is it in 20 years? I don't know. What I do think, it's going to happen
in two to four years when the demographic bubble rolls over. We could do that later on. I think
we're going to get it because I don't think you could print the coin of the realm at a faster
pace than the overall growth of the economy without inflation at some point. Now, could it take
20 years? Why not? It took 400 years for the Roman Empire collapsed, so in the grand scheme of
things, maybe not.
This policy of money printing is not going to end well. That doesn't mean it was a bad
public policy, by the way, because having the economy totally collapse either in 2009 or last
year is certainly a bad idea, so maybe deferring the pain or spreading the pain out. I think
that inflation is the ultimate solution. Because inflation is a beautiful tax. It taxes,
everybody. It taxes them silently, and the politicians dumped a vote on it. As a tax, everyone
-- well, I wasn't happy, but it's the easiest one to live with in a democracy.
ebworthen 1 hour ago remove link
" They purchase a Rembrandt for a sandwich and our souls for a glass of whisky. Krupp and
Stinnes get rid of their debts, we of our savings. The profiteers dance in the palace
hotels." -- Klaus Mann, 1923; Weimar, Germany.
The more things change, the more they stay the same.
YuriTheClown 1 hour ago
And the Weimar Republic was run by who? Very similar make up to that of the
Bolsheviks.
85% non members of the Royal Church of Scotland.
Creamaster 1 hour ago
Covid timing was sure convenient for a lot of things to occur
You decide, was it naturally occurring, or released intentionally?
Son of Loki 1 hour ago (Edited)
The 10-years will hit 2% soon, and 3% by end of year.
Given the sad state of the economy and leadership (Yellen, Bribem, etc), no way of
stopping it.
Son of Loki 1 hour ago (Edited)
The 10-years will hit 2% soon, and 3% by end of year.
Given the sad state of the economy and leadership (Yellen, Bribem, etc), no way of
stopping it.
Jalmar Shockt 14 minutes ago
It doesn't work that way and it's not about inflation the way one usually thinks of
it.
Hyperinflation is not the same as the ultimate inflation of the money supply. It is the
ultimate depreciation of the currency unit. The two concepts are far from being the same.
When the populace eventually figures out what's going on the bonds, notes, bills, and other
obligations of the United States government that are all irredeemable will be repudiated.
aeslong 48 minutes ago (Edited) remove link
"I would say that when 10-years were at 0.75, that was the wrong priceI would say that
when 10-years were at 0.75, that was the wrong price. All we're doing now is going to the
right price as opposed to where we were before , ....."
yea, only bond was mispriced, right? other assets, including public debts don't have to be
priced to where they were before.
Ted Baker 1 hour ago
more market manipulation...
Bank_sters 1 hour ago (Edited)
Central banksters print money and give most to the wealthy and connected, foreign govts,
the war machine and then send a few crumbs to the serfs. Meanwhile destroy their currency,
savings and future.
Yields? what a joke. CPI- pure fiction.
Finance so easy a psychopathic child can do it.
overbet 1 hour ago
Wall Street adage:
The most dangerous words on Wall Street are, this time its different.
YuriTheClown 1 hour ago (Edited)
Bassman's outlook for rates and markets. Unsurprisingly, he sees more volatility, and
higher convexity, ahead.
I've tried searching for the definition of "convexity" in this context and had no luck.
Anyone care to enlighten?
Oops. I guess the internet had some additions since then.
Convexity
Ron_Paul_Was_Right 46 minutes ago remove link
"A steeper curve helps the baking system."
Did you mean like, a more steeply curved cookie sheet? To help the baking of brownies? I
don't follow.
vote_libertarian_party 1 hour ago remove link
Something will trigger the stock and bond bubble to pop...
Why is it so expensive to get anything done in the US?
Neoclassical economics and the missing equation.
Disposable income = wages – (taxes + the cost of living)
The US's high cost of living pushes up wages making it expensive to get anything done in
the US.
See where neoclassical economists go wrong?
Employees get their money from wages, and the employers pay the cost of living through wages,
reducing profit.
It is the US's employers who pay the high cost of living, via wages, reducing profit.
Do you really want to pay the US's high cost of living in wages?
No way.
You will have to off-shore to maximise profit.
The early neoclassical economists hid the problems of rentier activity in the economy by
removing the difference between "earned" and "unearned" income and they conflated "land" with
"capital".
They took the focus off the cost of living that had been so important to the Classical
Economists as this is where rentier activity in the economy shows up.
It's so well hidden no one even knows it's there.
The neoliberals picked up this pseudo economics and thought it was the real deal.
Things were never going to go well.
Imagine the Chamber of Commerce actively lobbying for state-supported child care, massive
increases in funding for public transportation, public education, public health, and
housing.
Perhaps we should take a look at China to learn how we too can become better capitalists,
and so help USA businesses focus on the business of business.
Western companies couldn't wait to off-shore to low cost China, where they could make
higher profits.
China had coal fired power stations to provide cheap energy.
China had lax regulations reducing environmental and health and safety costs.
China had a low cost of living so employers could pay low wages.
China had low taxes and a minimal welfare state.
China had all the advantages in an open globalised world.
What was Keynes really doing?
Creating a low cost, internationally competitive economy.
Keynes's ideas were a solution to the problems of the Great Depression, but we forgot why
he did, what he did.
They tried running an economy on debt in the 1920s.
The 1920s roared with debt based consumption and speculation until it all tipped over into
the debt deflation of the Great Depression. No one realised the problems that were building
up in the economy as they used an economics that doesn't look at private debt, neoclassical
economics.
Keynes looked at the problems of the debt based economy and came up with redistribution
through taxation to keep the system running in a sustainable way and he dealt with the
inherent inequality capitalism produced.
The cost of living = housing costs + healthcare costs + student loan costs + food + other
costs of living
Disposable income = wages – (taxes + the cost of living)
Strong progressive taxation funded a low cost economy with subsidised housing, healthcare,
education and other services to give more disposable income on lower wages.
Employers and employees both win with a low cost of living.
Keynesian ideas went wrong in the 1970s and everyone had forgotten the problems of
neoclassical economics that he originally solved.
"Keynesian ideas went wrong in the 1970s" and from the 80s on because the (primarily)
Republicans had forgotten that Keynes originally stipulated that the government debt incurred
during "bad times" be liquidated during "good times". Since Reagan, Republicans have
increased debt to stimulate the economy, but failed to pay it down once that part of Keynes's
took effect. Republicans are the biggest half-Keynesians of all time.
Behind all this is the neo-liberal renunciation of any 'national' policies. Define a
'nation' as you will, it still is a valid category. It has definite 'needs' and requirements
to function well and continue as a viable entity. The 'national' government has functioned in
the past as the representative and facilitator for the 'nation.' "Drown that in a bathtub"
and you eventually eliminate the 'nation's' ability to function. The end stage of that
process is the collapse and extinction of the 'nation.'
The above process should be familiar to anyone who has studied the past few decades of
American history. What the proponents of the neo-liberal dispensation have not advertised, if
indeed they even know, is what replaces the 'nation?' An International Syndicate of
Oligarchs? If so, such an endeavour is doomed to failure. History has shown, time and again,
that the concept and practice of commercial business is not an adequate organizing principle
for large scale human society. It simply does not make allowances for human variability.
The best example of the point above that I can think of is the present dominance of short
term thinking and planning in the business sphere. Restricting the inputs of the decision
making process to short term issues, such as quarterly earnings and stock prices in the
bourse, leads to the dysfunctions bemoaned in the piece above. Offshoring a factory makes
sense from a short term business point of view, but ignores the long term 'national'
implications. Here is a direct conflict between the two methods of social organization. At
present the short term methodology is ascendant. Alas, it looks as if America is going to
have to learn this lesson of setting proper 'national' priorities the hard way; such as by
losing a war decisively.
I look on the bright side here. A small thermonuclear exchange between America and some peer
adversary will not only 'thin out' the population, but also bring on a nuclear winter and
retard the progression of global warming for a while. It might be the breathing space the
Terran human race needs to survive beyond the upcoming evolutionary bottleneck.
The consumer-price index rose 0.4% in February from the prior month, as the pace of the
economic recovery increased following a winter lull, buoyed by higher gasoline and energy
costs.
Value stocks are beating growth stocks by the widest margin in two decades, the latest sign
that investors expect the next year to bring a powerful economic rebound.
As
the rollout of Covid-19 vaccines quickens and the economy bounces back from last year's
shutdowns, portfolio managers are snapping up cyclical stocks -- banks, energy companies and
others whose fortunes are closely linked to economic growth. Those shares often fit the
description of value stocks, which trade at low multiples of their book value, or net
worth.
The shift in bets marks a reversal of a trend that has held essentially since the financial
crisis, in which growth stocks outpaced value stocks. That reflected in part the rise of big
tech companies such as Apple Inc. and Amazon.com Inc. AMZN -0.77% and in part the
softness of the U.S. economy. This year, the Russell 1000 Value Index is up 11% and the Russell
1000 Growth Index has edged up 0.2%.
Tech Wrecks As Yields Breakout
BY TYLER DURDEN
FRIDAY, MAR 12, 2021 - 11:05
10Y Yields topped the March 5th highs...
And 30Y has broken out...
And that triggered selling long-duration growth-tastic stocks, sending Nasdaq notably lower...
And more rotation into value as the Dow and Small Caps jump...
And the
correlation
between bonds and stocks remains extremely high and
extremely unusual...
That won't help the asset-allocators?
OldNewB
39 minutes ago
It
will all reverse as soon as Europe closes.
bonsai_king
17 minutes ago
remove
link
Already reversing heavily.
Tech not routed is what this article should read.
A
1% dip in MSFT, QCOM, NVDA, APPL is not exactly a rout....
OldNewB
15 minutes ago
Yep. PPT is real.
zeroshrubbery
35 minutes ago
(Edited)
remove
link
The
senate blew their load by using their budget reconcilliation for the year to pass stimulus, so nothing
else will pass this year. Biden pretty much said point blank there will be no more stimulus period. So
right now we're in a buy the rumor, sell the news dip. The 100 billion or so flowing into the market
should create one final massive blow off top before everyone and their brother's snake's feed mouse
starts taking profits.
I'm
tracking the trading shows some completely dense permabulls, who think they are god's gift to humanity
sharing expert trading advise with their portfolio of HODLing meme stocks. I can't wait to bathe in the
schadenfreude as the losses start hitting 40-50%, they probably will mark their channels private at 80%
losses so I'm not expecting it to last long but one can only hope.
OldNewB
28 minutes ago
Don't be so sure. If the Fed doesn't buy absolutely everything (just like BOJ), the final crash
happens and America goes under. They're not going to let it happen. Inflation and hyperinflation is
the plan, even though they will continue to lie about it being low. Liars and thieves all.
The jobs picture overall has been improving with
379,000 workers added in February , although the U.S. economy still has almost 10 million
fewer jobs than it did before the coronavirus pandemic took hold. Economists have been revising
their employment and GDP forecasts are higher.
Goldman Sachs Chief Economist Jan Hatzius, for example, wrote in a report this week that
the jobless
rate would fall to 4.1% by the end of 2021, from 6.2% last month.
Hyams has been seeing similar encouraging signs on Indeed, with postings on the site already
lapping where they were pre-pandemic. "On Indeed, when we look at new job postings and our
benchmark pre-pandemic of February 1, 2020, at the end of this February we were up 5%
year-over-year. That's still with entire sectors completely shut down," he said.
As for where the hottest demand lies for new jobs, Hyams pointed to e-commerce-related
occupations including logistics, warehousing and delivery, as well as jobs in health care and
pharmacy.
While some of those openings may require showing up regularly in-person, many will not,
which again feeds into Hyams' thesis that interviews will remain virtual.
"If you're going to be a remote worker, interviewing over video actually makes a whole lot
more sense. It's more convenient. It will cut down on travel," he said.
That means many interviewees can continue to pull their blazers and ties out of the closet
-- along with their sweatpants.
Remember job interviews pre-pandemic? The jitters, the choosing of just the right suit, the
race to get there early, maybe even the drive across town or flight across the country for a
shot at a new opportunity?
Like most everything else, the pandemic changed that dynamic. The jitters may remain, but
in-person meetings are largely off the table, interviews among them. The CEO of one of the
most-trafficked jobs websites says it's likely to stay that way even after people get back to
the office.
"People being able to conduct an interview from the safety and convenience of their own
home is going to change hiring forever," said Chris Hyams, Indeed CEO, in an interview with
Yahoo Finance Live. "We believe this is the beginning of a massive secular shift."
"In April, we saw the number of requests for interviews to happen over video shoot up by
1,000%. Even as things have started to stabilize and the economy has opened up over the last 11
months, we've seen that continue to grow," Hyams said.
The jobs picture overall has been improving with
379,000 workers added in February , although the U.S. economy still has almost 10 million
fewer jobs than it did before the coronavirus pandemic took hold. Economists have been
revising their employment and GDP forecasts are higher. Goldman Sachs Chief Economist Jan
Hatzius, for example, wrote in a report this week that the
jobless rate would fall to 4.1% by the end of 2021, from 6.2% last month.
Hyams has been seeing similar encouraging signs on Indeed, with postings on the site
already lapping where they were pre-pandemic. "On Indeed, when we look at new job postings
and our benchmark pre-pandemic of February 1, 2020, at the end of this February we were up 5%
year-over-year. That's still with entire sectors completely shut down," he said.
As for where the hottest demand lies for new jobs, Hyams pointed to e-commerce-related
occupations including logistics, warehousing and delivery, as well as jobs in health care and
pharmacy.
While some of those openings may require showing up regularly in-person, many will not,
which again feeds into Hyams' thesis that interviews will remain virtual.
"If you're going to be a remote worker, interviewing over video actually makes a whole lot
more sense. It's more convenient. It will cut down on travel," he said.
That means many interviewees can continue to pull their blazers and ties out of the closet
-- along with their sweatpants.
Millions of renters
have been unable to pay some or even all of their rent since March 2020, when the
pandemic struck . An analysis by the Urban Institute, a Washington think tank, found that
the amount of unpaid rent could
exceed $52 billion . It estimated that the average household that has fallen behind on rent
owed $5,586.
A bond market selloff is calling the tune across financial markets. Equilibrium is unlikely
to return until the yield on the benchmark 10-year U.S. Treasury note hits 2%, a well-known
macro strategist argued Friday.
"There will be no peace until U.S. 10s reach 2%," said Kit Juckes, global macro strategist
at Société Générale, in a note.
... ... ...
"The pattern seems clear enough: The equity market is seeing a sector rotation but not a
correction; the bond market is seeking a new equilibrium in the light of a vastly improved
economic outlook in both the U.S. and elsewhere; some policy makers are pushing back against
the bond moves, with little success," Juckes wrote.
As yields rise, the dollar rallies, but when yields settle at a new level, the dollar drops
back. The pattern probably goes on until bonds find an equilibrium, unlikely before 10-year
note yields have a 2-handle, judging by taper tantrums and past cycles," he said.
the majority of stocks are weakening and not making new highs, it's not a good sign
when only 30 stocks are leading the way.
Institutional investors pile into stocks
We have different (hopefully better) ways of measuring divergence these days --
specifically, cumulative breadth indicators, new highs vs. new lows, etc., so we don't
have to "stretch" to draw a conclusion about the Dow today.
For a pump and dump to work, you need a certain type of investor—specifically, the type P.T. Barnum said is born every minute
(on platforms like Reddit and Robinhood, more like every nanosecond). To be nice, let’s call them dupes. “Greater fools” works
too. The Federal Reserve owns a share of the blame. You can’t pump without hot air, which the Fed has been supplying for way too
long. Sometimes these schemes last a while, even years. Pay attention to the stories told by presstitutes hyping many of today’s
overvalued stocks. The question arise: "Is today’s market a giant pump and dump?" The market is priced at 32 times earnings; the
historic norm is 16. Expect the inevitable Reddit group: r/StockBagHoldersClub.
Notable quotes:
"... Bull markets need fuel. When the marginal buyer is done, there are no more greater fools to buy in, no matter how well companies actually perform. The dream is priced in, and firms can only meet, not beat, expectations. ..."
"... For those lulled by today's bull market, remember that you own a piece of paper. Low-yielding U.S. Treasury bills and bonds are safe because they are backed by the U.S. government, by cash flow of tax dollars and by the country's assets (think land, not Fort Knox). Stocks are backed by expectations of future earnings, but if you overpay during periods of high expectations (like today), then your downside is huge. Crypto is backed simply by the faith of those who proclaim it is a store of value. Even art and exotic cars and silly NFT tokens are backed only by faith the wealthy will overpay for uniqueness. Faith becomes scarce when the selling starts. ..."
Remember that banker talking about losing 90%? He was talking about the late-'70s death
march down, characterized by stocks going up in the morning and then down in the afternoon --
optimists quickly stepped on by pessimists. Sure enough, after 2000, high-flying tech names
were down 90%. Many went to zero.
How do these bull bashes end? When the last skeptical buyer finally sees the light and buys
into the dream that every car will be electric, that crypto replaces gold and banks, that we
overindulge on vertically farmed "plant-based steaks" while streaming "Bridgerton" Season 5
before we hop on an air taxi for our flight to Mars. Those last skeptics (maybe already)
convince themselves there's no longer any downside. And then boom, it's over.
Bull markets need fuel. When the marginal buyer is done, there are no more greater fools to
buy in, no matter how well companies actually perform. The dream is priced in, and firms can
only meet, not beat, expectations.
For those lulled by today's bull market, remember that you own a piece of paper.
Low-yielding U.S. Treasury bills and bonds are safe because they are backed by the U.S.
government, by cash flow of tax dollars and by the country's assets (think land, not Fort
Knox). Stocks are backed by expectations of future earnings, but if you overpay during periods
of high expectations (like today), then your downside is huge. Crypto is backed simply by the
faith of those who proclaim it is a store of value. Even art and exotic cars and silly NFT
tokens are backed only by faith the wealthy will overpay for uniqueness. Faith becomes scarce
when the selling starts.
The US, UK and Euro-zone went on a joint economic suicide mission before 2008. What was the ponzi scheme of inflated asset prices that collapsed in 2008? "It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of
$1.4 trillion of US sub-prime loans, and dispersed throughout the world" All the Presidents
Bankers, Nomi Prins.
Our bankers had distributed this load of old doggie-doo across the financial systems of the
US, UK and Euro-zone. When these asset prices collapsed, so did our financial systems. Bankers just need to create as many products as they can from something in the real world,
e.g. subprime mortgages.
They all go up together and down together. They call it leverage. I think they are doing the same with ETFs now, since no one worked out what they were up to
last time.
"2020 marked the secular low point for inflation and interest rates," warned Michael Hartnett, chief investment strategist for
Bofa Global Research, in a Thursday note. "The 40-year bull market in bonds is over."
His cautionary words come as investors contend with the sudden surge in long-term Treasury yields this year which has surprised
even the bond bears.
The 10-year note yield
TMUBMUSD10Y,
1.540%
was
at 1.532% on Thursday, over 60 basis points from where it traded at the beginning of the year.
That rise has, in turn, heightened concerns around stretched valuations in equities, briefly sending the Nasdaq Composite
COMP,
+2.52%
into
correction territory this week, defined as a 10% fall from its intraday peak. Stocks have recently found their footing again,
with the S&P 500
SPX,
+1.04%
up
nearly 3% this week.
Investors throughout the multidecade long bull market in bonds have sometimes bet against a continued slide in long-term Treasury
yields, but as inflation has struggled to break above the Federal Reserve's 2% target for any sustained stretch, forecasts for
higher yields have often proved a losing proposition.
Still, Hartnett suggested any complacency is dangerous as undercurrents in the economy and policymaking pointed towards a tidal
wave of inflationary pressures that could overwhelm buyers of Treasurys.
The Nasdaq Composite has fallen 7.25% from its Feb. 12 record high through Tuesday as a
sharp rise in the 10-year year yield caused investors to flee stocks in the growth-heavy index.
At the same time, the Dow Jones Industrial Average has held within 0.4% of its record peak.
"The lesson here is that near or at market peaks, it is common for the Nasdaq to first
succumb to the overhyped inflation fears and the rise in bond yields, and after the mega caps
slip, the Dow follows with a lag," Rosenberg said. "And the blue-chips decline, albeit at a
slower rate."
The 10-year Treasury yield has climbed 64 basis points this year to 1.56%, a 13-month high,
amid concerns the unprecedented amount of fiscal and monetary stimulus used to combat the
economic slowdown caused by COVID-19 will bring back inflation that has been lacking since the
2008 financial crisis.
... ... ...
The last two major bond-market selloffs, in 2016 and 2012, resulted in the 10-year yield
rising by 132 basis points and 162 bps, respectively. Measuring from the August 2020 low of
0.515% suggests the top in yield could occur in the 1.82% to 2.13% area and begin forming in
May, according to Bank of America's analysis. In both examples, the top took about three months
to form.
Over the past five years the Nasdaq Composite has increased in value by 127%. Which is less
then the 456% growth in the Nasdaq during the heyday of the dot-com era but still significant.
With the recent listing of Snowflake ($SNOW) in what was the largest software IPO ever, some have
argued that this is reminiscent of the dot-com bubble where the share price for technology
companies routinely doubled or more on their first day of trading. Snowflake's astronomical
valuation aside, the frenetic market behavior surrounding this summer's IPO craze is a cause for
concern. Also look at the hype around Nikola project. The current P/E ratio od S&P500 of 28.8
is below the high of 44 in December 1999 but still very high.
Arguably the single greatest concern for the stock market is valuation, which is something
I've
been harping on for months .
As of Feb. 22, the Shiller S&P 500 price-to-earnings
(P/E) ratio -- a P/E ratio based on average inflation-adjusted earnings from the previous 10
years -- stood at 35.30. That's more than double its average reading of 16.78 over the past 150
years, and it's the highest the Shiller P/E ratio has been for the S&P 500 since the
dot-com crash two decades ago.
There have only been five instances in the 150-year history of the Shiller S&P 500 P/E
ratio where a bull market rally has sustainably taken it above 30: The Great Depression, the
dot-com bubble, Q4 2018, the COVID-19 crash of Q1 2020, and currently. In each of the previous
four instances, the S&P 500 lost between 20% and 89% of its value. Admittedly, the Great
Depression was a unique scenario that would be unlikely to play out today. Nevertheless,
bad
things have historically been in the cards for the S&P 500 when the Shiller P/E ratio
gets north of 30.
Rising Treasury yields portend trouble for spoiled homeowners and
prospective buyers
A third market crash-causing concern is that the multiyear housing boom could dry up at the
drop of a pin.
Without getting too far into the weeds, current homeowners and prospective buyers have been
driven by historically low lending rates. Though the Fed doesn't directly control mortgage
rates, there's been a fairly tight correlation between mortgage rates and 10-year Treasury
yields for a long time. Last year, 10-year Treasury yields hit roughly 0.5%, paving the way for
historically low mortgage and refinance rates, as well as tempting homeowners to take equity
out of their homes.
Buffett's disciples are looking at their idol's indicator, which seems to suggest the stock
market is significantly overvalued. The Berkshire Hathaway chief said in 2001, "The ratio
(stock market capitalization to annual GDP) has certain limitations in telling you what you
need to know. Still, it is probably the best single measure of where valuations stand at any
given moment."
While the Federal Reserve continues to pump liquidity and fuel new record highs, the
COVID-19 pandemic depresses economic output. The Buffett indicator stands at 194%, which is
well above the 159.2% just before the dot.com bubble. Hence, the Oracle of Omaha sees a very
strong warning signal.
Is the stock market heading for a crash in 2021? Pundits seem sure
a severe correction is coming because of the irrational exuberance that's happening at
present. Some analysts liken it to the events in the late 1990s when the dot.com bubble burst. We
witnessed the longest bull market
While the narrative of the Dot Com crash is commonly understood as a market-wide crash, the
chart above shows that over the five years after the peak of the bubble, the S&P 500 Equal
Weight Index generated a positive 36% return while the Nasdaq declined by 58%. If you look at
the white line representing the S&P 500 Equal Weight Index, you'll see that by the end of
2001, when the NASDAQ had fallen by almost 60%, the average stock was actually up about 9%
despite the Dot Com crash and the horrific events of 9/11.
With IT being one of few sectors that have continued to deliver stable results amid the
Covid-19 recession, analysts and investment advisors alike have urged for caution as some have
feared a repeat of the 1995-2000 tech bubble that ultimately burst in 2002 when 80% was wiped
off the stock market. However, as some more level-minded commentators have pointed out, the
differences between 2002 and today outnumber the similarities as private and institutional
investors alike have a better understanding of how digital services work now than 18 years ago
– and P/E ratios have been more reasonable lately than they were during the dot-com
bubble.
As difficult as it is to imagine a world without the internet, the medium as we know it
today only took off in earnest with the event of Windows 95 and the Netscape browser. The tech
bubble began with Netscape, the company behind the browser, which was loss-making at the time
of its IPO but still saw its share price increase from $28 to $75 within the first few hours of
trading. Netscape would be joined by other tech and software companies which had underlying
structural problems but still saw their share prices skyrocket – investors jumped at the
opportunity to buy stocks in any company with the prefix "e-" or suffix "-com". The tech
companies spent millions on advertising campaigns but failed to make a profit and in 2000,
valuations began to fall. Between 2000 and 2002 Nasdaq fell by 80% – and the dot-com
bubble burst.
In its infancy, the internet seemed to offer unlimited possibilities and so it us
understandable that investors felt optimistic. Cut-throat competition and limitations in what
consumers and corporate users were actually willing and able to do with the new medium limited
the potential of many tech companies, and start-ups with poor finances were generally not in a
position to compete with giants such as Microsoft, IBM and Apple who already had been
established for decades.
The proliferation of smartphones and 3G as well as fast broadband around 2010 enabled a new
wave of innovation and saw a rise in social media users and online streaming services. Some
pre-existing firms, such as Facebook and Netflix have been able to tap into this new market
while newcomers such as Uber and Lyft offer services that would have been unviable without
smartphones. While tech start-ups have proliferated in recent years, many stay away from the
stock market precisely because they are not yet profitable – food delivery service
Deliveroo being one example. Cab-hailing app Uber's IPO and subsequent plummeting stock price
served as a lesson to many others.
While it could be argued that the fall in value of stocks from Uber, FitBit and other tech
start-ups is tech bubble 2.0 starting to burst, a broader view calls for another assessment. As
noted, start-ups have not seen their stock prices surge when going public, but rather plummet
immediately. Unlike in 2000, investors are more aware of the differences between tech firms and
the services they offer – simply having an "e-" or "-com" in the company name does not
make investors queue up to buy stock – and investors also know that corporate IT is a
larger market than products directed as consumers. As an illustration, Amazon earns two-thirds
of its revenue from its cloud computing platform and not from physical sales or video
streaming.
Among the IT stocks on the S&P500 index that have seen the highest increase in the last
decade, we find Apple, Alphabet (the owner of Google), Amazon, Facebook, Mastercard, Microsoft
and Visa. These continue to deliver robust returns.
Taken together, the buzz word "the winner takes it all" seems to ring true as tech giants,
with their relatively high P/E multiples are in a position to dominate the market and acquire
promising start-ups. How their domination will impact the stock exchanges remains to be seen,
but for the time being it seems unlikely that their stocks would collapse.
10-year treasury rates average at around 5% during this entire growth period. This is a stark
contrast to the 1.5% we are seeing now (which already seem to rattle markets).
The Cyclically Adjusted Price Earnings Ratio, or CAPE, a measure developed by Robert
Schiller, is also flashing red with the second highest reading in history going back to the
late 1900s (see exhibit 4).
Price to sales ratios also hit a record high (see Exhibit 5).
There are other indicators that suggest that equity prices have detached from underlying
fundamentals. The put / call ratio on the CBOE has now reached the levels of the dot.com bubble
(see Exhibit 6).
Bill Gates is now the largest owner of
farmland in the U.S. having made substantial investments in at least 19 states throughout the
country. He has apparently followed the advice of another wealthy investor, Warren Buffett, who
in a February 24, 2014 letter to investors described farmland as an investment that has "no
downside and potentially substantial upside."
The World Wide Web, which is what people really tend to mean when they say 'the Internet,'
was officially invented by Tim Berners-Lee in 1989. When people interact with the Internet
today, they are using the World Wide Web, which is technically not the same as the 'Internet.'
However, the Web did not become fully commercialized right away.
When the Mosaic Web browser was released in 1993, the commercial growth of the Internet
started to become much more prominent. Really, the commercialization of the Internet and the
dawn of mass Internet commerce began around this point. However, the Dot Com Boom itself did
not really get into full force until 1997. The Dot Com Bubble was characterized by the
unprecedented growth of companies that came to be known as Dot-com companies.
There are still a companies today that are referred to as 'dot-com companies.' However, in
many cases, the people who say that are going to date themselves. The dot-com companies of the
late 1990's were more or less formed in order to take advantage of the remaining venture
capital in the markets that they entered. They often had little more than a great domain name
and a basic idea. They hoped people would invest in what they had in order for them to rise
through the ranks, but many of them would have no real idea of how to produce anything even if
their companies could have had any substance.
"... The psychologies of speculation and gambling are almost indistinguishable: both are dangerously gambler places a bet on a horse he is creating a risk, while the speculator who buys a share is simply involved in the transfer of an existing risk. ..."
"... To repeat Keynes's warning from the 1930s: "when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done." Momentum trading, trend-following currency speculators, overleveraged hedge funds, and corporate managements obsessed with daily fluctuations in share quotations are unlikely to produce the optimal distribution of scarce resources in the global economy. We have reached Keynes's "third degree." ..."
"... ...options, developed by Scholes and Merton, which lies at the heart of the modem derivatives world, is dependent on the similar assump- tion diat past volatility is a reliable guide to future volatility. This assumption may be likened to driving a motorcar by looking in the rearview mirror -- line as long as the road continues straight but disastrous when you reach the first comer. ..."
For Smith, the speculator is defined by his readiness to pursue short-term opportunities for profit: his investments are fluid whereas those
of the conventional businessman are more or less fixed. This distinction was retained by John Maynard Keynes, who described "enter-
prise" as "the activity of forecasting the prospective yield of assets
over their whole life,1' in contrast to speculation, which he called "die
activity of forecasting the psychology of the market.'1
Specidation is conventionally defined as an attempt to profit from
changes in market price. Thus, forgoing current income for a
prospective capital gain is deemed speculative. Speculation is active
while investment is generally passive. According to the Austrian
economist J. A. Schumpeter, "the difference between a speculator
and an investor can be defined by the presence or absence of the
intention to 'trade,1 i.e. realize profits from fluctuations in security
prices.112 The line separating speculation from investment is so thin
that it has been said both that speculation is the name given to a
failed investment and that investment is the name given to a suc-
cessful speculation. Fred Schwed. a Wall Street wit, declared that
clarifying the difference between investment and speculation was
"like explaining to the troubled adolescent that Love and Passion
are two different things. He perceives that they are different, but
they don't seem quite different enough to clear up his problem."
Schwed concluded the two could be separated on the grounds that
the first aim of investment was the preservation of capital while the
primary aim of speculation was the enhancement of fortune.
As he put it: "Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money becoming a little."'
Similar problems of definition are encountered in distinguishing
speculation from gambling. While a bad investment may be a spec-
ulation, a poorly executed speculation is often described as a gamble. The American financier Bernard Baruch was once dismissed
from the presence of Pierpont Morgan for uttering the word "gamble" in relation to a business proposition.4 Later, Baruch recalled
that "there is no investment which doesn't involve some risk and
is not something of a gamble."
The psychologies of speculation and gambling are almost indistinguishable: both are dangerously gambler places a bet on a
horse he is creating a risk, while the speculator who buys a share is simply involved in the transfer of an
existing risk.
Speculation is generally considered riskier them
investment. The securities analyst Benjamin Graham declared that
investment requires a "margin of safety" so that the value of the
principal is maintained even in unforeseen adverse conditions.
An
uninformed or spontaneous investment is more speculative than
one in which the investor has taken the time to investigate and
assess its potential returns. Graham added that buying shares with
borrowed money was always speculative. The capitalist is confronted with a broad spectrum of risk with prudent investment at
one end and reckless gambling at the other. Speculation lies somewhere between the two.
... ... ...
It is often said that speculation never changes because human
nature remains the same. "Avarice, or desire of gain, is a universal
passion which operates at all times, in all places, and upon all per-
sons," wrote David Hume in the eighteenth century. To this we
might add that the fear of loss, emulation of one's neighbour, the
credulity of the crowd, and the psychology of gambling are equally
universal. The early stock markets were moved by hopes and fears
as much as their later counterparts. These emotions are unleashed
during moments of speculative euphoria. They follow die path of
least resistance, moulding each mania, regardless of its historical
context, into a common form. This explains why all great specula-
tive events seem to repeat themselves and why the experience of the
1690s seems so familiar.
The theory of the "rational bubble" appears to be nothing more
than an elaborate restatement of the "greater fool" investment
strategy, whereby the speculator knowingly buys shares above their
intrinsic value hoping that a "greater fool" will pay more for them
later. The exponents of the "rational bubble" appear to overlook
the fact that the success of this strategy is dependent on liquidity
(i.e., the constant presence of both buyers and sellers in the mar-
ket) and that in a panic buyers vanish at the very moment when
"rational bubble" speculators are seeking to unload their shares.
The "greater fool" method of investment has enjoyed great popu-
larity' in the 1990s American bull market where it has been
renamed "momentum investing." Speculators look to buy shares
that are rising faster than the market and sell quickly when the rise
begins to peter out.* The fate of the London banker John Martin in
1720 illustrates the dangers of this frivolous approach to invest-
ment. Early in the summer, he had gleefully argued that "when the
rest of the world is mad, we must imitate them in some measure,"
but he failed to sell out before the crash, lost a fortune, and ended
up complaining pathetically of being "blinded by other people's
advice."19
... ... ...
During the upturn of the cycle, Bagehot argued, people become
convinced the prosperity will last forever and mercantile houses
engage in excessive speculations. At the same time, an increasing
number of frauds are perpetrated on investors, which only come to
light after a crisis: "All people are most credulous when they are
most happy."
... ... ...
...According to John Stuart Mill, the seeds of each boom
are sown during the preceding crisis, when the liquidation of credit
causes asset prices to decline so severely that they become genuine
bargains. Their subsequent sharp rise from a low level leads to a
revival of speculation.55 After each crisis, the financial markets
invariably shrug off past follies and losses to confront the future
with bright optimism and fresh credulity. Capital becomes "blind,"
to use Bagehots term. Unable to remember the past, investors are
condemned to repeat it.
... ... ...
The most striking similarity between the 1920s and 1990s bull
markets is the notion that traditional measures of stock valuation
had become obsolete. Once again it was argued that an investment
in the stock market helped retain purchasing power during infla-
tionary periods and that management wras becoming more respon-
sive to shareholders' interests. Abby Joseph Cohen of Coldman
Sachs claimed that a longer business cycle and lower inflation justi-
fied an upward valuation in stock prices. In their Securities Analy-
sis, Benjamin Craham and David Dodds wrote that "instead of
judging the market price by established standards of value, the new'
era [of the 1920s] based its standards of value upon the market
price." In similar fashion, consultants in the 1990s invented a con-
cept named "market value added," which simply measured the difference between the market value of the firm and the amount of
capital tied up in it. The higher the "market value added," the
greater the firm is deemed to be worth.
The net asset value of a company -- the value of its factories,
machinery, and suchlike -- became the most despised of traditional
valuation tools. Dividend yields, which slipped to a historic low of
less than 1 Vi percent, were also dismissed as irrelevant. At times
even the price-eamings ratio, a measure favourable to speculative
values, has looked too conservative. Discounting future cash flow's
was used to justify any price for fast-growing technology companies. In late October 1996, a headline in the Investors Business
Daily, a stock market daily which published relative strength fig-
ures, asked and answered a question that vexed many minds:
"Overvalued? Not If the Stock Keeps on Rising."90
The new paradigm, or new' economics, of the 1990s provided the
intellectual underpinning for the greatest bull market in American
history. When stock prices fell sharply in October 1997, Abby
Joseph Cohen of Goldman Sachs saved the day by advising her
clients to increase their holding of shares. James Grant has sug-
gested that the reappearance of the new era ideology was a sign
that "markets make opinions not the other way round."
... ... ...
Keynes defined speculation as the attempt to forecast changes in
the psychology of the market. He compared it to various parlour
games -- snap, old maid, and musical chairs. Switching his
metaphor, Keynes likened speculation to a newspaper competition
in which the competitors have to pick out the six prettiest faces
from hundreds of photographs,
so that each competitor has to pick, not those faces which he
Itimself finds prettiest, but those which he thinks likeliest to
catch the fancy of the other competitors, all of whom are looking
at the problem from the same point of view ... We have reached
the third degree w here we devote our intelligences to anticipating what average opinion expects the average opinion to be.'8
Speculation which is a beneficial, indeed vital, component of the
capitalist process has come to dominate the system to an unhealthy
degree.
To repeat Keynes's warning from the 1930s: "when the
capital development of a country becomes a by-product of the
activities of a casino, the job is likely to be ill-done." Momentum
trading, trend-following currency speculators, overleveraged hedge
funds, and corporate managements obsessed with daily fluctuations in share quotations are unlikely to produce the optimal distribution of scarce resources in the global economy. We have reached
Keynes's "third degree."
... ... ...
...options, developed by Scholes and Merton, which lies at the heart of
the modem derivatives world, is dependent on the similar assump-
tion diat past volatility is a reliable guide to future volatility. This
assumption may be likened to driving a motorcar by looking in the
rearview mirror -- line as long as the road continues straight but
disastrous when you reach the first comer.
In common with all the
practical ideas generated by the Efficient Market Hypothesis, it is
based on the belief that when financial theories are turned into practice there is no change to the underlying reality. This was the error of
portfolio insurance in the 1980s and remained die error of the
derivatives markets a decade later. If markets are not efficient but
are subject to chaotic feedback loops, then the entire financial
superstructure created around derivatives in the 1990s, with its $50
trillion worth of exposure, is based on shaky premises.
Even outside the field of options pricing, the teaching of the Efficient Market Hypothesis has insinuated itself into the practices of
modem finance: the fads for "shareholder value" and corporate
stock-option schemes, the Capital Asset Pricing Model (which "scientifically" calculates companies' cost of capital), and popular
investment in stock index funds are all predicated, to a greater or
lesser extent, on the assumption that shares are efficiently priced by
the market. But if the hypothesis is false -- e.g., because speculative...
>
5.0 out of 5 stars
The
No. 1 history of financial speculation
Reviewed in the United States on July 3, 2018
Verified Purchase
Absolutely the single best history of financial speculation. Chancellor seems to
have assimilated just about everything one could on all the major speculative episodes, from ancient origins through the
1990s.
There's not much else to say. If you're an investor, this is a must-read history of how things can go horribly wrong in
financial markets.
In fact, with U.S. equities bumping against all-time high valuations (in mid-2018), this is the perfect moment to take
your time and read through this book. It'll show you all the ways you might be getting swept up in speculative excess,
of which you might not be aware, even if you're invested in the greatest businesses that have ever existed.
>
Shashank V. Nerurkar
4.0 out of 5 stars
Historical
Perspective of Financial Speculation
Reviewed in India on September 9, 2019
Verified Purchase
Devil Take The Hindmost is very informative book which covers the history of
financial speculation from the third century. The author has narrated relevant details from various sources which
reflects the scholarly research undertaken by him. The major speculative bubbles such as tulip mania, south sea bubble,
railway network in Britain and US, automobile revolution in US, the crash of 1929, junk bonds mania, the Japanese bubble
of 1980 and havoc created by derivatives and hedge funds after 1990 are covered in great details. One realizes that not
much has changed as far as factors that lead to financial speculation over the history. The reader will be better
equipped to compare the conditions in financial markets with historical perspective. The author could have avoided bias
against the Republicans in US and Conservatives in Britain as their opposition has not done any better in managing the
financial speculation. The book is a bit dated and as such do not cover the dot-com bubble and 2008 financial crisis.
The book is great read for all participants in financial markets.
One of the biggest permanent changes coming out of the Pandemic is that businesses have
invested in technologies that have long been available, but that hadn't been deployed because
there was no visible need to deploy them, and because businesses were stuck in a rut, and
change is hard and costly – and the rules of inertia had taken over.
But now the Pandemic has forced businesses to change. There is no going back to the old
normal. And these technologies impact employment in both directions.
We encountered precisely that when we went cross-country skiing last week at Royal Gorge in
the Sierra Nevada, which we do every year. What is said to be the largest cross-country ski
resort in the US with 120 miles of groomed trails (if they're groomed) had fallen on hard times
years ago, filed for bankruptcy, and was acquired out of bankruptcy in 2011/2012. It is now
operated by Sugar Bowl Resort, the downhill ski area nearby. There have been some improvements
since then, such as new warming huts. But the resort remained largely low tech, or no tech. And
even there, things changed massively and permanently with the Pandemic.
The way it used to work: You stood in line every morning to buy old-fashioned trail passes
that you then stuck on your poles and that you then tried to scrape off at night. If you rented
equipment, you spent more time standing in line. There was a website, but you couldn't buy
anything on it. There were quite a few employees involved in dealing with the skiers that
wanted to buy trail passes and rent equipment. The place could get crowded, and customers
wasted time standing in line and dealing with logistics.
Now, the requirements of social distancing and contactless commerce forced the resort to
invest in an ecommerce website. You have to use the website to buy trail passes and pay
for and make reservations for the rental equipment (actually fitting the rental equipment is
still done in person at the lodge).
Trail passes are now rechargeable cards, similar to prepaid debit cards with a radio chip.
You get them at an ATM-type machine outside the lodge by holding the QR code -- that
black-and-white square-shaped maze -- of your reservation (paper or smartphone) under the
scanner. And it spits out the card. You can recharge the trail pass online and reuse next year
.
This should have been done 10 or 15 years ago. It's superfast and convenient, and you don't
have to stand in line anywhere. You can park, scan, and ski.
And the resort has gone entirely cashless. You can buy some corn bread, but you have to use
your card. Credit card transactions are automated. No one needs to balance the cash drawer or
count cash.
And some of the staff that used to deal with the trail passes and other stuff are now either
doing other things at the resort or are no longer needed at all.
But there are people who manufacture, install, and maintain the equipment, build and
maintain the ecommerce site, and deal with the other issues that tech produces. They're
different jobs and only have a small local component.
This is a permanent change. And it's an improvement for users of the resort. It may have
also reduced employment at the resort, while supporting employment at companies that provide
and service the technology.
I chatted with one of the employees at the resort. Trail pass sales were doing pretty good,
he said, but equipment rentals were down by about half compared to last year. He figured that a
lot of people have bought their own equipment.
It would make sense: quite a few people have apparently left San Francisco and other
high-cost Bay Area cities, and some of them have moved into the Sierra Nevada, including the
Lake Tahoe area and the whole strip along I-80, including Truckee, now that they're "working
from home" and can take a daily ski break between Zoom calls.
The healthcare industry has done a similar thing: Using technology to avoid contact, thereby
making a lot of basic stuff simpler and cheaper. At our healthcare provider, we could always
make a phone-appointment with a doctor. This was free and quick, and often all that's needed
for minor things, and avoided the time and cost of "going to the doctor." This was an
option.
Now telemedicine – or "virtual care" – has turned into a thing. Making video
appointments is now encouraged. Prescriptions are filled online and delivered. When that's all
that is needed, it saves time for the patient and the healthcare provider.
Obviously, telemedicine still doesn't work for many medical issues, but the routine issues
that doctors spend much of their time on can be handled that way.
Only some of these technologies are visible to patients. For the healthcare providers, it
meant investing in video tools and other technologies and in the infrastructure needed to
support this on a large scale.
The Pandemic has also pushed even reluctant consumers and businesses into ecommerce. In Q4
last year, when brick-and-mortar stores were open nearly everywhere,
ecommerce sales soared by 32% from a year earlier .
Package deliveries by UPS nearly doubled to 34 million packages a day, UPS chief information
and engineering officer Juan Perez said at a
Wall Street Journal event. And the company had to adapt and scale its digital technologies
to deal with it. The Pandemic drove some of the most significant changes in the company's
history, he said.
The entire ecommerce sector, likely the biggest beneficiary of the Pandemic, has invested
vast sums in technologies and infrastructure to deal with the surge in demand.
This now includes ski resorts and grocery stores and other previously unlikely suspects for
ecommerce. They will not go back to the old normal, nor will their customers.
While lots of office employees who now work at home will eventually return to the office,
the old times of nine-to-five every day at a desk farm are gone for many employees. Companies
have invested in technologies to succeed with their hybrid work-from-home models, and they are
cutting costs where possible by reducing the real estate footprint and related costs.
People who like working in an office can gravitate to employers that encourage or require
it. People who like working at home can gravitate to employers with hybrid models. Companies
will make one or the other a selling point when recruiting talent. That's how that will wash
out.
It will take years to sort through the issues that these sudden and often massive shifts
leave behind. But from what I have seen, many of the shifts are positives and should have
happened a long time ago – and only inertia prevented them from happening.
The blunt answer is that the Fed, in sync with the fiction writers at the Bureau of Labor Statistics (BLS), reports consumer
inflation as honestly as Al Capone reported taxable income.
In short: The Fed has been lying about (i.e. downplaying) inflation for years.
As we've shown in many prior reports, the Consumer Price Index (CPI) scale used by the BLS to measure U.S. consumer price
inflation is an open charade, allowing the BLS, and hence the Fed, to basically "report" inflation however they see fit -- at least
for now.
If, for example, the weighting methodologies hitherto used by the Fed to measure CPI inflation in the 1980's were used today,
then US, CPI-measured inflation would be closer to 10% not the reported 2%.
Concerned about by rising consumer costs, the Fed simply tweaked its CPI scale for measuring the same, effectively downplaying
rising costs like a fat-camp scale which downplayed the significance of say beer, chocolate or pizza.
In short, the Fed didn't like the old CPI scale for measuring inflation, and so they simply replaced it with one in which 2+2 =2.
But why all the mathematical gymnastics and creative writing at the current BLS and Fed?
What explains the ongoing double-speak wherein the Fed wishes to target higher inflation yet simultaneously and deliberately mis-reports
it at far lower levels?
Necessity: The Mother of Invention
.
The Fed, in deep
need
of keeping its IOU-driven (i.e debt-driven) façade of "recovery" in
motion, has no choice but to
invent
a respectably controlled (i.e. LOW) CPI inflation
rate in order to make US Treasury bonds look even moderately attractive to others.
After all, the US lives on those IOU's. They need to look pretty.
If, however, the more honest and much higher 10% inflation rate were honestly reported on an honest CPI scale, the
inflation-adjusted
yield
on the US 10-Year Treasury would be
negative
8%–which hardly makes it a pretty bond for
the world to either admire or buy.
That's a problem for Uncle Sam.
And so the Fed invents a CPI inflation number that is less embarrassing than reality. It's just that simple.
By the way, if real yields on the US 10-Year were honestly reported at -8%, gold would be ripping to the moon right now (it
skyrocketed in the 1970's when real yields were -4%).
We all know, however, that the Fed (and the bullion banks it serves) are terrified of rising gold prices, as a rising gold price
confirms the absolute failure of their monetary policies and the open, and ongoing, debasement of the US Dollar.
This further explains why the world's central and bullion banks
openly
manipulate
the paper gold price in the COMEX markets on a daily basis.
Furthermore, given that the only thing that seems to be "healthy" in the US today is the biggest stock and bond market bubble in
its history, the Fed wants to keep that bubble growing rather than naturally popping.
And toward this end, the Fed may be desperate, dishonest and delusional, but they aren't completely stupid.
They know, for example, that for the last 140 years, ALL (and I mean ALL) of the stock market's gains came during
disinflationary
periods,
not
inflationary
periods -- which is all the more reason for the Fed to lie about inflation
and keep the bubble rising.
So, please don't fall for Powell's double-speak that he's more concerned about focusing on
employment than inflation.
The unspoken truth is that Powell (as well as Yellen, Bernanke et al) have been absolutely obsessed with inflation for years.
They simply mis-report it (i.e. lie), as the dollar's
purchasing power
continues its slow
fall toward the floor of history.
Having Your Cake and Eating it Too.
What the Fed has been doing ever since Greenspan (the veritable "Patient Zero" of the current global $280T debt disaster) is very
clever yet extremely toxic, as well as openly duplicitous.
Specifically, the Fed now prints over $120B per month (to buy $80B in unwanted Treasury bonds and another $40B in unwanted, toxic
MBS paper) with no apparent inflationary effect (despite the fact that inflation is defined by money supply) beyond its 2%
"allowance."
Such extreme money creation openly dilutes the USD to inflate away US debt with increasingly diluted dollars, now a desperate as
well as deliberate Fed policy.
But by simultaneously and dishonestly mis-reporting CPI inflation as they dilute the dollar, the Fed can inflate away US debt
without having to make the inflation-adjusted yields on Treasury bonds appear too embarrassingly ugly (i.e. grotesquely
negative
)
for circulation and consumption.
Such open fraud, of course, allows the Fed to have its cake (debased currencies to inflate away debt) and eat it too (by
under-reporting the otherwise disastrous CPI inflationary consequences of such a desperate policy.)
In short, by putting lipstick on the pig of what would otherwise by
highly negative
real
yields on an openly bogus Treasury bonds if the CPI inflation rate were
accurately
reported,
the Fed can continue to live on more debt, more IOU's and more dishonesty.
Such veiled inflationary dishonesty allows the U.S. to effectively extend and pretend as the US credit market marches forward
like a veritable Frankenstein -- that is dead, yet still marching, arms outstretched and moaning like a beast.
QuiteShocking
4 hours ago
Gas was
around $2 a gallon on Election Day (Nov 3rd 2020)... and now over $2.70 a gallon for a 35% increase and we're just
getting started... So much for the 2% fantasy...
PodissNM
PREMIUM
3 hours ago
The
price of practically everything has doubled in the past 20 years. Other than a few outliers like TVs,
which have seemingly never been cheaper.
Now
they're reducing package quantities in consumer staples to obfuscate further price increases.
philipat
3 hours ago
(Edited)
It's all a confidence game. The Fed CANNOT let rates rise (USG can't afford to pay higher rates on
interest on the ever increasing debt, let alone paying down principal - that can never happen) but on the
other hand it needs inflation to inflate away some of the debt. And it cannot allow Equity markets to
crash (they have become the surrogate US economy) so as the debt grows the equity markets must continue
to grow. Just a smallish sustained drop would cripple GDP.
Which means the USD should collapse.
BUT
it's like keeping all the plates spinning together. All three are manipulated. EVERYTHING is manipulated,
there are NO free markets. The ESF and Central Banks (Why does the Fed need trading floors?) intervene
daily in everything. And so far they are getting away with it.
Which brings us back to confidence......
buzzsaw99
4 hours ago
(Edited)
remove
link
The principal value of TIPS rises as inflation rises.
Inflation is the pace at which prices increase throughout the U.S. economy, as measured by the Consumer Price
Index (CPI)...
real yields
all negative baybee, except the 30y is a whopping +0.010%
The
purpose of the consumer price index (CPI) is to reflect just how much inflation is eating into both our
incomes and our savings.
Currently,
the government understates inflation by using a formula
based
on the concept of a "constant level of satisfaction" that evolved during the first half of the 20th
century in academia.
More on this subject in the article below.
There are many reasons the stock market HAS to keep rising. One of the main ones is that all of the
city and state pension funds are heavily invested in the stock market. If the stock market wasn't rising,
tax-payers would have to pick up a greater share of pensions. Simply put, this can't happen.
MrBoompi
1 hour ago
remove
link
Come on. The only jobs Fed employees care about are their own jobs. They supervised the dismantling of
our manufacturing jobs, without lifting a finger, since 1971. They are not screaming to end the
lockdowns either.
Just like minimum wage, Seniors have been denied the true COL increases, which are the law, for Social
Security. These payments should at least be double what they are today.
They are globalists and as such could care less about common folk. A must-have skill if you want to be
Fed Chair is the ability to lie. This skill will be needed much more than your business, law, and
accounting degrees.
Give Me Some Truth
1 hour ago
remove
link
Thanks to
the author for pointing out the elephant in the room that "officials" and the mainstream media are not allowed to
discuss. Namely (from this article):
"We all
know, however, t
hat the Fed (and the
bullion banks it serves) are terrified of rising gold prices, as a rising gold price confirms the absolute failure
of their monetary policies and the open, and ongoing, debasement of the US Dollar.
This further explains why the world's
central and bullion banks
openly
manipulate
the paper gold price in the COMEX markets on a daily basis."
In short, EVERYTHING the "Powers that
Be" do is designed to keep gold and silver prices contained, which thus protects the all-important fiat printing
press.
Inflation
numbers are rigged to help achieve this result and so too are precious metal markets rigged.
I'd also add that the
"unemployment" numbers are equally bogus.
So too are many of the COVID numbers and metrics.
If numbers
can be rigged - if definitions can be changed - to support a specious narrative, they will be ... All for the same
purpose.
"There is no one party in the electrical power generation chain on which to lay the blame,
and we should quit trying"
Power lines are shown Tuesday, Feb. 16, 2021, in Houston. More than 4 million people in
Texas still had no power a full day after historic snowfall and single-digit temperatures
created a surge of demand for electricity to warm up homes unaccustomed to such extreme lows,
buckling the state's power grid and causing widespread blackouts.
In 1882, Thomas Edison formed the Edison Electric Illuminating Co., which brought electric
light to Manhattan but most Americans still lit their homes with gas light and candles for
another 50 years. Only in 1925 did half of all homes in the U.S. have electric power. It has
been many years since the US has been fully electrified, but in 2015, 1 billion people (three
times the US population) in the world had no access to electricity. Access to electricity is a
key metric to determining a nation's affluence; as late as 2001, the entire county of
Afghanistan was virtually without electricity. Afghani GDP was $500 per person in 2019 while
the United States GDP was $65,000 per person.
We have come to expect that we should have electric power 100 percent of the time, and when
that doesn't happen, then it must be someone else's fault (Oncor, ERCOT, power generators,
retail electric providers like Griddy, employees and/or board members of any and all of the
above, etc.). There are very few who know how electric power is generated and even fewer who
understand the vast number of both mechanical and human factors that must operate seamlessly
(and do operate seamlessly 99.9 percent of the time) to provide this modern miracle. We should
really consider ourselves quite fortunate to have electricity at all, but of course we, as
Americans, are smarter, better looking and more talented than everyone else and expect to have
our every wish granted immediately; "Vanity of vanities, and all is vanity" spoke Ecclesiastes.
Not a few have observed that this event occurred at the beginning of Lent, forcing involuntary
penance on a people who refuse even the slightest voluntary inconveniences.
Within ERCOT, natural gas burned in gas turbines provides about 50 percent of the generating
capacity in Texas, with wind/solar at about 30 percent, coal about 15 percent and nuclear about
5 percent. Since natural gas provides such a large percentage of electric power, and in an
effort to find the appropriate scapegoat to Texas' woes, we first need to understand what a
typical oil and gas production facility contains. A three-phase stream (oil, salt water and
natural gas) is produced from the wellhead and flows to a separator, where the gas leaves the
top of the separator in the vapor phase and the oil-salt water mixture leaves the bottom of the
separator in the liquid phase and goes to a (gas-fired) heater-treater, which applies heat to
break the oil-water emulsion and separate the oil from the saltwater. Oil then goes to storage
tanks or pipelines, while water is either sent to a disposal well (via electric pump) or
trucked off the lease.
Let's examine what really happened during the 221 consecutive hours with temperatures below
the freezing point of water (32 degrees Fahrenheit). The natural gas in the vapor phase leaving
the separator is saturated with water vapor, and since all the functions listed above occur
above ground in steel pipes and vessels, the gas quickly drops in temperature, and the water
vapor can freeze in the pipeline creating an ice block (a hydrate). If the gas cannot leave the
lease then, unless the gas is flared, the well must be shut in. Even if the gas does not freeze
in the line, if the paved roads and dirt lease roads are too hazardous for 18-wheeled truck
transports to pick up the oil and water from the lease, then as soon as the on-lease storage is
filled, the well must be shut in. Most leases have some level of electric power for pumps,
lighting, heat tracing or similar uses, and when the electric provider ceases to provide that
power, then any efforts to restore production and unfreeze equipment are hampered. The
combination of freezing within on-lease flowlines, hazardous conditions preventing company
employees from getting to the lease, lack of crude and water truck hauling, and the loss of
electricity results in a complete wellhead shut in.
The graph below illustrates actual field production data from a Reagan County producer who
battled all the issues above:
Virtually 100 percent of the gas produced in the Permian Basin must be processed in a gas
processing plant for the removal of water, hydrogen sulfide, carbon dioxide and valuable
natural gas liquids (NGLs, which are ethane, propane, butanes and heavier), with the remaining
molecules consisting almost entirely of methane (called residue gas) delivered into
large-diameter pipelines at the plant outlet. As producers struggled to keep wells on, gas
processors also struggled as volumes to their plants steadily decreased (making it more
difficult to operate), and they faced similar issues of employee safety, in-plant freezes and
loss of electricity to key pieces of equipment like NGL pumps (if the NGLs cannot be pipelined
from the plant on a continuous basis, the plant is forced to shut down). All plants have a
minimum volume of gas required to run the plant, and many plants hit this wall; Navitas'
processing complex east of Midland dropped from 750,000 Mcf per day to zero Mcf per day) while
Cogent in Reagan County dropped from 460,000 Mcf per day to 40,000 Mcf per day.
Assuming a total loss of wind/solar and a 50 percent loss in coal, natural gas' share of the
remaining generating capacity rose to about 80 percent; when wellhead freezes dramatically
reduced gas flow to the processing plants, and when plants were having their own freeze issues,
electric providers then cut power to these plants, eliminating what little gas supply was left
available, effectively creating a "death spiral."
So, irrespective if (a) power generators were properly winterized, or (b) we had more
gas-fired powered generation, or (c) Texas was not deregulated, the fuel supply simply was not
available, "not even for ready money" (in Oscar Wilde's "The Importance of Being Earnest,"
Algernon expresses his dismay to the butler regarding why there were no cucumber sandwiches, to
which the butler replies "There were no cucumbers in the market this morning, sir, not even for
ready money"; after you read this comedy you should read his equally compelling but more somber
tale, "The Picture of Dorian Gray").
As gas supply dwindled, and power demand increased, the price of gas "for ready money"
jumped from its normal price of $3/MMBtu to $100-$200/MMBtu, and as the price of gas surged,
and the demand for power increased while its availability decreased, the price of power also
surged from $.03 per kilowatt-hour to $9 per kilowatt-hour. The typical consumer reaction was
that there was "price gouging" simply because the price increased; what we witnessed was the
classic supply-demand-price dynamic of the free market, which that same consumer enjoys on a
regular basis when shopping for virtually any product.
Griddy customers enjoyed the rewards of supply-demand-price when power was plentiful and
cheap, but they knew full well that they were susceptible to price spikes; Griddy updated
open-market prices every five minutes and sent alerts when the price was increasing or
decreasing, so those customers had the tools available on their "smart" phones and could elect
to cease or continue to use power at a known cost.
Force majeure is a French term that literally means "greater force" and is related to an act
of God, an event for which no party can be held accountable, such as a hurricane or a tornado
(or 221 consecutive hours below 32 degrees). Try as we might, there is no one party in the
electrical power generation chain on which to lay the blame, and we should quit trying. Will
all the entities in the chain expend the money to protect against an event that happens once in
a hundred years? Will you expend the money to buy and maintain a gas- or diesel-powered
generator and beef up the insulation in your house to protect against an event that happens
once in a hundred years? Do you expect the answers to both questions to be the same?
It is very unfortunate that lives were lost as an indirect consequence to the temporary loss
of electricity. In another segment of our lives where man and machine interact, let's look at
deaths on Texas roadways, which run about 3,500 per year. For the last 20 consecutive years, at
least one person has died every single day in a vehicle accident; are we filing lawsuits or
calling for the resignation of employees of TxDOT, DPS or vehicle manufacturers? If we were
serious about reducing deaths to zero (TxDOT's 2050 goal) would we drop the speed limit to 30
miles per hour on all roadways and post officers every 10 miles to issue mandatory citations?
Or would we appeal to taking personal responsibility for safe driving habits every time we
turned the key in the ignition?
Switching gears, what should oil and gas producers be prepared for in late March when they
are paid for gas delivered in February? Just because natural gas traded for $100-$200/MMBtu for
a few days does not mean you will receive that price; it depends on what your gas contract
stipulates and whether the plant to which you are connected sold any gas during that period. In
an effort to be equitable, gas processors who did sell some high-priced gas could possibly
allocate that value to only those producers who actually delivered gas to them during that
period, rather than compute an average monthly price and applying that price to all deliveries
during February. If your gas processor passes through your share of its electricity bill, you
could be in for a shock on high pass-through power costs. You may get inquiries from royalty
owners wondering why they are not seeing the effects of $100/MMBtu gas and whether you
exercised a fiduciary responsibility to obtain that price.
This is only a partial list; the storm outside is over, but the financial and legal storm
could only be beginning.
"... ... on Friday we reported that according to the latest EPFR fund flow data , $22.2Bn in new money flowed into equities last week, following the previous week's massive $46.2Bn inflow which was the 3rd biggest on record, bringing the total 16 week inflow to $436BN, a stunning burst of inflows as shown in the chart below. ..."
"... So bizarre has been this divergence - historically, investors have always pulled money during times of stress and heightened volatility, instead they are plowing record amounts of cash into stocks now ..."
"... "they're opting for parts of the market that have suffered the most, doubling down in arguably risky ways with triple-leveraged tech funds and options galore." ..."
"... "Historically it's been a bad signal that retail investors are piling into the market and a signal of a top," said Art Hogan, chief market strategist at National Securities Corp. And yet, as he admits in the very next sentence, " every time we tried to call a top in 2020 because of retail participation, it was wrong." ..."
"... Because in a centrally-planned "market" where the Fed guarantees no losses ever, why not buy any and every dip? Sure enough, that's what they did and boy did they buy the dip : ..."
"... lots and lots and lots of stimmy checks are about be deposited to daytraders' checking accounts ..."
"... As long as you feed $$ into the military industrial complex, the stock market goes up. The military is the key industry of the US and that will not change. ..."
"... Neoclassical economics is a pseudo economics that hides the inconvenient truths discovered by the classical economists. The classical economists identified the constructive "earned" income and the parasitic "unearned" income. Most of the people at the top lived off the parasitic "unearned" income and they now had a big problem. ..."
"... In 1984, for the first time in American history, "unearned" income exceeded "earned" income. ..."
"... It looks like a parasitic rentier capitalism because that is what it is. ..."
Something bizarre is happening in the stock market: for the past three weeks stocks - and especially tech - has gotten hammered,
with the Nasdaq briefly sliding into a 10% correction while the S&P has also been hard hit (although one can't say the same for reflation
stocks such as energy which have soared in recent weeks). Some other notable casualties: Apple has tumbled 15% since late January.
Tesla has lost more than a quarter-trillion dollars in market value in three weeks, and more than $1.5 trillion has been wiped off
the Nasdaq in less than a month.
And yet, despite this hit to risk assets on the back of the recent in surge in interest rates, accompanied by a parallel
spike in both the VIX, and its bond market equivalent, the MOVE index...
... on Friday we reported that
according to the latest EPFR fund flow data , $22.2Bn in new money flowed into equities last week, following the previous week's
massive $46.2Bn inflow which was the 3rd biggest on record, bringing the total 16 week inflow to $436BN, a stunning burst of inflows
as shown in the chart below.
So bizarre has been this divergence - historically, investors have always pulled money during times of stress and heightened
volatility, instead they are plowing record amounts of cash into stocks now - that Goldman's David Kostin dedicated his Weekly
Kickstart report to the topic. In a note titled "Rising rate anxiety roils share prices but also supports outlook for strong equity
inflows" , the Goldman chief equity strategist writes that as "rates rose, and equities fell, long-duration growth stocks plummeted,
but equity funds continued to see large net inflows."
Equity mutual fund and ETF inflows have totaled $163 billion since the start of February, the largest five-week inflow on record
in absolute dollar terms and third largest in a decade relative to assets. Even though the recent backup in rates has weighed
on equity prices broadly, the pace of inflows into equity funds during the last few weeks has accelerated compared with the start
of the year.
In contrast, weekly flows into bond funds averaged roughly $10 billion in February, 50% less than weekly inflows in January.
In addition, money market funds have seen net outflows of $34 billion during the past month.
... ... ...
According to Bloomberg, even though the market peaked almost a month ago, retail traders have plowed cash into U.S. stocks at
a rate 40% higher than they did in 2020, which was a record year. Yet one way retail capital allocation differs from the charts above,
is that "they're opting for parts of the market that have suffered the most, doubling down in arguably risky ways with triple-leveraged
tech funds and options galore."
Could it be that nothing but sheer stupidity and/or certainty in yet another Fed bailout is behind the record inflows? And is
Powell to blame?
Retail traders, many of them newbie investors, have consistently held strong, buying virtually every dip during what's been
the best start to a bull market in nine decades. But now the world is wondering how much it'll take for them to call it quits,
especially after a year in which retail traders were right way more often than wrong.
"Historically it's been a bad signal that retail investors are piling into the market and a signal of a top," said Art Hogan,
chief market strategist at National Securities Corp. And yet, as he admits in the very next sentence, " every time we tried to call
a top in 2020 because of retail participation, it was wrong."
Just how aggressive has retail buying been? According to data from VandaTrack, which monitors retail flows in the U.S. market,
retail investors snapped up an average of $6.6 billion in U.S. equities each week, up from an average $4.7 billion in net weekly
purchases in 2020 even as stocks swooned over the last three weeks.
They've doubled down on areas of the market that have been hit the hardest. Apple, which has plunged 15% since late January,
was the most-popular retail buy this past week. NIO Inc., the electric-vehicle maker down almost 40% since Feb. 9, was the second-most
popular. Next up were exchange-traded funds tied to the Nasdaq 100, the Invesco QQQ Trust Series 1 (ticker QQQ) and a triple leveraged
version (ticker TQQQ).
Because in a centrally-planned "market" where the Fed guarantees no losses ever, why not buy any and every dip? Sure enough,
that's what they did and boy did they buy the dip :
On Thursday, when the Nasdaq 100 fell as much as 2.9%, almost 32 million bullish call options traded across U.S. exchanges,
the fifth-most on record. The other four have all occurred within the last four months.
There is one fundamental reason why retail investors are buying: the just passed $1.9TN Biden stimulus ensures lots and lots
and lots of stimmy checks are about be deposited to daytraders' checking accounts:
"There's a lot of excess liquidity and we just had this $600 check going to many families in January," said Jimmy Chang, chief
investment officer of Rockefeller Global Family Office. "We're going to get an additional liquidity injection in the $1,400 check
and part of that money is going into risk assets."
Incidentally, the question of how much of Biden's $1.9TN stimulus will end up in the market is one we discussed last week in the
context of a recent
Deutsche Bank survey :
"Given stimulus checks are currently penciled in at c.$405bn in Biden's plan, that gives us a maximum of around $150bn that
could go into US equities based on our survey.
as we
reported
earlier today , Morgan Stanley's Michael Wilson believes that the selloff has more room to go before it's over. Bloomberg agrees
and notes that "if past is precedent, that could mean the sell-off has more room to run. Retail investors tend to buy the initial
dips, and it's not until they capitulate and sell that markets ultimately bottom, according to Eric Liu, co-founder and head of research
at Vanda Research. The firm's data show that was the case in both selloffs in 2018, as well as roughly a year ago during the Covid
crash."
To Victoria Fernandez, chief market strategist for Crossmark Global Investments, their continued presence in the markets likely
means elevated volatility will persist. Still, that doesn't mean retail investors' efforts are misguided.
"Is there some dumb money in retail trades? Yes. But not all of it," she said. "Some of these people are doing their homework,
looking for opportunities and trying to take advantage of it. Some win, some lose -- it's really not that different than what
professionals do on an institutional basis."
Maybe there is dumb money in retail, but that's hardly what matters. What does matter - in our view - is what
we
reported earlier today, namely that last week we saw the biggest shorting among hedge funds since last May. And with the squeeze
having started on Friday and clearly continuing on Sunday, the upcoming "mega squeeze" (
which
we predicted earlier today ) is all that matters.
As such while Wall Street ruminates about the cause (and reflexive effect) of the current record capital inflows into equity stocks
amid growing market turmoil, the only thing that matters for this broken, illiquid market is positioning and right now the "max pain"
is higher. A lot higher, especially since the Fed will have no choice but to step in if stocks continue to fall as all the careful
centrally-planned work of the past 12 years would implode with a massive bang if it does not.
play_arrow 4
Hobbit of Hyperinflation 6 hours ago
Two words: THE FED.
SQRT 69 1 hour ago remove link
Three letters: PPT
DontFollowMyAdviceImaDummy PREMIUM 10 hours ago
probably going to sell off for another 8 to 10 business days and then the magic money pump machine will get activated along
with every stonk price target seeing huge price target increases because of fantasies about flying cars and infinite forever profits
by 2040...
Whats-A-Theta PRO 10 hours ago
As no one stops and asks what stocks are actually worth we shouldn't have too much trouble.
Chiefisme 4 hours ago remove link
There is a simple explanation. The market is rigged. The Fed is wildly "printing" money and supporting all of the markets including
equity to keep the faced going.
VioLaTor 5 hours ago remove link
Oil past 70 also this morning. I saw CW had a new podcast over the weekend, and on BB today to rally the troops. See what happens.
I think the new investors might well be learning that stocks also go down, and diversification is good. 10 year auction on Wednesday
will be interesting.
uhland62 7 hours ago remove link
As long as you feed $$ into the military industrial complex, the stock market goes up. The military is the key industry
of the US and that will not change.
You_Cant_Quit_Me 27 minutes ago
When you get nothing on your savings people move the cash elsewhere for higher yield. The FED is inflating bubbles in equities
and real estate
Sound of the Suburbs 4 hours ago
The wealth is there and then it's gone. At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real
wealth. 1929 – Wakey, wakey time
The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real
wealth, but it didn't.
It didn't then, and it doesn't now.
Real estate - the wealth is there and then it's gone.
Get ready to put Australia, Canada, Norway, Sweden and Hong Kong on the list.
It's not real wealth. What is real wealth? Weimar Germany and Zimbabwe were never short of money. Weimar Germany and Zimbabwe
had created far too much money compared to the goods and services available within the economy causing hyper-inflation. States
can just create money, and the last thing you want is too much of the damn stuff in your economy. They had made so much money
it lost nearly all its value, and they needed wheelbarrows of the stuff to buy anything.
Money has no intrinsic value; it comes from what it can buy. Central bankers actually look at the money supply, and expect
it to rise in line with the new goods and services in the economy, as it grows. More goods and services in the economy require
more money in the economy. Paul Ryan was a typically confused neoliberal and Alan Greenspan had to put him straight. Paul Ryan
was worried about how the Government would pay for pensions. Alan Greenspan told Paul Ryan the Government can create all the money
it wants, there is no need to save for pensions.
What matters is whether the goods and services are there for them to buy with that money. That's where the real wealth in the
economy lies. They worked it out last time. The real wealth creation in the economy is measured by GDP. The transfer of existing
assets, like stocks and real estate, doesn't create real wealth and therefore does not add to GDP. Real wealth creation involves
real work, producing new goods and services in the economy. It took them a long time to disentangle the hopelessly confused thinking
of neoclassical economics in the 1930s.
This is the second time around and it has already been done.
Sound of the Suburbs 4 hours ago remove link
Neoclassical economics is a pseudo economics that hides the inconvenient truths discovered by the classical economists.
The classical economists identified the constructive "earned" income and the parasitic "unearned" income. Most of the people at
the top lived off the parasitic "unearned" income and they now had a big problem.
This problem was solved with neoclassical economics, which hides this distinction. It confuses making money and creating wealth
so all rich people look good. If you know what real wealth creation is, you will realise many at the top don't create any wealth.
Look what has happened to the US since they got confused between making money and creating wealth. In 1984, for the first
time in American history, "unearned" income exceeded "earned" income.
The American have lost sight of what real wealth creation is, and are just focussed on making money. You might as well do that
in the easiest way possible. It looks like a parasitic rentier capitalism because that is what it is. You've just got
to sniff out the easy money. All that hard work involved in setting up a company yourself, and building it up. Why bother?
Asset strip firms other people have built up, that's easy money. The private equity firms have found an easy way to make money
that doesn't actually create any wealth. Bankers make the most money when they are driving your economy into a financial crisis.
They will load your economy up with their debt products until you get a financial crisis.
On a BBC documentary, comparing 1929 to 2008, it said the last time US bankers made as much money as they did before 2008 was
in the 1920s.
The bankers loaded the US economy up with their debt products until they got financial crises in 1929 and 2008. As you head
towards the financial crisis, the economy booms due to the money creation of bank loans.
The financial crisis appears to come out of a clear blue sky when you use an economics that doesn't consider debt, like neoclassical
economics.
CB Newkirk III 5 hours ago (Edited) remove link
All the Business Knowledge is in the algorithms (programs), and no one knows what they do, or how to maintain and upgrade them
for a changing environment. The just keep patching them and hope that it works. But hey, those graphs are nifty looking.
Tesla down 31%? Not a problem I will use the dividends to offset my losses. Oh wait!
BigJJ 13 minutes ago
I've never understood how Tesla could possibly make money given all the infrastructure
they had to install just to sell shoddily thrown together rusty cars that are useless when
the grid crashes.
Sound of the Suburbs 41 minutes ago (Edited)
...What was the ponzi scheme of inflated asset prices that collapsed in 2008?
El Hosel 1 hour ago (Edited)
Clearly "It's different this time", now that everybody knows "stocks only go up"...
In our
call
of the day,
Miller
Tabak & Co's chief market strategist Matt Maley said investors need to be "very careful" about buying the dip when it comes to
the tech-laden index and should instead be selling the bounces.
...
the
FAANG Index -- which includes Facebook
FB,
+2.58%
,
Amazon
AMZN,
+0.77%
,
Apple
AAPL,
+1.07%
,
Netflix
NFLX,
+1.00%
and
Google parent Alphabet
GOOGL,
+3.10%
--
is only 6% off February highs and still sits above its 100 day moving average. "A break below that moving average would send up a
big warning flag on the group," he said.
...
The
price of Brent crude
BRNK21,
-0.56%
briefly
topped
$70 a barrel
for
the first time in a year after Saudi Arabia and Yemen rebels traded airstrikes.
Over the last month, Tesla has fallen from about $868 to $598, a plunge of about 31%. But it
isn't just Tesla investors that are feeling the pain: with the stock having risen in popularity
over the last 18 months, Tesla is now tied to numerous ETFs that it winds up pulling lower when
it underperforms. In fact,
Bloomberg notes that "at one point on Friday, every one of the 54 U.S.-based ETFs that have
assets under management exceeding $1 billion and more than 1% invested in Tesla had
fallen."
Mando Ramos 1 hour ago
A year ago today it was trading at $72 dollars a share, and it was criminally,
outrageously overvalued then. But as we've all learned in the last 10 years, crime actually
does pay
buzzsaw99 50 minutes ago (Edited)
the idea was to add tsla to the s&p is about fleecing all the index buyers. Read 401K
lemmings.
Xi the Pooh 51 minutes ago remove link
Tesla and Bitcoin are two bubbles that need popping. Useless overvalued garbage.
Son of Loki 17 minutes ago
What's the definition of malinvestment?
The NYSE and NASDAQ.
hedge4Gain 51 minutes ago
"Betting On A Dream": Could Tesla Be The Canary In The ETF Liquidity Coal Mine? Betting on
Tesla has always been like betting on a yellow school bus winning the 500 mile race or a
windmill in snowstorm.
Lordflin 35 minutes ago
The PPT and the CBs have your backs folks... you will be fine...
Academic research suggests stock-market trading and more traditional gambling have quite a
bit in common. One paper published in January says there's 3.5 times more gambling in stock
markets than in more traditional venues like casinos and lotteries.
The paper -- from Alok Kumar of the University of Miami, Houng Nguyen of the University of
Danang, and Talis Putnins at the University of Technology Sydney and Stockholm School of
Economics -- says the U.S. and Hong Kong have the highest per capita levels of what they call
stock-market gambling in the world. They identify so-called lottery stocks by looking at volume
divided by market cap, and looking for unusually large ratios.
That's not to say all stock market investing is gambling. The researchers say about 15% of
stock market volume in the U.S. is associated with gambling, a percentage that runs as high as
30% in the stock markets of China and Thailand.
Offshore oil has already started to show
signs of emerging from last year's crisis, as costs have been slashed since the previous
downturn of 2015-2016. Deepwater oil breakevens have dropped to below those of U.S. shale
supply, making deepwater one of the cheapest new sources of oil supply globally, Rystad Energy
said last year.
In its new report this week, the energy research firm expects 592 offshore project
commitments between 2021 and 2025, up from 355 projects in the 2016-2020 period and up from the
478 project commitments in the period 2011 to 2015.
Over the next five years, deepwater is set to show the most impressive growth in the number
of commitments, with the number of projects rising to 181 from 106 in 2016-2020 and 115 in the
five years before that, Rystad Energy has estimated.
"The search for large new fields in deep and remote waters became much more economically
viable after dayrates for drilling rigs and offshore supply vessels fell in the wake of the oil
price crash in 2014 and 2015. This offers significant support for companies interested in
deepwater," said Rajiv Chandrasekhar, energy service analyst at Rystad Energy.
"... Many of these new companies made outrageous, and often fraudulent, claims about their business ventures for the purpose of raising capital and boosting share prices. ..."
"... However, in the midst of the "mania," things like valuation, revenue, or even viable business models didn't matter. It was the "Fear Of Missing Out," which sucked investors into the fray without regard for the underlying risk. ..."
"... Sir Issac Newton, the brilliant mathematician, was an early investor in South Sea Corporation. Newton quickly made a lot of money and recognized the early stages of a speculative mania. Knowing that it would eventually end badly, he liquidated his stake at a large profit. ..."
"... However, after he exited, South Sea stock experienced one of the most legendary rises in history. As the bubble kept inflating, Newton allowed his emotions to overtake his previous logic and he jumped back into the shares. Unfortunately, it was near the peak. ..."
"... The story of Newton's losses in the South Sea Bubble has become one of the most famous in popular finance literature. While surveying his losses, Newton allegedly said that he could "calculate the motions of the heavenly bodies, but not the madness of people." ..."
"... Yes, this time is different. "Like all bubbles, it ends when the money runs out." – Andy Kessler ..."
I have previously discussed the importance of understanding how "physics" plays a crucial role in the stock market. As Sir Issac
Newton once discovered, "what goes up, must come down."
Andy Kessler, via the Wall Street
Journa l, recently discussed a similar point with respect to the momentum in stock prices. To wit:
"Does this sound familiar: Smart guy owns stock in March at $200, sells it in June at around $600, but then buys it back in
July and August for between $900 and $1,000. By September it's back at $200. Ouch. Tesla this year? Yahoo in 2000? Nope. That
was Sir Isaac Newton getting pulled into the great momentum trade of the South Sea Co., which cratered 300 years ago this month.
He lost the equivalent of more than $3 million today. Newton, whose second law of motion is about the momentum of a body equaling
the force acting on it, didn't know that works for stocks too."
To understand what happened to the South Sea Corporation, you need a bit of history.
The South Sea History
In 1720, in return for a loan of Ł7 million to finance the war against France, the House of Lords passed the South Sea Bill, which
allowed the South Sea Company a monopoly in trade with South America.
England was already a financial disaster and was struggling to finance its war with France. As debts mounted, England needed a
solution to stay afloat. The scheme was that in exchange for exclusive trading rights, the South Sea Company would underwrite the
English National Debt. At that time, the debt stood at Ł30 million and carried a 5% interest coupon from the Government. The South
Sea company converted the Government debt into its own shares.
They would collect the interest from the Government and then pass it on to their shareholders.
Interesting Absurdities
At the time, England was in the midst of rampant market speculation. As soon as the South Sea Company concluded its deal with
Parliament, the shares surged to more than 10 times their value. As South Sea Company shares bubbled up to incredible new heights,
numerous other joint-stock companies IPO'd to take advantage of the booming investor demand for speculative investments.
Many of these new companies made outrageous, and often fraudulent, claims about their business ventures for the purpose of
raising capital and boosting share prices. Here are some examples of these companies' business proposals (History House, 1997):
Supplying the town of Deal with fresh water.
Trading in hair.
Assuring of seamen's wages.
Importing pitch and tar, and other naval stores, from North Britain and America.
Insuring of horses.
Improving the art of making soap.
Improving gardens.
The insuring and increasing children's fortunes.
A wheel for perpetual motion.
Importing walnut-trees from Virginia.
The making of rape-oil.
Paying pensions to widows and others, at a small discount.
Making iron with pit coal.
Transmutation of quicksilver into a malleable fine metal.
For carrying on an undertaking of great advantage; but nobody to know what it is.
A Speculative Mania
However, in the midst of the "mania," things like valuation, revenue, or even viable business models didn't matter. It was
the "Fear Of Missing Out," which sucked investors into the fray without regard for the underlying risk.
Though South Sea Company shares were skyrocketing, the company's profitability was mediocre at best, despite abundant promises
of future growth by company directors.
The eventual selloff in Company shares was exacerbated by a previous plan of lending investors money to buy its shares. This "margin
loan," meant that many shareholders had to sell their shares to cover the plan's first installment of payments.
As South Sea Company and other "bubble " company share prices imploded, speculators who had purchased shares on credit went bankrupt.
The popping of the South Sea Bubble then resulted in a contagion that spread across Europe.
Newton's Folly
Sir Issac Newton, the brilliant mathematician, was an early investor in South Sea Corporation. Newton quickly made a lot of
money and recognized the early stages of a speculative mania. Knowing that it would eventually end badly, he liquidated his stake
at a large profit.
However, after he exited, South Sea stock experienced one of the most legendary rises in history. As the bubble kept inflating,
Newton allowed his emotions to overtake his previous logic and he jumped back into the shares. Unfortunately, it was near the peak.
It is noteworthy that once Newton decided to go back into South Sea stock, he moved essentially all his financial assets into
it. In general, Newton was intimately familiar with commodities and finance. As Master of the Mint, his post required him to make
many decisions that depended on market prices and conditions. The story of Newton's losses in the South Sea Bubble has become
one of the most famous in popular finance literature. While surveying his losses, Newton allegedly said that he could "calculate
the motions of the heavenly bodies, but not the madness of people."
Throughout financial history, markets have evolved from one speculative "bubble," to bust, to the next with each one being believed
"it was different this time." The slides below are from a presentation I made to a large mutual fund company. What we some common
denominators between all previous bubbles and now.
The table below shows a listing of assets classes that have experienced bubbles throughout history, with the ones related to the
current environment highlighted in yellow. It is not hard to see the similarities between today and the previous market bubbles in
history. Investors are currently chasing "new technology" stocks from Zoom to Tesla, piling into speculative call options, and piling
into leverage. What could possibly go wrong?
Oh, by the way, the slides above are from a 2008 presentation just one month before the Lehman crisis. The point here is that
speculative cycles are always the same.
The Speculative Cycle
Charles Kindleberger suggested that speculative manias typically commence with a "displacement" which excites speculative interest.
The displacement may come from either an entirely new object of investment (IPO) or from increased profitability of established investments.
The speculation is then reinforced by a "positive feedback" loop from rising prices. which ultimately induces "inexperienced investors"
to enter the market. As the positive feedback loop continues, and the "euphoria" increases, retail investors then begin to "leverage"
their risk in the market as "rationality" weakens.
The full cycle is shown below.
During the course of the mania, speculation becomes more diffused and spreads to different asset classes. New companies are floated
to take advantage of the euphoria, and investors leverage their gains using derivatives, stock loans, and leveraged instruments.
As the mania leads to complacency, fraud and manipulation enter the market place. Eventually, the market crashes and speculators
are wiped out. The Government and Regulators react by passing new laws and legislations to ensure the previous events never happen
again.
The Latest Mania
Let's go back to Andy for a moment:
"When bull markets get going, investors come out of the woodwork to pile in. These momentum investors -- I call them momos
-- figure if a stock is going up, it will keep going up. But usually, there is some source of hot air inflating stocks: either
a structural anomaly that fools investors into thinking ever-rising stock prices are real or a source of capital that buys, buys,
buys -- proverbial 'dumb money.' Think of it as a giant fireplace bellows, an accordion-like contraption that pumps in fresh oxygen
to keep flames growing." – Andy Kessler
We have seen these manias repeated throughout history.
In 1929 you could buy stocks with as little as a 5% down payment
The 1960s and '70s had the Nifty Fifty bubble.
In 1987 it was a rising dollar, portfolio insurance, and major investments by the Japanese into U.S. real estate.
In 2000, it was the new paradigm of the internet and the influx of new online trading firms like E*Trade creating liquidity
issues in Nasdaq stocks. Additionally, record numbers of companies were being brought public by Wall Street to fill investor demand.
In 2008, subprime mortgages, low interest rates, and lax lending policies, combined with a litany of derivative products inflated
massive bubbles in debt instruments.
In 2020?
What about today? Look back at the chart of the South Sea Company above. Now, the one below. See any similarities. Yes, that's
Tesla. However, you can't solely blame the Federal Reserve as noted by Andy:
"Most simply blame the Federal Reserve -- especially today, with its zero-interest-rate policy -- for pumping the hot air that
gets the momos going. Fair enough, but that's only part of the story. Long market runs have always allured investors who figure
they're smart to jump in, even if it's late.
Everyone forgets the adage, 'Don't mistake brains for a bull market.'"
As stated, while no two financial manias are ever alike, the end results are always the same. Are there any similarities in today's
market? You decide.
"From SPACs, or special purpose acquisition companies, which are modern-day blind pools that often don't end well. Today's
momos also chase stock splits, which mean nothing for a company's actual value. Same for a new listing in indexes like the S&P
500. Isaac Newton could explain the math." – Andy Kessler
You get the idea. But one of the tell-tale indications is the speculative chase of "zombie" companies which are only still alive
primarily due to the Federal Reserve's interventions.
Fixing The Cause Of The Crash
Historically, all market crashes have been the result of things unrelated to valuation levels. Issues such as liquidity, government
actions, monetary policy mistakes, recessions, or inflationary spikes are the culprits that trigger the "reversion in sentiment."
Importantly, the "bubbles" and "busts" are never the same. I previously quoted Bob Bronson on this point:
"It can be most reasonably assumed that markets are efficient enough that every bubble is significantly different than the
previous one. A new bubble will always be different from the previous one(s). Such is since investors will only bid prices to
extreme overvaluation levels if they are sure it is not repeating what led to the previous bubbles. Comparing the current extreme
overvaluation to the dotcom is intellectually silly.
I would argue that when comparisons to previous bubbles become most popular, it's a reliable timing marker of the top in a
current bubble. As an analogy, no matter how thoroughly a fatal car crash is studied, there will still be other fatal car crashes.
Such is true even if we avoid all previous accident-causing mistakes."
Comparing the current market to any previous period in the market is rather pointless. The current market is not like 1995, 1999,
or 2007? Valuations, economics, drivers, etc. are all different from cycle to the next.
Most importantly, however, the financial markets always adapt to the cause of the previous "fatal crash." Unfortunately, that
adaptation won't prevent the next one.
Yes, this time is different. "Like all bubbles, it ends when the money runs out." – Andy Kessler
Top 10 Holdings AS OF 12/31/2020; 47.15% of Total Portfolio
10 Year Treasury Note Future Mar 211 2.37%
Federal National Mortgage Association 2.5% 03/11/2051 6.76%
Federal National Mortgage Association 2.5% 02/11/2051 5.93%
Federal National Mortgage Association 2% 03/11/2051 5.41%
Pimco Fds 5.38%
Federal National Mortgage Association 3% 2.97%
FTSE Bursa Malaysia KLCI Future Mar 21 2.60%
Federal National Mortgage Association 2% 02/11/2051 2.18%
CSMC TRUST 3.32183% 1.86%
Fin Fut Us Ultra 30yr Cbt 03/22/21 1.69%
7706 holdings as of 12/31/2020
In one of his latest Flows and Liquidity reports, JPM quant Nick Panigirtzoglou writes that as we approach quarter-end, the
equity rebalancing flow question is resurfacing in client conversations. As we notes, "the equity rally and the bond sell-off
during the current quarter is naturally creating a pending rebalancing flow for multi-asset investors away from equities into
bonds for pension funds and balanced mutual funds. How much of equity/bond rebalancing flow should we expect into current
quarter-end?"
To answer this question, the Greek strategist applies a familiar framework and looks at the four key multi-asset investors that
have either fixed allocation targets or tend to exhibit strong mean reversion in their asset allocation.
These
are balanced mutual funds, such as 60:40 funds, US defined benefit pension plans, Norges Bank, i.e. the Norwegian oil fund, and
the Japanese government pension plan, GPIF.
For those curious about the details, below is a more detailed summary of the considerations behind the four key investor classes
ahead of month and quarter-end.
1. Balanced mutual funds including 60:40 funds
,
a
close to $7.5tr AUM universe globally, tend to rebalance over 1-2 months or so. The lesson from last Nov/Dec is that balanced
mutual funds exhibit flexibility and they do not necessarily rebalance every single month.
During
the previous quarter, they appear to have postponed rebalancing for Nov-end or Dec-end and to have waited until January to
de-risk/rebalance.
JPM believes that funds de-risked in January, as a result of the tumble in balanced MFs equity
beta...
.. and since it would have been too soon to rebalance again in February, the quant believes that they have likely postponed any
pending rebalancing to March. Assuming they were fully rebalanced at the end of January, which is a reasonable hypothesis given
the reduction in their betas in January and by taking into account the performance of global equities and bonds since then,
JPMorgan
estimates
around $107bn of equity selling by balanced mutual funds globally
into the end of
March in order to revert to their 60:40 target allocation.
lay_arrow
HankMFRearden
PREMIUM
18 hours ago
Reconcile this with previous post about off the hook equity inflows. Would not passive mostly be
rebalancing by targeted direction of new flows vs. selling of existing positions, particulalry in tech
which has declined?
Americans aren't spending but saving, by paying down debt at an enormous rate, the nightmare
of Keynesians the world over.
They are unleashing trillions in new spending but cutting back, in the stimulus bill,
support for actual Americans whose lives they've ruined with lockdowns and public health
terrorism.
They have held interest rates at or below zero for so long that when the market makes the
slightest move to go somewhere else, it precipitates massive market dislocation in fundamental
markets.
We're no longer talking about the sub-prime mortgage market or Turkish corporate
debt loads . We're talking about massive short bets against the U.S. 10 year Treasury
Note.
Eventually reality always reasserts itself. The central banks are running out of maneuvering
space before he entire system collapses. Maybe that's what they want.
Maybe they think they can maintain their narrative of competence long enough to shift the
blame to incompetent governments who have incurred the wrath of their people through inhuman
COVID-19 lockdowns and endless psychological torture.
I don't know at this point. But I can tell you that debt first extends and then destroys all
illusions about who is and who isn't truly solvent.
And over the past few weeks it's clear there are an increasing number of people who command
real amounts of money who don't buy the narratives the central banks are selling.
* * *
play_arrow
Hickory Dickory Dock 21 hours ago
Inflation expectations are rising because of fiscal and monetary stimulus and the
"re-opening" of the economy.
Those rising inflation expectations cause nominal interest rates to rise.
If nominal interest rates rise more than inflation rises, real interest rates rise.
Rising real interest rates cause stocks, bonds and gold/silver to fall.
Falling 'markets' cause the Fed to step in and save the day by capping nominal interest
rates.
Capped nominal interest rates cause real rates of interest to fall (assuming no change in
inflation rates).
Falling real rates of interest mean higher gold and silver prices.
conraddobler 21 hours ago (Edited)
Interest rates were near 15% in 1979, what did gold and silver do back then?
Hickory Dickory Dock 21 hours ago
Incorrect. Real interest rates were below zero in 1979-1980.
Real rates are interest rates (just not nominal interest rates).
hisnamewas 7 hours ago
I assume by "real" you mean an imaginary number called the "inflation" which they can set
arbitrarily low by choosing what is included in the calculation.
Hickory Dickory Dock 17 hours ago
Since real interest rates are calculated as being equal to nominal interest rates minus
the rate of inflation, understating inflation (whether intentionally or simply through
mis-measurement) will have the effect of overstating real interest rates, not understating
them. E.g., if the nominal interest rate is 10% and the inflation rate is 7%, the real
interest rate is 3%. However, if the inflation rate is understated in this example as being
4% instead of 7%, the real interest rate (10% nominal interest rate minus 4% inflation rate)
will appear as 6% rather than 3% (thus overstating the real inflation rate).
I do believe that the inflation data on Shadowstats is more accurate than the CPI or other
government-supplied figures, which are heavily gamed.
I believe it's only a matter of time before yield curve control will be implemented. Keep
in mind it may not be called that, but the net effect will be to suppress longer term
interest rates. Assuming the policy is effective at doing that, you can expect gold and
silver to resume their bull runs, virtually overnight.
George Bayou 21 hours ago remove link
It is obvious what the Fed is doing, they want to devalue the dollar so the gov't can
continue to service the debt. YCC will keep the debt serviceable and devalues the dollar at
the same time. The Fed is on board with any spending the democrats can dream up now because
they know the dollar will be devalued in the future. That is the only way they can get out of
this mess.
The problem with devauling the dollar is it will transfer real wealth to the wealthy
elites in the process. That is something that the democrats fail to tell their base.
itstippy 22 hours ago remove link
Today's Central Bankers never stop jawboning. They think it's their job to somehow
"justify" the way they support banks and the financial sector at the expense of the working
and middle classes. They're no longer economists, but just more politicians.
Central Banker: "Please stop yawning when I'm talking."
Real Economist: "I'm not yawning, I'm trying to say something."
dead hobo 22 hours ago
Long yields have about 3/4% to rise to reach recent historical levels. The world didn't
end a couple of years ago at these rates. It won't end now. No YCC for you.
zorrosgato 19 hours ago
Since September 21,1981 the yield on the US 10yr treasury has been falling. A 40 year
descent to where we are at today, at times easing off from the fall but seemingly never to
take back over 3%. If the powerful bond market and/or the Fed decided that inflation, yields
or interest rates were either too high or too low they most likely wouldn't have waited until
today to fix the problem. A day when insurmountable debt has pretty much taken that option
out of the equation. Lets not forget, as always, no market goes straight down or straight
up.
WASHINGTON (Reuters) - U.S. Treasury Secretary Janet Yellen on Friday said higher long-term
Treasury debt yields were a sign market participants were anticipating a stronger recovery, not
of increased inflation concerns.
"I don't see that the markets are expecting inflation to rise above the 2% inflation
objective that the Fed has as an average inflation rate over the longer run," Yellen said in a
PBS Newshour interview.
She added the United States needs faster job growth than seen during February, but can reach
full employment by next year with President Joe Biden's $1.9 trillion stimulus plan in
place.
Bing nips at Google's heels again. Here's why it doesn't matter.
Tim Beyers
(TMFMileHigh)
Updated: Apr 6, 2017 at 11:29AM
Published: Sep 21, 2010 at 12:00AM
Author Bio
According to the
latest data from comScore,
Google
's
(Nasdaq:
GOOG)
share of the search market fell four-tenths of a percentage point in August just as Bing partners
Microsoft
(Nasdaq:
MSFT)
and
Yahoo!
(Nasdaq:
YHOO)
gained share. Thus, the headline: Google is shrinking.
Except that it isn't
true. Let's take a closer look at Google's average search market share for the first and second quarters of 2010, and then
compare the findings with the average revenue growth of the top three search contenders:
Interactive chart showing the daily 10 year treasury yield back to 1962. The 10 year
treasury is the benchmark used to decide mortgage rates across the U.S. and is the most liquid
and widely traded bond in the world. The current 10 year treasury yield as of March 04, 2021 is
1.54% .
Both major parties work according the the scheme of a pyramidal control. To control a
company A, you need to get majority of voting shares. Which belong to company B that owns,
say, 60%. In turn, 60% or shares of B belongs to C which controls A while having 60% x 60% =
36% of capital. After adding D, E etc., you can get away with the following: you start with
actual majority of shares, and the company prospers. Time to realize gains. But that would
deprive you of control. Thus you organize company B and sell 40% of its shares. Control
preserved. Wash and repeat.
In a similar spirit, a narrow circle can control a major party. Of course, the rules are
different and more hidden. On the bottom level, the equivalent of B controlling A, it was
observed that rational arguments are boring, and the wide masses have hard time following
them and following what (itself controlled) B advocates. So you invent easy to remember
[expletive deleted] like "Obama birth's certificate", "Russian collusion" etc. An energetic
group with group solidarity needs its tribal spirit and shibboleths.
The Democratic Party civil war between the 'progressive anti-war socialist' and 'neocon
Wall Street beltway' wings. It will go on for at least two years
TBT or not TBT 1 hour ago
Oh hogwash. The minute Obama took over from Bush Cindy Sheehan and the rest disappeared
from the news. There was no real push back within the Dem electorate against the foreign wars
because they all support the Democrat War on America above all. They only pretend to give a
rip about some backward misogynist theocratic craphole people when Republicans are in
office.
King of Kalifornia 1 hour ago
It's been going on for years. The socialists keep falling for it, and the neoliberals (in
the mold of their heroes, Reagan and Thatcher) have forced their compliance.
I worry that people cannot survive this. Real, warm blooded, caring, loving people can be
broken by this. And that's what makes me angry. Because this is unnecessary. The money to
deliver a decent society exists.
All that we need to make the lives of the vast majority of people in this country is a real
understanding of economics, of money, of how it interacts with tax, and how we can use that for
the common good.
But no political party seems to get that as yet. And until they do, this unnecessary
suffering will continue. And that makes me very angry. Pointless pain is what we're enduring.
And all for the sake of accepting that money is not a constraint on our potential, and never
will be.
Let me have a go.
If prosperity and wealth can be created by printing more money, why there is still poverty
in the world?
After all, isn't every country equipped with a central bank that can print as much money as
they want?
Real wealth is not denominated in dollars, only in what those dollars can buy. Devaluing
the dollar doesn't hurt the wealthy, most of their wealth is in the form of equity and real
assets, not dollars.
The average person's wealth is measured mostly in his future labor, how much he is going to
earn. He will earn less because the Fed devalues his labor through its manipulation of the
dollar. He will see this in the rising cost of living without an increase in his pay. Sure
perhaps the value of labor will at some point catch up to the devalued dollar, but in the
interim he will earn less and will never catch up to what he would have earned otherwise.
It doesn't hurt the wealthy, it hurts the middle class, and will for years to come.
Your macroeconomic ignorance is duly noted, featuring as it does the usual "commodity
money" and mercantilist shibboleths.
MMT describes fiat monetary operations which have been in effect since the Nixon
shock and the abandonment of Bretton Woods almost 50 years ago . Do catch up.
honest question, wouldn't MMT (in a hypothetical universe run by committed MMTers) in
the UK likely will produce vastly different results than MMT in relatively autarkic
economics like the USA or Russia?
The UK relies on imports to one degree or another for virtually every physical good
necessary for a first-world living standard (food -- even basic foodstuffs like wheat,
medicine, spare parts, petrol, apparel, even steel, etc).
While the UK's economy tilts to exporting services education, finance, media,
medicinal/technological intellectual property, tourism, etc.
Would a weaker UK pound encourage more service exports? Or merely increase inflation,
particularly for the bottom 50%?
Because MMT analysts tend to be mostly US or Australian, the applicability of it to
smaller, more open economies has not, I think, had the attention thats needed (although to
be fair, Richard Murphy has done quite a lot of writing on this). While the UK is a large
economy, its also very open (although increasingly less so, thanks to Brexit). So it
clearly has much less room to manoeuvre in terms of monetary or fiscal policy than a more
autarkical nation. Its not just with MMT and inflation – things like Keynesian
multipliers tend to be lower in more open economies as the benefits of fiscal expansion get
exported out. The Labour party under Corbyn did put together some very interesting and well
thought through MMT-influenced policies, but of course that all got thrown out with
Corbyn.
As Yves has pointed out before, the UK has a particular problem in that it has little
spare physical capacity in its economy to take advantage of a weaker currency. In the past,
it has been unable to increase output when the pound has been weaker. So a weakening pound
is likely to be more inflationary than in many other economies.
I think that in a general sense, MMT makes sense in all economies in a Covid scenario of
a massive drop in output thanks to a black swan event. As Murphy points out, you just need
to shove the cash into the economy through monetary means and forget about having to repay
it. Inflation just isn't a problem in those circumstances, and it has the benefit of
maintaining productive capacity within the economy. But in more 'normal' times, MMT needs
to be applied with far more care in an economy like the UK than in a US or China or Russia
or EU.
Kind of wondering here what would happen if all the poor and unemployed/welfare
recipients and even the precarious middle class also decided to offshore their money. Why
not? Say in every country; say it became a global movement. The neoliberal nightmare should
inform us all. Just because a small country doesn't have spare capacity or idle resources
is not really a contraindication for MMT. It is more a factor of having an intrinsic
imbalance due to decades if not centuries of grift and graft by those in a position to help
themselves. And it creates confused politics. As you mentioned above – the Tories in
the UK seem to have also usurped the opposition. Well, to my thinking, that is exactly what
Trump did. And it is almost a crazy hope of "If you can't beat them, join them." And just
exactly where does that leave a functional economy? My first image is a junkyard.
First, apropos the applicability of Modern Money Theory to relatively open economies
like that of the U.K., see the discussion of the prerequisites for monetary sovereignty as
outlined by Robert Hockett and Aaron James in their 2020 book, Money for Nothing .
In addition to the well-known requirements (nation must issue its own currency; currency
not pegged to metal or any other currency; no borrowing in foreign currencies), Hockett and
James add others, including "limited trade dependence in essential goods such as food or
energy sources, in order to mitigate foreign exchange and inflation risk ." (274)
Second, apropos the applicability of MMT to smaller economies, I am pleased to note that
Fanny Pigeaud and Ndongo Samba Sylla's 2018 book, L'Arme Invisible de la
Françafrique: Une Histoire du Franc CFA , has at last been published in English
as Africa's Last Colonial Currency: The CFA Franc Story . (Your search engine will
take you either to the
publisher or to an internet behemoth where you can order it.)
Pigeaud and Sylla's book is a history and analysis of the political economy of the CFA
zone: the countries of central and west Africa which were French colonies and which
continue to use a common currency imposed on them by the French imperialists in 1945.
This book is, in my estimation, the best book we have so far in applying the insights of
Modern Money Theory to non-monetarily sovereign economies. You have to love any book that
starts out by translating Hyman Minsky's most famous aphorism into French: Tout un
chacun peut creér de la monnaie: le problème est de la faire
accepter.
"limited trade dependence in essential goods such as food or energy sources, in order
to mitigate foreign exchange and inflation risk ."
Again, we/they have choices based on resource constraints. But, as usual, they are
political. Most of these choices seem impossible now, but remember Victory Gardens ?
Alas, such things are not looked upon favourably by Big Ag and the supermarket chains, but
my depression-era grandparents grew most of their own food for their very large (by our
standards) families. Maternal side, farmers -- my mother, born 1923, said that she never
even knew there was a depression until she read about it later in high school. Grandpa paid
his property taxes by driving snowplow for the county in the winter. Father's side -- my
father, born 1922, grew up in a village (5-bedroom two story house built by his father, a
shoemaker, and friends/relatives/contractors) on a biggish, maybe 1-2 acre? lot, which was
part of a grant to the family for Civil War service. Grandma still had apple, peach, cherry
and walnut trees, raspberry and currant bushes when I knew her, and had grown beans,
tomatoes, potatoes and all that stuff before the 7 kids got married. Obviously, the kids
did a lot of the work, too. Sewing room -- made most of the clothes for family, Dad says
the kids' diapers were made of sugar sacks.
IOW, this is not rocket science. We did this sort of thing for millions of years,
omitting the last 200 or so, and can very likely do it again. People explored the whole
round world, and conquered a lot of it, without electricity or the internal combustion
engine. We're not all gonna die!
Unless we as a species continue to act on maximizing shareholder value rather than
surviving.
I think that you might be onto something here. I suspect that the lives of our
grandchildren as they grow older will resemble the lives of our grandparents from your
description. Of course that may mean a lot off decentralization from out of big cities but
it can be done – especially if there is no other choice. And it's not like in the US
that there is not the land to do this with.
It is an excellent article, with one small exception, the words, "I accept that creating
money this way is inflationary."
Contrary to popular wisdom, inflation is not caused by money creation . All
inflations are caused by shortages , most often shortages of food or energy.
That includes hyperinflations. Consider, for one, the Zimbabwe hyperinflation. The
government took farmland from farmers and gave it to non-farmers. The inevitable food
shortages caused inflation. The government's "money-printing" was merely the wrongheaded
response to the inflation, not the cause.
In fact, the hyperinflation could have been cured by more money creation, had that money
been used to cure the food shortage, by purchasing food from abroad and distributing it, or
by teaching the non-farmers how to farm.
In the past year, the U.S. has spent an astounding $4 trillion, and soon it will spend
another $2 trillion, Yet, there will be no inflation so long as there are no shortages of
food, oil, or labor.
Bottom line: Scarcity, not money creation, causes inflation.
In the US, as in the UK, planned inequality and (managed) unequal access to the benefits
of the money system are two of the most salient activities of our (US) three government
branches.
So are ye telling me the reason conservatives don't (for example) want to raise the
minimum wage is not because of some economic or monetary reason or law but instead just to
keep people in their place, i.e. preserve the status quo? Amazing! And I guess them
conservatives that "havenot" go along because of that "relative advantage" thing –
they are so fixated on keeping those below in their place that they are blind to the upside
of a more democratic and social monetary policy. Well I'll be. Now I git it!
Then the MMT School are conservatives since they'd use taxation to curb inflation (by
some undisclosed means that does not curb consumption).
But why should price inflation be a problem so long as:
1) It does not exceed income gains for ALL citizens;
2) the means that produce it do not violate equal protection under the law;
and
3) it is not extreme?
The only reason I can think of, and it's a contemptible one, is that large fiat
hoarders* would see their hoards diminish in value in real terms.
*not to disparage those saving for a home, initial capital formation, legitimate
liquidity needs, etc.
One point of inflation is to restrain creditors (rhymes with "predators").
Meanwhile, "printing" money does not initiate inflation. Most inflation–even
hyperinflation–is "cost push," i.e. related to shortages of goods. In Zimbabwe, the
Rhodesian farmers left, and the people to whom Mugabe gave their land were not as
productive. Result: a shortage of food requiring imports (balance of payments problem).
In Weimar Germany, the French army invaded the Ruhr, shutting down Germany's industrial
heartland, making a shortage of goods. They already had a balance of payments problems with
WWI reparations.
it was always thus.
the real Burkean Conservatives behind it all, who yes want to keep everyone in their
place.
as i've lamented many times, it's hard to get a read on who the real Bosses are, since they
don't go on TV and brag, generally(various rightwing billionaires in the last 15 years,
notwithstanding)
C.Wright Mills and Domhoff are the only taxonomists of that cohort that i'm aware of
Diannah Johnstone, perhaps.
Maybe Pepe Escobar when they hide the rum.
otherwise, every attempt i've seen in the last 30 years has had elements of tinfoil and
illuminatii/NWO scattered throughout.
I reckon this is by design, at some level.
whatever there exists a demographic cohort of humanity that is exceedingly wealthy, thinks
it's in charge and mostly really is and that is truly cosmopolitiain citizens of the
world.
their most defining feature is that they pretend real hard not to exist and most of us
little people give them no mind, and pretend right along.
This cohort is not monolithic, nor all powerful they each are as prone to tunnel vision and
stupidity as any of us but they have better connected steering wheels, and cleaner
windshields, and mirrors that work.
One hopes that, like in FDR Times, they will feel threatened enough by the results of their
long term policy preferences to allow a few larger crumbs to fall from the table, so as to
mollify the ravening hordes .ere those hordes notice who the real Hostis Humani Generis
are.
But it looks like they're more likely to double down on the diversionary division of the
Bewildered Herd hence, Cancel Seuss! and Sinema's little antoinette dance .and an hundred
other mostly unimportant things that happened just yesterday to keep us'n's riled up about
the wrong things.
Michael Mackenzie and James Fontanella-Khan in New York Fri, March 5, 2021, 7:00 PM
The veteran value investor John Rogers predicted the US is headed for a repeat of the
"roaring twenties" a century ago that will finally encourage investors to dump tech stocks in
favour of companies more sensitive to the economy. The founder of Ariel Investments told the
Financial Times in an interview that value investing "dinosaurs" like him stood to win as
higher economic growth and rising interest rates took the air out of some of the hottest stocks
of recent years. The US central bank is "overly optimistic that they can keep inflation under
control", he said, and higher bond market interest rates would reduce the value of future
earnings for highly popular growth stocks such as tech companies and for the kinds of
speculative companies coming to market in initial public offerings or via deals with Spacs.
Production jumped in late 2019 but has struggled to maintain a plateau since then as FPSO
start-ups have become sparser while the Campos basin decline continued apace.
Drilling rig numbers offshore increased in 2020 in support of the new FPSOs but land
drilling virtually disappeared.
Rate of decline in the Campos basin, onshore and for small offshore basins have accelerated
decline rates through 2019 and 2020, and all growth is coming from the Santos basin, which
seems to be entering middle age with a rising water cut and the first developments reaching
exhaustion.
Future Projections
Fitting a Verhulst curves to Santos basin production is virtually impossible as it is in
such an early stage of development. An attempted fit resulted in remaining reserves of 22Gb
compared to the APB figure of 11 to 12Gb. The estimate is bound to increase as a number of very
large FPSOs come on line before 2025. Therefore the projection is based on a bottom up on
recent, developing and possible projects that have started up or been announced, using any data
for throughput, reserves etc., that is available and otherwise using usual design practice
(e.g. typical field size for a given design throughput, FPSO availability, ramp-up times,
decline rates, plateau periods).
The Verhulst best fit including annual production through 2019 results in a much thinner
tail than from 2017 because recent figures have been much lower than the fit then. 2020
production was not used in the fit but the value prorated from monthly data through September
shows the declining trend is continuing. The remaining reserves calculated from the fit is only
2Gb compared to 6 to 7 Gb from APB data. Fitting the curve but constraining the reserves to
this numbe produces an unrealistically thick tail. The 2017 gave a better match but more likely
there is another round of developments due that would need a separate curve to match. The first
three of this are currently under development and their expected additional flow over the next
few years matches the prediction from Petrobras – it only shows Petrobras' share of total
equivalent production so the line shown has been prorated to total oil.
I recommend everybody to read it all, but here's the crucial paragraph for the topic being
discussed here:
Foreigners, who took up a great deal of Treasury debt during and after the Global Financial
Crisis of 2008-2009, have stopped buying Treasuries. China, the largest official holder of
US government bonds, isn't motivated to bail America out at the moment.
This Treasury debt buying spree during 2008-2009 is what the American people still call
"the Obama Recovery". In fact, Obama had nothing to do with it: it was China that saved the
USA from collapse in 2008 as it bailed it out.
But now it's different. On the USA is buying USA. The problem here is that we aren't
talking about manufacturing and commodities, but fictitious capital: you know something's
wrong when you have to buy your own debt in order to create a raison d'être for your
own debt's existence.
Bankers rule the world. Corporations are international fiefdoms serving the banks. The
deep state is just the goon squad to steal resources from locals, and to kill any uppity serf
who might have any aspiration for freedom. Trump was for show, so as to turn the guns on
pesky, uppity, and white Americans. I am both dreading and please they hate my side. Biden is
the senile old coot who just signs proclamations. The real advantage to Biden is he doesn't
tweet to stir up the masses. Apparently that was a no, no.
"In this episode of Keiser Report, Max and Stacy look at the 'growing concern that
market-based inflation expectations have become unreliable as indicators,' i.e. the central
banks have destroyed the price signal foundational to free and fair markets. In this
environment, we see Goodhart's Law at work: When a measure becomes a target, it ceases to
be a good measure. Billionaire hedge fund investor Paul Singer says of the 'market
craziness' that there is a 'scarcity of honest profits.'"
From Shadowstats most recent Flash Commentary on 24 Feb:
"Despite Happy Headline Gains in January 2021 Real Retail Sales, Production and
Construction, the Underlying Payroll Employment Numbers Tell the Opposite Story •
First-Quarter 2021 GDP Remains at Risk of Relapsing into Quarterly Contraction •
January 2021 Producer Price Index Monthly Inflation Hit a Record, 10-Year High • U.S.
Dollar Collapse Accelerates."
Shadowstats next Benchmark Commentary will cover "major definitional and accuracy issues
with current Federal Reserve and Federal Government Monetary and Economic data, along with
corrective approaches." Of course, that's one way of saying Here's how the government
lies about the economy and how you can see through them and come close to the truth
.
Would Putin or the Chinese allow their governments to operate in such a manner? IMO,
once the USA began to lie about the basic economic stats it became a failed state and has
been in decline ever since despite all outward appearances. Earlier this week, Strategic-Culture
published an Infographic to answer this question:
"Is the American Dream Still Alive?"
Do note the point of separation between productivity and wages that's been pointed at
now for several decades and how closely it follows Nixon's exit from the Gold Standard.
Passer by @21 and @26, had a thought related to your mention that "the US dollar still
remains 62% of world currency reserves" , or "nearly two thirds of world currency
reserves" . That seems to correspond to the IMF figure of 61.5% from December 2019. The
IMF figure from December 2020, however, is now down to 60.4% .
A few months ago I read that Goldman Sachs had suggested the USD could drop 6% in 2021,
while Citigroup suggested
that it could drop as much as 20%.
Assuming no other changes to reserves, a 6% drop in the USD seems to imply the 60.4%
percentage would become less than 58%. And a 20% drop in the USD seems to imply that US
dollar holdings could fall to around 50% of world currency reserves.
And if it gets to around 50%, does a tipping point, as William Gruff @28 mentioned, kick
in?
On the other hand, other Wall Street strategists think the USD will strengthen in 2021, so
who knows ...
"America's economy has almost doubled in size over the last four decades, but broad
measures of the nation's economic health conceal the unequal distribution of gains. A small
portion of the population has pocketed most of the new wealth, and the coronavirus pandemic
is laying bare the consequences of the unequal distribution of prosperity."
Of course, a significant contributor to the "wealth gap" was the rise in the stock market
fostered by trillions of liquidity injected by the Federal Reserve. As NYT noted:
"The affluent, of course, do tend to own stock, and the median net worth of the richest 10
percent of households rose 13 percent from 2007 to 2016 (the last year for which the Fed has
released data).
Another way to view this issue is by looking at household net worth growth between the top
10% and everyone else.
"Wealth disparities have widened over time. In 1989, the bottom 90 percent of the U.S.
population held 33 percent of all wealth. By 2016, the bottom 90 percent of the population
held only 23 percent of the wealth. The wealth share of the top 1 percent increased from
about 30 percent to about 40 percent over the same period." –
Equitable Growth
Such is more visible when you see that since 2007, the ONLY group has seen an increase in
net worth in the top 10% of the population. Such is also the group that owns 90% of the stock
market as discussed in "How The
Fed Made The Top 10% Richer."
" That is not economic prosperity. It is a distortion of economics."
An Elite Club
Central Bank's globally sought to stoke economic growth by inflating asset prices.
Unfortunately, the consumption of the benefit was only those with savings and discretionary
income to invest.
In other words, the stock market became an "exclusive" club for the elite.
While monetary policy increases the wealth of those that have wealth, the Fed mistakenly
believed the "trickle-down" effect would be enough to stimulate the entire economy.
It hasn't.
The sad reality is that these policies only acted as a transfer of wealth from the middle
class to the wealthy. Such created one of the largest "wealth gaps" in human history.
Via Forbes :
"'The top 10% of the wealth distribution hold a large and growing share of U.S. aggregate
wealth, While the bottom half hold a barely visible share.' Fed economists wrote in a
paper outlining the new data set on inequality. The charts show that 'while the total net
worth of U.S. households has more than quadrupled in nominal terms since 1989, that increase
accrued more to the top than the bottom.'"
A recent report from BCA Research confirms the same showing the increase in wealth of the
top 10% as compared to everyone else.
Lack Of Capital
The current economic expansion is already the longest post-WWII expansion on record. Of
course, that expansion came from artificial interventions rather than stable organic economic
growth. As noted, while the financial markets have soared higher in recent years, it bypassed a
large portion of Americans. Such was NOT because they were afraid to invest, but because they
had NO CAPITAL with which to invest.
The ability to "maintain a certain standard of living" remains problematic for many forcing
them further into debt.
"The debt surge is partly by design. A byproduct of low borrowing costs the Federal
Reserve engineered after the financial crisis to get the economy moving. It has reshaped both
borrowers and lenders. Consumers increasingly need it. Companies increasingly can't sell
their goods without it. And the economy, which counts on consumer spending for more than
two-thirds of GDP, would struggle without a plentiful supply of credit." – WSJ
I often show the "gap" between the "standard of living" and real disposable incomes. In
1990, incomes alone were no longer able to meet the standard of living. Therefore, consumers
turned to debt to fill the "gap."
However, following the "financial crisis," even the combined income and debt levels no
longer filled the gap. Currently, there is almost a $2150 annual deficit facing the average
American. (Note: this deficit accrues every year, which is why consumer credit keeps hitting
new records.)
The Rest Have Debt
The debt-to-income problem keeps individuals from building wealth, and government statistics
obscure the fundamental reality. We discussed this point in detail in the "
Illusion Of Soaring Savings."
" The median net worth of households in the middle 20% of income rose 4% in
inflation-adjusted terms to $81,900 between 1989 and 2016. That is the latest available data.
For households in the top 20%, median net worth more than doubled to $811,860. And for the
top 1%, the increase was 178% to $11,206,000.
The value of assets for all U.S. households increased from 1989 through 2016 by an
inflation-adjusted $58 trillion. A full 33% of that gain -- $19 trillion -- went to the
wealthiest 1%, according to a Journal analysis of Fed data." – WSJ
Of course, if the Fed's actions to inflate asset prices worked, then wealth distribution
would be more even. Importantly, we wouldn't see more than 50% of Americans unable to meet a
$500 emergency.
The single truth of a decade of monetary and fiscal interventions is this:
"The top 10% of the economy has assets, the bottom 90% has the debt."
The Fed Does Have A Choice
The Fed does have a choice that could alter the current wealth inequality dynamic:
Allow capitalism to take root by allowing corporations to fail and restructure. A needed
process after spending a decade leveraging themselves to the hilt, buying back shares, and
massively increasing executive wealth while compressing workers' wages. Or,
Continue to bailout "bad actors" and further forestall the "clearing process" that would
rebalance the economy and allow for increased future organic economic growth.
As the Fed's balance sheet rises past $7-Trillion, they chose to impede the "clearing
process" once again. By not allowing for debt to fail, corporate restructuring, and
"socializing the losses," they removed the risk of speculative practices.
Such has ensured the continuation of "bad behaviors."
Unfortunately, given we have a decade of experience watching the "wealth gap" grow, the next
decade will only see the "gap" worsen.
The obvious question we should be asking is:
"If we are in a booming economy, as supposedly represented by surging asset prices, then
why are Central Banks globally acting to increase financial stimulus for the market?"
The trap the Fed has fallen into is that markets are predicated on ever-cheaper cash being
freely available. Even the faintest threat that the cash might become more expensive or less
available causes shock waves.
Such was seen in late 2018 when the Fed signaled it might increase the pace of normalizing
monetary policy. The markets imploded, and the Fed halted its plan of shrinking its balance
sheet. Then, during the pandemic, the Fed flooded the system with liquidity to halt a market
crash.
Equality In Misery
The reality is the Fed has left unconventional policies in place for so long after the
"Financial Crisis," the markets can no longer function without them. Risk-taking, and the
build-up of financial leverage, have removed any ability to "normalize" monetary policy. At
least not without triggering violent market convulsions.
Given there is too much debt, too much activity predicated on ultra-low interest rates, and
confidence hinging on inflated asset values, the Fed has no choice but to keep pushing
liquidity until something eventually "pops."
Of course, it will be the bottom 90% that absorbs the losses. As noted by Sven Henrich
previously:
"In a world of measured low inflation and weak wage growth easy central bank money creates
vast price inflation in the assets owned by the few making the rich richer, but also enables
the taking on ever higher debt burdens leaving everyone else to foot the ultimate bill."
" That is the measured outcome of the central bank easy money dynamic. After decades, it
has now taken on new obscene forms in the past 10-years with absolutely no end in sight."
For the world's elite, their view of the world is far different than the reality the rest
face.
Of course, this also explains much of the recent election outcomes.
When "capitalism" isn't allowed to work for the "equality" of the whole, the populous will
"vote" themselves "equality in misery."
Lordflin 11 hours ago remove link
The so called market has become nothing more than an open vein... draining the life's
blood of civilization down the maws of lifeless parasites...
They are killing the host...
2banana 11 hours ago
In the era of insanely cheap and easy money, those closest to the money spigot get
insanely wealthy for doing nothing.
Those in the back of the line get $75,000 communications degrees, and 27% credit
cards.
Nothing explodes "wealth inequality" like cheap and easy money.
TreeTopSlick 11 hours ago remove link
The Cantillon Effect in action. Never been so obvious in America than today.
2banana 10 hours ago
Great analogy.
Cantillon's original thesis outlines how rising prices affect different sectors at
different times and suggests that time difference effectively acts as a taxing mechanism. In
other words, the first sectors to receive the newly created money enjoy higher profits as
their pay increases, but general costs are still low. On the other hand, the last sectors in
which prices rise (where there is more economic friction) face higher costs while still
producing at lower prices.
Alice-the-dog 11 hours ago
The "monetary policy that created a feedback loop between the Fed and the elite" isn't a
by product, it's a design feature.
Crow-Magnon 11 hours ago
"If the American people ever allow private banks to control the issue of their money,
first by inflation and then by deflation, the banks and corporations that will grow up around
them (around the banks), will deprive the people of their property until their children will
wake up homeless on the continent their fathers conquered."
Here are the political affiliations of America's 50 richest families
You've both been bamboozled. The richest people in the country may pretend to have
political affiliations, but it's just a distraction. The Capitol Hill Whores are bought off
very cheaply, which is why the wealthy spend their money on both D-whores and R-whores.
It is in the interest of the very wealthy to keep the D/R, left/right, red/blue charade
going because it keeps peoples' anger focused on the paid actors instead of looking for who
is really screwing the country. They've got nothing to worry about as long as they can keep
the unwashed rabble fighting against each other.
Mary Jane 10 hours ago remove link
99% of Americans can't hold that thought in their heads. They can only hold the
left/right, red/blue understanding in their heads. One is their team, just as in Sports, and
their team must win. It doesn't matter that they just shelled out money to the owner of the
stadium, and the franchises, who could care less who won as long as the money keeps coming
in. Very similar, to the bread and circus routines of the Roman Empire's Coliseum, no one
ever looked at the wealth of the Emperor.
Apocalypse2020 8 hours ago
"The super-rich will have to keep up the pretense that national politics might someday
make a difference. Since economic decisions are their prerogative, they will encourage
politicians of both the Left and the Right, to specialize in cultural issues. The aim will be
to keep the minds of the proles elsewhere – to keep the bottom 75 percent of Americans
and the bottom 95 percent of the world's population busy with ethnic and religious
hostilities, and with debates about sexual mores. If the proles can be distracted from their
own despair by media-created pseudo-events the super-rich will have little to fear."
Richard Rorty, 1998
Sound of the Suburbs 7 hours ago remove link
What has happened to inequality?
Pretty much what you would expect really.
Mariner Eccles, FED chair 1934 – 48, observed what the capital accumulation of
neoclassical economics did to the US economy in the 1920s.
"a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion
of currently produced wealth. This served then as capital accumulations. But by taking
purchasing power out of the hands of mass consumers, the savers denied themselves the kind of
effective demand for their products which would justify reinvestment of the capital
accumulation in new plants. In consequence as in a poker game where the chips were
concentrated in fewer and fewer hands, the other fellows could stay in the game only by
borrowing. When the credit ran out, the game stopped"
With the capital accumulation of neoclassical economics wealth concentrates at the
top.
A few people have all the money and everyone else gets by on debt.
Keynes added some redistribution to stop all the wealth concentrating at the top, and
developed nations formed a strong healthy middle class.
The neoliberals removed the redistribution.
With the capital accumulation of neoclassical economics wealth concentrates at the
top.
A few people have all the money and everyone else gets by on debt.
It wasn't even hard.
Let it Go 10 hours ago
Things are really messed up. This gives credence to the idea we might soon be witness to
the first global inflationary depression. As investors shift into assets that do well during
times of inflation, it is possible they may set in motion a self-feeding loop or cycle. More
about this in the following article.
Commodities have seen four supercycles over the past 100 years. The last one peaked in 2008,
after 12 years of expansion.
Last month, two of the biggest banks on Wall Street - JPMorgan Chase
and
Goldman Sachs - joined others predicting a new commodities supercycle as economies reopen
and the risks of the pandemic subside.
The expectation is for a long-term boom spanning oil, metals, and agricultural material
prices. JPMorgan's head of oil and gas, Christyan Malek, recently offered one of the most
bullish forecasts for oil, suggesting international crude prices could rebound to US$100 per
barrel.
Perhaps we need an honest national dialog about declining expectations, rising
inequality, social depression and the failure of the status quo.
Even as the chirpy happy-talk of a
return to normal
floods the airwaves, what
nobody dares acknowledge is that
"normal" for a rising number of Americans is the
social
depression
of
downward mobility and social defeat
.
Downward mobility
is not a new trend--it's
simply accelerating.
As this RAND Corporation report documents, (
Trends
in Income From 1975 to 2018
) $50 trillion in earnings has been transferred to the Financial Aristocracy from the bottom
90% of American households over the past 45 years.
"The $50 trillion transfer of wealth the RAND report documents has occurred entirely
within the American economy, not between it and its trading partners. No, this upward redistribution of income, wealth,
and power wasn't inevitable; it was a choice--a direct result of the trickle-down policies we chose to implement since
1975.
We chose to cut taxes on billionaires and to deregulate the financial industry. We
chose to allow CEOs to manipulate share prices through stock buybacks, and to lavishly reward themselves with the
proceeds. We chose to permit giant corporations, through mergers and acquisitions, to accumulate the vast monopoly power
necessary to dictate both prices charged and wages paid. We chose to erode the minimum wage and the overtime threshold
and the bargaining power of labor. For four decades, we chose to elect political leaders who put the material interests
of the rich and powerful above those of the American people."
The reality is that the
middle class
has been reduced to the sliver just below the
top 5%--if we use the standards of the prosperous 1960s as a baseline.
Downward mobility excels in creating and distributing what I term
social
defeat
:
In my lexicon,
social defeat
is the spectrum of anxiety,
insecurity, chronic stress, fear and powerlessness that accompanies declining financial security and social status.
Downward mobility and social defeat lead to
social
depression
.
Here are the conditions that characterize social depression:
1. High expectations of endlessly rising prosperity instilled as a birthright no longer align with economy reality.
2. Part-time and unemployed people are marginalized, not just financially but socially.
3. Widening income/wealth disparity as those in the top 10% pull away from the bottom 90%.
4. A systemic decline in social/economic mobility as it becomes increasingly difficult to move from dependence on the
state or one's parents to financial independence.
5. A widening disconnect between higher education and employment: a college/university degree no longer guarantees a
stable, good-paying job.
6. A failure in the Status Quo institutions and mainstream media to recognize social depression as a reality.
7. A systemic failure of imagination within state and private-sector institutions on how to address social depression
issues.
8. The abandonment of middle class aspirations: young people no longer aspire to (or cannot afford) consumerist status
symbols such as luxury autos or conventional homeownership.
9. A generational abandonment of marriage, families and independent households as these are no longer affordable to
those with part-time or unstable employment.
10. A loss of hope in the young generations as a result of the above conditions.
The rising tide of collective anger arising from social depression is visible in
many places:
road rage, violent street clashes between groups seething for a fight, the destruction of friendships
for holding "incorrect" ideological views, and so on.
A coarsening of the entire social order is increasingly visible:
The
Age of Rudeness
.
Depressive thoughts (and the emotions they generate) tend to be self-reinforcing, and this is why it's so difficult to
break out of depression once in its grip.
One part of the healing process is to expose the sources of anger that we are
repressing.
As psychiatrist Karen Horney explained in her 1950 masterwork,
Neurosis
and Human Growth: The Struggle Towards Self-Realization
, anger at ourselves sometimes arises from our failure to live
up to the many "shoulds" we've internalized, and the idealized track we've laid out for ourselves and our lives.
The article
The
American Dream Is Killing Us
does a good job of explaining
how our failure to
obtain the expected rewards of "doing all the right things"
(getting a college degree, working hard, etc.) breeds
resentment and despair.
Since we did the "right things," the system "should" deliver the financial rewards
and security we expected.
This systemic failure to deliver the promised rewards is eroding the social contract and
social cohesion. Fewer and fewer people have a stake in the system.
We are increasingly angry at the system, but we reserve some anger for ourselves,
because
the mass-media trumpets how well the economy is doing and how some people are doing extremely well. Naturally, we wonder,
why them and not us? The failure is thus internalized.
One response to this sense that the system no longer works as advertised is to
seek
the relative comfort of echo chambers
--places we can go to hear confirmation that this systemic stagnation is the
opposing ideological camp's fault.
Part of the American Exceptionalism we hear so much about is a can-do optimism:
set
your mind to it and everything is possible.
The failure to prosper as anticipated is generating a range of negative emotions
that are "un-American":
complaining that you didn't get a high-paying secure job despite having a college degree
(or advanced degree) sounds like sour-grapes: the message is you didn't work hard enough, you didn't get the right diploma,
etc.
It can't be the system that's failed, right?
I discuss this in my book
Why
Our Status Quo Failed and Is Beyond Reform
: the top 10% who are benefiting mightily dominate politics and the media,
and their assumption is:
the system is working great for me, so it must be working great
for everyone
. This implicit narrative carries an implicit accusation that any failure is the fault of the individual,
not the system.
The inability to express our despair and anger generates depression. Some people will redouble their efforts, others will
seek to lay the blame on "the other" (some external group) and others will give up.
What
few people will do is look at the sources of systemic injustice and inequality.
Perhaps we need an honest national dialog about declining expectations, rising
inequality and the failure of the status quo
that avoids polarization and the internalization trap (i.e. it's your
own fault you're not well-off).
We need to value honesty above fake happy-talk. Once we can speak honestly, there
will be a foundation for optimism.
Rising yields will likely inject more volatility into financial markets as investors debate
when the Fed will be forced to tighten monetary policy, though that doesn't appear to be
anytime soon.
Fed chair Jerome Powell downplayed concerns this week about potentially higher inflation and
signaled that the central bank sees no need to alter its ultralow rate policies for the
foreseeable future. The Fed projects that inflation will remain at or below the central bank's
2% target through 2023.
Despite conventional thinking that rising long-term rates are bad for stocks, historical
data show that the broad S&P 500 has actually posted strong returns.
The S&P 500 has averaged an annualized total return of 13% and increased 81% of the time
during rising rate periods (13 out of 16), according to data from Truist Advisory Services.
Buffet repurchased its own stock. Which means he does not see attractive investments. But his
advice as for searching for yield and moving to junk bonds is a valid one.
Insurance represents the largest of Berkshire Hathaway's four "family jewel" businesses.
Though unlike other insurance companies, Berkshire takes a more equity-heavy approach when
investing its insurance float.
According to Buffett, Berkshire's insurance fleet has more capital deployed than any of its
competitors thanks to the financial strength of the operation and the "huge cash flow"
generated by the non-insurance businesses.
This combination allows Berkshire's insurance operation to "safely follow an equity-heavy
investment strategy," something that's "not feasible for the overwhelming majority of
insurers," Buffett wrote. For regulatory and credit-rating reasons, a lot of insurers have to
focus on bonds.
He noted that some insurers and bond investors "may try to juice the pathetic returns now
available by shifting their purchases to obligations backed by shaky borrowers." In other
words, they may allocate more of the portfolios to financial instruments like leveraged loans
and high-yield bonds, aka junk bonds.
"Risky loans, however, are not the answer to inadequate interest rates," he added. "Three
decades ago, the once-mighty savings and loan industry destroyed itself, partly by ignoring
that maxim."
Poofing money into existence has serous consequences: Eventual Economic Depression:
Here is my prediction (it is actually very positive ultimately).
1. Stock market is way, way, way too high for the underlying profitability of companies
and underlying demand (capacity to spend/budget/money in the pocket) from consumers.
2. FAATMAN companies' valuations are way to high. FAATMAN = Facebook, Amazon, Alphabet
(google), Tesla, Microsoft, Apple and Netflix. But this can be fixed. Keep reading!
3. I am expecting a Titanic level Market slide within 0-3 years. Down 70%. Great
Depression level. But much faster due to electronic age we live in.
4. I will go in with both feet with ALL my cash into the stock market at that time. My
jump-in level is 70% down from peak.
5. Interest rates tell you 90% of the story. This low of rates means DEMAND is very, very
weak compared to capacity (I refinanced my 15 year fixed rate mortgage at 2.2% APR). Which
means that average Joe does not have sufficient income to borrow and spend. Yes capacity to
produce in our beautiful god given economy is huge and ever expanding. That part is
correct!
6. Capacity of the economy is stupendously high due to extreme automation. Again, this is
the good part. Of course. Thanks to the IT guys like me.
7. Federal Reserve cannot do much at this point. Federal Reserve would be pushing on a
string and they know it.
8. One way to balance capacity and demand in our economy is through UBI (Universal Basic
Income). Otherwise known as John Maynard Keynes' helicopter cash or Clifford H. Douglas'
social credit.
9. If we don't do UBI we will at least need to do continuous stimuluses by the federal
government. Every six months.
10. UBI is better, simpler, more comprehensive, fairer way to stimulate the economy
continuously. I would called it: AUTOMATION DIVDEND. That is what it really is.
11. How long will it take for Americans to realize how economy really works (i.e.,
Keynesian economics). Don't know. But there is hope. Bernie Sanders and the Democrats in
general are not too far from seeing past the scarcity paradigm which conservatives
(Republicans) live in. It took me probably 2000 hours of intensely scouring the web to figure
out what is going on. Reading books and reading all kinds of blogs and comments in blogs to
figure out the truth about our modern credit based economy. By the way in my heart I am a
conservative (Republican). But I cannot vote for them because they (Republicans) are clueless
about how the economy really works.
12. It took elderly dying in the streets in the 30's for FDR to realize we need a social
security program.
13. A future UBI program should be simple in implementation. All who have SSN should get
non-taxable UBI (no exceptions). Babies and Billionaires included. I would start with $500
per month per SSN. This can be implemented very easily through a partnership between the
Social security administration + the Bankers. Very similar to how my mom's social security
benefits are deposited in her Wells Fargo bank account every month seamlessly.
14. Why pay billionaires UBI. Because it is only fair. Money printed is not the same as
money spent. If the billionaire does not spend it. The extra money does not "cost" any
resources from within our economy. Cool. Isn't it.
15. If inflation ensues I would implement a consumption tax (a national sales tax) to tone
down consumption and balance capacity and demand. By the way I would completely eliminate all
federal income taxes including social security taxes. If inflation ensues again raise the
national sales tax to balance capacity and demand. State and local taxes have to stay since
state and local governments can't print money.
16. If something like the above is not done. Capitalism will be destroyed completely. How
ironic, by conservatives themselves because they don't understand (Keynesian) economics.
17. Capitalism was rescued after the great depression by world war II spending, GI bill
spending, Marshall Plan spending, the space program spending, the welfare and food stamp
programs spending, the korean war spending, the vietnam war spending, the Reagan's star wars
defense programs spending and defense budget and other budget items spending in general. If
these "spendings" were not there than capitalism would have collapse by now due to
deflation.
18. Capitalism is too much focused savings and dies of deflation eventually when consumers
cannot borrow anymore!
19. This (Keynesian) economics only works because of automation and availability of
relatively cheap abundant energy supplies which power our machines and our computers.
20. If we ever cannot get cheap energy supplies Well back to few hundred million people on
earth total and scarcity!
In Western society, especially in American society, money equals status. The more money
you have the the more esteemed you are; I don't particularly care to have money except for
some of the nice things I can get like books, but then my ego or sense of self worth is not
tied to money, whereas for too many of the higher classes it is tied to a sense of personal
value; it also means political as well as social power. The wealthiest Americans are treated
like gods in our nation merely because they have wealth.
Having seen middle class customers lording themselves our my fellow employees was an
interesting experience. It convinced me that the money they had made them feel good; it will
take force of some kind to get a more equal and just society that does not depend on raw
wealth for a good life.
Yves here. An ugly trade treaty that included corporate-profit guaranteeing "investor-state
dispute settlement" mechanisms is again getting the bad press it deserves. We mentioned the
1994 Energy Charter Treaty in our 2013-2015 opposition to the TransPacific Partnership and its
Atlantic sister, the TransAtlantic Trade and Investment Partnership because it had become
notorious in Europe for undermining clean energy initiatives.
From a November 2013 post, quoting Public Citizen :
Vattenfal, a Swedish company, is a serial trade pact litigant against Germany. In 2011,
Der Spiegel reported on how it was suing for expected €1 billion plus losses due to
Germany's program to phase out nuclear power:
According to Handelsblatt, Vattenfall has an advantage in seeking compensation because
the company has its headquarters abroad. As a Swedish company, Vattenfall can invoke
investment rules under the Energy Charter Treaty (ECT), which protect foreign investors in
signatory nations from interference in property rights. That includes, according to the
treaty's text, a "fair and equitable treatment" of investors.
The Swedish company has already filed suit once against the German government at the
ICSID. In 2009, Vattenfall sued the federal government over stricter environmental
regulations on its coal-fired power plant in Hamburg-Moorburg, seeking €1.4 billion
plus interest in damages. The parties settled out of court in August 2010.
These treaty terms are designed to erode national sovereignity and establish supra-national
mechanisms to make corporate profits senior to national laws. I'm not making that up. Again
from that 2013 post:
Word has apparently gotten out even to Congressmen who can normally be lulled to sleep
with the invocation of the magic phrase "free trade" that the pending Trans Pacific
Partnership is toxic. This proposed deal among 13 Pacific Rim countries (essentially, an
"everybody but China" pact), is only peripherally about trade, since trade is already
substantially liberalized. Its main aim is to strengthen the rights of intellectual property
holders and investors, undermining US sovereignity, allowing drug companies to raise drug
prices, interfering with basic operation of the Internet, and gutting labor, banking, and
environmental regulations.
It's not really about "trade", but a system of enforceable global governance that is not
designed for modification by those who will live the results.
The only good news about the Energy Charter Treaty, compared to its later versions of
investor-state dispute settlement provisions, is that signatories can withdraw. And that might
actually happen with the Energy Charter Treaty.
By Fabian Flues, an adviser on trade and investment policy at Berlin-based PowerShift,
Cecilia Olivet, project coordinator with the Economic Justice Programme at the Transnational
Institute, and Pia Eberhardt, a researcher and campaigner with the Brussels-based campaign
group Corporate Europe Observatory. Originally published at
openDemocracy
On 4 February the German energy giant RWE announced it was
suing the government of the Netherlands . The crime? Proposing to phase out coal from the
country's electricity mix. The company, which is Europe's biggest emitter of carbon, is
demanding €1.4bn in 'compensation' from the country for loss of potential earnings,
because the Dutch government has banned the burning
of coal for electricity from 2030.
If this sounds unreasonable, then you might be surprised to learn that this kind of legal
action is perfectly normal – and likely to become far more commonplace in the coming
years.
RWE is suing under the Energy Charter Treaty (ECT), a little-known international agreement
signed without much public debate in 1994. The treaty binds more than 50 countries, and allows
foreign investors in the energy sector to sue governments for decisions that might negatively
impact their profits – including climate policies. Governments can be forced to pay huge
sums in compensation if they lose an ECT case.
On Tuesday, Investigate Europe revealed that the EU,
the UK and Switzerland could be forced to pay more than €345bn in ECT lawsuits over
climate action in the coming years. This amount, which is more than twice the EU's annual
budget, represents the total value of the fossil fuel infrastructure that is protected by the
ECT, and was calculated using data gathered by Global Energy Monitor and Change of Oil
International.
With ECT-covered assets worth €141bn (or more than €2,000 per citizen), the UK
– which in 2019 became the first major economy to pass a net zero emissions law –
is the country most vulnerable to future claims.
In 2019 the European Commission called the ECT "outdated" and
"no longer sustainable", and more than 450 climate leaders and scientists and 300
lawmakers from across Europe have called on governments to withdraw from the treaty.
But in response, powerful interests have mobilised to not just defend the treaty, but to
expand it to new signatory states. These interests include the fossil fuels lobby keen to keep
its outsized legal
privileges ; lawyers who make millions arguing ECT cases; and the Brussels-based ECT
Secretariat, which has close ties to both industries and whose survival depends on the treaty's
continuation.
A Bodyguard for Polluters
Supporters of the ECT make a number of controversial claims to prevent countries from
leaving the treaty and persuade new countries to join. But their myths and misinformation are
easily
debunked .
For example, ECT supporters say the treaty attracts foreign investment, including into clean
energy. However, there is no clear evidence that ECT-style agreements do this: a recent
meta-analysis of 74 studies found
that investment agreements' effect on increasing foreign investment "is so small as to be
considered zero".
And while ECT supporters claim the treaty protects renewable investments, in reality it
predominantly protects and prolongs the fossil-fuel dominated status quo. In recent years only
20% of investments protected by the ECT covered clean energy, compared to 56% for coal, oil and
gas.
By protecting the status quo, the ECT acts as a
bodyguard for polluters . As the RWE example shows, when a government decides to phase out
coal or cease oil and gas operations, fossil fuel companies can demand steep compensation via
the ECT. So with no public benefits and clear risks for climate action, why are countries
hesitant to leave the treaty? Two more myths are preventing them from taking action.
Firstly, ECT proponents claim that an ongoing process to 'modernise' the treaty will fix its
flaws. But modernisation has proceeded at a snail's pace since 2017, and is unlikely to succeed
given resistance from powerful ECT members like
Japan , whose companies have used the ECT to take legal action against other governments.
Leaked
reports show that the talks are stalled due to the requirement to take decisions
unanimously.
No signatory state has proposed removing its dangerous corporate courts, which take the form
of arbitration tribunals run by three private lawyers. No state has proposed a clear exemption
for climate action. No ECT member wants to exclude protection of fossil fuels from the
modernised treaty any time soon.
In short: the negotiations around ECT 'modernisation' will not bring the treaty in line with
global climate commitments.
Secondly, ECT supporters claim that leaving the treaty offers no protection against costly
lawsuits. The ECT's sunset clause – which allows investors to sue a country for 20 years
after its withdrawal from the treaty – makes a unilateral ECT exit useless, it is
claimed.
In practice, however, withdrawing from the ECT significantly reduces countries' risk of
being sued and avoids carbon lock-in from new fossil fuel projects. The ECT's sunset clause
only applies to investments made before withdrawal, while those made after are no
longer protected.
At a time when the majority of new energy investment is still in fossil fuels, not
renewables, this is important. The sooner countries leave, the fewer new dirty investments will
fall under the ECT and be 'locked-in' by its legal status.
Italy took the necessary step of withdrawing from the ECT in 2016. Going forward, if
multiple countries decide to
withdraw together – say, the EU bloc, supported by allies such as the UK or
Switzerland – they can further weaken the sunset clause. Countries that withdraw could
adopt an agreement that excludes claims within their group, before jointly leaving the ECT at
the same time. That would make it difficult for investors from those countries to sue others
from the group.
This week a European-wide petition has been launched so that citizens can
call on their governments to end the ECT madness.
Leaving the outdated, climate-killing ECT is a no-brainer. It is not just good governance,
but the logical step for all who take global warming seriously.
Those "investor-state dispute settlement" mechanisms are nuts and I can see a rush for the
door if one or two countries pull out of the Energy Charter Treaty. There has to be a point
where they realize that the Energy Charter Treaty is not in fact a suicide pact. Good thing
that there is not an equivalent in the medical industry or else healthcare companies would be
suing nations for giving their citizens vaccines on the grounds that it is robbing those
companies of future income from treating them during the present pandemic.
"not an equivalent in the medical industry or else healthcare companies would be suing
nations for giving their citizens vaccines on the grounds that it is robbing those companies
of future income from treating them during the present pandemic"
Are you sure?
They have been given a non-liability clause for side-effects. The EU has ordered more
vaccine in spite of not knowing if the vaccines will stop the transfer of the disease. If
that doesn't sound like an equivalent, what does?
No. that's quite different. The governments under an ISDS type of regime would be required
to buy or to compensate for non-purchases.
Here, they are competing with each other to try to get supplies. The liability waivers are
in a completely different economic category and result from governments being so eager to get
the vaccines that they were released without going through the normal approval process (and
the drug companies as a result having an upper hand in bargaining).
It was the governments themselves who enjoined the pharma companies to rush vaccine
development and who then also rushed the approval process. Thus in this case (and only in
this case) I think that a waiver of liability (maybe with some residual liability for gross
negligence) is entirely appropriate.
The ECT mechanism is a reasonable response to a question: "If a company in good faith
follows a nation's laws and invests money in a long-term, legal project, who should pay for
the stranded costs if the nation decides to change the law to make the project illegal?" This
is about who should pay for stranded assets.
Legislators naturally are looking for someone else to pick up the bill and the "someone
else" is often a foreign company because domestic companies have to much political power to
be messed with and the company shareholders are often local people.
The Canadian gas pipeline to the US gulf coast is an example. More than two billion
dollars were invested, the proper permits were gotten and the pipeline was built- all except
a five mile stretch now held up in the usual creative American litigation machine. So who
should pay for the two billion invested- half of which came from the Alberta provincial
government? Alberta has already filed the arbitration claim and I support their position; if
a country encourages a legal investment and then changes the rules the country can do it- but
the country should pay for the loss.
When American assets are confiscated overseas using the same sort of creative legal
reasoning the US investors are rightly up in arms. I'm specifically not including the
all-to-common cases of fraud and political payoffs by foreign investors. In the cases Yves
cites there are no allegations that the contracts were tainted by fraud.
A well known modern historian has pointed out that if the American abolitionists wanted to
end slavery they should have campaigned to do what the British did- buy all the slaves, set
them free and compensate the owners for the "taking" of the property. In the 1830s the
British spent the money and freed the slaves. In the U.S., on the other hand we had a civil
war, more than half a million young men killed- and the cost of the war was five times what
it would have cost to purchase and free all the slaves. I use this example because there were
clearly both moral and economic issues involved in slavery, just as there are in the fight to
limit air pollution and stop climate change.
Not only is there no free lunch, but there is always a fight about who should pay for the
lunch.
This sets the stage to rethink contracts of all kinds. If the Energy Charter Treaty
(basically contracts to protect vested interests for profits and against liabilities) is
breached by a country simply leaving the organization it makes all those contracts worthless.
And it explains why the TPP and the TAP don't have a get-out clause. I think the question of
stranded assets is being mishandled too. Especially because we will need fossil fuel for many
decades to come. At this point it is a question of what do we sacrifice to protect the
atmosphere? It looks like gasoline-cars and maybe home heating fuel. But not electricity. RWE
AG is a huge generator and provider of electricity. Asia Pacific as well as the EU. So taking
Texas as a good example, what happens to RWE if they are faced with any number of problems
and need to generate electricity fast? Their best backup is oil and natural gas. And it's
gotta be a no-brainer that they are seriously involved with Nordstream-2, and something
similar in eastern Siberia (?), to supply fuel and back-up fuel for their operations. ECT is
an old agreement. TPP is a newer one. Neither one of them are looking at the downside to the
environment. So they should both be rethought and re-construed. Because, for more accurate
consideration, fossil fuels are not so much a stranded asset as an asset that must be
carefully conserved to last us through a long transition period.
Given that industries spend as much effort lobbying for the environmental disasters our
leaders (they paid to get elected) approve I don't think they deserve to earn back the
expense of their investments, let alone the theoretical profit that that stupid, immoral
investment could have generated
I think this sort of situation shows how important it is for governments to be the
investors/owners of critical infrastructure instead of capitalists (paid for by asset taxes,
transaction taxes and MMT).
At this point I can think of no wealthy person who's fortune is not built on the misery of
our grandchildren (Oh no! It's us, now, not our grandkids at the edge of the abyss) and we
need a massive asset tax on top of huge lifestyle changes. An asset free, radically different
life is coming soon for us all whether we choose it or not and putting the decision off is
only making the looming reality worse..
One factor is a change in one of the three large producer's policies. This large producer is
also the only producer that consumes more than it produces and therefore the only one of the
three that favors lower prices. I'm referring to USA, of course.
USA shale (and to a much lesser extent GOM) growth kept a lid on prices. Where would prices
have been 2010-19 without USA adding 7 million BOPD?
USA growth doesn't appear to be headed toward adding 1 million BOPD or more per year in the
future. USA companies are all being pressured to pay dividends. To cover dividends, USA
companies need much higher prices. USA companies aren't forecasting growth like past years.
For the first time ever, the USA government is not making oil production growth, either
domestic or foreign, a priority. I am not making a "political" statement here trying to rile up
the left on the board. Just look at oil prices since the USA election on 11/3. Not a
coincidence. Not likely USA will be intervening anytime soon in the ME to protect oil supplies.
At least not in a big way.
I have no idea how high oil prices will go. I wonder what happens politically in USA with $3
gasoline? $4 ? Are high gasoline prices no longer a political liability? They weren't for Obama
in 2012. But USA was drilling like crazy in 2012. Not sure what happens this time if that
occurs, given clear desire of Biden Administration to discourage USA oil production growth.
Another factor is the Western European producers have told the market recently in a very
straightforward manner that their oil production is past peak. The CEO's of both BP and RDS
have stated this. Total is also transitioning away from oil. Equinor also, it changed its name
to remove the word oil.
Next, even though total worldwide demand will still be below a record, demand growth from
2020 to 2021 worldwide will be big, much bigger than from 2009 to 2010 after GFC. What did
prices do from the depths of GFC to 2011? Compare GFC stimulus to COVID stimulus.
Last, how many paper barrels are traded per physical barrel? With the increase in paper
barrels (I would call them more accurately day trader barrels) volatility in the oil market has
grown. The price went negative big time one day last April. It was purely a day trader
phenomenon.
Everyday you can find headlines that point to a huge transition underway in the world energy
scene.
For example today-
-Exclusive: Equinor considers more US asset sales in global strategy revamp, and
-Ford bets $29B on leading the 'electric vehicle revolution'
There is a huge scramble underway to adapt to the conditions these big companies now see
coming to be over this decade.
In the meantime, I think that oil demand growth will be very strong over the next 18-24
months.
And as the price of gas in the USA goes up in this rebound phase, the great difference in
travel cost/mile between plug-in vehicles (like a Ford mustang) and ICE vehicles will become a
widely known fact. Ford (and the other manufacturers) all know that now, even if they were slow
on the uptake.
This world is going to change rapidly this decade in so many ways. REPLYALIMBIQUATED IGNORED02/15/2021 at 11:34
am
I think a general feeling of optimism that there is light at the end of the Covid 19 tunnel
is helping as well. REPLYSURVIVALIST IGNORED02/15/2021 at 12:23
pm
" For the first time ever, the USA government is not making oil production growth, either
domestic or foreign, a priority."
Great observation. I recall when GWB2 went to KSA to 'kiss the ring' and ask for more oil
production. I wonder how it will play out next time. REPLYHICKORY IGNORED02/15/2021 at 12:33
pm
"" For the first time ever, the USA government is not making oil production growth, either
domestic or foreign, a priority."
Of much greater impact- For the first time ever, the major oil companies are not making oil
production growth, either domestic or foreign, a priority. REPLYSHALLOW SAND IGNORED02/15/2021 at 1:11
pm
The Biden administration is under pressure to see oil prices rise. The green agenda of wind,
solar and EV's is only cost competitive with fossil fuels in two ways: 1) green subsidies; or
2) higher oil prices. Until high oil prices threaten the economy, the Biden administration will
enact policies that gladly see oil prices rise. And with the oil price experience of 2009 to
2014 still relatively fresh in people's minds, the Biden administration is not afraid of $60,
$70, or even $90 oil. They are hoping for it. REPLYHICKORY IGNORED02/15/2021 at 2:13
pm
"$60, $70, or even $90 oil. They are hoping for it."
As are the people working in the oil industry. REPLYSTEPHEN HREN IGNORED02/15/2021 at 4:59
pm
As far as anyone on this board is considered, the higher the price of oil the better. Let's
phase out oil production in the US over the next three decades and keep the price high the
entire time so the producers make money and people are incentivized to switch to less polluting
EVs. It'll be like the TRC for the whole country but heading towards a bottleneck. Auction
drilling rights so only the best wells get drilled. Keep restricting drilling in a phased
manner, enact a gradually lower cap on the number of wells that can be drilled until it goes to
zero in twenty years and then maintain these stripper wells until they are empty. REPLYPAULO IGNORED02/15/2021 at 6:33
pm
Can you imagine any US party that would actually dare to promote a higher cost for gasoline?
Personally, I think there should be a big carbon tax and fuel tax surcharge imposed to fix
infrastructure, but whatever.
Confession: I am not anti oil. My son works in the Cdn industry. I just think people drive
more than they should and that energy should be priced higher. Win win. LLOYD IGNORED02/16/2021 at 3:55
pm
So $90 oil is good for:
-Saudi
-Democrats
-Shallow
-Tesla
-Renewables
PAOIL-
I disagree that high oil prices are needed to make green energy competitive, because oil is
already very expensive energy, which is why it is rarely used to generate electricity. Wind and
solar compete against coal, nuclear and gas, not oil.
Oil shines as a way to store energy in a moving vehicle and power internal combustion
engines. As such, it really competes with batteries, not with the rest of the energy market at
all. And batteries still have a tiny impact on oil markets.
So higher oil prices might be useful for the EVs, but not particularly useful for wind and
solar. But in reality, the EV market is suffering from chronic battery shortages as
manufacturers struggle to build factories fast enough to meet 20% or more annual demand growth.
The oil price really isn't an issue, and raising oil prices wouldn't help.
If Biden's goal was to make EVs more competitive, the government has an easy way to raise
oil prices, which is to raise taxes at the pump. This would be more or less neutral to the oil
price from the producer point of view. It would just encourage exports and discourage imports,
improving America's balance of payments. But it hasn't worked in Europe, where taxes are over
60% of the price at the pump. The most effective way to promote EVs is subsidizing the purchase
price of the vehicle. That has been very effective.
Hoping that the American consumer will keep oil demand up internationally no longer makes
sense, as America's relative economic importance has been falling since 1945. I'm not sure what
the previous administration was trying to accomplish by talking down the price. REPLYJEFF IGNORED02/16/2021 at 5:13
am
"But it hasn't worked in Europe, where taxes are over 60% of the price at the pump. "
I have driven a Toyota Corolla on an 4 week US trip.
With an engine for the US market – you can't buy this modell in Europe. It was very
steady going – and thirsty. At least for european thinking, we used 7-8 litres / 100 km
by mostly driving country roads in cruise control at the given speed (didn't wanted to deal
with US police). Slow for my feeling, I'm driving faster in Germany.
And use only round about 6 litres with a car of similar size, which is a bit faster than
this Corolla – with this lazy slow driving I would use below 5 litres with my car (and
get a lot of flashing).
Jeff –
That was a little unclear on my part. I meant high gasoline prices haven't gotten people to
buy, EVs, but direct subsidies seem to work.
It's also worth mentioning that $120 oil didn't really dent consumption much, and certainly
didn't inspire many to buy EVs.
In my opinion liquid fuel is cheap. I mean I think that consumers aren't willing to make
significant changes in behavior even if prices increase significantly. S IGNORED02/17/2021 at 3:05
am
Alimbiquated, as an European in a well-to-do country, the matter of car buying is somewhat
more complicated than just gasoline price. E.g. fully electric car availibily, their price,
distances that need to be travelled (range anxiety in other words) are still important. Hybrid
cars are also rather expensive. Here it seems that these two car groups are selling better and
better, public charging points are increasing etc so we will see what happens. As I have a full
electric car I got relatively cheaply (still a bit of ouch ) I think I will not get a petroleum
or diesel car ever J HOUSMAN IGNORED02/18/2021 at 4:08
pm
"The green agenda of wind, solar and EV's is only cost competitive with fossil fuels in two
way" Three ways, actually. The third is when we finally start to realize the actual cost of
destroying the environment by burning fossil fuels REPLYMATT MUSHALIK IGNORED02/15/2021 at 10:01
pm
Global crude oil may have peaked 2018-19 before Covid
A dozen workers that are members of the Safe union are threatening to down tools at the
Mongstad terminal from midnight on Monday if talks with the industry body aimed at breaking an
impasse over a 2020 wage settlement with Equinor fail.
Other fields that could be impacted include Kvitebjorn, Visund, Byrding, Fram and
Valemon, with gas output exports from the Troll area also in danger of being hit.REPLYMATT MUSHALIK IGNORED02/15/2021 at 8:05
am
An interesting scenario showing what happens when demand outstrips supply due to lack of
investment is playing out right now in Oklahoma and Texas. There has been a lack of investment
in the region last year due to the drop in prices, and in Oklahoma, the slowing of investment
has been happening for a few years. The massive cold snap that descended on the region made
spot prices (not the futures price you can look up on Bloomberg etc) rise from $2 an MMBTU, to
$5, to $9, to $300, to $600, all in the course of a week. It is currently higher. The cold
weather has caused shut ins of wells, and processing plants. You have a situation where demand
is increasing but supply cannot keep up. I know this is a micro problem that will resolve
itself as temperatures increase, in the coming weeks, but this could be an example of what oil
prices might see in the near future. There has been a lack of investment for years in large
projects, if demand rebounds quickly as vaccine roll out continues, we will not be able to turn
back on new production fast enough to keep prices from running higher, resulting in some
temporary ridiculous price spikes. REPLYSHALLOW SAND IGNORED02/15/2021 at 10:31
am
I saw this resulted in a lot of wells that have been shut in for 5-10 years being
reactivated. REPLYGREENBUB IGNORED02/15/2021 at 8:25
pm
Shallow, are you affected by the cold snap or power outages? REPLYSHALLOW SAND IGNORED02/16/2021 at 12:41
am
Yes. We have about 10% frozen off. Our pumpers decided what to drain and shut in, and what
to keep on. They are real pros. You can't find better.
Our people are the key. We owe them bigtime. They have been out there in this stuff keeping
the rest from freezing.
We will be good soon, temps will come up.
Keep in mind, with one exception, our pumpers are 50+ years old.
Are there millennials that are going to keep the strippers going 24/7/365?
No. I work in construction biz. 90% of twenty somethings can't work five minutes without
looking at their phones. They are useless. All my buddies have the same complaint. REPLYOVI IGNORED02/15/2021 at 9:49
pm
An interesting clip from this article:
"This isn't a consensus view yet but it's quickly coming. Two heavyweights in the past week
have stepped up and called out the problem.
The first was Goldman Sach's Jeff Currie, who called the bull market in the early 2000s.
"I want to be long oil and hang on for the ride," Currie said in an interview with S&P
Global Platts on Feb. 5, warning "there is a lot of upside here."
"Is it back to $150/b? I don't know as it is a macro repricing we are talking about and
everything needs to reprice."
The other is JPMorgan and Marko Kolanovic, who said Friday that oil and commodities appear
to be entering a supercycle.
"We believe that the new commodity upswing, and in particular oil up cycle, has started,"
the JPMorgan analysts said in their note. "The tide on yields and inflation is turning."
"We believe that the last supercycle peaked in 2008 (after 12 years of expansion), bottomed
in 2020 (after a 12-year contraction) and that we likely entered an upswing phase of a new
commodity supercycle."
Shale driller bases rig lease costs on well performance
Rigs are typically rented out at a daily rate for a period of a few months, which has meant
less money for oilfield service providers as drilling becomes quicker and more efficient. So
Helmerich & Payne Inc. is touting a new pricing model based on overall well performance,
and almost a third of its U.S. rigs are now being leased on that basis, CEO John Lindsay said
Wednesday on an earnings call.
In the Permian Basin of West Texas and New Mexico, home to the busiest shale patch in North
America, operators are now drilling the same number of wells with 180 rigs as they were with
300 rigs a year ago, according to industry data provider Lium.
Yeah okay. That's all great. But what I was looking at was oil production. It's going down,
not up. With these prices oil production should be increasing, not decling. Why is that? After
all, that's really all that matters.
The standard analysis of the interplay between technology and education, developed by
economists like Lawrence Katz and Claudia Goldin..., and David Autor..., suggests that
improvements in technology -- coupled with a college graduation rate that slowed sharply in
the 1980s -- have been principal drivers of the nation's widening income gap, leaving workers
with less education behind.
But critics like Mr. Mishel point out that this theory has important blind spots. For
instance, why have wages for college graduates stagnated over the last decade, even as
innovation continues at a breathtaking pace? ...
Most notably, the skills-and-tech story leaves aside one of the most perplexing and important
dynamics of the last 30 years: the rise of the 1 percent, a tiny sliver of the population
that last year took in almost a dollar out of every $4 generated by the American economy. ...
Mr. Mishel's preferred explanation of inequality's rise is institutional: a shrinking minimum
wage cut into the earnings of the nation's least-skilled workers while falling trade
barriers, deregulation and the decline of labor unions eroded the income of the middle class.
The rise of the top 1 percent, he believes, is mostly about executive pay and the growing
footprint of finance. ...
My view is that both the technology and institutional forces are at work, and the question
is not which of the two explains growing inequality -- they are not mutually exclusive -- but
rather how much each contributed to the growing disparity.
Actually, That started with the passage of the Great Society program of 1965, under
President Johnson. With Great Society, welfare became official, hip, and institutionalize,
with the worst affects being the break-up of black and inner city families, and a doubling to
tripling of the out-of-wedlock birthrate. The lower 95 percenters would be better off under
the policies of Roosevelt, Truman, Eisenhower and Kennedy.
Read the book "The Truly Disadvantaged" about how the break up of inner city families was
not to do with welfare but with the lack of jobs for working class men.
That doesn't mean by the way that I am against better micro-economic design of the social
security system. A citizen's income (c.f. Friedman's negative income tax) is my preferred
welfare system design.
Thomas Sowell has stated that the black family made more progress during the 20 years
before Great Society, as opposed to the 20 years after Great Society. Great Society was the
first opportunity for mommas to afford to have children, without the benefit of a husband and
father to the children, on the taxpayers' dime. Where a birth of a human baby should be a
blessed event, it's be cheapened to included the Dept. of Social Services. In my state, in
the bigger cities, the out-of-wedlock birthrate pre Great Society was 25%, then by 1975 to
current times, the out-of-wedlock birthrate hovers around 75- 80 percent. Black on black
crime went up, number of black victims went up, and drug use increased. I don't disagree with
the point you are trying to make, but it got much worse at the time of the introduction of
Great Society.
When we say yields equalize across assets prices, this is natural over the whole economy,
including government, given sufficient time to equalize. If rates are low, and price to
earnings high, then you can bet your booty that government yields are low also.
And this will be true of any complete, bounded economic model, it is really basic to the
concept of a model. So ask youself who or what has driven yields lower over the 40 year
period and you can win a banana.
Second Best has it completely backwards! The post-New Deal period saw the strongest
economy and most prosperous middle class in American history!
The New Deal came about because the real takers (the wealthy) were taking too much of the
pie. Same thing is happening today! But unfortunately we don't have an FDR around to stick up
for working men and women. We have the pro-corporate party (Dems) and the ultra-pro-corporate
party (GOP).
Second Best is just pretending to be a reactionary for amusement. Unfortunately some
bloggers roll in here occasionally that make roughly the same comments, but are serious. I
keep telling him to use emoticons :<)
I wouldn't put any of the blame for rising inequality on technology. We've been replacing
workers with machinery for over 200 years!
I think the two principle reasons are low tax rates and low union membership.
Contrary to popular belief, there is very little correlation between tax rates and growth.
But there is a very high correlation between low tax rates and increased income
inequality.
Anecdotal but, when you look at typical office-type work, it's hard to not conclude that
technology (computers/software) has killed a ton of middle-income office jobs.
e.g. The typical law firm 10+ years ago might have had 3-4 support staff (secretaries,
paralegals, filing clerks) for every attorney. Today, it's more typical to have 2-3 attorneys
for every support staff employee. Technology allows this.
I easily believe this for the secretaries and clerical staff, but what happened to the
paralegals? Similar trends can/could be observed in other professional fields, but there too,
while the clerical and admin staff was trimmed (and to an extent management hierarchies but
lately it looks like they have come back), subject matter (of the variety that cannot be
automated) work has not been cut a lot. OTOH IT/internet allowed a lot of "commodity" tasks
to be outsourced and offshored.
Is it possible that the (newer generation?) attorneys had to take on paralegal tasks as
part of their job? That would be in line with other fields where in reality a lot of the "low
level" and clerical work that has been ostensibly automated was pushed onto the professional
staff. For example, in many places you are supposed to arrange your own business travel
(hotel, flights), order office materials, do print/copy work etc. that used to be done by now
"automated" clerical staff up to 10-15 years ago. Also when it comes to subject matter work,
a lot of work formerly done by techs and other support staff (who were often hourly) has been
transferred to the professionals (who are generally salaried and "exempt" from overtime pay),
while it is generally swept under the rug in performance evaluations which are about subject
matter achievements (research pubs, delivered product features etc.). On the flip side there
is now probably more nominally professional staff, some of whom (esp. juniors) are loaded
with more tech/support content - but then a lot of them are hired offshore too.
"Both sides agree that the overall weakness of the job market since the turn of the
millennium is a prime culprit. As Professor Katz noted: "The only moments we've had of
broadly shared prosperity have been in tight labor markets.""
This is a problem of demand management policy. Demand can be managed via fiscal, monetary
and/or trade/currency policies.
It's also a problem of politics as Krugman says in that the powerful center-right has
ignored the recent economic evidence, as have the center-right's academic/media message
machine. The center-right has cried wolf over inflation and government deficits all in the
name of preventing policies that would help the economy and tighten labor markets.
Yes labor policy is very important as well. I would support pro-union policies - which
help politically also - and work-sharing programs during downturns which Germany has and
which Dean Baker recommends.
It's also a problem of a long term decline in federal government consumption and gross
investment, and the willingness of macroeconomists to re-define "full employment" as a
situation in which lots and lots of people are in fact unemployed. I don't think private
enterprise alone will ever be capable of generating full employment and tight labor markets,
demand stimulus or no demand stimulus.
When there is insufficient demand yields drop as capacity is idled. Under conditions of
weak demand there is also a drop in investment as new entrepreneurs and established
businesses know the deck is stacked against them.
The low yields are a natural symptom of the deficient demand. If you're looking for who to
blame, there are several likely suspects.
One is a government indifferent to unemployment that caters almost exclusively to the
super rich and the multi national, stateless corporations. The second is a government
indifferent to unemployment that caters almost exclusively to the super rich and the multi
national, stateless corporations. The third is see one and two.
This is the beginnings of fascism, of course. All we need now is a strong authority figure
and a good war.
Fighting to Stop an Entitlement Before It Takes Hold, and Expands by John Harwood
November 12, 2013
"WASHINGTON -- Underlying fierce Republican efforts to stop President Obama's health care
law and the White House drive to save it is a simple historical reality: Once major
entitlement programs get underway, they quickly become embedded in American life. And then
they grow.
That makes the battle over the Affordable Care Act more consequential than most Washington
political fights. "If it's in place for six months, it will be impossible to repeal it or
change it in ways that significantly reduce the benefits," said Robert D. Reischauer, a
Democrat who used to lead the Congressional Budget Office.
Douglas Holtz-Eakin, another former C.B.O. director, reflects the concern of fellow
Republicans in framing the stakes more dramatically. Either the law's health insurance
exchanges "can't cut it," he explained, or "it's Katie, bar the door -- we have an
explosively growing new program."
Ever since President Franklin D. Roosevelt's New Deal during the Great Depression, the
dominant pattern for major entitlements -- the term for government assistance programs open
to all who qualify and not subject to annual budget constraints -- has been durability and
expansion. That is the record Senator Ted Cruz of Texas refers to in warning Republicans not
to allow Americans to become "hooked on the subsidies" -- an argument Mr. Obama sarcastically
recast as, "We've got to stop it before people like it too much."
Congress enacted Social Security in 1935 to provide benefits to retired workers. In 1939,
benefits were extended to their dependents and survivors. Later the program grew to provide
disability coverage, cover self-employed farmers and raise benefit levels.
President Lyndon B. Johnson's Great Society created Medicare and Medicaid in the 1960s to
provide health coverage for the elderly and the poor. They followed the same pattern.
In 1972, Congress extended Medicare eligibility to those under 65 on disability and with
end-stage renal disease. In 2003, Congress passed President George W. Bush's plan to offer
coverage under Medicare for prescription drugs.
Lawmakers initially linked Medicaid coverage to those receiving welfare benefits, but over
time expanded eligibility to other "poverty-related groups" such as pregnant women. In 1997,
President Bill Clinton signed into law the Children's Health Insurance Program, which now
covers eight million children whose families' incomes are too high to qualify for
Medicaid."
...
The old canard, right out of Doonesbury cartoon sociology.
The real issue is discretionary spending. It is gone mainly because of entitlement
crowding. The thirty small hoover states find higher multipliers in discretionary spending.
It is really a critical political issue, and the thirty hoovers will take the ship down
unless they get their discretionaries.
New York, Florida, California and Texas are united against discretionary spending. Both
parties are having internal battles on the issue.
Listen to yellens statement on discretionary spending, she likes it. But listen to the
House, they sequester it. Whyndid you and i just agree, via our representatives, to cut
discretionary spending? Any clue? What did every red blooded american say about the
entitlements? No, no.!!. What did we do? Cut discretionary spending to save entitlements. If
anyone is capable of any news searching on the topic, i suspect you will find much talk about
discretionary vs entitlement spending. We name that, give it an actual semantic.
Crowding.
Right. There wasno sarcasm, i must suddenly be in nutsville. A very good chunk of
articles, right here, required reading was about cuts to discretionary spending and saving
entitlements. Someone is not doing their homework.
What the complaint was about, in the two posts above, was that the discretionary vs
entitlement comment was not framed in some kind of simple minded 'evil tea party'. As if no
actual thought may occur on the blog unless it passes some orwellian, straight jacket,
nonesense. Seriously, crowding out occurs in the budget all the friggin time and mostly has
little to with some bogus script of plastic political analysis.
Entitlement spending does not fund humbug factories. Or PAC's to make sure the pentagon
has a 'strategic objective' to keep the defense corporations (aka troughers) healthy.
Entitlements have had little 'crowding' effect on discretionary spending.
Roughly, discretionary to entitlements used to be about 35:65 in 1999, today it is not
that different, while the war half of discretionary (19% of outlays in 2012) is nearly 60%
too large.
When you take away war and corporate welfare entitlements should be 6 times discretionary
spending.
What matters is discretionary spending enriches a few a lot, while entitlements take care
of many a little.
Well you have an opinion about entitlements and discretionary spending. You like the
former, not the later. We have a name for people like you, Crowders, you crowd out one form
of spending vs another form.
So quit bitching and play the game. We are conducting a mass experiment, lead by
researcher janet yellen. She is going to test your theory by attempting more discretionary
spending. If she screws it up, you win a banana.
Ok, lets review the roosevelt thing.
In 1928, investors believed we were head for a new productivity frontier based on the
efficiency of the mass market. They predicted 4% non-inflationary growth for the horizon.
What we got in 1948 was exactly that, high growth, low inflation, rising productivity.
Between 1928 and 1948, we got social security, progressives taxes, off the gold standard, two
major down turns, twenty million dead from WW2, and the cold war.
Thats a twenty year wait, mostly the result of bad and good government depending on how
one sorts the events. Ok, you all sort it all out, I am moving on.
The rapid transformation of business processes via the capital formation advantages of
robust, diverse, and highly liquid financial markets made it all possible.
Translation: If tax incentives are set to prefer trading equities (relatively low capital
gains tax rate) over holding equities (relatively low dividends tax rate) then capital will
flow to investments with the fast rather than longest duration returns. Fastest returns for
capital will come from mergers and downsizing (i.e, layoffs), outsourcing (narrow
specialization), offshoring of production (labor wage arbitrage), and technology asset
capital expenditure (automation) will be the preferred uses of capital. With the short term
emphasis then training, retention, maintaining internal competency succession, and
operational process improvements will undesirable expenses. The preferences quickly become
self reinforcing as workforce quality devolves and capital rewards itself more and
more.
Economic is a quantitative science and economists should understand the statistics and
test for interactions. Sometimes, the interactive effects can be greater than major
effects.
"
wages for college graduates stagnated over the last decade, even as innovation continues
at
"
Tell me something! Does all of innovation come from humans? From Hunans? From automation?
From computer hardware? Software? Software with a child process? A child process coded by the
parent process? Do you see what is happening?
We are now approaching the moment of singularity. A moment in history, or an epoch of
history? Tell me something else!
Do all boomer-s leave the work force simultaneously? Or during a poorly defined epoch? The
singularity has already begun but will evolve slowly as the present SE, singularity epoch
unfolds. Computer jockey-s first used the word processing feature of computer to code their
human imagination. Later assemblers re-coded human source code, checked source for semantics
and many other features. Supercomputers now work at unbelievable gigaflops. But if human
brain is merely a biological gigaflopper, eventually all its functions will be replaced by
semiconductor brains. But so what?
RM, Reverse Migration! As mechanized innovation replaces Americans, Yankee-s will need to
migrate to developing countries where the singularity process will be slower and with a phase
shift, behind the American Curve.
"The standard analysis of the interplay between technology and education, developed by
economists like Lawrence Katz and Claudia Goldin..., and David Autor..., suggests that
improvements in technology -- coupled with a college graduation rate that slowed sharply in
the 1980s -- have been principal drivers of the nation's widening income gap, leaving workers
with less education behind...."
-- Eduardo Porter
I do not understand this assertion, since what is remarkable about the United States is
that the portion of men and women 25 to 34 and 55 to 64 with college degrees is just about
the same.
July, 2013
College or university degree attainment by age group, 2011
"The standard analysis of the interplay between technology and education, developed by
economists like Lawrence Katz and Claudia Goldin..., and David Autor..., suggests that
improvements in technology -- coupled with a college graduation rate that slowed sharply in
the 1980s -- have been principal drivers of the nation's widening income gap, leaving workers
with less education behind...."
-- Eduardo Porter
I do not understand this assertion, since what is remarkable about the United States is
that the portion of men and women 25 to 34 and 55 to 64 with college degrees is just about
the same.
What is importance to notice about increasing income concentration is how much of an
increase there has been above the top 1% of families. we find the share of income for the top
.1% of families going from 3.41% to 11.33% between 1980 and 2012 for an astonishing gain.
Corruption of government at all levels produced a class of plutocratic rent holders in
finance and other industries able to buy rents. Citi and Solyndra being outstanding examples
on the D side and ADM and the oil companies on the R side.
Abysmal social and economic conditions in African American urban ghettos. These conditions
contribute much to the poor conditions in the schools that serve that population. The kids
who attend school in these neighborhoods are really up against it. Social arrangements that
sort the educated upper middle class into "their"towns by residential pricing and development
patterns tend to limit highly advantageous educational opportunities to their children. In
the big cities the upper middle class either uses influence to obtain places for their
children in desirable public schools or use private schools.
Pressure on wages and employment opportunities for people with low educational attainment
due to the development of more efficient production technologies and low wage competition in
the global trading system.
Forgive my skepticism that a few billion more federal dollars of stimulus will correct
these problems.
Gov. Jerry Brown, whose pronouncements of California's economic recovery have been
criticized by Republicans who point out the state's high poverty rate, said in a radio
interview Wednesday that poverty and the large number of people looking for work are "really
the flip side of California's incredible attractiveness and prosperity."
The Democratic governor's remarks aired the same day the U.S. Census Bureau reported that
23.8 percent of Californians live in poverty under an alternative calculation that includes
the cost of living.
Asked on National Public Radio's "All Things Considered" about two negative indicators --
the state's nation-high poverty rate and the large number of Californians who are unemployed
or marginally employed and looking for work -- Brown said, "Well, that's true, because
California is a magnet.
"People come here from all over in the world, close by from Mexico and Central America and
farther out from Asia and the Middle East. So, California beckons, and people come. And then,
of course, a lot of people who arrive are not that skilled, and they take lower paying jobs.
And that reflects itself in the economic distribution."
----------------
Hmmm. So my claim that the bankruptcy of America is caused by a negative growth black hole in
Sacramento was just admitted as true by the Guv of California. Where is my banana?
Enemies of the
Poor, by Paul Krugman, Commentary, NY Times : Suddenly it's O.K., even mandatory, for
politicians with national ambitions to talk about helping the poor. This is easy for
Democrats, who can go back to being the party of F.D.R. and L.B.J. It's much more difficult
for Republicans, who are having a hard time shaking their reputation for reverse
Robin-Hoodism, for being the party that takes from the poor and gives to the rich.
And the reason that reputation is so hard to shake is that it's justified. It's not much of
an exaggeration to say that right now Republicans are doing all they can to hurt the poor,
and they would have inflicted vast additional harm if they had won the 2012 election.
Moreover, G.O.P. harshness toward the less fortunate isn't just a matter of spite...; it's
deeply rooted in the party's ideology...
Let's start with the recent Republican track record.
The most important current policy development in America is the rollout of the Affordable
Care Act, a k a Obamacare. Most Republican-controlled states are, however, refusing to
implement a key part of the act, the expansion of Medicaid, thereby
denying health coverage to almost five million low-income Americans. And the amazing
thing is that ... the aid through would cost almost nothing; nearly all the costs ... would
be paid by Washington.
Meanwhile, those Republican-controlled states are slashing unemployment benefits,
education financing and more. As I said, it's not much of an exaggeration to say that the
G.O.P. is hurting the poor as much as it can.
What would Republicans have done if they had won the White House in 2012? Much more of the
same. Bear in mind that every
budget the G.O.P. has offered since it took over the House in 2010 involves savage cuts
in Medicaid, food stamps and other antipoverty programs. ...
The point is that a party committed to small government and low taxes on the rich is, more or
less necessarily, a party committed to hurting, not helping, the poor. ...
Republicans weren't always like this. In fact, all of our major antipoverty programs --
Medicaid, food stamps, the earned-income tax credit -- used to have bipartisan support. And
maybe someday moderation will return to the G.O.P.
For now, however, Republicans are in a deep sense enemies of America's poor. And that will
remain true no matter how hard the likes of Paul Ryan and Marco Rubio try to convince us
otherwise.
"We're Broke" is the mantra of the GOP. Yes, the nation with the highest GDP in absolute
terms and a very high per capita level of income is "broke". You see this nonsense from
Republican leaders at the beginning of a film called "We're Not Broke" which is devoted to
the GOP push to have even less taxes on their base - the ultrarich.
US can afford to spend 4 times the part of GDP that Japan and German spend on warmaking.
And a similar amount on crony capital.
US can afford new ships that will not be equipped, star wars missiles that can hit
nothing, and a $1500B fighter program which is failing its tests many of which cannot be
performed because the thing is unreliable.
Republicans are out of touch. The MinWage is so far below Living Wage that the taxpayers
have to subsidize MinWage workers so they can have enough to eat. This is wrong. The system
and the employers are exploiting their labor.
Medicaid and Obamacare are a subsidy to the poor workers who can't afford the costs of
health care and don't have it provided by employers. A workforce that is not healthy is bad
for business: more missed workdays, lower productivity, higher turnover, etc. The single
minded focus on cutting social spending is completely wrong.
The question that is not asked: "What services do people need to be functional in our
modern economy? What mix of employer benefits, government benefits and wage contribution are
required to deliver the services?" For many people, wages are too low to pay for the minimum
basic goods and services. How do we make up the difference? Or do we have people do without
and erode the health and potential economic output? Republicans have a short sighted focus on
cutting spending and investment in the short run and are not considering the long run.
I don't have the source, but I believe our net worth, nationally, is just north of $74
trillion. And we added more than $1.3 trillion to that amount the past 12 months. This is the
figure that deals in assets we know about. Given the loopholes in our tax code that allow the
super rich to essentially hide much of their income, here and overseas, that net worth figure
is certainly below the real number.
So the statement 'we're broke' borders on the ridiculous. Our cash flow statement is less
impressive, but certainly far above adequate. Even here, this is a choice. We could easily
return to balance (although that's historically been a very bad idea) just by fixing our tax
code so it become more progressive. Today's tax code over taxes the middle class in order to
fund tax breaks for the super rich.
Yep. The progressiveness of the tax code stops in its track at about the Top 2%. Right
about the spot where hiding income becomes easy and makes economic sense.
Someday we will figure out how much income never hits tax returns.
My wife and I had over $30,000 of such income last year. Guaranteed the vast majority of the
Top 10% had similar amounts.
However, I really was not talking about W2 income, but rather things like Romney's $20
million IRA. Or hedge fund managers keeping earnings offshore to avoid any taxes (even the
reduced scam they receive) and living by borrowing against their offshore holdings at
ludicrously low interest rates.
Maybe it was collateral damage since they live in the same neighborhoods? Probably though
it was being fought as a limited war and then there was mission creep.
An all out war on poverty would have transformed the economic battlefield in ways that
very few actually wanted.
The other day someone -- I don't remember who or where -- asked an interesting question:
when did it become so common to disparage anyone who hasn't made it big, hasn't gotten rich,
as a "loser"? Well, that's actually a question we can answer, using Google Ngrams, which
track the frequency with which words or phrases are used in books:
[Graph]
Sure enough, the term "losers" has become much more common since the 1960s. And I think
this word usage reflects something real -- a growing contempt for the little people.
This contempt surely isn't limited to Republican politicians. Still, it's striking how
unable they are to show any empathy for people who are just doing their best to make a modest
living. The most famous example, of course, is Mitt Romney, who didn't just disparage 47
percent of the nation; he urged everyone to borrow money from their parents and start a
business. I still think the most revealing example to date was Eric Cantor, who marked Labor
Day by tweeting:
"Today, we celebrate those who have taken a risk, worked hard, built a business and earned
their own success."
But Marco Rubio's latest speech deserves at least honorable mention, for the airy way he
dismissed the idea of raising the minimum wage: "Raising the minimum wage may poll well, but
having a job that pays $10 an hour is not the American dream."
In a sense, he's right: if the American dream means getting rich, then $10 an hour isn't
living that dream. But most people aren't and won't get rich. Raising the minimum wage would
mean higher incomes for around 27 million people; in many cases the gains would amount to
thousands of dollars a year, which is really a lot in low-income families. So what are all
these people, chopped liver? Well, yes, at least in the eyes of the GOP -- or maybe make that
chopped losers.
OK, I know what the answer will be: conservative policies will lead to economic growth,
and that will raise all boats, the way it did in the days of Saint Ronald. Except, you know,
it didn't. Here's the real wage of nonsupervisory workers:
[Real wage of production and nonsupervisory workers * ]
Even if you give Reagan credit for the 1982-9 business cycle expansion, which you
shouldn't, there's no way to claim that his policies led to higher wages for ordinary
workers.
So what is the GOP agenda to help people who aren't going to build businesses and get
rich? There isn't one -- partly because they really can't reconcile any real agenda with
their overall ideology, but also because, deep in their hearts, they consider ordinary people
trying hard to get by a bunch of losers.
Entitlement expansion. See Detroit and Scranton. Coming soon to Chicago.
[ The term "entitlement" is used when a writer wishes to hide the fact the what is being
talked about is Social Security or Medicare or a pension program that a worker has
contributed to for years and years.
As for the supporting of pension funds, all that has to be understood is how terrific
stock and bond markets returns have been these last 30 and more years. Any pension fund
manager who simply bought a mix of stock and bond market indexes would have done splendidly
for workers and there would be no possible problem now. ]
The problem has not typically been fund returns. It has been underfunding of the programs
by employers, on the assumption that magic market alpha will make up the difference (well,
that's the happy spin on it, the truth is most of the funders didn't much care if the
difference was made up or not so long as they got theirs.)
The focus on pension fund investing strategies is an important one, but kept distinct from
funding levels and political battles it's almost meaningless.
This needs to be explained, keeping here to employer contributions by government
employers.
As to the mention of auto companies and pension contributions, there you have a problem in
which employers can estimate a pension fund investment return and contribute according to the
estimate so that a higher estimate will mean lower levels of contributions from employers for
a time. Nonetheless, ordinary investment returns over long periods of time should have left
no pension problem for workers.
Once executives realized the raises they could gain by taking deferred comp. in stock, or
even in guaranteed return special accounts (Jack Welch at GE-14% annual), corporations
couldn't afford much of anything else. Today CEOs make 290 times the average pay of their
employees compensation, so in order to cover those outsized gains and still report good
profits, companies need to trim budgets anywhere and everywhere. Stable, defined benefit
plans, paid for in addition to wages, got tossed and replaced by contribution plans funded by
employees themselves.
For more than 35 years in America it's been a time to strip corporate assets and pick the
pockets of employees and shareholders in order to pay executives their gargantuan
compensation packages.
Thanks to our rigged tax code, ripping off the middle class has become a full time project
of the super rich and their paid help in Congress and academia.
Same thing happened in the public as in the private sector funds. Look at Illinois or New
Jersey or Detroit. Economic miracles or budget crises lead to underfunding, rolling the dice
on investments, and appetites for silver bullet alternative investments that help explain the
massive shift to PE and HF despite their fee structures (and can lead to alternatives
managers the profits they took off the funds to help subvert the DB system). The push to
alpha helps create instability and predation in the markets, goes the theory. But in any
case, underfunding by the public sector leads to blame-shifting onto "those workers making
bad investments" and leads to pernicious politics around retirement security.
Unfortunately the employers (including and perhaps worst public employers) used the
upturns in the market as opportunities to reduce what they paid into the funds (as a way to
fund tax cuts and get re-elected). Then after severe downturns in the market rather than
increase the funding for pensions they argue to take away earned pensions from the workers
(or leave the mess to be fixed by federal government).
Nice set of explanations, which leads me to think in the case of public workers in unions
there should be a yearly accounting by the union of employer pension contributions along with
an allowing for quick contract redress should employer contributions fall short for a given
length of time.
DeDude is not entirely correct. In the following example, the problem was powerful
predators, fraud, and corruption, as there was plenty of money, and plenty of foresight.
Where was Union oversight in this fiasco? Or better yet, fiscal accountability on the part
of the Regents for wrongful termination, theft, breach of fiduciary duty? I don't see much
hope, because social memory is short, human nature is flawed, and dynastic wealth in the
hands of sociopaths seeks to defend its economic position until the population rises up in
revolt. Wash, rinse, repeat.
In Illinois, public employee union leaders were probably paid off to keep silent about
pension underfunding. A couple of union leaders benefited from special legislation that
awarded them a nice pension for one day of substitute teaching. The special pension was in a
well funded plan, not the state teachers' plan. The legislation doesn't spell out the quid
pro quo, but experienced observers connect dots like these. The legislature takes care of
public union officials who take care of them.
Tax cuts for the wealthy, see the entire country. The problem is not excessive spending,
but inadequate revenues. The latter as a consequence of unnecessary and destructive tax cuts
for the rich. We already had the lowest effective tax rate on the wealthy in the developed
world before that.
"...The most important current policy development in America is the rollout of the
Affordable Care Act, a k a Obamacare. Most Republican-controlled states are, however,
refusing to implement a key part of the act, the expansion of Medicaid, thereby denying
health coverage to almost five million low-income Americans..."
[That is sad on two levels. First it is sad that "The most important current policy
development in America is the rollout of the Affordable Care Act" instead of robust policies
for creating job and wage growth. Second then of course it is sad "Most Republican-controlled
states are.. refusing to implement ... the expansion of Medicaid... denying health coverage
to almost five million low-income Americans."
And by sad I mean a sad sorry state of affairs that should have a big effect on the
mid-term elections if we get off our duffs and take this to the voting booths.]
One day someone will point out that the value of a municipal bond or a treasury bond is an
"entitlement", just like the value of a pension, SS or Medicare is an "entitlement".
The coupon clipping class needs constant feeding. And the super rich coupon clippers need
a deep pool of poor people to maintain their comfort. So simple, really.
That has been pointed out many times in the book, This Time is Different where we see
defaults on both entitlements. In fact, one of the biggest topics of the post crash era has
been when the usa would default in its bond entitlements.
Not too accurate. Bonds and pensions are contracts and sort of can be thought of as
entitlements since your benefits can be enforced in court. You are entitled to whatever your
counterparty agreed to (so long as you did your part and your counterparty is solvent). SS
and Medicare are not contracts. Treasury could have twice the funds needed to pay for SS
forever and Congress could decide tomorrow to cut benefits 80%. Same with Medicare. The two
programs on your list that people are probably most likely to think of as entitlements are
probably the least like entitlements. Your counterparty can change the rules on you
tomorrow.
"...The answer, I'm sorry to say, is almost surely no.
First of all, they're deeply committed to the view that efforts to aid the poor are
actually perpetuating poverty, by reducing incentives to work..."
"...But our patchwork, uncoordinated system of antipoverty programs does have the effect of
penalizing efforts by lower-income households to improve their position: the more they earn,
the fewer benefits they can collect. In effect, these households face very high marginal tax
rates. A large fraction, in some cases 80 cents or more, of each additional dollar they earn
is clawed back by the government..."
"...we could reduce the rate at which benefits phase out..."
[Then Krugman slips away from reality to embrace center aisle politics.}
"...Will this ever change? Well, Republicans weren't always like this. In fact, all of our
major antipoverty programs -- Medicaid, food stamps, the earned-income tax credit -- used to
have bipartisan support. And maybe someday moderation will return to the G.O.P..."
{Yeah those were the good old days leading up to financialization for M&A
anticompetitive consolidation of labor market arbitrage, globalization of wages backed by the
abitrage of the exorbitant privilege of US dollar foreign reserves against rising trade
deficits, stagnant wages from both consolidation and globalization, and a rising share of
capital devouted to speculation on equities and derivatives (e.g, commodity futures bets ARE
derivative contracts). Three cheers for center aisle politics. ]
"40 million refugees with no place on this earth to call their home
One for every aimless graduate with nothing else to show for it but loans
And those of us who make a mark using someone else's blood
Our western stain won't wash away, won't vanish in the flood
It sets deeper with each hurricane and tidal wave and war:
We want everything we see and once it's gone we just want more."
Young men without jobs living in the nation with the world's most powerful millitary
establishment will not make the world a better place to live for anyone. Might not even make
it a place to live.
"Republicans weren't always like this. In fact, all of our major antipoverty programs --
Medicaid, food stamps, the earned-income tax credit -- used to have bipartisan support."
I agree and disagree to a point. While the Republican party used to be more moderate, as a
whole, in the past, there was always a conservative wing in the GOP that opposed these
programs.
For example, in 1961, Reagan gave his famous speech on Medicare - declaring that it would
be the end of America as we know it. One day we would be telling stories to our grandchildren
how America used to be the home to free men.
There has always been in element in the GOP to attack safety nets to the point of
hysterical and absurd arguments. Over the years, the conservative wing has grew and become
more vocal.
One of the main differences between liberals and conservatives, is that liberals see our
weak labor markets, poverty, eroding mobility, and increased economic inequality as a market
failure. Conservatives view it as a moral failure.
It seems to me that the somewhat controversial programs of Obamacare and the Federal
Reserve's policies of forward guidance and QE have helped the poor. If Republicans had
successfully blocked them, things would be worse. It's difficult to defend these programs
against critics on the left and right because of the inherent difficulty in defending public
policies given the evidence. It isn't as clear cut as one would like.
Likewise there are the Republicans' austerity policies like the sequester which Obama went
along with.
Maybe I wasn't clear. I think Obamacare and the Fed have helped. I believe fiscal
austerity has hurt. A number of smart people agree with these assessments.
Meaning that reduced income taxation means lower overall government revenues, which means
reduced means to aid the poor by, for instance, adequate HealthCare or the subsidized housing
or paying for postsecondary education that will give them the means to obtain well-paying
jobs.
This sad fact is even more difficult to swallow given that DoD-expenditures have doubled
in the 40 year period ending in 2012. See info-graphic here: http://www.washingtonpost.com/blogs/wonkblog/files/2013/01/defensechart.jpg
. Do we really need all that spending to provide a defense of the nation now that the Cold
War (extant in the 1960s) is over?
The plutocrats erected a statue to Ronnie for having reversed the good that FDR had
wrought by increasing taxation upon them to levels of around 65%, that crept up inevitably to
around 90%.
And, of course, the rich are still benefiting from the beneficial taxation (that peaks out
at 30% in their level of income).
Besides, if the generally recognized Gini Coefficient depicts Income Disparity across all
levels of income, then the US is shown to be the developed country with the worst Income
Fairness of any on earth. (See info-graphic here: http://en.wikipedia.org/wiki/File:Gini_since_WWII.svg
)
MY POINT?
Which means, according to the World Top Incomes Database developed by the Paris School of
Economics? the following: 10% of American households garner about 52% of ALL HOUSEHOLD INCOME
whilst the rest of us 90Percenters scramble after the remaining 48%.
No, the history says that reducing taxes on the rich allows you to borrow and spend,
laying the cost on the middle class. Note, Clinton's tax hike came with budget cuts. Our 2013
tax hike, though meager, results in sequestering.
The problem here is dumbass economists too stupid to come up with any theory of government
that explains supply and demand for government services. So dumbass economists resort to name
calling, blaming their own failure of analysis on the other side. Political scientists are
much worse, all they do is name calling.
{No, the history says that reducing taxes on the rich allows you to borrow and spend,
laying the cost on the middle class.}
Can't imagine where you've concocted this notion from my reply. I posited the premise of
increasing taxes upon our upper-class financial nobility who have reduced 15% of our people
to poverty and serfdom.
{Note, Clinton's tax hike came with budget cuts. Our 2013 tax hike, though meager, results
in sequestering.}
Historical fact of no consequence whatsoever.
The point about raising taxes on the rich is not just about reducing their far to
easily-gained Net Worth. It is to teach that class a lesson about return-on-investment. For
the moment, a level of taxation at only 30% allows them to accumulate vast Net Worth, which
is simply reinvested in interest-bearing accounts for the most part.
Increasing taxation on interest-bearing accounts would induce them to place their savings
in more economy-friendly investments that create jobs. The revenues would also help reduce
deficits and improve government financing of society-friendly policies like a Universal
Public HealthCare Option and Tertiary Education for those who cannot afford it.
These are both common policy rudiments of any modern society in this day and age. Except
the US, of course ...
Moreover, the key point about taxation is this: Whilst an economy should reward
risk-taking, there is no need whatsoever for the pot of Gold at the end of the rainbow to be
unlimited and growing by leaps and bounds because it is too lowly taxed.
Especially not when 15% of fellow Americans are incarcerated below the Poverty Threshold.
That economic fact is unacceptable. And it did not occur because "people are either too
stupid or too lazy".
It occurred because of an inept policy as regards both educational level and our inability
to prevent unskilled work from dislocation abroad.
The Republicans never did care about the poor and are not about to start. The question
that bothers me is when the Democrats will resume working on behalf of the poor.
{The question that bothers me is when the Democrats will resume working on behalf of the
poor.}
Musing about whether that will or will not happen in a blog will certainly not assist in
bringing it about.
Only hard work militating for such an outcome will obtain the necessary results. Which can
only happen if more progressives are voted into the HofR. And it will take a good ten years
of well-considered legislation to right all the wrong that has occurred since the last War on
Poverty in the 1960s.
TORONTO (Reuters) - Hedge funds are turning bullish on oil once again, betting the pandemic
and investors' environmental focus has severely damaged companies' ability to ramp up
production.
Such limitations on supply would push prices to multi-year highs and keep them there for two
years or more, several hedge funds said.
The view is a reversal for hedge funds, which shorted the oil sector in the lead-up to
global shutdowns, landing energy focused hedge funds gains of 26.8% in 2020, according to data
from eVestment. By virtue of their fast-moving strategies, hedge funds are quick to spot new
trends.
... Tawil predicted prices of $70 to $80 a barrel for Brent by the end of 2021 and is
investing long independent oil and gas producers.
... ... ...
Global crude and condensate production was down 8% in December from February 2020, prior to
the pandemic's spread accelerating, according to Rystad Energy.
North America's output was down 9.5% and Europe's production declined just 1% over the same
time period.
U.S. sanctions against Venezuela and declining oilfields in Mexico have kept oil output from
Latin America sluggish.
Jamjen831
wrote:
peachpuff wrote: Barcode scanners and flashlight apps... who installs these? Phones come
with these features already baked in.
I assume some of it is just old stuff people just re-download without thinking. Android
hasn't always had a built in flashlight app (and am I crazy in that the early ones required
root?). And I'm pretty sure that's the same with QR readers. I hadn't realized that Google Lens
was a QR scanner until fairly recently.
Count me in that boat. I just checked my phone and sure enough, Barcode Scanner was there.
I'm guessing it's from 3-4 phones ago and just came along for the ride as Play autoloaded my
apps on the new phones because I haven't used it in ages and ages. daggar Ars
Tribunus Militum
REPLY FEB 8, 2021 2:57 PM
POPULAR
Jamjen831
wrote:
peachpuff wrote: Barcode scanners and flashlight apps... who installs these? Phones come
with these features already baked in.
I assume some of it is just old stuff people just re-download without thinking. Android
hasn't always had a built in flashlight app (and am I crazy in that the early ones required
root?). And I'm pretty sure that's the same with QR readers. I hadn't realized that Google Lens
was a QR scanner until fairly recently.
It's more likely that it's stuff that gets re-downloaded without user interaction. When you
set up a new Android, the phone will often re-download all the apps from the old phone. Unless
you're going through to curate those apps, your 2021 new phone might be getting something
that's gone through a succession of auto-downloads since the mid 2010's. everythingallatonce
Smack-Fu Master, in training
REPLY FEB 8, 2021 2:57 PM
POPULAR
peachpuff
wrote: Barcode scanners and flashlight apps... who installs these? Phones come with these
features already baked in.
I can't really speak for the barcode scanner, but given that a lot of Android phones are
incapable of being updated there is a decent chance a lot of people with much older phones
actually have to install a flashlight app.
Google really needs to do something regarding the malware problem. I'm not going to pretend
to know the answer, but for a company that made $15.23 billion in earnings last quarter and
owns Project Zero you'd think they'd be able to protect a platform they have complete control
over. Jamjen831 Ars
Scholae Palatinae et Subscriptor REPLY FEB 8, 2021 3:02
PM
Dr.Bananas wrote:
peachpuff wrote: Barcode scanners and flashlight apps... who installs these? Phones come
with these features already baked in.
Not all phones. I haven't had an Android phone with a stock barcode scanner ever. Samsung
Galaxy Ace, Galaxy Nexus, Moto G, Nexus 5X, Nokia 3 and my current Sony XZ2 Compact all came
without one. It should be part of the default camera app, but sadly that's not always the
case.
As mentioned above, Google Lens is the defacto QR Scanner (it's part of the camera app). Do
those phones have Lens? I've been on Nexus\Pixel for a long time so not too sure how Google has
pushed that. Xavin Ars
Legatus Legionis et Subscriptor REPLY FEB 8, 2021 3:03
PM
POPULAR
marsilies
wrote: So I use an app called "Barcode Scanner" that's not the malware app. However, the recent
reviews blast it for adware, which I haven't noticed. I think having the exact same name has
caused some people to post negative reviews on the wrong app: https://play.google.com/store/apps/deta
... nt.android
That's correct, it's clean, people are just confused by the same names. The one with the
malware was always a sad copy of the ZXing Team one you linked.
As mentioned above, Google Lens is the defacto QR Scanner (it's part of the camera app). Do
those phones have Lens? I've been on Nexus\Pixel for a long time so not too sure how Google has
pushed that.
You need an internet connection for Lens to scan barcodes. Batmanuel Ars
Tribunus Militum
REPLY FEB 8, 2021 3:12 PM Ancan wrote: I've got a Galaxy S8+ and if there's a built in
barcode scanner I must admit I haven't found out in the years I've had it.
And how many users know they can use an app called "Lens" to scan barcodes?
Does Lens give you technical info about the type of a barcode (aka the Symbology)? Granted,
most people don't have a need to know or care, but I have a job doing work with retail POS
equipment, including hand and flatbed scanners. For my job, it's SUPER helpful sometimes to
have a barcode scanner app that can tell me what type of barcode is being scanned - because
sometimes scanners will scan all the barcodes, *except* this one type of barcode, and then I
gotta find out what kind of barcode it is, so that I can enable that symbology for the scanner
in question (or provide instructions to my customers on how they enable it for their POS).
Or, I can scan the barcode to get the underlying text in the barcode, to compare with our
app's logs, to make sure it's scanning correctly (e.g. not getting truncated or anything like
that).
That's why I have ZXing Team barcode scanner on my phone and recommend it to co-workers.
I assume some of it is just old stuff people just re-download without thinking. Android
hasn't always had a built in flashlight app (and am I crazy in that the early ones required
root?). And I'm pretty sure that's the same with QR readers. I hadn't realized that Google
Lens was a QR scanner until fairly recently.
It isn't just old people, as you admitted yourself practically everyone doesn't
understand all the things their apps can do, especially when that changes over time. A big
part of that problem is the appalling fact that most apps, even the most widely used and
professionally developed, have basically no documentation, and no way of finding out what
their features actually are.
Developers have this fantasy in their heads that they don't document the programs
because it's really hard to keep the documentation in-sync with a changing app, but the
real reason is just a pervasive problem in development culture caused by the race to get
things onto the market, and the convenient lie that developers tell themselves that their
apps are "self documenting", as if everyone has the time or desire to play "app scientist"
and experiment with the app endlessly to find out all its hidden, unobvious features.
@dmccarty: Yeah, the "update or not" decision is tricky for apps. What I do, is turn off
update only for apps that I have no desire for updates too and which shouldn't be doing any
internet activity or only activity to a defined, trusted spot. Any other kind of app,
especially ones that might be subjected to varying network input from undefined sources,
gets updates. Up +21 ( +22 / -1 ) Down 3906 posts | registered 9/15/2009
MikeSafari
Wise, Aged Ars Veteran
REPLY FEB 8, 2021 3:17 PM peachpuff wrote: Barcode scanners and flashlight apps... who
installs these? Phones come with these features already baked in.
I unfortunately didn't have a choice. I bought a Nokia 6.1 a couple of years ago and
installed the official Google Camera app, which has a built-in barcode/QR code reader, but
when Nokia pushed the Android 10 update, it broke the camera app completely. And Nokia's
default camera app does *not* read barcodes or QR codes for some reason. So to read them, I
had to install a third-party app.
Not super thrilled anyway, but thankfully it was not this one.
As mentioned above, Google Lens is the defacto QR Scanner (it's part of the camera app). Do
those phones have Lens? I've been on Nexus\Pixel for a long time so not too sure how Google has
pushed that.
Lens looks like it was initially exclusive to the Pixel 2, and slowly expanded until it became
its own Android app in June 2018: https://en.wikipedia.org/wiki/Google_Lens
So all the phones listed peachpuff came without it, and you'd probably have to have an
Android phone released in the last 2 1/2 years to even have it pre-installed.
Then, as others have noted, one would have to know that Lens can scan barcodes, and if you
have had Android phones for a while, the initial setup and migration may install their old
barcode scanner app anyway.
"... If you're married and your spouse is covered by a workplace-based retirement plan but you're not, you can deduct your full IRA contribution as long as your joint AGI doesn't top $196,000 for 2020. You can take a partial tax deduction if your combined income is between $196,000 and $206,000. ..."
"... Spouses with little or no earned income for 2020 can also make an IRA contribution of up to $6,000 ($7,000 if 50 or older) as long as their spouse has sufficient earned income to cover both contributions. The contribution is tax-deductible as long as your household income doesn't exceed the limits for married couples filing jointly. ..."
There's still time to make a 2020 IRA contribution and lower your tax bill.
by:
Sandra
Block
January 13, 2021
As you get ready to tackle your 2020 tax return, make sure you haven't overlooked one of the best ways to cut your tax bill
and secure your future -- funding a traditional IRA. (There is no upfront tax break for funding a Roth IRA.)
You can actually make an IRA contribution for the 2020 tax year up until the time you file your tax return, which is due April
15, 2021. But why wait? If you have some extra income – say, from a
stimulus
check
– go ahead and deposit it into an IRA account now before you forget. You'll also give the money a little more time
to grow, which you'll appreciate when you retire.
And what about those tax savings? Well, depending on your income, you may be able to deduct your IRA contribution on your 2020
return. To contribute to a traditional IRA, you or your spouse must have earned income from a job. But, otherwise,
you
may be able to deduct contributions
to an IRA even if you or your spouse are covered by another retirement plan at
work. Plus, starting last year, seniors age 70˝ and older with earned income can contribute to a traditional IRA, too.
Here's some more good news: The IRA deduction is an "above the line" adjustment to income, meaning you don't have to itemize
your deductions to claim it. It will reduce your adjusted gross income (AGI) dollar-for-dollar, lowering your tax bill. And
your lower AGI could make you eligible for other tax breaks, which are tied to income limits.
Who Qualifies
If you're single and don't participate in a retirement plan at work, you can make a tax-deductible IRA contribution for 2020
of up to $6,000 ($7,000 if you're 50 or older) regardless of your income. If you're married and your spouse is covered by a
workplace-based retirement plan but you're not, you can deduct your full IRA contribution as long as your joint AGI doesn't
top $196,000 for 2020. You can take a partial tax deduction if your combined income is between $196,000 and $206,000.
But even if you do participate in a retirement plan at work, you can still deduct up to the maximum $6,000 IRA contribution
($7,000 if you're 50 or older) if you're single and your income is $65,000 or less ($104,000 if married filing jointly). And
you can deduct some of your IRA contribution if you're single and your income is between $65,000 and $75,000, or if you're
married and your income is between $104,000 and $124,000.
Spouses with little or no earned income for 2020 can also make an IRA contribution of up to $6,000 ($7,000 if 50 or older) as
long as their spouse has sufficient earned income to cover both contributions. The contribution is tax-deductible as long as
your household income doesn't exceed the limits for married couples filing jointly.
Double Tax Break
Some low- and moderate-income taxpayers get an extra break for contributing to an IRA or other retirement account.
In addition to the usual IRA deduction, you may qualify for a Retirement Savers tax credit of up to $1,000 for contributions
to an IRA or other retirement tax plan. (A tax credit, which reduces your tax bill dollar-for-dollar, is more valuable than a
deduction, which merely reduces the amount of income that is taxed.)
The actual amount of the credit depends on your income. It ranges from 10% to 50% of the first $2,000 contributed to an IRA or
other retirement account. To be eligible, your 2020 income can't exceed $32,500 if you're single; $48,750 if you're the head
of a household with dependents; or $65,000 if you're married filing jointly. The lower your income, the higher the credit. But
you can't claim the Retirement Savers credit if you're under 18, a student, or can be claimed as a dependent on someone else's
tax return.
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Last week, a large number of small-time investors drove up the price of GameStop's (GME)
stock a
historic 1,784 percent . But this was no mere spike in some obscure stock. The stock's
price spiked in part as a result of efforts by "an army of smaller investors who have been
rallying on Reddit and elsewhere online to support GameStop's stock and beat back the
professionals." These professionals were hedge fund managers who had shorted GameStop's stock.
In other words, hedge funders were betting billions that GameStop's stock would go down. But
the price went up instead, meaning hedge funds like Melvin Capital (and Citron Research) took
"a significant loss," possibly totaling
$70 billion.
There surely were plenty of insiders on both sides of this deal. Given the complexity of
various schemes employed by seasoned investors, it seems it is very unlikely that this is just
a simple matter of little Davids taking on Wall Street Goliaths.
But it also looks like that's not all that was going on. Had this only been just another
scheme by some Wall Street insiders against some other Wall Street insiders the story would
probably have ended there.
But that's not what happened. Rather, it appears that, for many of the smaller investors who
were involved, much of this "short squeeze" was conducted for the purposes of throwing a monkey
wrench in the plans of Wall Street hedge funds which exist within the rarified world of
billionaires and their friends.
Pro–Wall Street Fearmongering
The reactions to the event from media pundits and other commentators were telling in that
there was clearly fear and outrage over the fact that business as usual on Wall Street wasn't
being enforced. Predictably, much of the reaction to the Reddit rebellion was to label it a
"fiasco," " insanity
," and something sure to leave a "
trail of destruction ." The important thing was to use words designed to make it all look
like the threat to hedge funds represents some sort of grave threat to the overall economy. Jim
Lebenthal at CNBC, for example,
declared the "short-squeeze fiasco is a threat to the proper functioning of financial
markets."
The fearmongering went beyond even the usual places we hear about financial news. On The
View , for example, Meghan McCain delivered the sort of status quo
–defending bromides we've come to expect from her. She insisted the GameStop affair could
spiral into an economy-killing disaster because
If the stock ends up plunging because of this, because of GameStop and Wall Street loses
billions, at a certain point, it will impact stocks like Apple and Disney and stocks that a
lot of average Americans do invest in, and if that happens, average Americans will end up
losing even more money.
Her comment doesn't rally make any sense, and she doesn't seem to have even a rudimentary
understanding of what happened. But her comment delivered the important point: namely, that
anything that causes volatility in the market could be a disaster for every American household.
Translation: and we should all be very, very afraid if something isn't done to keep these
Reddit people --
whom she compared to the Capitol "insurrectionists" -- under control.
Of course, in a functioning and relatively unhampered market, unusual, unexpected things
happen all the time. Entrepreneurial actors do things the incumbent firms and "experts" hadn't
counted on. This leads to "instability" and big swings in prices. This is actual capitalism,
and it doesn't mean the marketplace isn't functioning properly. In fact, it probably means the
marketplace is dynamic and responsive to consumers and other market participants.
But that's not something Wall Street insiders or their pals in Washington like in the modern
era. Although Wall Streeters love to portray themselves as capitalist captains of industry, the
fact is they have very little interest in real, competitive capitalism.
Rather, we live in the era of "too big to fail" (TBTF), when market freedom means nothing
and preserving the portfolios of powerful Wall Street institutions is what really
matters.
Decades of "Too Big to Fail"
It's based on the idea that Wall Street is just too important to the whole economy, and
Washington must intervene to make sure rich guys on Wall Street stay rich. David Stockman
explains this philosophy:
[It is] the notion that the "threat of systemic risk" and a cascading contagion of losses
form the failure of any big Wall Street institution would be so calamitous that it warranted
an exemption from free market discipline.
This goes back at least to the 1994 Mexican bailout -- which was really a bailout of
investors, not of Mexico -- which solidified the process of normalizing huge transfers of
wealth from taxpayers and dollar holders to the Wall Street elite. By then, the "Greenspan put"
was already in place, with the central bank forever poised to embrace more easy money in
pursuit of propping up stock prices. Then came the bailouts of 2008 and the covd-19 avalanche
of easy money -- all of which lopsidedly benefited Wall Street over the rest of the
economy.
This "exemption from free market discipline" is what Wall Street is all about these days.
The financial sector has become accustomed to enjoying bailouts, easy money, and the resulting
financialization which puts ever greater amounts of the US economy into the hands of Wall
Street money managers. The sector is now built on corporate welfare, not "free markets." No
matter what happens, Wall Street expects the deck to be stacked in its favor.
This is why "volatility" has become a bad word, and "stability" is now the name of the game.
It's why Lebenthal thinks anything out of the ordinary is a threat to the "proper functioning
of financial markets." If some free market innovation and inventiveness actually takes place in
some small corner of the marketplace, well, then we're all expected to get very upset.
That's the way Wall Street likes it. ay_arrow 1
Kayman 8 hours ago
The marketing slogan "Too Big Too Fail" conveniently presumed Wall Street was more
important than the Real Economy. A fatal presumption.
Wall Street is a Parasite, backstopped by the Fed, who, in turn, are backstopped by the
Nation. A crumbling nation, where the Fed strangles lending/savings intermediation, and saves
the blood suckers by bleeding the dying core of America.
wmbz 8 hours ago
"The sector is now built on corporate welfare, not "free markets."
This is NOT a new thing. Corporate welfare has been in play for a long, long time. I am
amazed how long it has taken otherwise "smart" people to grasp this fact.
The only difference is, it is out in the glaring sunlight for all to see. TPTB are damn
proud of it!
junction 7 hours ago (Edited)
Except for the involvement of WallStreetBets in temporarily blocking the hedge fund bear
raid on GameStop using "naked" shorts, it is still business as usual on Wall Street. No one
at the SEC does anything but collect a salary, issue press releases and go to lunch as the
Mafia crime families. . . oops, hedge funds run "bust out" operations on businesses. The
lapdog financial press cheered on the hedge funds as they demolished American businesses. The
same gutter journalists who are not yet linking micro-manager Bezos giving up total control
of Amazon right after his cloud service illegally de-platformed Parler for violation of
bogus. made-up community standards. But then, bigger things are afoot. Bolshevik president
Biden just approved deploying B-1 bomber to Norway for the first time. Nuclear bomb carrying
B-1 bombers. Anything to distract people from how rotten things are.
Cognitive rationalist 7 hours ago
Banking financial sector: private profits for me, public losses for thee
gladitsover 8 hours ago remove link
"..the table is tilted folks. The game is rigged.."
George Carlin
Lokiban 8 hours ago
I think it was all about showing to those unawares how corrupt and rigged Wall street
truly is and they have gotten the message out bigtime.
The only question to be asked is who became the proverbial bagholder when average people saw
their 'Bitcoin-Tulipmania' chance to get out with amazing profits and with that breaking the
promise to continue pumping gme till it hits $1500.
One has always to be carefull if these kind of actions are true populism going against the
controllers or is it controllers playing their hideous games again for a reason, like the
great reset.
Greed has never been a good advisor in these times, easy sheoplemoney. It works all the
time..
COMMENT: Message: Re Reddit "WallStreetBets"
Hi Marty,
Thanks for this blog post but I think they are not trying to make money out of short
squeezing GME really, they are trying to make a point. If you follow some of the posts you
see many stories about how badly people and their families were hurt in 2008 when not a
single banker went to prison. Stories of Fathers losing jobs and houses and descending into
alcoholism in front of their children who now are part of WallStreetBets, others who had to
live off of beans and rice or what Mama could grow in the garden and went hungry etc.
So they are not buying GME to see it rise, though that is fine, they are spending money
"they can afford to lose" to punish the hedge funds that have along with bankers hurt the
little guy repeatedly. These same people IMO have bought off our politicians, removed
regulations like Glass Steagal etc all to reap profits to the top while crushing everyone
else.
Listen in June 2008 I got laid off from Palm, in July I broke my arm ( badly ), in August
some tenants left so I tried to put that property up for sale but in September Lehman fell
and the real estate agent told me the market was OFF that I could not sell and needed to rent
it with no one renting for 5 more months. At the same time in September I had a 100K home
equity line I took out just for emergencies and since I was having one I wanted to use it
– but then Wells Fargo pulled the whole thing.
So there I was Marty, sitting on the couch with a cast from fingers to shoulder watching
the world meltdown on a tiny TV set while on lots of pain killers
I was forced to use my small 401K, and ended up using the whole thing through 9 months of
disability, two surgeries and a job search that did not yield a job until the fall of
2011.
So IMO these arrogant SOB cheating hedge fund guys should pound sand on GME for once because
the casino is rigged, heads they win, tails they win, and the taxpayers lose their jobs,
homes, and pay for their bailouts.
I say give it to 'em.
Off my soapbox
REPLY: I fully understand that. I have fought against these people my whole life. I was
more interested in learning HOW the economy functioned where they were only interested in
guaranteed trades. I guess I was the Leonardo da Vinci of finance. Instead of digging up
bodies to figure out how the anatomy functioned, I searched history and developed a computer
model to try to ascertain what made the world economy tick.
A professor from Princeton where Einstein taught said to me that I reminded him of
Einstein. I was surprised, for I did not see myself as comparable to Einstein in any way. He
then explained that what he meant was my curiosity which moved me to try to figure out what
made it all function. I came to understand what he meant. If you are not CURIOUS and seek out
knowledge, then you will NEVER discover anything new! I was not dealing with the physics of
the world, but the finance. People are attracted by this blog and Socrates for that same
reason. They have that spark of curiosity and seek to also understand what makes it all tick!
We need to teach students to be curious. That is the key to all progress we desperately need
to survive this never-ending battle of authoritarianism v independence and freedom.
I have stated many times that I had discovered the 8.6-year frequency in my research I
conducted at Princeton, University in the Firestone Library. Those were fond memories for it
was an amazing resource back then as was the Royal British Newspaper Library, which I
gathered my FOREX database by sifting through the largest newspaper collection in the
world.
This was the difference between me and the "club" where I tried to understand the movement
of the ages that caused the rise and fall of civilization and therein the economy/markets,
and the "club" which seeks to manipulate everything by sheer force armed with bribes. They
own the Southern District of New York courts, the Second Circuit, and the Department of
Justice along with the SEC and CFTC. Goldman Sachs has even stacked the SEC and CFTC with
their former people. Nobody was prosecuted despite the fact that they were involved in the
looting of capital in Malaysia and Greece. And people have the audacity to claim there was
absolutely no election fraud? There is nothing we can trust that goes on in government
anymore and it will only get far worse as we head into 2032.
I am well aware of the sentiment behind this Reddit trend. My concern is simple. Don't put
it past the "club" to be in there making this seem like a sure bet and then set everyone up
for the big crash. Be careful here going into Feb/March 2021.
Last week, a large number of small-time investors drove up the price of GameStop's (GME)
stock a
historic 1,784 percent . But this was no mere spike in some obscure stock. The stock's
price spiked in part as a result of efforts by "an army of smaller investors who have been
rallying on Reddit and elsewhere online to support GameStop's stock and beat back the
professionals." These professionals were hedge fund managers who had shorted GameStop's stock.
In other words, hedge funders were betting billions that GameStop's stock would go down. But
the price went up instead, meaning hedge funds like Melvin Capital (and Citron Research) took
"a significant loss," possibly totaling
$70 billion.
There surely were plenty of insiders on both sides of this deal. Given the complexity of
various schemes employed by seasoned investors, it seems it is very unlikely that this is just
a simple matter of little Davids taking on Wall Street Goliaths.
But it also looks like that's not all that was going on. Had this only been just another
scheme by some Wall Street insiders against some other Wall Street insiders the story would
probably have ended there.
But that's not what happened. Rather, it appears that, for many of the smaller investors who
were involved, much of this "short squeeze" was conducted for the purposes of throwing a monkey
wrench in the plans of Wall Street hedge funds which exist within the rarified world of
billionaires and their friends.
Pro–Wall Street Fearmongering
The reactions to the event from media pundits and other commentators were telling in that
there was clearly fear and outrage over the fact that business as usual on Wall Street wasn't
being enforced. Predictably, much of the reaction to the Reddit rebellion was to label it a
"fiasco," " insanity
," and something sure to leave a "
trail of destruction ." The important thing was to use words designed to make it all look
like the threat to hedge funds represents some sort of grave threat to the overall economy. Jim
Lebenthal at CNBC, for example,
declared the "short-squeeze fiasco is a threat to the proper functioning of financial
markets."
The fearmongering went beyond even the usual places we hear about financial news. On The
View , for example, Meghan McCain delivered the sort of status quo
–defending bromides we've come to expect from her. She insisted the GameStop affair could
spiral into an economy-killing disaster because
If the stock ends up plunging because of this, because of GameStop and Wall Street loses
billions, at a certain point, it will impact stocks like Apple and Disney and stocks that a
lot of average Americans do invest in, and if that happens, average Americans will end up
losing even more money.
Her comment doesn't rally make any sense, and she doesn't seem to have even a rudimentary
understanding of what happened. But her comment delivered the important point: namely, that
anything that causes volatility in the market could be a disaster for every American household.
Translation: and we should all be very, very afraid if something isn't done to keep these
Reddit people --
whom she compared to the Capitol "insurrectionists" -- under control.
Of course, in a functioning and relatively unhampered market, unusual, unexpected things
happen all the time. Entrepreneurial actors do things the incumbent firms and "experts" hadn't
counted on. This leads to "instability" and big swings in prices. This is actual capitalism,
and it doesn't mean the marketplace isn't functioning properly. In fact, it probably means the
marketplace is dynamic and responsive to consumers and other market participants.
But that's not something Wall Street insiders or their pals in Washington like in the modern
era. Although Wall Streeters love to portray themselves as capitalist captains of industry, the
fact is they have very little interest in real, competitive capitalism.
Rather, we live in the era of "too big to fail" (TBTF), when market freedom means nothing
and preserving the portfolios of powerful Wall Street institutions is what really
matters.
Decades of "Too Big to Fail"
It's based on the idea that Wall Street is just too important to the whole economy, and
Washington must intervene to make sure rich guys on Wall Street stay rich. David Stockman
explains this philosophy:
[It is] the notion that the "threat of systemic risk" and a cascading contagion of losses
form the failure of any big Wall Street institution would be so calamitous that it warranted
an exemption from free market discipline.
This goes back at least to the 1994 Mexican bailout -- which was really a bailout of
investors, not of Mexico -- which solidified the process of normalizing huge transfers of
wealth from taxpayers and dollar holders to the Wall Street elite. By then, the "Greenspan put"
was already in place, with the central bank forever poised to embrace more easy money in
pursuit of propping up stock prices. Then came the bailouts of 2008 and the covd-19 avalanche
of easy money -- all of which lopsidedly benefited Wall Street over the rest of the
economy.
This "exemption from free market discipline" is what Wall Street is all about these days.
The financial sector has become accustomed to enjoying bailouts, easy money, and the resulting
financialization which puts ever greater amounts of the US economy into the hands of Wall
Street money managers. The sector is now built on corporate welfare, not "free markets." No
matter what happens, Wall Street expects the deck to be stacked in its favor.
This is why "volatility" has become a bad word, and "stability" is now the name of the game.
It's why Lebenthal thinks anything out of the ordinary is a threat to the "proper functioning
of financial markets." If some free market innovation and inventiveness actually takes place in
some small corner of the marketplace, well, then we're all expected to get very upset.
That's the way Wall Street likes it. ay_arrow 1
Kayman 8 hours ago
The marketing slogan "Too Big Too Fail" conveniently presumed Wall Street was more
important than the Real Economy. A fatal presumption.
Wall Street is a Parasite, backstopped by the Fed, who, in turn, are backstopped by the
Nation. A crumbling nation, where the Fed strangles lending/savings intermediation, and saves
the blood suckers by bleeding the dying core of America.
wmbz 8 hours ago
"The sector is now built on corporate welfare, not "free markets."
This is NOT a new thing. Corporate welfare has been in play for a long, long time. I am
amazed how long it has taken otherwise "smart" people to grasp this fact.
The only difference is, it is out in the glaring sunlight for all to see. TPTB are damn
proud of it!
junction 7 hours ago (Edited)
Except for the involvement of WallStreetBets in temporarily blocking the hedge fund bear
raid on GameStop using "naked" shorts, it is still business as usual on Wall Street. No one
at the SEC does anything but collect a salary, issue press releases and go to lunch as the
Mafia crime families. . . oops, hedge funds run "bust out" operations on businesses. The
lapdog financial press cheered on the hedge funds as they demolished American businesses. The
same gutter journalists who are not yet linking micro-manager Bezos giving up total control
of Amazon right after his cloud service illegally de-platformed Parler for violation of
bogus. made-up community standards. But then, bigger things are afoot. Bolshevik president
Biden just approved deploying B-1 bomber to Norway for the first time. Nuclear bomb carrying
B-1 bombers. Anything to distract people from how rotten things are.
Cognitive rationalist 7 hours ago
Banking financial sector: private profits for me, public losses for thee
gladitsover 8 hours ago remove link
"..the table is tilted folks. The game is rigged.."
George Carlin
Lokiban 8 hours ago
I think it was all about showing to those unawares how corrupt and rigged Wall street
truly is and they have gotten the message out bigtime.
The only question to be asked is who became the proverbial bagholder when average people saw
their 'Bitcoin-Tulipmania' chance to get out with amazing profits and with that breaking the
promise to continue pumping gme till it hits $1500.
One has always to be carefull if these kind of actions are true populism going against the
controllers or is it controllers playing their hideous games again for a reason, like the
great reset.
Greed has never been a good advisor in these times, easy sheoplemoney. It works all the
time..
After the Trump Justice Department
sued Yale following the results of a 2-year Civil Rights investigation which found
"long-standing and ongoing" race-based discrimination, the Biden DOJ just dismissed the case
without explanation .
... ... ...
The Trump DOJ had argued that the Ivy League university had violated federal civil rights
law for "at least 50 years," by favoring Black and Hispanic students over Whites and Asians,
according to
The Hill .
The legal battle represented one of the Trump administration's moves to challenge
affirmative action programs aimed at increasing diversity on campus, which some conservatives
consider unfair and illegal.
Yale, which staunchly defended its admission practices, praised the DOJ's decision to drop
the case in a statement, saying it was "gratified" by the decision. -
The Hill
"Our admissions process has allowed Yale College to assemble an unparalleled student body,
which is distinguished by its academic excellence and diversity," argued the university. "Yale
has steadfastly maintained that its process complies fully with Supreme Court precedent, and we
are confident that the Justice Department will agree."
The Trump administration notably instituted several measures to prevent universities from
considering race as a factor during admissions, even joining a similar lawsuit against Harvard
University.
There is a massive threat to our capital markets, the free market in general, and fair
dealings overall. And no, it's not China. It's a homegrown threat that everyone has been afraid
to talk about.
Until now.
That fear has now turned into rage.
Hordes of new retail investors are banding together to take on Wall Street. They are not
willing to sit back and watch naked short sellers, funded by big banks, manipulate stocks, harm
companies, and fleece shareholders.
The battle that launched this week over GameStop between retail investors and Wall
Street-backed naked short sellers is the beginning of a war that could change everything.
It's a global problem, but it poses the greatest threat to Canadian capital markets, where
naked short selling -- the process of selling shares you don't own, thereby creating
counterfeit or 'phantom' shares -- survives and remains under the regulatory radar because
Broker-Dealers do not have to report failing trades until they exceed 10 days.
This is an egregious act against capital markets, and it's caused billions of dollars in
damage.
Make no mistake about the enormity of this threat: Both foreign and domestic schemers have
attacked Canada in an effort to bring down the stock prices of its publicly listed
companies.
In Canada alone, hundreds of billions of dollars have been vaporized from pension funds and
regular, everyday Canadians because of this, according to Texas-based lawyer James W.
Christian. Christian and his firm Christian Smith & Jewell LLP are heavy hitters in
litigation related to stock manipulation and have prosecuted over 20 cases involving naked
short selling and spoofing in the last 20 years.
"Hundreds of billions have been stolen from everyday Canadians and Americans and pension
funds alike, and this has jeopardized the integrity of Canada's capital markets and the
integral process of capital creation for entrepreneurs and job creation for the economy,"
Christian told Oilprice.com.
The Dangerous Naked Short-Selling MO
In order to [legally] sell a stock short, traders must first locate and secure a borrow
against the shares they intend to sell. A broker who enters such a trade must have assurance
that his client will make settlement.
While "long" sales mean the seller owns the stock, short sales can be either
"covered" or "naked" . A covered short means that the short seller has
already "borrowed" or has located or arranged to borrow the shares when the short sale is made.
Whereas, a naked short means the short seller is selling shares it doesn't own
and has made no arrangements to buy. The seller cannot cover or "settle" in this instance,
which means they are selling "ghost" or "phantom" shares that simply do not exist without their
action.
When you have the ability to sell an unlimited number of non-existent phantom shares in a
publicly-traded company, you then have the power to destroy and manipulate the share price at
your own will.
And big banks and financial institutions are turning a blind eye to some of the accounts
that routinely participate in these illegal transactions because of the large fees they collect
from them. These institutions are actively facilitating the destruction of shareholder value in
return for short term windfalls in the form of trading fees. They are a major part of the
problem and are complicit in aiding these accounts to create counterfeit shares.
The funds behind this are hyper sophisticated and know all the rules and tricks needed to
exploit the regulators to buy themselves time to cover their short positions. According to
multiple accounts from traders, lawyers, and businesses who have become victims of the worst of
the worst in this game, short-sellers sometimes manage to stay naked for months on end, in
clear violation of even the most relaxed securities laws.
The short-sellers and funds who participate in this manipulation almost always finance
undisclosed "short reports" which they research & prepare in advance, before paying
well-known short-selling groups to publish and market their reports (often without any form of
disclosure) to broad audiences in order to further push the stock down artificially. There's no
doubt that these reports are intended to create maximum fear amongst retail investors and to
push them to sell their shares as quickly as possible.
That is market manipulation. Plain and simple.
Their MO is to short weak, vulnerable companies by putting out negative reports that drive
down their share price as much as possible. This ensures that the shorted company in question
no longer has the ability to obtain financing, putting them at the mercy of the same funds that
were just shorting them. After cratering the shorted company's share price, the funds then
start offering these companies financing usually through convertibles with a warrant attachment
as a hedge (or potential future cover) against their short; and the companies take the offers
because they have no choice left. Rinse and Repeat.
In addition to the foregoing madness, brokers are often complicit in these sorts of crimes
through their booking of client shares as "long" when they are in fact "short". This is where
the practice moves from a regulatory gray area to conduct worthy of prison time.
Naked short selling was officially labeled illegal in the U.S. and Europe after the
2008/2009 financial crisis.
Making it illegal didn't stop it from happening, however, because some of the more creative
traders have discovered convenient gaps between paper and electronic trading systems, and they
have taken advantage of those gaps to short stocks.
Still, it gets even more sinister.
According to Christian, "global working groups" coordinate their attacks on specifically
targeted companies in a "Mafia-like" strategy.
Journalists are paid off, along with social media influencers and third-party research
houses that are funded by what amounts to a conspiracy. Together, they collaborate to spread
lies and negative narratives to destroy a stock.
At its most illegal, there is an insider-trading element that should enrage regulators. The
MO is to infiltrate a company through disgruntled insiders or lawyers close to the company.
These sources are used to obtain insider information that is then leaked to damage the
company.
Often, these illegal transactions involve paying off "informants", journalists, influencers,
and "researchers" are difficult to trace because they are made from offshore accounts that are
shut down once the deed is done.
Likewise, the "shorts" disguised as longs can be difficult to trace when the perpetrators
have direct market access to trading systems. These trades are usually undetected until the
trades fail or miss settlement. At that point, the account will move the position to another
broker-dealer and start the process all over again.
The collusion widens when brokers and financial institutions become complicit in
purposefully mislabeling "shorts" as "longs", sweeping the illegal transactions under the rug
and off of regulatory radar.
"Spoofing" and "layering" have also become pervasive techniques to avoid regulator
attention. Spoofing, as the name suggests, involves short sellers creating fake selling
pressure on their targeted stocks to drive prices lower. They accomplish this by submitting
fake offerings in "layers" at different prices to create a mirage.
Finally, these bad actors manage to skirt the settlement system, which is supposed to
"clear" on what is called a T+2 basis . That
means that any failed trades must be bought or dealt with within 3 days. In other words, if you
buy on Monday (your "T" or transaction day), it has to be settled by Wednesday.
Unfortunately, Canadian regulators have a hard time keeping up with this system, and failed
trades are often left outstanding for much longer periods than T+2. These failing trades are
constantly being traded to reset the settlement clock and move the failing trade to the back of
the line. The failures of a centralized system
According to Christian, it can be T+12 days before a failed trade is even brought to the
attention of the IIROC (the Investment Industry Regulatory Organization of Canada)
Prime Brokers and Banks are Complicit
This is one of Wall Street's biggest profit center and fines levied against them are merely
a minor cost of doing business.
Some banks are getting rich off of these naked short sellers. The profits off this kind of
lending are tantalizing, indeed. Brokers are lending stocks they don't own for massive profit
and sizable bonuses.
This layer of what many have now called a "criminal organization" is the toughest for
regulators to deal with, regardless of the illegal nature of these activities.
Prime brokers lend cash account shares that are absolutely not allowed to be lent. They lend
them to short-sellers in order to facilitate them in settling their naked shorts.
It's not that the regulators are in the dark on this. They are, in fact, handing out fines,
left and right -- both for illegal lending and for mismarking "shorts" and "longs" to evade
regulatory scrutiny. The problem is that these fines pale in comparison to the profits earned
through these activities.
And banks in Canada in particular are basically writing the rules themselves, recently
making it easier (and legal) to lend out cash account shares.
Nor do law firms have clean hands. They help short sellers bankrupt targeted companies
through court proceedings, a process that eventually leads to the disappearance of evidence of
naked shorts on the bank books.
"How much has been stolen through this fraudulent system globally is anyone's guess," says
Christian, "but the number begins with a 'T' (trillions)."
The list of fines for enabling and engaging in manipulative activity that destroys
companies' stock prices may seem to carry big numbers from the retail investor's perspective,
but they are not even close to being significant enough to deter such actions:
- The SEC charged Citigroup's principal U.S. broker-deal subsidiary in 2011 with misleading
investors about a $1 billion collateralized debt obligation (CDO) tied to the U.S. housing
market. Citigroup had bet against investors as the housing market showed signs of distress. The
CDO defaulted only months later, causing severe losses for investors and a profit of $160
million (just in fees and trading profits). Citigroup paid $285 million to settle these SEC
charges.
- In 2016, Goldman, Sachs & Co. agreed to pay $15 million to settle SEC charges that
its securities lending practices violated federal regulations. To wit: The SEC found that
Goldman Sachs was mismarking logs and allowed customers to engage in short selling without
determining whether the securities could reasonably be borrowed at settlement.
- In 2013, a Charles Schwab subsidiary was found liable by the SEC for a naked short-selling
scheme and fined
$8.2 million .
- The SEC charged two Merrill Lynch entities in 2015 with using "inaccurate data in the
course of executing short sale orders", fining them $11 million.
- And most recently, Canadian Cormark Securities Inc and two others came under the SEC's
radar. On December 21, SEC instituted cease-and-desist orders against
Cormark. It also settled charges against Cormark and two other Canada-based broker deals for
"providing incorrect order-making information that caused an executing broker's repeated
violations of Regulation SHO". According to the SEC, Cormark and ITG Canada caused more than
200 sale orders from a single hedge fund, to the tune of more than $660 million between August
2016 and October 2017, to be mismarked as "long" when they were, in fact, "short" -- a clear
violation of Regulation SHO. Cormark agreed to pay a penalty of $800,000 , while ITG Canada -- one of
the other broker-dealers charged -- agreed to pay a penalty of $200,000. Charging and fining
Cormark is only the tip of the iceberg. The real question is on whose behalf was Cormark making
the naked short sells?
- In August 2020, Bank of Nova Scotia (Scotiabank) was fined
$127 million over civil and criminal allegations in connection with its role in a massive
price-manipulation scheme.
According to one Toronto-based Canadian trader who spoke to Oilprice.com on condition of
anonymity, "traders are the gatekeeper for the capital markets and they're not doing a very
good job because it's lucrative to turn a blind eye." This game is set to end in the near
future, and it is only a matter of time.
"These traders are breaking a variety of regulations, and they are taking this risk on
because of the size of the account," he said. "They have a responsibility to turn these
trades down. Whoever is doing this is breaking regulations [for the short seller] and they know
he is not going to be able to make a settlement. As a gatekeeper, it is their regulatory
responsibility to turn these trades away. Instead, they are breaking the law willfully and with
full knowledge of what they are doing."
"If you control the settlement system, you can do whatever you want," the source
said. "The compliance officers have no teeth because the banks are making big money. They
over-lend the stocks; they lend from cash account shares to cover some of these fails for
instance, if there are 20 million shares they sold 'long', they can cover by borrowing from
cash account shares."
The Naked Truth
In what he calls our "ominous financial reality", Tom C.W. Lin, attorney at law, details how
"millions of dollars can vanish in seconds, rogue actors can halt trading of billion-dollar
companies, and trillion-dollar financial markets can be distorted with a simple click or a few
lines of code".
Every investor and every institution is at risk, writes Lin.
The naked truth is this: Investors stand no chance in the face of naked short sellers. It's
a game rigged in the favor of a sophisticated short cartel and Wall Street giants.
Now, with online trading making it easier to democratize trading, there are calls for
regulators to make moves against these bad actors to ensure that North America's capital
markets remain protected, and retail investors are treated fairly.
The recent GameStop saga is retail fighting back against the shorting powers, and it's a
wonderful thing to see - but is it a futile punch or the start of something bigger? The
positive take away from the events the past week is that the term "short selling" has been
introduced to the public and will surely gather more scrutiny.
Washington is gearing up to get involved. That means that we can expect the full power of
Washington, not just the regulators, to be thrown behind protecting the retail investors from
insidious short sellers and the bankers and prime brokers who are profiting beyond belief from
these manipulative schemes.
The pressure is mounting in Canada, too, where laxer rules have been a huge boon for
manipulators. The US short cartel has preyed upon the Canadian markets for decades as they know
the regulators rarely take action. It is truly the wild west.
Just over a year ago,
McMillan published a lengthy report on the issue from the Canadian perspective, concluding
that there are significant weaknesses in the regulatory regime.
While covered short-selling itself has undeniable benefits in providing liquidity and
facilitating price discovery, and while the Canadian regulators' hands-off approach has
attracted many people to its capital markets, there are significant weaknesses that threaten to
bring the whole house of cards down.
McMillan also noted that "the number of short campaigns in Canada is utterly
disproportionate to the size of our capital markets when compared to the United States, the
European Union, and Australia".
Taking Wall Street's side in this battle, Bloomberg notes that Wall Street
has survived "numerous other attacks" over the centuries, "but the GameStop uprising could mark
the end of an era for the public short", suggesting that these actors are "long-vilified folks
who try to root out corporate wrongdoing".
Bloomberg even attempts to victimize Andrew Left's Citron Research, which -- amid all the
chaos -- has just announced that it has exited the short-selling game after two decades.
Nothing could be further from the truth. Short sellers, particularly the naked variety, are
not helping police the markets and route out bad companies, as Bloomberg suggests. Naked short
sellers are not motivated by moral and ethical reasons, but by profit alone. They attack good,
but weak and vulnerable companies. They are not the saviors of capital markets, but the
destroyers. Andrew Left may be a "casualty", but he is not a victim. Nor likely are the hedge
funds with whom he has been working.
In a petition initiated by Change.org, the petitioners urge the SEC and FINRA to
investigate Left and Citron Research, noting: "While information Citron Research publishes are
carefully selected and distributed in ways that do not break the law at first sight, the SEC
and FINRA have overlooked the fact that Left and Citron gains are a result of distributing
catalysts in an anticipation of substantial price changes due to public response in either
panic, encouragement, or simply a catalyst action wave ride. Their job as a company is to
create the most amount of panic shortly after taking a trading position so they and their
clients can make the most amount of financial gains at the expense of regular investors."
On January 25 th , the
Capital Markets Modernization Taskforce published its final report for Ontario's Minister
of Finance, noting that while naked short selling has been illegal in the United States since
2008, it remains a legal loophole in Canada. The task force is recommending that the Ministry
ban this practice that allows for the short-selling of tradable assets without first borrowing
the security.
The National Coalition Against Naked Short Selling - Failing to Deliver Securities (NCANS),
which takes pains to emphasize that is not in any way against short-selling, notes: "Naked
short-selling transfers the risk exposure and the hedging expense of the derivatives market
makers onto the backs of equity investors, without any corresponding benefit to them. This is
fundamentally unfair, and must stop."
Across North America, the issue is about to reach a fever pitch over GameStop. For once,
regular retail investors have a voice to use against Wall Street. And for once, Washington
appears to be listening. The House and Senate both have hearings
scheduled over the GameStop saga.
Paradoxically, the same company that basically started the retail investor coup -- zero-fee
trading app Robinhood -- is now under fire for pulling the rug out from under the same
democratic movement.
After retail investors joined forces against Wall Street short-sellers to push GameStop
stock from $20 to a high of over $480 in less than a week, Robinhood made the very unpopular
move of instituting
a ban on buying for retail investors. Under the rules, Wall Street could still buy and
sell, but retail investors could only sell. This new band of investors -- which includes pretty
much all of Robinhood's clientele -- are up in arms, with customers now suing. They won't go
away, and they have Washington's ear and Twitter and Reddit's social media power. This is
shaping up to be an uprising.
What happens with GameStop next could end up dictating a new form of capital markets
democracy that levels the playing field and punishes the Mafia-like elements of Wall Street
that have been fleecing investors and destroying companies for years.
Retail investors want to clean up capital markets, and they just might be powerful enough to
do it now. That's a serious wake-up call for both naked short sellers and the investing
public.
"... "We told the people who were already enjoying a prosperous situation that things would be much better for their children and that we would be able to solve the outstanding problems. [But the new situation] presents a much more difficult task to fulfill. Because from the moment there is no longer a constant surplus to be distributed, the question of distribution is appreciably more difficult to resolve." ..."
Highly recommend the Przeworski piece at Phenomenal World.
Most of it is reflections on/by
3 European leftist leaders from the 1970s-80s (German Prime Chancellor Willy Brandt, Austrian
Chancellor Bruno Kreisky, and Swedish Prime Minister Olof Palme) about how the oil shocks and
associated economic changes of the era presented a challenge to social democrats –
including ending the belief/fantasy that reformism could be system-changing – that they
(we) were not then, and I would argue still are not, able to address.
Palme spells out the difficulty:
"We told the people who were already enjoying a prosperous situation that things would
be much better for their children and that we would be able to solve the outstanding
problems. [But the new situation] presents a much more difficult task to fulfill. Because
from the moment there is no longer a constant surplus to be distributed, the question of
distribution is appreciably more difficult to resolve."
Brand echoes these concerns, noting that it is essential to prevent inequality from
increasing as growth resumes. Eighteen months later, during another in person meeting on 25
May 1975, Kreisky makes the fiscal constraint even more explicit:
"It is precisely now that
reforms should be made. It is just a question which. If we strongly develop social
policies, we will not be able to finance them."
Also included an amazing graph of declining electoral support for left/SD parties in
Europe.
"... Today's cultural dominance in much of the South and chunks of the Midwest by boobtoob preachers, Dominationists and the highly heretical oxymoronical "Christian" Zioni$ts can be seen as the afterbirth of cultural Calvinism. Calvinism is Talmudic in its essence and squats at the nexus of what they like to call "Judeo-Christian Civilization". ..."
The author Jafee is confused on Bentham, because Bentham was confused himself, or was a Jewish agent of mammon.
The highlighted terms accord with Benthamian Utilitarianism -- the greatest human happiness of the greatest human number.[1]
Much (but surely not all) pertinent history suggests that Bentham's thinking influenced the construction of the Preamble
The English philosopher Jeremey Bentham (1748-1832) was a defender of usury, which is the opposite of happiness for the greatest
human number.
In 1787 Jeremey Bentham wrote "In Defence of Usury." Bentham was the son of a rich lawyer, and a lawyer himself, not an economist,
which is why he was confused. Bentham created the present mis-definition of usury which prevails to today, so he was very damaging.
"The taking of grater interest than the law allows, or the taking of greater interest than is usual."
Bentham ignored hundreds of years of the Catholic Scholastics work on usury, and also ignored Aristotle. Actually Bentham attacked
Aristotle in order to spread his B.S. Bentham's father was Jewish, and Bentham also ignored the fairly strong Old Testament admonitions
against usury.
Bentham spread the same erroneous B.S. that Calvin did, and both men did enormous damage, and whether by design or confusion
are NOT for the common good. Their connections to our (((friends))) is suspicious.
A Persian Daric is a gold coin. Bentham said this: Though all money in nature is barren, though a Daric would not beget another
Daric yet for a Daric which a man borrowed he might get a ram and couple of ewes and the ewes would probably not be barren (pages
98 to 101 of his screed)
Aristotle and the Catholic Schoolmen clearly showed that it was the Ewes that were fertile, not the coins.
Bentham or Calvin could not read with comprehension and twisted words into new meanings. This twisted language persists in
the brains of modern humans as confusion.
As if every Daric is going to buy an Ewe in order to reproduce.
By 1850 John Whipple wrote "The Importance of Usury Laws – An answer to Jeremey Bentham."
"The purpose of money is to facilitate exchange. It was never intended as an article of trade, as an article possessing an
inherent value in itself, and further than as representative or test of the value of all other articles."
It undoubtedly admits of private ownership, but of an ownership that is not absolute, like the product of individual industry,
but qualified and limited by the special use for which it was designed.
And
The power of money over every other article, arises out of the artificial character given to it by the STATE , AND NOT
OUT OF THE QUALITIES OF THE MATERIAL WHICH IT IS COMPOSED.
Bentham also argued that anti-usury laws were due to prejudice against Jews. Whipple was not frightened by the Jew trick of
anti-semitism claims. Whipple said this in reply, "The real truth is this feeling which he calls prejudice is the result of the
moral instinct of mankind."
Whipple wasn't afraid of calling out the Jew.
In other words, Bentham did not have the moral instinct of mankind, but instead was a usurer, hiding behind his utilitarianism
doctrine.
My view is that the preamble general welfare clause is direct lineage that comes through Benjamin Franklin and his experiences
in the Philadelphia Colony. Franklin was definitely NOT a usurer, and was not confused on money.
The Preamble of the constitution reflects a Liebnizian metaphysic reflected in the notion of the pursuit of happiness, were
are not talking utilitarianism, but a recognition that man is made in the image of the creator, Imago Dei where happiness
reflects an acknowledgement that we are actually creative beings where happiness is a reflection of such creativity, above mere
acquisition of 'property' as the Confederacy devolved the phrase to "Life, Liberty and Property"
@Mefobills eply distorted by Calvinistic Puritanism and its "Chosen People" mythos.
Much of the religious fervor which dominated the American frontier in the latter decades of the 18th Century and early 19th–they
called it "The Great Awakening" -- was infused with the patriarchal form of religiosity as ignited by Calvinistic tropes and memes.
Today's cultural dominance in much of the South and chunks of the Midwest by boobtoob preachers, Dominationists and the
highly heretical oxymoronical "Christian" Zioni$ts can be seen as the afterbirth of cultural Calvinism. Calvinism is Talmudic
in its essence and squats at the nexus of what they like to call "Judeo-Christian Civilization".
My preference is to employ the more objectively truthful description: the "JudieChristie MagickMindfuck.
@Leonard R. Jaffee Anti-semitism card. Bentham even attacked Aristotle for corrupting Christianity.
In Bentham's book, Bentham associates some of the positive attributes of thrift with money lending. Money lending becomes on
the same plane as thrift in his worldview. An here is the coup-de-gras: Compound interest was forbidden in Bentham's day, and
Bentham urged its legalization.
A compound curve for interest is outside of nature, as the claims on nature grow exponentially. Nature does not grow exponentially.
Nature and labor cannot pay the claims, and society polarizes. Jesus started his mission on the Jubilee year, as Jubilees are
coded in the Bible to prevent polarization.
If Bentham wasn't a Jew, he certainly had the Jewish spirit. Bentham was not for the common good.
Covid-19 exposed some warts of neoliberalism in higher education... They want to keep those lucrative international students
flooding in, after all.
Notable quotes:
"... We align our identities with our institutions and think in very a short-term, metric-based fashion, seeing "success" (for instance) in terms of student recruitment (tuition fees paid in). Moreover, we're encouraged above all to be global in outlook: we look forward to our perennially "busy" international conference seasons and we emphasize the global and the transnational over the merely local or national ..."
"... our identities as academics are unavoidably embedded in a form of neoliberal hyperglobalisation. We rely on unrestricted flows of (wealthy) bodies across borders. ..."
"... We see this form of globalisation, and the benefits that accrue to us and our institutions from it, as a form of moral necessity : something it isn't possible even to argue against in good faith. Hence our loud assent to principles like open borders and always-on mass migration. ..."
"... Our commitment to the global as a form of moral mission has left us completely unprepared for what's currently unfolding. We are utterly unused to considering the material constraints of the economy our livelihoods depend on; that globalisation might come back to bite us; that the very aircraft that carry us across the world to conference destinations and field work sites would one day turn off the spigot of endlessly mobile bodies our careers and identities depend on. ..."
"... In this respect, I think of this post over at Crooked Timber, where John Quiggin (an economist I have a great deal of respect for) simply cannot bring himself to confront the possibility that the open borders dream might be dead. ..."
"... But the fact that the "export education" model was a disastrous wrong turn will take much longer to be accepted, I think, because of the widespread commitment I've been talking about here to the principle of the global as a form of moral necessity. ..."
we've had a Minsky-like process operating on a society-wide basis: as daily risks have declined, most people have blinded
themselves to what risk amounts to and where it might surface in particularly nasty forms. And the more affluent and educated
classes, who disproportionately constitute our decision-makers, have generally been the most removed.
I see something very similar happening in academia. We align our identities with our institutions and think in very a short-term,
metric-based fashion, seeing "success" (for instance) in terms of student recruitment (tuition fees paid in). Moreover, we're
encouraged above all to be global in outlook: we look forward to our perennially "busy" international conference seasons and we
emphasize the global and the transnational over the merely local or national (denigrated as narrow, provincial, and ideologically
suspect).
We like to see ourselves as mobile subjects, bodies in constant motion, our minds Romantically untethered from the confines
of any one nation state.
So our identities as academics are unavoidably embedded in a form of neoliberal hyperglobalisation. We rely on unrestricted
flows of (wealthy) bodies across borders. Our institutions (or many of them) have become dependent on international students
and their superior fee-paying ability compared with merely "domestic students."
We might agree in principle with ideas of a GND,
say, or take an ecocritical approach to a novel or a play, but we're certainly not going to cut back on the number of international
conferences we attend. Indeed, many of us go further.
We see this form of globalisation, and the benefits that accrue to us and our institutions from it, as a form of moral
necessity : something it isn't possible even to argue against in good faith. Hence our loud assent to principles like open borders
and always-on mass migration. We have to keep those lucrative international students flooding in, after all. (Not that we'd
ever put it in terms as crassly material as that; after all, we don't work in university administration .)
Our commitment to the global as a form of moral mission has left us completely unprepared for what's currently unfolding.
We are utterly unused to considering the material constraints of the economy our livelihoods depend on; that globalisation might
come back to bite us; that the very aircraft that carry us across the world to conference destinations and field work sites would
one day turn off the spigot of endlessly mobile bodies our careers and identities depend on.
Hence the reason why a lot of my colleagues are so lost right now. They're so used to living on a purely symbolic (or moral-symbolic)
level that the materiality of this virus and its consequences seems like a crude insult. Many stubbornly hold on to their old
commitments, unwilling to admit that the world might have changed.
In this respect, I think of this post over at
Crooked Timber, where John Quiggin (an economist I have a great deal of respect for) simply cannot bring himself to confront the
possibility that the open borders dream might be dead.
Where we go from here, I have no idea. But the fact that international and Erasmus students might be gone for the foreseeable
future, and the major implications this will have for the financial viability or our universities, seems to be slowly sinking
in.
But the fact that the "export education" model was a disastrous wrong turn will take much longer to be accepted, I think,
because of the widespread commitment I've been talking about here to the principle of the global as a form of moral necessity.
"... "I am also reading the the next focus of the little people investors is the highly manipulated precious metals markets.....I love the smell of burning Wall Street in the morning." ..."
"... Back in the Oughts when the fraudulent mortgages were grossly inflating Real Estate Investment Trusts (REITs), there were many instances of naked short selling to keep honest REITs down, activities I learned firsthand. We formed a shareholders organization that lobbied the SEC to enforce its laws but to no avail--the regulators were well captured and did zip. ..."
"... There's short selling, and then there's naked short selling. Why do the markets require naked short selling? If those hedge funds already owned the stocks that they are selling short, they would not be in such trouble now. ..."
Early this week a few amateur stock trading nerds decided to promote a stock that was heavily shortened by certain hedge funds.
The idea was to raise the stock price of Game Stop Corp., a vendor for computer games, by having lots of small stock traders to
buy into it. The hedge fund that shortened the stock, and thereby bet on a dropping stock price, would then make huge losses while
the many small buyers would potentially profit.
Instead of greed, this latest bout of speculation, and especially the extraordinary excitement at GameStop, has a different
emotional driver: anger. The people investing today are driven by righteous anger, about generational injustice, about what
they see as the corruption and unfairness of the way banks were bailed out in 2008 without having to pay legal penalties later,
and about lacerating poverty and inequality. This makes it unlike any of the speculative rallies and crashes that have preceded
it.
The movement was successful. The stock price of Game Stop Corp. rose from some $10 to over $400 within just a few days. The
short seller
had
to take cover under a larger firm:
Hedge fund Melvin Capital closed out its short position in GameStop on Tuesday after taking huge losses as a target of the
army of retail investors. Citadel and Point72 have infused close to $3 billion into Gabe Plotkin's hedge fund to shore up its
finances.
I'm shocked! Absolutely shocked to see that the game of finance is rigged!!!!/snark
There have not been market fundamentals since the beginning of financialization in 1971 when money became fiat instead of gold
backed. I find it interesting that it has taken 50 years for the cancer of financialization to fully compromise the host. It will
be interesting to see where this goes from here.
I think the speed of decline of empire is speeding up as noted by the increase in international investment in China.
I am also reading the the next focus of the little people investors is the highly manipulated precious metals markets.....I
love the smell of burning Wall Street in the morning.
"I am also reading the the next focus of the little people investors is the highly manipulated precious metals markets.....I
love the smell of burning Wall Street in the morning."
Is Max Keiser going after the silver market again? I bet he was posting on r/Wallstreetbets to stir things up!
Back in the Oughts when the fraudulent mortgages were grossly inflating Real Estate Investment Trusts (REITs), there were many
instances of naked short selling to keep honest REITs down, activities I learned firsthand. We formed a shareholders organization
that lobbied the SEC to enforce its laws but to no avail--the regulators were well captured and did zip.
We even ran full pages ads in the NY Times and WaPost to add visibility to our justifiable outrage, which was well proven when
the bubble burst.
But Obama didn't do his job and enforce the law, and the entire mess is far worse now. This episode epitomizes the amazing
amounts of corruption masquerading as well regulated markets and an equitable financial system.
I support Hudson's debt forgiveness for the main reason it will bankrupt the debt holders--the Financial Parasites--who are
also the beneficiaries of the corrupt system; and with their destruction, will allow for the rise of the Public Financial Utility
that will restore law and order to that realm of the economy. Yes, this must be seen as yet another episode of the longstanding
Class War, one of the most brazen ever.
There's short selling, and then there's naked short selling. Why do the markets require naked short selling? If those hedge
funds already owned the stocks that they are selling short, they would not be in such trouble now.
Citadel and Point72 have infused close to $3 billion into Gabe Plotkin's hedge fund to shore up its finances.
-b
How Robinhood was rigged:
Robinhood sells its orderflow to Citadel for execution. Citadel then chiselled the retail investor for pennies per trade by frontrunning (think high freq trading) before execution
of retail order, inflating the price and cheating the customer.
Citadel bailed out Citron, essentially inheriting the short position. Citadel then threatened Robinhood with refusing payment for orderflow
The globalists found just the economics they were looking for.
The USP of neoclassical economics – It concentrates wealth.
Let's use it for globalisation.
Mariner Eccles, FED chair 1934 – 48, observed what the capital accumulation of
neoclassical economics did to the US economy in the 1920s. "a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion
of currently produced wealth. This served then as capital accumulations. But by taking
purchasing power out of the hands of mass consumers, the savers denied themselves the kind of
effective demand for their products which would justify reinvestment of the capital
accumulation in new plants. In consequence as in a poker game where the chips were
concentrated in fewer and fewer hands, the other fellows could stay in the game only by
borrowing. When the credit ran out, the game stopped"
This is what it's supposed to be like.
A few people have all the money and everyone else gets by on debt.
McFaul says that "Biden's team should come up with new ways to grow these ties [with
ordinary Russians] even over Putin's objections. In the long run, forging and sustaining
links with Russian society will undermine anti-American propaganda as well as American
stereotypes about Russia."
To this, McFaul adds that, "The new administration should make it easier for Russians to
study in and travel to the United States," and urges European states to do the same.
My take on this is very simple: the West cannot even absorb their own youth anymore. What
makes them think they can absorb Russia's?
Besides, it's not so simple an operation to attract young people to your country to study.
The logistics are very complicated, and it requires a lot of resources not even counting the
promise of jobs within your own country (in the case of STEM students). Even the brain drain
from countries with large populations such as China and India don't surpass much above the
low to mid six digits. And those programs take time to gain traction - decades in most cases.
And all of this already taking into account the fact that your country still has to be an
attractive place.
Discontent already exists in Americans with Indian STEM from H1B1 visa program. As the
excess population rises, so will resistance to new influx of immigrants - specially
high-skilled ones. This will snowball to a stage where Americans become second-class citizens
in their own country (as you would have to guarantee the jobs for the foreigners in order to
sweeten the deal).
How will the USA regain its advantage in this world?
I was looking back at some earlier reports to gain an insight into the means by which the
USA gave the game away and the means that might restore its place in the economic world. It
has allowed itself to be completely captive to global private finance AND ownership of the
keys to its salvation. If it dfoes not nationalise its key industries then it can rest
assured of its doom. IMO it is now almost impossible for it to nationalise a pizza parlour
let alone an education or engineering sector.
If the USA is to survive the oncoming collapse and break free of its apocalyptic war
agenda, then certain realities WILL have to occur. These realities include (but are not
limited to):
1) Regaining its lost industrial potential, with an emphasis on the machine tool sector
which the west once enjoyed as a world leader
2) Regaining the lost scientific and technological capacities which the USA once had
when it still valued productive thinking under the days of JFK and NASA
3) Regaining a grasp of education which values productive citizens over consumer
subjects
4) Regaining control over national credit under federal banking, dirigisme and other
long-term investment practices that rely on regulating Wall Street speculation and other
unproductive forms of banking.
How might these vital capacities be regained?....
The USA is incapable of nationalising its education sector and is incapable
systemically of having the patience to await the benefits. It will continue to sustain an
education sector that is designed to transfer $$$ in taxation directly to private corporation
pockets and to do so by reducing the the number of salary earners between the input $ and the
$ that end in private corporation pockets. The private corporations will continue to perfect
the swindle of returning the least possible effort in return for those $$$.
Ditto for defence spending and every other sector.
The USAi is hoist by its own petard and has a dull brained president surrounded by
ideological obsessives, cultural paranoiacs, a narcissistic Congress and Senate. It will not
be capable of restoring its real economy and will continue to imagine itself as a world
leader. It will berate and negate and cancel all unorthodox thought from those that favour
nation building.
The rest of the world's nations had better take note. Clearly many have.
I actually talked about this with Kuppy last week.
He considers HFT a problem but not crippling; he says they cost him $10K to $25K a day
but apparently this isn't enough to deter his hedge fund activities. He said that up to 70%
of trading volume activity in any stock is HFT (!).
As for scam: well - the value of the front running exists only so long as the herd is in
the market. Every single market crash - whether bitcoin or the stock market or whatever -
sees the vast majority of players exit (or bankrupt). At that point, the trading volumes
and numbers of people participating plummet dramatically.
How valuable do you think RH's model is then?
Sounds to me that HFT is a scam in itself. Am I to believe that algorithms trading against
each other repetitively at high speed is anything other than machine driven gambling on one
algorithm's interpretation of the behaviour of another algorithm, mostly outside of the human
buy and sell in the market place. Are the humans just strapped on for the ride through a
cabal of trading companies?
@ uncle t # 168 who wrote
"
I was looking back at some earlier reports to gain an insight into the means by which the USA
gave the game away and the means that might restore its place in the economic world. It has
allowed itself to be completely captive to global private finance AND ownership of the keys
to its salvation. If it does not nationalize its key industries then it can rest assured of
its doom.
"
I continue to posit that the key industry that needs to be "nationalized/made totally
sovereign" is finance. If humanity can follow China's lead, the motivations in the other
industries will revert to doing what is right, rather than what is profitable.
In regards to your HFT comment in # 172, you have calling HFT a scam correct. It is
programmed/manufactured theft under the guise of AI.
When guys like Michael Saylor put a half a billion into bitcoin they have done their
homework. Seems to me a scam is an operation containing a lot of lies. I don't see how
bitcoin falls into that category.
As far as a Ponzi scheme I also do not see the connection. It is nothing like a Ponzi.
There are no promises of big returns or large dividends.
When people follow 'guys like Michael Saylor [and see him] put a half a billion into bitcoin
they [think] have done their homework [and follow like fish chasing a lure] THEN they have
been sucked into a ponzi scheme where the lure is a fast buck if they follow the (smart?)
leader. Then the smart leader progressively sells out at a sweet peak and the chumps watch it
dip for a month or two. Unless of course there are lots of paid journalists and bloggers and
facebook praise singers pumping the lure of the endless profit of bitcoin.
Sounds like rumours of gold in them thar hills.
There are a large number of lies (or exaggeration?) in bitcoin and all spun within a
sheath of mystery and complexity and even 'mining' to smear some credible lipstick on the
scheme.
There is a sucker born every minute and they invest in BS and love a veneer of mystique
and bitcoin falls squarely into the category of lies and scams and fancy imaginings and the
lure that suckers are forever chasing. Yes, people buy and sell and some make a profit - same
as any ponzi scheme.
"... It's really quite simple actually. The same folks who did the 911 false flag attack crime are behind the virus hoax. Their ends have never changed; to acquire power and control (which they certainly already have) And to use any means no matter how ruthless and murderous to keep it. ..."
"... When you control all the money in the world, even if you don't have truth on your side, you have immense power. ..."
"... Forget the 99.99% Vs 00.01%. Imagine a few hundred who are running the Covid scam and vaccine poisoning programme and the couple of million opposing it. They are continuing. The opposition, in the meantime, is living on the internet posting 'truth's and pictures of Hitler. ..."
"... Just caught some more mainstream pish on how Fauci blamed his "country's ineffective pandemic response on an American "anti-science bias." He called this bias "inconceivable," because "science is truth." ..."
"... So Fauci stated "science is truth." – but that is what makes "Fauci" a charlaton in the eyes of real scientists; science is ever changing, evolving, ever questioned, enhanced and even proved incorrect. Today's theories (what he believes to be the truth), will be smiled upon in the future. ..."
Off-Guardian commenter, Maribel Tuff, expands their comment Above The
Line.
Bringing together the US emergency bank lending crisis and the now massive Covid response,
I've concluded that one of the main reasons it is happening, apart from the corporate looting,
is because of a historic event, the USA's economic collapse and the dollar's demise, which
started just weeks before this Covid operation kicked off, and has been put on hold by a world
wide manufactured economic 'freeze'.
THE END OF 'EXTEND AND PRETEND'
A few months before Covid appeared, the Fed were busy pouring literally trillions of dollars
into the US banks, to prevent inter-lending bank-runs which were starting to develop. These
were the same tectonic fissures that developed prior to the 2008 crisis, where the banks became
so distrustful of each other's solvency, that they massively increased interest rates to each
other to factor in the risk. If unsuppressed the lending rates would continue to rise, laying a
path to bank failures and a contagion which would eventually derail the economy and undermine
the dollar itself.
In September 2019 the Fed intervened in the repo. markets for four consecutive
days, pumping $75 billion per day into the banks, as the inter-banking interest rate –
the repo rate – peaked at a terrifying
10% [ 1 ]. If this
level were allowed to contaminate regular highstreet lending, it would cause widespread debt
defaults & insolvencies.
The dangers are far greater today because, unlike in 2008, Quantitive Easing (QE) has pushed
the Fed to the limits of its credibility, and are forcing them into causing some serious
currency debasement. If they continue with the forms of QE they are shackled to, then dollar
debasement becomes a certainty in a US economy that is far more fragile & indebted
generally and less able to cope.
The Fed must have known for a few years that QE was not returning the economy to economic
normality, and that they were still trapped in the solvency crisis of 2008. Knowing this, the
Fed were prepared for the latest crisis. They had made it possible to inject hundreds of
billions of dollars into the banking system discreetly, unlike in 2008, without any additional
Congressional fanfare, via the Financial Stability
Oversight Council , formed in 2010.
They had given themselves almost unlimited funds and the resources of the entire government
if necessary, to reassure the banks that collapse was impossible. This 'rescue operation' was
being played out, relatively unreported except in the financial press, only weeks prior to the
Covid flu appearing on the world stage. Issuing
..
cumulative repo loans totalling more than $9 trillion to the trading houses on Wall
Street that the Fed had been making from September 17 of 2019 – months before the onset
of COVID-19 anywhere in the world [ 2 ]
Unlike in 2008, this second use or continued use of mass Fed stimulus is not a new untested
idea and, by using it again or continuing to use it more intensely to stabilise the banks, it
would eventually lead the markets to conclude that we are locked in a never ending cycle of
stimulus, which will inevitably end in hyperinflation and dollar collapse.
That is an uncontroversial economic fact, and will be the conclusion of the Fed's current
policy. In that context, an external 'event' could be critical in taking the spotlight off US
finance and its woes.
The Fed
will not want to exit repo operations until they are absolutely certain the market can stand
on its own two feet. [ 3 ], [
4 ]
United States Overnight Repo Rate was at 0.11 on Friday January 15
But, as they well know given their experience over the past 10 years, the markets will never
be able to stand on their own feet in the current economic model. Now not only companies are
being kept afloat by low interests rates, the US itself is dependent and kept solvent by
low interest rates.
The fed has injected or made available over 9 trillion dollars to the banks in only 6 months
leading up to March 2020, that is over 40% of the USA's GDP, prior to Covid and represents
nearly a 40% increase in the USA's national debt!
So it is becoming very obvious that we are at the end of this particular monetary road, the
'extend and pretend' policy is finished and there is nothing in the economic tool box that can
stall the inevitable. Only an external 'divine' intervention could, even temporarily delay the
dollar's collapse. As an aside, I should add, although they may be affected later, this is not
happening in European or Asian banks, only in US banks.
THE DIVERSION
In my opinion, the US security agencies picked a scenario off the shelf, something they have
been justifiably rehearsing for years, the response to a deadly virus, which would produce the
required financial shutdown, suppress bank activity, and create a world crisis big enough to
eclipse the US economic crisis and produce a 'flight to safety' into the dollar, facilitating
an economic induced coma, allowing time, a breathing space and justifying massive emergency QE
injections into the US and world economy.
It could be sold as a period during which a restructuring of the world banking system could
take place and perhaps reschedule debt as well as redefine the mechanisms of a new reserve
currency.
This is what I think 'The Great Reset' really is about. It is being painted as something
intricate and nefarious on every level, but it's possibly more utilitarian than that, a
necessary dialog, where the subject of that dialog is sealed from the public, justified by
protecting our worried and panicky ears, and which concerns almost all western world
leaders.
I'm sure a major false flag terror attack would have been discussed as an alternative to
Covid, but the US is in no fit position economically to respond militarily, and without a
military response to a terror attack the US would fear looking weak. Although Wars have been
thought to resolve many an economic crisis, it is just as likely, in this instance, that a
proxy war with Russia or a direct war with Iran would precipitate a dollar collapse, rather
than create growth and a flight to 'safety'. China would no doubt gleefully humiliate the US
during such a conflict. So I speculate that major wars, as an economic solution, are off the
table, at least until this crisis is resolved.
Creating a virus out of thin air is a cruel and vicious deceit, but the Fed will no doubt
have claimed to its allies that it is far less painful than the total economic implosion we
will face in the brewing economic collapse, where financial contagion from the US would cause
most western financial institutions to become insolvent, debt would remain unpaid, trade would
cease, asset values would crumble, bank machines stop, riots start, martial law be declared,
and in many ill-prepared, import-dependent countries like the UK, rationing and eventually
hunger would begin.
This is the threat the fed would have made to their allies, as we know for a fact they did
in 2008, when asking for a united world central bank stimulus, making it appear vital to world
economic survival.
They would have claimed that this time around the economic dangers are of such a magnitude
that they even persuaded their foes, Russia and China, to partake in the hoax, because they are
also reliant on continued banking & economic stability, and would not be willing to risk
political instability at home caused by a second world economic depression.
By creating this suspension of an economic collapse, the US has cleverly turned the
dominance of the dollar into a matter of international survival, effectively holding the world
to ransom and blocking the baton of world reserve currency being dually transferred over to the
next economic ascendant, China, and where the US has effectively engineered themselves a seat
amongst the judges at their own bankruptcy hearing.
Believing this to be the case, I am less confused as to why most of the USA's allies were so
helpful and so consistent in making this Covid operation happen, and I have concluded it is
their belief in the integrated nature of the financial & currency markets and the threat of
economic collapse posited, as in 2008 by the Fed, that is causing their
complicity.
MUTUAL SECRECY
As each irrational, destructive lockdown measure is implemented I am quite sure that our
politicians, the very few that are in the know, say to each other: 'we are lucky because
"lockdowns" are as nothing, compared to the calamity that would overtake us in the event of a
dollar-induced economic collapse!' This, for me, explains their apparent insanity, lies and the
internationally co-ordinated nature of their response. They too are acting out of fear, not for
a virus, but for fear of anarchy and, by extension, the very real threat to their own lives
that would result.
The secrecy surrounding this operation is wholly consistent, because it is in nobody's
interests to break ranks. If anyone exposes what is really happening to the US economy then it
would precipitate the run on the banks, and then the dollar, that they are being told would
lead to a world economic catastrophe.
To explore this hypothesis, we can look at the varying responses of the world players, and
measure their reluctance or complicity in the scam, because at this turning point in history,
during these shifts of power, loyalty is not guaranteed.
Japan has been strangely reluctant to take part, indicating to me their brooding irritation
with US hegemony, which has been growing amongst their population for some years and expressed
through the Osprey protests . It looked at
one point like they were flirting with the idea of ignoring Covid altogether. Prompting the US
to 'invite' Japan to join 5-eyes, perhaps to exert more direct control over them, via their
security services?
Russia and China are reluctantly playing along for obvious economic reasons, but again we
see reluctance to go full hog, despite the attraction of introducing authoritarian measures at
home under the cover of Covid. Russia has even invented a non-existent vaccine for the
non-existent virus, giving themselves an instant opt-out when required. Whereas China is
preferring to just stop testing, and ignore the 'crisis' altogether, except for the odd
statement about how dangerous it all is.
Non-western Africa, is not taking part at all, in Nigeria there are very few cases, probably
because they are out of the loop on what is really happening, and see little evidence of a
virus in their population.
Germany although physically occupied by the US, like Japan, have a confidence and
independence that marks them apart from other vassal states. Having 'found' far fewer cases of
Covid, they have tried to preserve their precious economy from any serious harm for as long as
possible, demonstrating a cheekiness, consistent with their building of the Nord-stream
pipeline project to Russia, ignoring the US's repeated demands for them to stop.
In contrast, the USA's closest, most supine of allies, & the 5 eyes states, are
enthusiastically taking part, hyping the virus story to the n th degree of
absurdity. Notably the UK, France and Australia, each week pushing yet another absurdly fascist
response to a non-existent problem to scare their population stiff. In my view each allies'
response is calibrated to their financial dependency on the US and how 'captured' their leaders
are to US interests.
On the political and media front, alternative media, doubtless spurred on by seeded stories
and certain controlled opposition, unwittingly fans these flames by speculating on various
kingpins and ideologues central to the plot, like Bill & Malinda Gates, and playing up fear
stories of Marxist tyrannies, Communist takeovers, compulsory vaccines, tracking chips and
various accusations against the dangers of 5G – targeted for being predominately European
and Chinese technology.
The end result is a population left either paralysed by fear of the flu, or in terror of a
rising 'Marxist Fascist tyranny' run by 'jewish globalists' and oligarchs. Either way, everyone
is in too fearful a state to logically assess what is really going on around them.
I'm sure, in the dark bowels of Langley, Virginia, this scenario has been pre-rehearsed and
stress-tested for years, and pieced together from a huge portfolio of coups and psychological
terror operations from around the world.
Perhaps with lessons learned from Climate Change where, as with the weather, the common flu
can easily be weaponised. In the case of Covid via a swiftly implemented 'testing' regime,
simply testing for the common cold and producing millions of false positives, and a hysterical,
totally unquestioning mainstream media.
COVID OPPORTUNISM
International Covid panic created some short term, but worryingly for the USA, short-lived
'flight to safety'. 'International crisis' is the USA's traditional and most effective tool to
protect the dollar: normally US/UK media-manufactured. It was used to bolster a flagging dollar
via the media-created 'Euro crisis' or 'Greek debt crisis'. A series of hysterical panics made
'real' by US and UK financial press, quickly making the USA's economic woes old news, and
reducing the world reserve holdings of the Euro in only a matter of months.
Along with the 'flight to (dollar) safety', Covid has offered the opportunity to freeze the
USA's banking collapse with massive injections of cash. $9 trillions was available to US banks
up until March 2020, but in addition to this the Fed produced $5 trillion in economic stimulus
to the wider economy and a further 5 trillions recently.
Without this 'external threat' – a 'killer virus' – this amount of stimulus
would have immediately caused panic and threatened dollar credibility. However, with the virus
narrative and the world-unified stimulus response to the 'Covid pandemic', this modest flight
to (dollar) safety, along with the massive cash injections, looked justified and sensible.
It also looks to me like those in the 'dollar economic zone' – if there is such a
thing – have gone along with their own impoverishment and have wrecked their own
economies under the cover of Covid, to save themselves from a perceived greater economic
catastrophe, bank contagion, on the basis of what I believe is being secretly told them by the
USA, and based on what they have been witnessing in the US banking system prior to March.
It could easily be argued that we are being unwittingly drawn into a conspiracy to protect
the dollar and US hegemony, under the cover of Covid, that is not in our own best long-term
interests at all (currently being called the 'great reset').
Like Brexit and like the War on Carbon, I believe that if an operation or manufactured event
seems to offer multifaceted advantages to the USA and their Corporate & military elite,
then that operation has revealed its origins.
As it is the case with Covid, not only is there a freeze on the US economic collapse, but US
Corporations and Internet services are benefiting massively from the 'Covid illusion'.
Something that must be getting more obvious by the day, and must be giving honest foreign
leaders concerns as they see their retail sectors ravaged by Amazon and their cultural
institutions replaced by Netflix, Apple TV and Amazon TV.
And the proposed 'salvation' involves paying billions to US Pharma, for, at best, a very
doubtful vaccine. The least-honest politicians can no doubt engineer their 'shutdowns' to
preference US corporations, whilst acting as the viceroys of Empire.
This looting could just be a side-show to the main event of dollar 'transition' or collapse,
or it could be amongst the main aims of 'Operation Covid', it is difficult to tell, but it
looks like the rest of the world is being looted by US Corporations and their home grown
small-to-medium-size businesses bankrupted, with vast additional profits flowing to the USA's
richest, where we see the stella rise in the wealth of America's robber barons.
From renting taxis with Uber to replacing hotels with AirBNB flats, holding meetings on
zoom, spending 'cash free' via Visa, MasterCard et al and the Paypal cartel, ordering food
on-line with Uber eats and destroying local culture, all are being forced on a gullible world
public during the Covid selective collapse. It should be dawning on everyone by now that Covid
is a very, very Neoliberal Corporate virus, strangely working in the interests of a continued
US Corporate neoliberal rollout against our own national geopolitical interests.
It is not only the Corporates that benefit from US 'operations' like Covid, the security
state also demands their share of the spoils for assisting in and facilitating much of the
operation. US tracking apps, social media and communication platforms are being forced, as a
parasitical middle man, into every walk of our lives, taking a thin slice off everyday
activities, like an America tax.
The details of the implementation of the Covid operation aside, it is possible that many
inside the system regard the 'Great Reset' as not a conspiracy to oppress us, to exploit us and
destroy our lives in a Marxist tyranny as many believe, but rather regard it as a necessary
adjustment to an unbalanced economic system.
To see it like that we must believe that the current system is fundamentally flawed and that
good faith solutions are being sought. I think 'The Reset' is seen by many honest brokers
around the world as a genuine platform to resolve flaws in the current world economy, and to
manage a transition from the dollar, in a controlled fashion. We should not always think the
worst motives of everyone involved.
Having said that, I have no doubt that the US is busy trying to hijack the agenda to
preserve its own supremacy, even during its climactic demise. The US Military industrial
complex will be suspicious of any direction not determined by them, and I'm sure in Washington,
Brussels and Beijing there is a battle over the measures and direction we need to take.
Like it or not, there may be very good reasons for these discussions to be held in secret,
and we are left with only secondhand hints of the battles being fought over our current
economic future; like Universal income, a shared international reserve currency, digital
currencies or a cashless society, perhaps required through exchange controls or price fixing,
to fight coming hyper-inflation?
Many US shills will be telling the world, that this is a 'crisis of capitalism', a crisis of
western civilisation, and that we all need to preserve the US economy & dollar supremacy to
save the world.
I personally believe the US has set us up during this crisis, like they did in the last in
2008, where they dumped all their bad debt on European banks to 'share' the crisis out. Working
on the principle that: a problem shared is a problem halved, perhaps. Even if we are in this
crisis because of a US collapse, and the rest of us could survive relatively unscathed. A
'Reset' does appear to be one route that enables a slow deflating of the economic bomb sitting
under the US and which may affect the rest of us badly, if it goes off.
" SHE SWALLOWED
THE SPIDER TO CATCH THE FLY;
I DON'T KNOW WHY SHE SWALLOWED A FLY – PERHAPS SHE'LL DIE "
I reference the nursery rhyme as a cautionary tail, because this all started with the
relatively normal economic recession of 2007, which if the USA had allowed to burn through its
economy, would have been resolved in only a few years, and we would be living in normal times
now. But they didn't. The world's central banks were persuaded to take measures that caused
greater long-term harm, which in turn has led, in my view, to the 'Covid solution', a
provocation intended to temporarily justify even more of the poisonous QE and low interest
rates that didn't work before.
Whilst perhaps sold as a 'fire-break for a more long term solution to be found, I don't see
much evidence that the 'fire-break' is being used well. It seems more like a pause for the
always shortsighted American elites to loot as much as is possible from our states' coffers
before an economic tsunami hits.
A SELF-INFLICTED PROBLEM
I also believe the US never needed to be in this grave position it is today. Its problems
are very much self inflicted. Simply taxing its wealthy and cutting its outrageous military
spending would have averted a dollar crisis, leading instead to a slow drift from the dollar
over a few decades as China took up the strain. But that is another story related to America's
ideological, political and philosophical bankruptcy and scleroses, that has increasingly driven
them into an economic ditch over the past 45 years.
The Covid operation itself is a beautiful metaphor for the original banking crisis, which
triggered the Fed to use quantitive easing (QE) – a far, far more damaging response than
the original crisis itself, just as the lockdowns are far, far more damaging than this strain
of flu, naturally occurring or released deliberately as a marker.
If a consensus resolution is not found quickly for the transfer or sharing of the world
reserve currency, as the dollar is about to collapse, I have no doubt we will be required to
'swallow' a more drastic intervention than Covid to save the US economy and the dollar, each
solution proving more damaging than the last And of course, as the rhyme goes, we will
eventually swallow a 'horse' and be 'dead of course'.
If I am right guys, in one respect you can breathe a sigh of relief: world tyranny, forced
vaccinations with harmful DNA changes, sterilisations, and mass genocide are not the main aims
of this 'operation'. They may be the end result of it, if we are not careful, but I don't think
they are the main aims.
The US is trying to stall dollar relegation using the Covid operation, and make it a major
event, when previously the transition from old to new world reserve currency would have gone
almost unnoticed by most of us. The British ceded the Pound's world reserve currency status
relatively quietly after WWII, under US pressure to float the pound.
It is perhaps a measure of the utility that is now offered by the world's reserve currency,
to facilitate the uncontrolled looting of the rest of the world's economies, that it is now
such a prize and so hard to surrender. Without the dollar and its world reserve status,
enabling the US to print pieces of green paper in exchange for real goods, the US would
certainly be bankrupt.
But that is not our fault and it is not for us in the rest of the world to save them,
especially since it is their ideology that has inflicted so much harm on their own people and
the rest of world.
What we are witnessing is an attempt, through foul means, by another once great Empire to
postpone the inevitable. To fight off being consigned to obscurity.
So we exist in that mad time, that time of collapse and chaos before a new order asserts
itself, which could last a month or 100 years.
You can view Maribel Tuff's original comment
here .
The author wished to remain anonymous.
anti_republocrat , Jan 25, 2021 9:51 PM
I was initially not very aware of the liquidity problem that developed in September, 2019,
but I became aware of lots of weirdness quite early. Some examples are the FDA shutting down
the testing Dr. Hlelen Chu was conducting on stored sample in January. I concluded that the
federal government did not want her detecting SARS-CoV-2 in samples collected in 2019. Also,
in mid-March, Ben Swann released a video discussing the invalid comparison of Covid's CFR
with flu's IFR. If an apples to apples comparison had been made, people would have known that
flu is far more dangerous than Covid-19. A third weirdness was the CDC's changes to death
certificate criteria exposed by MN state senator Dr. Scott Jensen. He is now enduring
harassment from the state medical board and has had to defend his license to practice in MN.
About the same time, I became more aware of the liquidity issue and concluded that obscuring
that was a prime motivator for hoax, but there were several other motivations. Not all
participants in an event necessarily share the same motivation.
It became obvious to me early on that the Gates/Fauci/WHO/HHS crowd was lying about
Hydroxychloroquine in order to boost vaccine development. It was hard to link that interest
to multiple state governors deliberately committing genocide, but a FB friend yesterday clue
me into this article about the power and control of Anthony Fauci throughout the medical
establishment: https://kevinbarrett.heresycentral.is/2020/06/mccarthy/
Fear of such power may also be the reason that the FLCCC Alliance affiliated Eastern Virginia
Medical School has disfavored HCQ. They clearly believe, probably with good reason, that
Ivermectin is better, so they don't want to get smeared with HCQ while they're pushing an
even better alternative.
The third motivation is the desire to be rid of Trump. Trump was many bad things, but he
was also opposed to the US being controlled by an international globalist, technocratic Deep
State. He thus had opponents all over the West, not just in the US. Members of the Deep State
were in a perfect position to make sure the funders and controllers of the Democratic Party
apparatus were aware how they could use a pandemic and lock downs against Trump.
I'm sure individuals who participated in the hoax had varying levels of awareness, as Ken
McCarthy explained when interviewed by Kevin Barrett in the link above. Some actually
believed the Covid-19 narrative. Some were afraid to speak out, seeing the retribution faced
by others. But many were well aware of what they were doing, even to the point of deliberate
eldercide.
It's a good thing most of my life has passed, because death is the only cure for me. No
amount of de-programming or exposure to rats will make me unsee what I've seen.
The US with the largest military on the planet surrendering power to 'an international
globalist, technocratic Deep State."? I don't see that as a choice any US president would
make, or is making. Why would they, they hold all the cards and have created in their minds
the greatest empire in History.
If there are two alternative views of the future for America, one being pursued by Biden
and an alternative by Trump, both will involve American supremacy and control.
Norman E Anderson , Jan 25, 2021 8:34 PM
The Solution: A Global Rush to BitCoin.. pump BitCoin to the Maximum.. then dump it all
into their "LIBRA DIEM" just waiting to be offered at the right time.. all to Fund the
"balanced ERA 56 Per Diem Stipend" of the New Global Serf Class
Bitcoin will fail in the face of the e-yuan, following dollar collapse. China is way ahead
in making their digital currency official.
Lone Wolf , Jan 25, 2021 7:51 PM
This article could portray the absolute reality of the world situation but it will only be
read by 99.99999% of the world's population. Of that 0% will be capable of acting positively
in support of it.
This applies to every article that appears in OffGuardian. Words hold the ephemeral value
of 'chip paper', they are incapable of effecting a solution to a problem that cannot be
resolved by words alone.
Understanding this lies at the root of the REAL solution.
paranoid goy , Jan 25, 2021 1:20 PM
You know a thing as a simple truth by it being simple without being simplistic. But the
Bolsheviks never let a good crisis go to waste, so keep fighting Baal Gates' holy water!
Excellent post.
JdL , Jan 25, 2021 8:49 AM
"Off-Guardian commenter, Maribel Tuff, expands their comment Above The Line."
Who are "they" in this sentence? Please don't tell me this is some kind of genderless BS,
using the plural to mean singular just to avoid – GASP! – implying whether
someone is male or female.
I took it to be a deliberate use of a gender-neutral pronoun not out of political
correctness, but because it is an understood pen name and there's no reason to believe the
writer is one sex or the other. (Of course, it is still confusingly plural.)
Harry Rogers , Jan 24, 2021 11:29 PM
A couple of notes from history.
After the Vietnam War ended and a number of years later to buy anything in Vietnam you
needed lots of the currency called the Dong.
Gradually it wasn't called the Dong they were called "bricks". When you went to buy you would
ask "How many bricks?". Now a brick was about 100 Dong notes.
After the second world war in Germany some peole actually carried their Recih Marks in a
wheelbarrow when they went to buy something like bread etc.
Today the world debt is $57,917,909,049,231.
The simple thing about debt and money is that its all an illusion created for the benefit
of a robotic universe that needs to believe that the piece of cheap paper I hold in my hand
is of some value.
Also the US owes China owes Russia owes The EU owes Japan owes the UK owes ad infinitum.
See the silliness of it! Ooh lets panic what if China wants it money back ? Um not possible
and anyway its just numbers on a page.
What has real value?? Find out when life becomes live or die.
therevolutionwas , Jan 25, 2021 1:13 PM Reply to Harry
Rogers
Precious metals are not edible or useful unless you consider jewelery and semi-conductors
to be essential items.
Why do gold and silver have "real value"?
bypassing yr lame filter , Jan 25, 2021 2:22 PM Reply to therevolutionwas
Precious metals are not edible or useful unless you consider ornaments and semi-conductors
to be essential items.
Why do gold and silver have "real value"?
The spam fitler (spelling deliberate) here is obviously written by a member of the Borg as
you cannot even use words that contain the three letters j,e, and w in succession. Which is
why I had to write "ornaments" instead of the more exact name for shiny things worn as
ornaments.
That's why you should own it in the form of legal tender, such as sovereigns and
britannias.
Tony , Jan 24, 2021 9:08 PM
This is a crappy piece of writing which steals the correct economic analysis of people
like Jim Sinclair, Bill Holter and others, and warps it into the jack/jim (and their one
million aliases) trolling which has blighted OffG for months. This was obvious when it
appeared as a series of btl's recently. If anyone wants the full picture, they just have to
watch Bill and Jim's videos on youtube and elsewhere, where they make it abundantly clear
that this is a globalist problem, the people behind it don't fly flags, and they are only
interested in power through money and economic control.
Arby , Jan 24, 2021 1:26 PM
"This is what I think 'The Great Reset' really is about. It is being painted as something
intricate and nefarious on every level " The focus is narrow (but I appreciated the
interesting information) and, it seems to me, the author is here expressing an awareness of
that flaw. There's lots of speculation here as well and while I have no problem with that, a
humble approach would involve the admission of that fact. Why was Japan reluctant to jump on
the mankind-killing bandwagon? The author cites disaffection on the part of the Japanese
population. That tracks. But we also know that Japan wanted to have their Olympics and
thought that maybe they still could. Is Maribel certain that that wasn't the case? It wasn't
the Japanese people who turned on a dime. It was the government. The Japanese government
finally realized that the Olympics, which it wanted (for the prestige and the economic
repercussions of that I suppose), were not going to go ahead. On a dime, it suddenly viewed
corona as a super dangerous mankind-destroying bug and issued proclamation after proclamation
in its sudden supercharged flight down the road of fascism. Until then, while it acknowledged
the (non existent) Sars CoV 2 / covid 19 reality, it was not bothered by it.
Don't agree with everything you said, but nevertheless an informative article and firms up
much of what Catherine Austin Fitts has been saying: https://www.bitchute.com/video/RpRAvjoxVDCQ/
Tom , Jan 24, 2021 10:49 AM
"Whereas China is preferring to just stop testing, and ignore the 'crisis' altogether,
except for the odd statement about how dangerous it all is."
Maribel, can you list a reference showing China has stopped or reduced testing?
See comments below by others regarding PCR testing in China.
Sarah Jones , Jan 24, 2021 10:27 AM
They have prevented new relationships from beginning and erased those kids. It is genocide
from the ground up. Even couples are not likely to have kids under such uncertainty. The very
opposite of their claim of "saving lives". Those that do are being abused more than before
with masks during child birth and keeping the father out. Their relationship being sabotaged
with trauma from the beginning and then further trauma and destruction of the family with
parents involved in assaulting kids with "vaccines".
Sarah Jones , Jan 24, 2021 11:10 AM Reply to Sarah
Jones
Jeanice Barcelo explains how hospital birth is ritual trauma abuse to destroy the family
and how ultrasound is to destroy the eggs inside those babies so they are targetting a
generation ahead. It is satanists/ abortionists/ psychopaths behind covid not economists. It
is trauma to harm love and damage those kids and their future relationships to induce further
trauma. They said toilet paper was selling out as an inside joke about the young jerking off
to porn during "lockdown" and "social distancing".
Abortion is just fine if you want your ethnic group annihilated and erased from the face
of the earth.
Isaiah 3:12 (MCV) As for my people, children are their oppressors (infantile Cultural
Marxists), and women (Marxist feminists) rule over them. O my people, they which lead thee
cause thee to err, and destroy the way of thy paths.
theobalt , Jan 24, 2021 4:22 AM
China would "humiliate" the US in a war? That's just like a girl to worry about making a
dent on ego and overlooking a few dents on the planet How's it going in your basement darling
We're all suspended to your words and your little heart and your little brain all memory no
processor
" ..a proxy war with Russia or a direct war with Iran would precipitate a dollar collapse,
rather than create growth and a flight to 'safety'. China would no doubt gleefully humiliate
the US during such a conflict. "
The war would not be with China. During a conflict with Iran or proxy with Russia the US
is economically vulnerable to China's financial sabotage.
No time for a war with anybody . time to stop buying slavery products from China. China
and the cabal already humiliate everyone by corrupting our politicians. Not the US
The USA's Corporate elites, including Trump moved their manufacturing plant and expertise
to China to exploit their cheap labour, nobody forced them.
It was Corporate greed & vanity that caused the surrender of American manufacturing
power to China. American's thought they were superior to China but they have made themselves
her bitch.
Not even a war could save them now, unless they intended to have their military's spare
parts Fedexed over from China, during the conflict.
Also if China's economy were switch to a war footing, like a sleeping giant, it would dwarf
even the USA's military in a very short time, their capacity is the biggest in the world.
David Homer , Jan 25, 2021 4:12 PM Reply to Z=Anon
You are correct in everything except you have forgotten the fact that China imports most
of its iron ore, copper, aluminum, coal, oil, etc. They would be in trouble in a world war
situation.
messenger charles , Jan 25, 2021 4:38 PM Reply to David
Homer
They will invade Australia and New Zealand first in order to secure those minerals and
rely upon Russia for oil and gas.
theobalt , Jan 24, 2021 3:51 AM
What to do with our lives
Find food eat the food when you feel pressure download the
shit down
Anyone trying to prevent you to do any of those things, murder them
Tim Glover , Jan 24, 2021 3:35 AM
I haven't read the 487 comments so apologies, but the author seriously undermines their
argument by suggesting that the virus is a hoax. Exaggerated, yes, hoax, quite obviously not.
I have no doubt that there is truth in this article, but claiming that the virus does not
exist at all is untenable; the author should remove their blinkers and align their theory
with reality.
Tim, I used to think like you, but the original evidence has been extrapolated beyond all
reason by Con-19 artists. So now we must be pedantic and ask for evidence:
a. That the RNA fragments originally sequenced by Chinese scientists in Wuhan (not from a
virus but from patients bodily fluids) all belonged to a single strain of virus, putatively
named Covid-19 but never isolated for sequencing of a complete viral genome?
b. That the Covid-19 was exceptionally deadly; bearing in mind that the Chinese figures
for death among severely ill patients were comparable to normal U$ figures for death among
patients hospitalized with normal annual flu.
c. That the original Covid-19 strain is still extant? (assuming there actually was a
Covid-19 in Wuhan, which is not proven)
d. Assuming the orriginal Wuhan strain has died out (mutated), where is the evidence that
its mutant progeny are more deadly than the original Wuhan strain was ie, not much.
e. Last and most important, where is the evidence that the Westminster con artists
(Con-911, Con-WMD, Con-Viagra, Con-Sarin, Con-Novijoke) are not lying this time ? their lips
are moving.
I know from my personal experience that there is a new strain of virus, because I, and
many of my friends were seriously ill with it and 2 people died. many of the people affected
had no connection to each other. That this is not simply an unconnected anecdote is clear
from looking at the data which show that across the world there was a clear spike in
mortality in spring (The UK committed mass manslaughter in care homes but this is not the
case in other countries). It does not matter where it originated, or whether the genome has
been sequenced. I know the PCR test is useless. I know that there is hype, fear mongering and
exaggeration. I know masks don't work and lockdowns will kill more than they save by a wide
margin. Nonetheless, the virus is real.
Mike Ellwood (Oxon UK) , Jan 24, 2021 8:43 PM Reply to Tim
Glover
Whereabouts do you liveTim? I still don't know anybody who has been ill with supposed
Covid-19 ever since the "Pandemic" began, let alone, know anyone who died from it.
Were the other people who were ill, and especially the 2 who died, particularly old,
and/or did they have other serious health conditions?
And how do you know what you had was the "new strain"? The "new strain" is fairly new,
isn't it? Those poor souls must have died fairly quickly after contracting it.
And how many is "many"?
And how do you know that it wasn't "normal" flu? This is the flu season, after all,
assuming you live in the northern hemisphere. Flu can be quite dangerous too.
@Tim Glover: "I know from my personal experience that there is a new strain of virus,
because I, and many of my friends were seriously ill with it".
How do you know that the flu virus which made you and your friends "seriously ill" was
Covid-19?
I asked someone in England the same question at the start of the Con-19 hype last winter:
How did she know that her friend in the countryside and her relative in London, both of whom
told her they had it and it was their worst flu ever, had escaped death from a specific
headline-news "novel virus Covid-19", when there was so much boring ordinary flu about?
"Voila le Anglais avec son sang froid habituel (Here comes the Englishman with his usual
bloody cold)" -- Fractured French.
gary orlando , Jan 25, 2021 5:35 AM Reply to Tim
Glover
Tim, you have NO CLUE WHAT YOU'RE TALKING ABOUT. "i WAS SERIOUSLY ILL" is an extremely
ignorant piece of so called evidence. there is NO NEW VIRUS. and virus DO NOT CAUSE ILLNESS
AND contagion is a myth. it IS ALL A lie. you are brainwashed.
therevolutionwas , Jan 25, 2021 1:23 PM Reply to Tim
Glover
Virus's are real and will remain real. They kill susceptible people all the time. And with
the lock down there are more people not carrying on with their normal lives, not eat right,
not getting enough sun, etc ..
Something is happening but you don't know what it is – do you, Mr Jones?
– B Dylan
You have a currently accepted narrative that saves you from questioning your current
worldview.
I don't think it helps to argue 'it is real!
Or it isn't real!
People are dying every day – and by far the most are dying in the ways they generally
do. WHO benefits for the official narratives?
That health as as joy in being as well as resilience to toxic stress and exposures, has an
arena of personal and collective responsibility is of course true.
So far you haven't felt to look into those who are offering excellent witness to the lack
of established facts at the basis of an incomprehensibly disproportionate coordinated
reaction that represents a hijacking of living selves – not cells.
So you are confident that because Dr WHO and the whole pharmaceutical establishment back
you up, you can state 'the virus is real', as part of an extremely invested establishment of
social and corporate identity in its theory.
A positive result and diagnosis for terminal cancer can operate a nocebo death sentence on
its recipient even if the test is in error.
This is similar to what is being perpetrated on the public mind – regardless whether
for private reasons great or small.
When dealing with the dissociated, one cannot simply tell them their experience is unreal.
Thus no one can tell the so called sheep to 'wake up'. No can I tell such woke people to stop
projecting and restore their recognition of another's presence – just because.
Joel Walbert , Jan 24, 2021 5:54 AM Reply to Tim
Glover
Zero evidence anywhere in the world of sars-cov2 having been isolated. Claims of such are
not evidence of it. Numerous FOIA requests in various places provided no evidence of
isolation. A CDC document states there is no isolated virus and that is in fact a computer
generation. People being sick and dying does not even almost prove a virus
messenger charles , Jan 24, 2021 11:30 AM Reply to Joel
Walbert
What they have allegedly 'isolated' has not been purified, and THAT is the crucial element
to this issue. All their 'papers' are a fraud.
That is precisely my point. The document I was referring to states clearly there are no
isolates and that the testing is based off computer generated sequences. I generally would
believe nothing from the CDC but when one of their own official documents admits fraud on a
grand scale, I feel I must trust that one. Its all about discernment.
The CDC document is titled,
CDC 2019-Novel Coronavirus (2019-nCoV) Real-Time RT-PCR Diagnostic Panel.
It is dated July 13, 2020. On page 39, in a section titled,
"Performance Characteristics,"
"Since no quantified virus isolates of the 2019-nCoV are currently available, assays
[diagnostic tests] designed for detection of the 2019-nCoV RNA were tested with characterized
stocks of in vitro transcribed full length RNA "
Agreed. My friend is COO of big US pvt hospital group..he told me last April that their
hospitals(over 200) were near EMPTY and he was laying off staff left and right. Last Dec he
said their census was .." about normal for a flu season"..ie, no piles of bodies, no over
crowding.. ie, no real pandemic.
Fred762 , Jan 25, 2021 7:48 PM Reply to Joel
Walbert
USmonthly death totals from all causes have been FLAT for 5 years . therefore, NO
PANDEMIC
Joel Walbert , Jan 26, 2021 12:46 AM Reply to Fred762
Exactly. There are shockingly lower deaths from virtually all causes this past year
though. Fraudulent death certificates are the pandemic, not a computer generated viral
sequence.
Jacques , Jan 24, 2021 6:04 AM Reply to Tim
Glover
The virus IS a hoax. Some people say that viruses do not exist at all. Dunno. Even if they
do, the fairy tale of SARS-CoV-2 is complete bullshit.
Nobody has ever been able to present the alleged virus in an isolated form. The alleged
virus has never been proved to cause a disease. Period. If you or anyone claim that
SARS-CoV-2 exists, let me fucking see it. If you or anyone claim that the alleged SARS-CoV-2
causes the alleged diseases COVID-19, prove it. There are procedures for that. Such as Koch's
postulates.
None of that is done, therefore SARS-CoV-2 & COVID-19 must be considered a crock of
shit until proven otherwise. No data from the world over suggest that there is a pandemic.
End of story. That's your reality. Period.
messenger charles , Jan 24, 2021 11:19 AM Reply to Tim
Glover
The so-called virus has NOT been isolated nor has it, more importantly, been purified.
Sars Cov 2 otherwise known as Covid19 is 100% a lie and a criminal hoax. Research doctors Tom
Cowan, Stefan Lanka and Andrew Kaufman.
Mike Ellwood (Oxon UK) , Jan 24, 2021 8:44 PM Reply to messenger
charles
Also check out the website TheInfectiousMyth.com .
Yes, that man recently passed away but I leaned my foundational anti-COVID myth lessons
from his site as early as March.
Always knew pcr tests were BS.
Never knew a lot of the other COVID info till later.
From his web site or rather what was once his website:
"This was a database and web server owned by David Crowe. From the family of David Crowe,
we are sorry to share with everyone that David passed away on July 12th, 2020."
Paul Vonharnish , Jan 24, 2021 2:42 PM Reply to Tim
Glover
Hello Tim Glover: I see you've received many down votes for suggesting that a (covid)
virus does exist. Tsk, tsk, tsk I can only help you if you really want to be
helped Just repeat after me:
The Earth is flat.
Gravity is an illusion.
The Sun revolves around the Earth.
The moon is hollow and filled with cheese.
There's a white robed guy watching over everything .
The (above) white robed guy – loves everyone equally
You'll be better soon
messenger charles , Jan 25, 2021 4:26 PM Reply to Paul
Vonharnish
Actually the earth is a fixed globe at the centre of the universe (the pinnacle of God's
creation) with the sun and moon orbiting the earth.
Crikey – with friends like you – who needs enemies!
There are moments in life when a sense of lack can step forth in power and strut the stage
of the world like a giant!
(Yes sarcasm).
You get to set the measure of your receiving but not the timing and the manner of your
rewards. Life is meant to be a surprise!
Do you know what love is?
theobalt , Jan 24, 2021 1:52 AM
Answer to Judith comment below, and my usual type of comment right on the head of that
confusing and propagandist article
You should blow your nose without a tissue. They are full of formaldehyde causes
skin irritation and attacks the nervous system it's a carcinogen too and it comes mainly from
China (and I believe Israel Chemicals is also mainly involved) also avoid bed sheets from
Ikea and Amazon and any made in china (I tested them in TSP concoctions), any cheap furniture
from the likes (fiberboards and pieces of wood stuck together with F. based glue offgasing
like crazy, laundry detergents filled with them to replenish any garment, making sure the
American population remains dumbed down and sick and dying. The US dollar doesn't exist, no
more than the freakin' kopec.
American people exists. American land exists. And they are fine.
But they need to be taken down are they Don't worry people of Europe If it is crushed it
is not to save you. It will go in the same pockets of the people who have been crushing you
for quite a while.
Oh yeah, if you have a properly responsive immune system, your respiratory system will
inflame and clog in a very alarming way from exposure to formaldehyde offgasing rings a
bell?!?!
Raymondo Don Sayo , Jan 24, 2021 1:42 AM
The author was just short of calling opinions other than his own as conspiracy theories
which is a base of ignorance. Too long of a rambling severely narrow minded road is this
article. Lots of good thoughts within.
Maybe you are the controlled op?
The case of Australia, the "Building 7" of the Coronavirus scheme, is a case in point that
entirely supports the author's case, as before we had more than 1000 cases and a handful of
deaths, the government declared it would pump $180 billion into the banks to stabilise them,
including for the first time in history, QE. So it printed all the money and handed it around
just as the graphs of infection were exponential, in mid-March. After that and the lock down
another $130 Billion was laid out for "job keeper", which is only going to hit the fan in
March as 500,000 workers find their jobs have actually disappeared.
But now it's Vaccines that are the growth factory, and everyone is clamouring for them
because otherwise we will remain locked in this prison for years. We can't leave as we won't
be insured and there is no guarantee we'll be allowed to return.
But meanwhile, along with the US, our stock market made record gains this last year.
DYOC.
Sadly I have to entirely disagree with the author when she writes that the Russians
produced an imaginary vaccine against a non-existent virus. It's simply not true – have
a look at this paper about the GE manufacture of SARS hybrid viruses, going on at the WIV
since 2007, and of course in North Carolina under Ralph Baric: https://www.sciencedirect.com/science/article/abs/pii/S1931312820303024
" $130 Billion was laid out for "job keeper", which is only going to hit the fan in March
as 500,000 workers find their jobs have actually disappeared."
What is this end of March timeline even in Australia ? It's the same here in the UK when
the furlough period ends ? Am I missing something ?
Hi Grafter Here's what most of us missed..
Belarusian President Aleksandr Lukashenko said via Belarusian Telegraph Agency, BelTA., that
World Bank and IMF offered him a bribe of $940 million USD in the form of "COVID RELIEF AID."
In exchange for $940 million USD, the World Bank and IMF demanded that the President of
Belarus:
• imposed "extreme lockdown on his people"
• force them to wear face masks
• impose very strict curfews
• impose a police state
• crash the economy
Belarus President Aleksandr Lukashenko REFUSED the offer and stated that he could not accept
such an offer and would put his people above the needs of the IMF and World Bank. This is NOT
a conspiracy. You may research this yourself. He actually said this!
Now IMF and World Bank are bailing out failing airlines with billions of dollars, and in
exchange, they are FORCING airline CEOs to implement VERY STRICT POLICIES such as FORCED face
masks covers on EVERYONE, including SMALL CHILDREN, whose health will suffer as a result of
these policies.
And if it is true for Belarus, then it is true for the rest of the world! The IMF and World
Bank want to crash every major economy with the intent of buying over every nation's
infrastructure at cents on the dollar!!!
Which would tend to confirm what the Article stated??
Exactly what was running through my mind while reading this article
j. d. , Jan 23, 2021 10:41 PM
Your post is thorough and revealing – and counter-narrative, so it might get
shadow-banned
It is disappointing to realize that not only mainstream opinion, but also both sides of
the political aisle have pushed the idea that the economy faltered after covid was declared
an emergency. However, that's clearly not the case, as your article details.
Coventry League Capital Partners, a finance firm, also posted a blog way back in April
2020 that included a mishmash of tweets/posts from throughout 2019 about a pending financial
crisis given mass layoffs in some markets, an inverted yield curve, and bank liquidity
issues. If interested, below is the address to the article:
By September of 2019, the U.S. financial market was in full-blown crisis mode with massive
"repo" operations initiated by the Federal Reserve Bank (FED). Another blogger that provided
exhaustive detail in a series of real-time blog posts about the 2019 repo situation and
financial crisis is "Wall Street On Parade."
Are you two living in the same house with ten others?
Helen , Jan 23, 2021 10:41 PM
Interesting but fails to account for the original Wuhan theatre where China, against all
previously recognised pandemic planning, sold lockdown to the West. They did so restricting
it to one city and limiting overall damage to their economy. A kind of "how to"
demonstration. You also have their main western satellites, NZ and Australia the only ones to
have followed the Zero Covid policy of the CCP – a technique of pure tyranny.
China's CCP ended COVID charade in April by eliminating flawed PCR test as unreliable
diagnostic tool for COVID infections in individual clinical diagnosis of COVID disease which
definition was narrowed to initial interpretation as Unexplained (by long known before 2020
viral or bacterial presence), pneumonia for original interpretation as caused by long known
local environmental factors including man made factors like deadly therapies, medical
particle and wave diagnostic device malfunctions or inherent designer flaws as well as cases
of immunodeficiency or autoimmunity in pneumonia patients.
In other words COVID patient in China is not one who was PCR tested positive but one with
a documented form of pneumonia-like damage to lungs.The seasonal increase in in flu and
explained and unexplained pneumonia is behind recent new quarantine measures in China.
and still China plays this COVID game as it is too desirable to hold big stick of COVID in
their hands amid economic collapse programmed by reset.
PCR and serology is being used in China for general Epidemiological models not
specifically for COVID but for general epidemic situation assessment of all respiratory
diseases flu, common cold and pneumonia that are at local epidemic levels throughout the year
getting worse in winter season.
Last year mild season in China 75,000+ people died of flu, 5,000 officially died of COVID.
Do your math. It was much ado about nearly nothing, while real crisis of old people
needlessly dying of poverty, lack of medical access driven flu is ignored as nobody among
governments gives a damn as it cannot be sold as apocalypse to scare people into
submission.
Rumplestiltskin , Jan 24, 2021 3:09 AM Reply to Kalen
Great comment Kalen, interesting info re China not using the PCR to diagnose CV,
particularly since they sold an absolute shit ton of them to Australia via the mining magnate
what's his name. If we can break the governments reliance on the PCR test, this whole charade
collapses. Ive been saying this for months.
Superb comment- it is easier to point towards a bogeyman 'over there' or some exotic event
(bat cave) than to face the hard fact that the daemon is in your house and staring you right
in the face.
That wasn't followed in all of Australia really only Victoria and WA who got hyper excited
after the initial burst of enthusiasm qld has been more damaged by the planes not arriving
rather than any thing much needing locked up those important minerals we sell had to keep
moving I suspect plus we had a looming election which seemed to put the breaks on too much
enthusiasm so we just shut our border and went on with life until recently when we showed
signs of wanting to play that rush to the head seems to have stalled in Brisbane.,,
doesn't of course stop the believers carrying on around one .
and in my opinion the whole wuhan thing was so staged to make me question of any of it was
real,,,they either exported fear or thought they were actually under attack themselves given
those war games were held in wuhan
For 6 weeks since the alleged outbreak in Wuhan the residents of Wuhan were moving freely
around the rest of China but this virus never really showed up anywhere else in China apart
from Wuhan apart from the odd isolated outbreak that quickly vanished.
This doesn't tie in with a super spreading infectious virus.
Every so often the CCP will say there are small localised outbreaks and puff by magic they
quickly disappear.
It's just CCP propaganda and keeping their toe dipped in the water.
rraa , Jan 23, 2021 10:11 PM
I don't think the Chinese government is involved. People seem to think of China as one
giant homogenous BLOB that moves like a well oiled machine. In fact, regions have a LOT of
autonomy. I don't doubt that some individual Chinese scientists contributed to the Western
narrative. Remember that China overhauled it's entire medical system after Sars 2003. It has
a very modern and transparent pneumonia and respiratory illness surveillance system and all
the alphabet agencies of the West know what is going on it.
WHO published a notice on December 31 that was a very routine notice.
The whole thing took a life of it's own after four cases were reported in one day around Dec
26. If you read the very first paper with the virus sequence on Jan 11, it only mentioned a
novel coronavirus. But almost simultaneously a second paper was published with Edward Homes
as a co-author, the one with the batwoman scientist. This was the one that made the wild
claims about the virus being linked to bats and so on.
No I am not a CCP troll, I've been following the medical and scientific articles from the
beginning and trying to keep track of where the narratives emerged from.
China only locked down about 4% of its population. They did so because it was just before the
New Year and half a billion people were about to travel. Wuhan is a major rail hub. They
didn't want a repeat of Sars 2003. Even the Chinese in Wuhan were terrified by the Western
media. They don't live in some dark cave as the Western media would have you believe.
Nor does Beijing control every research institute and every research project in China as some
people seem to imagine it does. I don't think the virus "came from a lab" because if you read
the actual papers, you find the "new" virus is nothing more than a statistical result. It's
literally a software output, not something in a test tube.
I don't doubt thought that Fauci and Co were funding projects at the Wuhan lab so they could
scapegoat it for this theatre.
rraa – the actual papers that you write of that state a "new virus", are they the
papers that Drosten based his papers on? And the subsequent pcr fiasco?
The statistical result in the Chinese paper – was that based on the 4 cases?
I find what you wrote very interesting. It never occurred to me that the virus did not
come from the lab, but from just having been written about in a paper. I never believed it
was a virus from nature. (Not looking for an argument here about virus/no such thing –
just want some clarity from rraa)
I heard Dr Tom Cowan talk about this Chinese paper and its trip to Germany. But at that
point I thought it must have been the gain of function work in the US funded Wuhan lab.
Thanks.
Tomoola Sitchin , Jan 24, 2021 1:02 AM Reply to Judith
The Chinese provided a computer model of the virus, which Drosten has supposedly used to
configure his version of the PCR test, which is now used the world over.
No one has yet proved that the Sars-cov-2 coronavirus actually exists, other than on a
computer screen. For my money we are having a baddish flu, which has been conveniently
repackaged as Covi-19.
If you take out the mass death event during the 6 week period in March/April that was
brought upon the elders in care homes we are looking at one of the lower mortality rates of
the past two decades.
Those mass deaths were caused by pre-ordained policies, not a viral event, that were an
aberration from past years and in direct opposition of how the medical science states how the
viral season should be addressed for care homes, hospice etc.
I believe the current slight spike in mortality in the UK had been caused by the huge
uptake of flu shots.
The BMJ posted an article recently that flu shots can be successful in protecting against
one strain of influenza but they increase ones susceptibility to contracting other
viruses.
We are now in the middle of respiratory disease season.
Covid has conveniently completely eradicated all other viruses.
7:20
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Generating absolute returns
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