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It’s Not Just China You Should Be Worried About
It’s Not Just China You Should Be Worried About
Junk Rolling Over
TIVOLI, New York – Chinese stocks fell hard on Tuesday. The Shanghai Composite plunged more than 6% – the biggest fall in three weeks. Our research team in Beijing is downcast.
“Nobody here wants to hear about stocks,” they tell us.
Image credit: AP
And the junkiest – and riskiest – part of the U.S. bond market has taken a dive too. Here’s that chart of the big U.S. junk bond ETF that Chris highlighted in yesterday’s Market Insight. It has completely rolled over this year…
iShares iBoxx High Yield Corporate Bond ETF (HYG), daily. HYG is down 6% from its high for the year (this chart shows solely the price of HYG, it is not a total return chart including coupon payments) – click to enlarge.
Meanwhile, U.S. corporate earnings have plateaued. And according to Deutsche Bank’s David Bianco, earnings are actually falling when you exclude companies’ slick accounting adjustments to “smooth” their numbers.
The only thing left propping up Wall Street stocks, as we explained yesterday, is insider trading.
Retail Rot
Recent sales figures from America’s retailers show how deep the rot has become.
Sales have been rising at an alarmingly slow rate – just 0.5% since 2007. Between 2000 and 2007, they went up four times as fast. In the 1990s recovery, they went up six times as fast.
Especially rotten are sales at America’s four largest mall retailers – Macy’s, Kohl’s, Sears, and JC Penney. Together, their sales are falling at a 10% rate per year… or four times faster than the fall in department store sales generally. What is interesting about these four companies is that they have been among the most aggressive of the stock market manipulators.
…click on the above link to read the rest of the article…
Why Is Gold Becoming Scarcer
Why Is Gold Becoming Scarcer
A Tight Market
For quite a while, we have been talking about scarcity in gold. The cobasis for both October and December is positive. These contracts are backwardated. The cobasis for the February 2016 contract is not far from backwardation. The gold market is tight. Why? Let’s explore.
Part of the matter is that the price has fallen. The more the price drops, the more buyers tend to come out, and sellers go away.
We do not refer necessarily to the mines. Once the capital is sunk, a mining company is a price-taker. Management has little choice but to extract what it can, and hope the quantity produced times the profit available at a given gold price is enough to pay the fixed expenses such as debt service (well, if they don’t have a proper hedging program, which I wrote about here and here). Gold is often produced as a byproduct when mining for other metals, and this production depends on the profitability of the main metal in the ore.
Native gold in quartz – from the Dixie Mine in Idaho Springs
Photo via silvertongold.org
For thousands of years, the market has absorbed all the output from every mine. If the quantity theory of money were true, gold would be a worthless commodity. Unlike everything else (except silver), the stocks of gold held by the people are a large multiple of annual production. There is no such thing as a glut in gold.
The lower price is not the only factor. The price of silver has fallen more than the price of gold. However, while there is backwardation in the September silver contract, there’s nothing even close in December much less 2016.
…click on the above link to read the rest of the article…
Peddling the Corruption of Liberty
Peddling the Corruption of Liberty
Liberty’s Detractors
Ever since the idea of individual liberty has achieved some measure of credibility over the world, those who would be unseated by its limited triumph had to find some way to discredit it or trump it somehow. One way was to re-christen servitude, to make it appear like an even more important kind of liberty than what individual liberty, properly understood, amounts to.
Puppets and puppeteers…
Photo credit: Kikkerdirk / Fotolia
When a human being is free in the most important, political sense, he or she is sovereign. This means he or she governs his or her own life—others must refrain from intruding on this life, plain and simple. That life may be fortunate or not, rich or not, beautiful or not, and many other things or not, but what matters is that that life is no one else’s to mess with. One gets to run it, no one else does.
Now this is a very uncomfortable idea for all those folks who see all kinds of benefits from running other people’s lives. But they cannot champion this now in so many words, what with individual liberty having gained solid standing, so the only way to remedy matters for them is to claim that their oppression brings even greater freedom to people than the respect and protection of individual liberty.
The Ruse of “Positive” Freedoms
So, we have the kind of “freedoms” propounded by Franklin D. Roosevelt, the freedoms now dubbed “positive.” These freedoms do not get rid of those who would use you, interfere with you, invade your life, rob, kill, or assault you but promise, to the contrary, to take good care of you without your having to do much by invading others, by violating their individual liberties.
…click on the above link to read the rest of the article…
The Economy is in Liquidation Mode
The Economy is in Liquidation Mode
Capital Consumption
If you’re an American over a certain age, you remember roller skating rinks (I have no idea if it caught on in other countries). This industry boomed in the 1970’s disco era. However, by the mid 1980’s, the fad was fading. Imagine running a rink company at the end of the craze. You know it is not going to survive for long. How do you operate your business?
The birthplace of roller disco turned out to be edible, sort of
Photo via realskatestories.com
You milk it. You spend nothing on capital improvements, slash maintenance, and reduce operating expenses. There’s no return on investment, so you cut to the bone and wring out as much cash as possible. When a business has no future, you operate in liquidation mode.
Your rink generates cash flow, but this is no profit. It’s simply the conversion of accumulated capital into present income. You are consuming capital, almost literally eating the business.
A fad that went away… roller skating rink in the 70s
Photo credit: Picnicface
I have used a family farm as an example to paint a clear picture of capital consumption. Imagine using your farm, not to grow food, but to swap for it. You tear down the barn to sell the oak beams for flooring, auction off the back 40 (acres), put the tractor on Craigslist, then finally sell the farm and house. All to buy the produce you can no longer harvest.
Let this sink in. The farm’s falling crop yield can’t feed you any longer, but you still need to eat. You’re liquidating the farm merely to buy groceries.
The conventional view encourages you to be grateful that the purchasing power of the farm is high, that it trades for a big stash of food. While it may be true that you can eat for years on the proceeds, it’s small consolation for the loss of what had been an evergreen income.
…click on the above link to read the rest of the article…
What you “Owe to Society”
What you “Owe to Society”
The “Club Dues” Theory of Taxation
Sadly this is an ancient thesis that’s being revived now in a country that was founded on denying it. The idea is well expressed in a recent book by Professor William E. Hudson, titled, The Libertarian Illusion: Ideology, Public Policy, and the Assault on the Common Good (Washington, DC: CQ Press, 2008).
Hudson states, on page 43, that “The ability that any of us have to earn income and acquire wealth depends only partly on our own individual efforts. It relies as well on the operation of political, economic, and social institutions that make it possible for any of us to ‘earn a living.’ . . .Viewed in this light, …deductions from my paycheck can be seen as reimbursements to society for that portion of my earnings derived from social goods.”
Author and confirmed etatiste William E. Hudson, a Professor of Political Science at Providence College where he teaches courses in American politics and public policy, and has also served in a variety of “administrative functions”. In the words of Hans-Hermann Hoppe: “[…] if practically all intellectuals are employed in the multiple branches of the state, then it should hardly come as a surprise that most of their ever-more voluminous output will, either by commission or omission, be statist propaganda.”
Screenshot via wn.com
The very same idea has been championed for years by one of President Obama’s favorite intellectuals, Cass Sunstein, for example in the book the latter co-authored with Stephen Holmes, The Cost of Rights: Why Liberty Depends on Taxes (W. W. Norton & Co., 1999).
Reimbursements to society! What a lie that is, given that society is nothing more than all of us together as individuals and that what we own, so long as we stole it from no one, ought to be left to each of us to allocate as we judge proper, not to the likes of the sneaky professor and his gang in centers of political power.
…click on the above link to read the rest of the article…
Monetary Metals Supply and Demand Report 9 August, 2015
Monetary Metals Supply and Demand Report 9 August, 2015
Withdrawing the Gold Bid
Last week, we left off with this:
“Something is happening with gold…”
It began in Dec 2008. To understand it, it is necessary to understand two principles. The first is that gold is money and the dollar is credit, which currently has nontrivial value. A dollar is worth 28.4mg gold. To understand the second, let’s look at how markets work at the mechanical level.
An assortment of well-known bullion coins and bars from all over the world
Photo via reisebank.de
Regular readers of this Report know that we emphasize the bid and ask prices as separate values. The people and forces involved in the bid price are different from those involved in the ask price. This is critical in our definition and calculation of the basis and cobasis. You cannot just assume that there is a real price, somewhere between the bid and ask. That may be a working approximation during normal market conditions. But it could be badly misleading.
Suppose there is stress in the market, a crisis impending or active. The bid recedes, and can even withdraw entirely. For example, what if the US Geological Survey were to say that there will be an earthquake in Los Angeles, 15 on the Richter scale, and nothing taller than a dollhouse will be left standing? You would not find any lack of offers to sell real estate. But what is the price of a house in LA? There wouldn’t be a bid in LA, and maybe not as far south as Chile, as far north as British Columbia, and as far east as the Mississippi River. The bid would come back into the market when the threat was over (perhaps at a much lower level).
…click on the above link to read the rest of the article…
Venezuela’s Hyperinflation Crack-Up Boom on its Way to Outer Space
Venezuela’s Hyperinflation Crack-Up Boom on its Way to Outer Space
Why Stock Markets Are Not an Indicator of the Economy
In a free unhampered market economy based on a sound monetary system – this is to say a market-chosen monetary system with a free banking industry and no central planning institution that is manipulating interest rates and determining the size of the money supply – the gains and losses of shares prices in the stock market will simply be a reflection of entrepreneurial profits achieved in the past, plus embedded expectations of profits likely to be achieved in the future.
Nicolas Maduro, the hapless president of socialist Venezuela, here seen hung with all sorts of bling supposed to testify to his achievements.
Photo credit: Prensa Presidencial
Under the assumption that such a free market money system would be largely non-inflationary, this mixture of “historical record” and expectations would primarily be expressed by the relative prices of shares. The bulk of the returns achieved by investors would come from dividend payments, as a general inflation of “the market” would be nigh impossible.
And yet, although the stock market as a whole would barely appreciate in price in nominal terms, the gains achieved in real terms as well as real economic growth, would be far stronger than they are under our current, centrally planned system of constant inflation. Moreover, economic progress would be far more equitable as well, as the reverse redistribution of wealth caused by inflationary policy wouldn’t exist.
This is why a rising stock market tells us absolutely nothing about the state of the underlying economy in the present inflationary system. In fact, we once again have a real life example providing ample empirical confirmation of this assertion. Venezuela’s economy is in free-fall. Its desperate socialist government, in an attempt to satisfy the masses of voters who have voted for it in order to receive handouts, is resorting to ever more repressive economic policy and money printing on a truly gargantuan scale to at least keep up theappearance that bread and circuses will continue.
…click on the above link to read the rest of the article…
Greece and the Marxism of Syriza
Greece and the Marxism of Syriza
Has the Leopard Really Changed its Spots?
Back in February, a brief article at the BBC remarked on the seeming transformation of Syriza from a bunch of Marxist dreamers into (shudder..) quasi-“Blairites”. To be sure, we also approved of the signs of pragmatism that emerged at the time. The party had seemingly ditched its previously implacable opposition to privatizations and didn’t even try to tax the country’s shipping magnates. The tax exemptions enjoyed by the latter strike many as unjust, but the fact is that they provide around 7% of Greek employment and their assets are out at sea. It is up to them under which flag said assets are sailing and it would be self-destructive to chase them away.
Given the stunt Mr. Tsipras just pulled (note that the Greek negotiators learned of his referendum announcement via Twitter – they were not privy to what was about to happen), we are not so sure that the leopard has really changed its spots. We are not critical of a referendum as such, on the contrary. However, the timing and the way Tsipras has gone about it, suggest that he is really trying to arrange for a “Grexit” and one cannot help getting the impression that this may have been the intention all along. As noted previously, a referendum could have been held months ago already – why wait until it is almost too late for all practical purposes?
A reminder was provided by a mail correspondent of ours in Spain, who pointed out that the parties voting in favor of Tsipras’ plan were Syriza, ANEL and Golden Dawn. As to the Stalinist KKE, he noted “[the] KKE is against everything (as usual), but I still have hope in their “No” vote, closing the circle: from the Nazis to the Communists, all united against a free Europe, in a “Molotov-Ribbentrop v2.0″.
…click on the above link to read the rest of the article…
How Could the Fed Protect Us from Economic Waves?
How Could the Fed Protect Us from Economic Waves?
Making Waves
Mainstream economists tell us that the Federal Reserve protects us from economic waves, indeed from the business cycle itself. In their view, people naturally tend to go overboard and cause wild swings in both directions. Thus, we need an economic central planner to alternatively stimulate us and then take away the punch bowl.
Newspapers report on the adoption of the Federal Reserve Act. It was erroneously held that it was going to be “a constructive Act to aid business”. Ominously, even more such acts were promised.
Prior to the global financial crisis of 2008, a popular term described the supposed benefits created by the Fed. The Great Moderation referred to the reduced volatility of the business cycle. For example, I have written beforeabout economist Marvin Goodfriend, who asserted that the Fed does better than the gold standard.
(Credit: Greg Ziegerson and Keith Weiner)
An Orwellian Mandate for the Provision of Miracles
This belief is inherent in the Fed’s very mandate from Congress. The Fed states its three statutory objectives as, “maximum employment, stable prices, and moderate long-term interest rates.” These terms are Orwellian.
Maximum employment means five percent of able-bodied adults can’t find work. Stable prices are actually rising relentlessly, at two percent per year. The meaning of moderate long-term interest rates must be changing, because rates have been falling for a third of a century.
That aside, the basic idea is that the Fed has both the power and the knowledge to somehow deliver an economic miracle. However, we know that central planning never works, even for simple things such as wheat production. Communist states have invariably failed to produce the food to keep their people alive. Stalin, Mao, and other communist dictators have deliberately starved off segments of their populations that they couldn’t feed.
…click on the above link to read the rest of the article…
