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The Next Recession May Be A Complete Reset Of All Asset Valuations
The Next Recession May Be A Complete Reset Of All Asset Valuations
Sometime this year, world public and private plus unfunded pensions will surpass $300 trillion. That is not even counting the $100 trillion in US government unfunded liabilities. Oops.
These obligations cannot be paid. A time is coming when the market and voters will realize this.
Will voters decide to tax “the rich” more? Will they increase their VAT rates and further slow growth? Will they reduce benefits? No matter what they decide, hard choices will bring political turmoil.
And that, of course, will mean market turmoil.
The Great Reset Will Cause a Horrible Global Recession
We are coming to a period I call “the Great Reset.” As it hits, we will have to deal, one way or another, with the largest twin bubbles in the history of the world. One of those bubbles is global debt, especially government debt. The other is the even larger bubble of government promises. The other is the even larger bubble of government promises.
History shows it is more than likely that the US will have a recession in the next few years. When it does come, it will likely blow the US government deficit up to $2 trillion a year.
Obama took eight years to run up a $10 trillion debt after the 2008 recession. It might take just five years after the next recession to run up the next $10 trillion.
Here is a chart my staff at Mauldin Economics created in late 2016 using Congressional Budget Office data. It shows what will happen in the next recession if revenues drop by the same percentage as they did in the last recession (without even counting likely higher expenditures this time).
…click on the above link to read the rest of the article…
Brace Yourself For The Coming Economic Transformation
Brace Yourself For The Coming Economic Transformation
If the average person in the US feels as though they are going nowhere fast, there is a real reason for it.
Federal Reserve data shows people are earning less than they did 17 years ago. But the real story is even worse than that.
The chart below shows that median income in the US is actually down over the last 17 years and is only 3% higher now than it was 30 years ago. Those are inflation-adjusted numbers.
But the reality is that, for the average person, inflation has been much higher than the average of 2% per year over that time. This is because the things that the average person actually buys—like housing and education and health care and all the other necessities of life—are rising at a much faster rate than 2%.
Source: FRED: St. Louis Federal Reserve
So this chart reflects the fact that life has gotten much more difficult for average Americans. If people’s incomes haven’t grown beyond what they were 30 years ago, they struggle just to make ends meet and to maintain the lifestyle they had.
Growth Is An Illusion For More Than Half Of Americans
The Census Bureau updates its income figures about once a year, and the last real update we had was last fall (taking us through 2015).
Doug Short did an analysis of those numbers. He breaks the country into quintiles, calculates the average household income for each quintile, and then also shows the top 5%. Notice that the average income for the top 5% is $350,000.
Source: Advisor Perspectives
It looks like everybody’s income is rising, especially those in the top 20% and 5%. But if we inflation-adjust those numbers, the illusion of growth goes away.
…click on the above link to read the rest of the article…
Tax Reform: The Good, the Bad, and the Ugly—Part One
Tax Reform: The Good, the Bad, and the Ugly—Part One
The Amazonian Jungle
The End of the Dollar Standard
The Double Pyramid of Credit
The Problem of Divergence
The Emergence of Trumponomics
There Is Nothing Immutable About a Dollar Standard
Postscript: A Modest Proposal to Save the World
Florida and the Caymans
Vizzini: He didn’t fall?! Inconceivable!
Inigo Montoya: You keep using that word. I do not think it means what you think it means.
– From The Princess Bride
“A tariff is a scale of taxes on imports, designed to protect the domestic producer against the greed of his consumer.”
– Ambrose Bierce
“Vast possibilities matured into realities before their very eyes. Nevertheless, they saw nothing but cramped economies struggling with ever-decreasing success for their daily bread.”
– Joseph Schumpeter on the Industrial Revolution
The usual thrust of this letter is economics, finance, and investing. Lately, however, the political process has been invading my normal domain – sometimes to the dismay of some of my readers. I get that politics comes with the territory; and I think everyone, no matter their political persuasion, will agree that taxes, which are political in nature, have a major impact on economics, finance, and investment. And thus commenting on taxes is fair game.
My original intention for this letter was to do an analysis of the Republican tax reform proposals. My associate Patrick Watson and I spent two weeks doing a really deep dive into the proposed reforms. I had the privilege of talking taxes with the chairman of the House Ways and Means Committee, fellow Texan Kevin Brady, as well as his staff. The chairman was kind enough to allow his remarks to be on the record – but his staff made it clear that they were to be on background. We have also talked with numerous think tanks and other experts across the political spectrum.
…click on the above link to read the rest of the article…
John Mauldin: The Fed Is Leading Us to Economic Hell
John Mauldin: The Fed Is Leading Us to Economic Hell
The Fed argues that low rates have worked. The economy emerged from recession. Unemployment drifted back down. “Yay for us,” said the Fed.
Don’t buy that statistical economic garbage. The economy recovered in spite of Fed policy, not because of it. The economy recovered because business owners, entrepreneurs, and workers rolled up their sleeves and made things happen.
It involved a lot of pain: layoffs, asset sales, lost customers, and more. But the hard-working citizens of this country slowly and painfully pulled themselves out of the nosedive.
Those are the people who deserve the credit, not the Fed. Keeping rates at artificially low levels did nothing other than push our economy into the mother of all corners.
Look where we are now.
The next recession means rates will go below zero
The US economy is going to suffer another recession in the not-too-distant future. So, for lack of anything else to do, the Fed is preparing to send rates below zero when the economy next needs goosing. That was clearly the message from Jackson Hole.
What then? Here is the most likely scenario I think we are facing—and you are not going to like it.
We are going to go into the next recession with interest rates still stuck in the sub-1% range. This doesn’t give the Fed much ammunition.
Economists (who could certainly qualify as High Priests) have done studies on recent Fed policies. These show that quantitative easing didn’t really do anything, other than maybe goose the stock market.
There is also no data that shows any positive benefit from the so-called wealth effect, which was all the academic rage at the beginning of this process. Forget the wealth effect. The fact is that when the stock market goes up, it does not trickle down to the average guy on Main Street.
…click on the above link to read the rest of the article…
14 Signs the World Is on the Verge of Generational Chaos
14 Signs the World Is on the Verge of Generational Chaos
It is one of the great ironies of life that each generation believes its experiences are unique. The reality is that we have seen this movie before—with different actors, plot twists, and technological advancements.
The basic plot seems to push along a hauntingly familiar path.
In 1997, Neil Howe and William Strauss introduced the concept of Fourth Turning. They divided the population into four generational archetypes: Hero, Artist, Prophet, and Nomad. (read more about the archetypes and their characteristics here)
Each generation consists of people who were born and came of age at the same period in history. They had similar experiences and thus gravitated toward similar attitudes.
The change of control from one generation to the next is called a “turning” in the Strauss/Howe scheme. On a Fourth Turning, the cycle repeats, sparking a generational crisis.
When Howe uses that word, he doesn’t mean a short period of difficulty. He means an existential crisis—one in which society’s strongest institutions collapse (or are severely challenged and stressed) and national survival is in serious doubt.
By Neil Howe’s timeline, we are today about halfway through the Fourth Turning’s Crisis phase. If this Fourth Turning is like previous ones, here is what we should see.
See how the following Fourth Turning characteristics match today’s landscape…
Rising community
Notice in the Orlando shooting coverage how often people use the word community to designate the different groups with which people identify.
Following the tragic nightclub events, Orlando’s communities drew together to support their members and each other. We see the same behavior in other stressful events. “Je suis Charlie,” the motto that emerged from the January 2015 Paris shootings, comes to mind.
…click on the above link to read the rest of the article…
Economics Is Like A Religion – Just Faith In Theory
Economics Is Like A Religion – Just Faith In Theory
Pension funds are still assuming that future returns will be in the 7½–8% range. And as people get older and have no practical way to go back to work, pension funds that are forced to reduce payments in 10 or 15 years (and some even sooner) will destroy the lifestyles of many.
So what made Europe and Japan agree that negative rates-with all their known and unknown consequences—are a solution to our current economic malaise?
I have been trying to explain this by comparing economic theories to a religion.
Everyone understands that there is an element of faith in their own religious views, and I am going to suggest that a similar act of faith is required if one believes in academic economics.
Economics and religion are actually quite similar. They are belief systems that try to optimize outcomes. For the religious, that outcome is getting to heaven, and for economists, it is achieving robust economic growth-heaven on earth.
I fully recognize that I’m treading on delicate ground here, with the potential to offend pretty much everyone. My intention is to not to belittle either religion or economics, but to help you understand why central bankers take the actions they do.
The No. 1 Commandment of a Central Bank
Central bankers are always-and everywhere-opposed to inflation. It’s as if they are taken into a back room and given gene therapy. Actually, this visceral aversion is also imparted during academic training in the elite schools from which central bankers are chosen.
This is our heritage; it’s learning derived not only from the Great Depression but also from all of the other deflationary crashes in our history (not just in the US but globally).
…click on the above link to read the rest of the article…
Growth Is the Answer to Everything
Growth Is the Answer to Everything
Little Changes Add Up
Restoring Growth
From Carrot to Stick
Newport Beach, New York, and an SIC Conference Update
“Growth is never by mere chance. It is the result of forces working together.”
– James Cash Penney
In this business we spend a lot of time thinking about problems. What if we could wave a magic wand and make them all go away? Maybe we can.
The wand isn’t made from wood. You don’t need Latin phrases or a special incantation learned at Hogwarts to make it work, either. It’s a simple six-letter word: growth. Get the economy growing at a decent pace again, and most of our problems will get better.
Conversely, they’ll only get worse if we stay in slow-growth mode. And don’t even think about what a recession will do to the markets in this environment.
Fortunately, there are things we can do to bring growth back. We just have to decide to do them.
A new reader browsing through my archives might get the impression I am a worrywart. In fact, I’m quite optimistic about our future – but I don’t deny we face serious challenges. My weekly letters are a peek into my ongoing thought process as I wonder how we will tackle those challenges.
Just in the past few months we’ve looked at problems like retirement, energy prices, political chaos, zero interest rates, negative interest rates, China’s economy, terrorism, unemployment, inflation, pensions, healthcare, refugees, and the Federal Reserve. And an overarching theme of many letters has been the very big problem of growing debt. Whew – so many problems.
…click on the above link to read the rest of the article…
True Believers
True Believers
There is a special species of idiot at large in the financial media space who believe absolutely in the desperate and tragic public relations bullshit that this society churns out to convince itself that the techno-industrial high life can continue indefinitely, despite the mandates of reality — in particular, the fairy tales about oil: we’re cruising to energy independence… the shale oil “miracle” will keep us driving to WalMart forever… our wells doth overflow as if this were Saudi America… don’t worry, be happy…!
Such a true believer is John Mauldin, the investment hustler and writer of the newsletterThoughts From the Frontline, who called me out for obloquy in his latest edition. After dissing me, he said:
“I have written for years that Peak Oil is nonsense. Longtime readers know that I’m a believer in ever-accelerating technological transformation, but I have to admit I did not see the exponential transformation of the drilling business as it is currently unfolding. The changes are truly breathtaking and have gone largely unnoticed.”
Mauldin is going to be very disappointed when he discovers that the vaunted efficiencies in shale drilling and fracking he’s hyping will only accelerate the depletion of wells which, at best, produce a few hundred barrels of oil a day, and only for the first year, after which they deplete by at least half that rate, and after four years are little better than “stripper” wells. The PR shills at Cambridge Energy Research (Dan Yergin’s propaganda mill for the oil industry) must have pumped a five-gallon jug of Kool-Aid down poor John’s craw. He believes every whopper they spin out — e.g. that “Right now, some US shale operators can break even at $10/barrel.”
…click on the above link to read the rest of the article…
