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Most People Have No Idea How Much Stocks are Likely to Crash
Most People Have No Idea How Much Stocks are Likely to Crash
S&P 500 chart courtesy of StockCharts.Com, annotations by Mish with thanks to Jeremy Grantham.
Fourth Super Bubble
For almost a half-century, value-investing icon Jeremy Grantham has been calling market bubbles. Now, he says U.S. stocks are in a “super bubble,” only the fourth in history, and poised to collapse.
Please do yourself a big favor and play the above interview in entirety.
It’s not a fluff interview. Bloomberg’s Erik Schatzker grills Jeremy Grantham right from the get go about Grantham’s view a year ago.
Q&A Snips
Schatzker: At the risk of putting words in your mouth, you are as certain [now] as you were then, if not more?
Grantham: I would say clearly more. I did freely admit, not in our conversation, but elsewhere, that I wasn’t quite as certain about this bubble a year ago as I had been about the tech bubble of 2000 or as I had been in Japan or as I had been in the housing bubble of 2007. I used to think in terms of near certainties. This time I felt highly likely bit perhaps not nearly certain. Today I feel it is just about nearly certain.
Grantham discusses “crazy behavior” , noting that even in 1929 you had some magnificent rallies.
Schatzker: If you are right and stocks are in a multi-sigma deviation from the statistical trend, tell me what happens. The S&P 500 peaked at almost 4800 points. What is the bottom?
Grantham: The trend line, being slightly generous, is 2500. And most of the great bubbles, the super bubbles go below trend and stay there for quite a while…
…click on the above link to read the rest of the article…
Scientists Conclude Dire Climate Change Models Were Wrong, Now What?
Scientists Conclude Dire Climate Change Models Were Wrong, Now What?
Bryce Canyon National Park, Utah, image by Mish, quote by Judy Collins
Climate Change Modeling Meets Limits of Science
The Wall Street Journal reports Climate Scientists Encounter Limits of Computer Models, Bedeviling Policy.
That is a non-paywalled, free-to-read link courtesy of the WSJ.
It’s lengthy but an excellent read. I encourage everyone to take a look.
The dire predictions went out the window, seemingly unanimously. But there is plenty in the article for the fearmongers and the sceptics to both say “I told you so”.
Italic emphasis in the snips below is mine.
Introduction
For almost five years, an international consortium of scientists was chasing clouds, determined to solve a problem that bedeviled climate-change forecasts for a generation: How do these wisps of water vapor affect global warming?
They reworked 2.1 million lines of supercomputer code used to explore the future of climate change, adding more-intricate equations for clouds and hundreds of other improvements. They tested the equations, debugged them and tested again.
The scientists would find that even the best tools at hand can’t model climates with the sureness the world needs as rising temperatures impact almost every region.
Dire Forecasts Wrong
When they ran the updated simulation in 2018, the conclusion jolted them: Earth’s atmosphere was much more sensitive to greenhouse gases than decades of previous models had predicted, and future temperatures could be much higher than feared—perhaps even beyond hope of practical remedy.
…click on the above link to read the rest of the article…
Path to a Greener Future: Tax Kids or Just Ban Them Outright
Path to a Greener Future: Tax Kids or Just Ban Them Outright
Ironies of Build Back Better
President Biden wants free college education, free preschool for kids, and increased child tax credits.
All of these proposals subsidize the single worst thing we can do for the environment: have kids.
Kids eat, need medical services, eventually become teenagers and drive cars. And as shocking as this might seem, kids grow up and travel, eventually by airplane.
Poor Nations Say They Need Trillions From Rich Ones
Yesterday, I commented Hello President Biden, Poor Nations Say They Need Trillions From Rich Ones
It’s one thing for developed countries like the US to demand a cleaner future, but it’s another thing to attempt to force G7 goals on the rest of the world.
About Those Climate Change Goals
John Kerry was speechless when he learned Poor Nations Need Trillions From Rich Ones to meet climate change goals.
At a July global climate gathering in London, South African environment minister Barbara Creecy presented the world’s wealthiest countries with a bill: more than $750 billion annually to pay for poorer nations to shift away from fossil fuels and protect themselves from global warming.
The number was met with silence from U.S. Climate Envoy John Kerry, according to Zaheer Fakir, an adviser to Ms. Creecy. Other Western officials said they weren’t ready to discuss such a huge sum.
Kids are the single most destructive thing to the environment. Their toys are mostly made of plastic, diapers are throw-away, and as they get older, litter is inevitable.
A tax on corporations is not the answer. Corporations don’t really pay taxes anyway. Consumers do.
Guarantee Living Wages
…click on the above link to read the rest of the article…
Water Shortage Crisis, Hoover Dam is at Record-Low Water Level
Water Shortage Crisis, Hoover Dam is at Record-Low Water Level
Severe Drought Could Threaten Power Supply in West for Years to Come
The WSJ reports Severe Drought Could Threaten Power Supply in West for Years to Come
The water level at Lake Mead, the Colorado River reservoir serving the Hoover Dam, fell to 1,068 ft. in July, the lowest level since the lake was first filled following the dam’s construction in the 1930s. This month, the federal government is expected to declare a water shortage on the Colorado River for the first time, triggering cutbacks in water allocations to surrounding states from the river.
If the water level drops 118 ft. from July’s level, to 950 ft., it would fall below the turbines and the dam must shut down, said Patti Aaron, public affairs officer at the U.S. Bureau of Reclamation.
The power declines are significant. At 1,200 ft. water elevation—where it was in the year 2000, when water levels were among the dam’s highest levels—the dam can power up to 450,000 homes. At the current elevation, that figure falls to 350,000.
The California Independent System Operator, or Caiso, which oversees the state’s power grid, last summer resorted to rolling blackouts during a West-wide heat wave that constrained the state’s ability to import electricity. The supply crunch was most acute in the evening, after solar production declined.
Elevation Stats
- Max Level: 1,229 Feet
- Level in 2000: 1,200 Feet
- Current Level: 1,068 Feet
- Decline Since 2000: 132 Feet
- Drop to Zero Power: 118 Feet
Colorado River Supply
Lake Powell feeds Lake Mead. The Colorado River supplies both.
Lake Powell is part of the Colorado River Upper Basin and Lake Mead is in the Lower Basin.
…click on the above link to read the rest of the article…
Lacy Hunt On Debt and Friedman’s Famous Quote Regarding Inflation and Money
Lacy Hunt On Debt and Friedman’s Famous Quote Regarding Inflation and Money
Hoisington Quarterly Review and Outlook 2nd Quarter 2021
Here are some snips to the latest at Hoisington Management Quarterly Review (Emphasis Mine).
Too Much Debt
In highly indebted economies, additional debt triggers the law of diminishing returns. This fact is confirmed when the marginal revenue product of debt (MRP) falls, where MRP is the amount of GDP created by an additional dollar of debt. In microeconomics, when debt is already at extreme levels, a further increase in debt leads to an increase in the risk premium on which a borrower will default suggesting that the bank or other lender will not be repaid.
Combining both the falling MRP with a declining loan to deposit (LD) ratio, results in a reduction in the velocity of money. In terms of the impact on monetary activities, a drop in the LD ratio means that more of bank deposits are being directed to the purchase of Federal, Agency and state and local securities in lieu of private sector loans. The macroeconomic result is that funds are shifted to sectors that are the least productive engines of economic growth and away from the high multiplier ones.
More than thirty years ago, Stanford Ph.D. Rod McKnew demonstrated that the money multiplier, referred to as “m”, is higher for bank loans than bank investments in securities. The money multiplier, which is money stock (M2) divided by the monetary base should not be confused with the velocity of money. The latest trends strongly support McKnew’s analysis.
…click on the above link to read the rest of the article…
Still More Green Hypocrisy In the EU, This Time Hydrogen
Still More Green Hypocrisy In the EU, This Time Hydrogen
Hooray More Green Energy!
The EU is cheering a new hydrogen project at a refinery in Germany.
The plant will be built by Shell and ITM power and will be able to produce about 1,300 tonnes of hydrogen per year, which can be fully integrated into the refinery processes, such as for the desulphurisation of conventional fuels. It will be the world’s largest hydrogen electrolyser.
Tudor Constantinescu, Principal Advisor, DG ENER at the European Commission stressed the the contribution of green hydrogen to the Energy Union objectives, saying: “Renewable electricity can support decarbonisation not only of the power sector, but, through sectoral integration also of other carbon intensive industries, such as refining. Green Hydrogen is a key enabler in this process, contributing to the Energy Union objectives both in terms of emissions reductions and increased renewables share.“
Ten Times the Hydrogen, Ten Times the Cost?
Euractive has some interesting details of the undertaking, allegedly Set to Multiply Capacity tenfold by 2024.
The 10 MW electrolyser, while already Europe’s largest of its kind, is a pilot project for grander ambitions.
If the pilot works out well, the partnership around Shell wants to add another 100 MW of electrolysis capacity which would complete construction in 2024. That would then be the largest electrolyser in the world.
Yet the pilot project depended on financing by the FCH JU at a 50% rate, meaning that the business case for a project ten times larger without public funding would be questionable at best.
Whether those ambitions come to fruition will therefore depend on the carbon price and the amount of additional funding available, which could come from either the EU or Germany.
…click on the above link to read the rest of the article…
Swiss Reject Climate Change With Zoomers and Millennials Leading the Way
Swiss Reject Climate Change With Zoomers and Millennials Leading the Way
Swiss Reject Climate Change
Eurointelligence reports Swiss Reject Climate Change
After Switzerland dropped its negotiations with the EU, the country has now rejected a climate-protection law in a referendum. Concretely, they rejected all three parts of the law in separate votes: on CO2, on pesticides, and on drinking water.
We agree with the Swiss journalist Mathieu von Rohr that this failure is not merely important in its own right, but symptomatic for the difficulties facing Green politics in general. It is one thing for people to pretend they support the Green party, especially when it is cool to do so. It is quite another to make actual sacrifices as the Swiss were asked to do.
But what is particularly interesting about this referendum is that the strongest opposition came from young people. 60-70% of the 18-34 year old voted No in the three categories.
Each country is different, but the big yet unanswered question is whether people elsewhere would agree to make personal sacrifices for the greater good. The Swiss referendum tells us we should not take this for granted. The German elections will be the next big test.
Huge Shock
The referendum Failed 51-49. And it took a crushing rejection by Zoomers and millennials to do it.
The BBC comments on the Huge Shock.
A referendum saw voters narrowly reject the government’s plans for a car fuel levy and a tax on air tickets.
The measures were designed to help Switzerland meet targets under the Paris Agreement on climate change.
Opponents also pointed out that Switzerland is responsible for only 0.1% of global emissions, and expressed doubts that such policies would help the environment.
The vote, under Switzerland’s system of direct democracy, went 51% against, 49% in favour.
…click on the above link to read the rest of the article…
A World that Operates by Financial Cheating and Unsound Money Is Doomed
Please consider A World that Operates by Cheating Is Doomed
In ages past, gold and silver provided humanity with a system of economic co-operation among productive humans, which was fair to all participants.
With gold and silver, humans were trading value-for-value: what changed hands were amounts of physical gold or silver, or at least, Bills which were unquestioned claims upon gold or silver.
When the exchange had taken place, everyone was happy! The seller because he had gold or silver, in exchange for the goods or services he offered; and the buyer was pleased because he had the goods or services he wanted, and he got them by tendering gold or silver in exchange.
So, everyone was pleased: the buyer because he got the goods or services he wanted, in exchange for his gold or silver; and the seller was pleased because he traded the goods or services he had to offer, tor gold or silver.
Under the present monetary system, there can be no justice or “fair trading”, because all the World’s MONEY IS FAKE MONEY. No money in today’s world is gold or silver, nor does it represent an unquestioned claim upon a stated amount of gold or silver.
And a gigantic shooting war will mark the end of our times, as a result of the cheating involved – all because fake money was forced upon humanity.
No Consequences, Yet
Except in isolated hyperinflation cases, governments have learned there are no consequences to the ruling class (at least yet) for unsound money.
…click on the above link to read the rest of the article…
Fed’s New Paradigm Adds Helium to the Stock Bubble
It has been an odd year with the Covid-19 crisis hammering the economy, but stocks recovering from sharp losses and then powering to new highs. As a result, standard measures show valuations are at rarely-seen levels that have typically ended in tears.
The S&P 500 trades at 22 times analysts’ expected earnings—its most expensive level since the dot-com bubble. It also trades at its richest multiple to its inflation-adjusted earnings over the past decade—the valuation method popularized by economist Robert Shiller —in nearly 20 years. The total value of U.S. stocks as a percentage of the U.S. economy, which Warren Buffett once called “the best single measure of where valuations stand at any given moment,” is now higher than at any point during the dot-com years.
Stocks vs Interest Rates
Some suggest stocks may not be as expensive as they seem because that interest rates are extremely low.
John Hussman has pointed out the fallacy of that theory many times. The Journal explains the fallacy this way.
The 10-year Treasury largely reflects investor expectations of what the overnight rates set by the Fed will average over the next decade. The Fed responds to what is going on with the economy, setting rates higher when it is trying to cool things down, lower when it is trying to heat things up. So low yields are tantamount to a low-growth, low-inflation economy—one in which profit growth would be low, too. Why pay up for stocks under that scenario?
…click on the above link to read the rest of the article…
New Covid Mutation Is ‘Out of Control’ in the UK
U.K. Health Secretary Matt Hancock warns a new strain of the coronavirus is “Out of Control”.
More than 16 million Britons are now required to stay at home after a lockdown came into force Sunday in London and southeast England and the government scrapped plans to relax rules on socializing at Christmas.
The measures to control the fast-spreading new variant of the virus forbid household mixing in those areas and restrict socializing to just Christmas Day across the rest of England. Residents across the country were told to keep to their local areas, and extra police were being deployed at rail stations to stop people traveling out of London.
“Cases have absolutely rocketed, so we’ve got a long way to go,” Hancock told Sky News. “I think it will be very difficult to keep it under control until the vaccine has rolled out.” People in the new Tier 4 areas “should behave as though they have it,” he said.
Race to Block the New Strain
In a race to block the new Covid-19 strain, Countries Ban Travel From U.K.
Countries across Europe and beyond raced Sunday to stem a more-infectious strain of Covid-19 by banning travel from the U.K., following a British announcement Saturday that it is imposing fresh lockdowns.
Germany, France, Spain, Italy and Israel on Sunday were preparing to join the Netherlands and Belgium, which hours earlier had banned passenger air travel from the U.K., while other countries considered similar moves in an effort to prevent a worsening of the pandemic before Christmas.
…click on the above link to read the rest of the article…
Fed’s GDP and Unemployment Projections: Who Believes Them?
Please consider the Economic Projections of FOMC Participants under their individual assumptions of appropriate monetary policy, September 2020.
Fed’s GDP, Unemployment, PCE Inflation Projections
GDP Projection
The Fed believes GDP will only contract 3.7% in 2020 then rebound 4% in 2021, and 3% in 2022.
Do you believe this?
Unemployment Projection
The Fed believes the Unemployment Rate will be 7.6% in 2020, 5.5% in 2021, and 4.6% in 2022.
Do you believe this?
PCE Inflation Projection
The Fed believes Core Personal Consumption Expenditure inflation (excluding food and energy) will be 1.5% in 2020, 1.7% in 2021, and 1.8% in 2022.
Do you believe this?
GDP Poll
Unemployment Poll
PCE Poll
My Take
- GDP: I will take the under. Way under. Much of the rebound was due to $600 pandemic stimulus checks that expired on July 25. This will be a huge headwind going forward.
- Unemployment: I am leery of games with the participation rate and labor force but I will go with higher.
- PCE : This one is humorous. For months, the Fed has committed not only to 2% but letting inflation run hotter than expected for some time to make up for needed lost inflation. Yet the Fed admits it will not hit its targets until 2023. PCE inflation, as measured, is a joke. So perhaps the Fed is on target.
The Wonders of Free Money in Two Pictures
Lesson of the Day
Census Report on Advance Retail Sales
The Census report on Advance Retail Sales provides half of our “Lesson of the Day“.
Adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, July sales were $536.0 billion, an increase of 1.2 percent from the previous month, and 2.7 percent above July 2019.Total sales for the May 2020 through July 2020 period were down 0.2 percent from the same period a year ago.
The May 2020 to June 2020 percent change was revised from up 7.5 percent to up 8.4 percent. Retail trade sales were up 0.8 percent from June 2020, and 5.8 percent above last year.
Nonstore retailers were up 24.7 percent from July 2019, while food and beverage stores were up 11.1 percent from last year.
Retail spending rose for the third straight month despite a rise in coronavirus infections with reopenings stalled.
Spike in Government Spending
The chart from Pew shows stimulus and deficits exceed that in the Great Recession.
Since March, government stimulus authorizations (not all spent yet) total at least $3 trillion. Another $2 trillion is on the deck when Democrats and Republicans agree to another package.
That is the second half of the Free Money Wonder.
The federal government has run deficits nearly every year since the Great Depression and consistently since fiscal 2002. Through the first 10 months of fiscal 2020, the government took in $2.82 trillion in revenue and spent $5.63 trillion, for a year-to-date deficit of just over $2.8 trillion, according to the Treasury Department’s Bureau of the Fiscal Service. Through the first 10 months of fiscal 2019, by comparison, the deficit stood at $866.8 billion.
…click on the above link to read the rest of the article…
A Surge in Small Business Bankruptcies is Underway
A Surge in Small Business Bankruptcies is Underway
The new rules make it easier for small businesses to file for chapter 11. And they are.
Small Businesses Walking Away
In 2008, homeowners walked away from mortgages.
Thanks to the Small Business Reorganization Act of 2019 (SBRA), in effect as of February 19, 2020, small businesses have an easier shot at doing the same.
For example, the Twisted Root Burger grew quickly, but co-founder now says ‘I’m gonna walk away’ from some locations.
Twisted Root Burger was a Texas success story, expanding from one casual restaurant in 2006 to 24 sites including restaurants, bars, a brewery and a theater. Now, the company is moving fast in another direction—into bankruptcy.
“I’m not gonna open that restaurant at half the revenue,” said co-founder Jason Boso. “I’m gonna walk away from those restaurants. I’m not gonna set myself up for failure.”
More than 500 companies filed for bankruptcy under the small-business bankruptcy rules since February, according to the American Bankruptcy Institute. June was the top month for filings with 131 cases; many were filed in states hit hard by the pandemic like Florida, Texas, California, New York and Illinois.
“It was somewhat prescient,” said Ryan Wagner, a restructuring and bankruptcy attorney with international law firm Greenberg Traurig LLP. “It was passed without the foresight of the pandemic.” The law is the most significant change to the bankruptcy code since 2005.
SBRA Highlights
- Applies to businesses with $2.7 million in liabilities, raised to $7.5 million under coronavirus stimulus
- Owners continue operating their business while in court
- Owners can retain equity after exiting bankruptcy
- Owners can modify residential mortgages if home was collateral for a business loan
- Faster turnaround to save time and minimize legal fees
- Owners generally have three to five years to repay creditors
- Creditors can be paid based on a business’s projected income
Walking away gets a new lease on life, this time for small businesses.
Industrial Production Declines Most in 101 Years
Industrial Production Declines Most in 101 Years
On the heels of miserable retail sales numbers comes the worst ever industrial production numbers.
The Fed’s Industrial Production report provides another grim look at the Covid-19 wrecked economy.
Total industrial production fell 11.2 percent in April for its largest monthly drop in the 101-year history of the index, as the COVID-19 (coronavirus disease 2019) pandemic led many factories to slow or suspend operations throughout the month.
Manufacturing output dropped 13.7 percent, its largest decline on record, as all major industries posted decreases. The output of motor vehicles and parts fell more than 70 percent; production elsewhere in manufacturing dropped 10.3 percent.
The indexes for utilities and mining decreased 0.9 percent and 6.1 percent, respectively. At 92.6 percent of its 2012 average, the level of total industrial production was 15.0 percent lower in April than it was a year earlier.
Capacity utilization for the industrial sector decreased 8.3 percentage points to 64.9 percent in April, a rate that is 14.9 percentage points below its long-run (1972–2019) average and 1.8 percentage points below its all-time (since 1967) low set in 2009.
No V-Shaped Recovery
As noted earlier today Retail Sales Plunge Way More Than Expected
Despite talk from hopers, even the fed understands there will not be a V-Shaped recovery.
Instead they are promoting a helicopter drop of money. For details, please see Panic Sets In: Fed Promotes More Free Money
The Problem is Not Deflation, It’s Attempts to Prevent It
The Problem is Not Deflation, It’s Attempts to Prevent It
Let’s investigate the Fed’s effort to prevent price deflation.
Here’s a Tweet that caught my eye.
“We’re about to have deflation and the market hasn’t figure it out yet… when it does, the Fed is going to shit itself.” @hendry_hugh @raoulGMI
https://rvtv.io/3aWzxf4
Problem with deflation is- Why buy anything if you know it will be cheaper in the future.
“Problem with deflation is- Why buy anything if you know it will be cheaper in the future.,” responded one person.
Let’s investigate that question starting with a look at the CPI basket.
CPI Percentage Weights
Why Buy Anything Questionnaire
Q: If consumers think the price of food will drop, will they stop eating?
Q: If consumers think the price of natural gas will drop, will they stop heating their homes?
Q: If consumers think the price of gasoline will drop, will they stop driving?
Q: If consumers think the price of rent will drop, will they hold off renting until that happens?
Q: If consumers think the price of rent will rise, will they rent two apartments to take advantage?
Q: If consumers think the price of taxis will rise, will they take multiple taxi rides on advance?
Q: If people need an operation, will they hold off if they think prices might drop next month?
Q: If people need an operation, will they have two operations if they expect the price will go up?
All of the above questions represent inelastic items. Those constitute over 80% of the CPI. Let’s hone in on the elastic portion with additional Q&A.
Questions for the Fed – Elastic Items
Q: If people think the price of coats will rise will they buy a second coat they do not need?
…click on the above link to read the rest of the article…
