Home » Posts tagged 'acting man'

Tag Archives: acting man

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

The Federal Reserve is a Barbarous Relic

The Federal Reserve is a Barbarous Relic

The Sky is Falling

The man from the good place. “As I was going up the stair, I met a man who wasn’t there. He wasn’t there again today, Oh how I wish he’d go away!” [PT]

Ptolemy I Soter, in his history of the wars of Alexander the Great, related an episode from Alexander’s 334 BC compact with the Celts ‘who dwelt by the Ionian Gulf.’  According to Ptolemy’s account, which survives via quote by Arrian of Nicomedia some 450 years later, when Alexander asked the Celtic envoys what they feared most, they answered:

Today, at the risk of being called Chicken Little, we tug on a thread that weaves back to the ancient Celts.  Our message is grave: The sky is falling.  Though the implications are still unclear.

Various Celts – left: fearsome warriors; middle: fearsome warriors afraid of the sky falling on their heads; right: Cernunnos, fearsome Celtic horned god amid his collection of skulls. [PT]

The sky, for our purposes, is the debt based dollar reserve standard that has been in place for the past 48 years. If you recall, on August 15, 1971, President Nixon “temporarily” suspended convertibility of the dollar into gold.  The dollar  became wholly the fiat money of the Treasury.

At the G-10 Rome meeting held in late-1971, Treasury Secretary John Connally reduced the new dollar reserve standard to a bite-sized nugget for his European finance minister counterparts, stating:

The Nixon-Connally tag team in the White House. [PT]

Predictably, without the restraint of gold, the quantity of debt based money has increased seemingly without limits – and it is everyone’s massive problem.  What’s more, over the past 30 years the Federal Reserve has obliged Washington with cheaper and cheaper credit.

 …click on the above link to read the rest of the article…

How to Prepare as the Fed Scorches the Earth

How to Prepare as the Fed Scorches the Earth

Wildfire Surge

The hillsides are always brown in the land of fruits and nuts come autumn.  After baking away all summer long in the hot sun, the dense sage and chaparral covering the coastal hillsides and canyons are dry and toasty. Though, before conditions get better, they must first get worse.

Photo credit: Noah Berger / AP
California is ablaze again… as every year.  [PT]

High pressure systems form over the high-elevation deserts of the Great Basin, between the Sierra Nevada Mountains and the Rocky Mountains, each fall like clockwork. The pressure builds and forces the air to the south and west. The warm, dry winds of Santa Ana then race towards Southern California where they scorch the earth.

The winds howl from the east, across the inland deserts, where they funnel through the mountain passes and then blast across the LA Basin and out to the Pacific Ocean.  As the winds conduit from high to low elevation they compress and rise in temperature at a rate of almost 30 degrees per mile of descent. What’s more, as the temperature of the air spikes upward, its relative humidity plunges downward below 10 percent.

The already brown and parched vegetative cover is further convection dried by the Santa Ana winds to form a giant tinderbox. Just one spark – from a downed power-line or a backfiring semi-truck – and the whole thing conflagrates into a blistering windblown wildfire. At last count, there were 13 active wildfires blazing across the state.

Photo credit: Josh Edelson / AFP / Getty Images
What pyromaniacs dream of… [PT]

 …click on the above link to read the rest of the article…

Curious Events in Risk-Free Collateral-Land – Precious Metals Supply and Demand

Curious Events in Risk-Free Collateral-Land – Precious Metals Supply and Demand

Liquidity Shortage 

Last week the price of gold rose $28, and silver $0.53. But the prices of the metals was not the big news last week. The price of repo — a repurchase agreement, to sell and repurchase a treasuries — skyrocketed. Banks were thirsty for liquidity, and only cash can quench it.

Last week’s “oops” moment in repo land as the overnight general collateral rate briefly soared to 10% (we will soon publish a detailed summary of the sequence of events that has led to this hicc-up). [PT]

Just another day in the fool’s paradise of centrally planning an irredeemable currency and its interest rate. Just another crisis, to be tamped down by the central planner. Keep Calm and Carry On.

This is a curious phenomenon, where the market is offering a risk-free trade to give up one’s dollars and get them back tomorrow plus a return. Yet no bank or other trader is taking the bait. The problem was not a shortage of trust, but of liquidity.

When trust in the system collapses, then gold will withdraw its bid on the dollar (which most people will wrongly perceive as the disappearance of offers to sell gold). This will be permanent gold backwardation.

So the question that should be on everyone’s mind is: did gold drop into  backwardation this week? Or silver? Read on to see graphs of the gold and silver co-basis (backwardation is strictly when the co-basis > 0).

Fundamental Developments

Let us look at the only true picture of the supply and demand fundamentals. But, first, here is the chart of the prices of gold and silver.

Gold and silver priced in USD

 …click on the above link to read the rest of the article…

Fiat Money Cannibalization in America

Fiat Money Cannibalization in America

An Odd Combination of Serenity and Panic

The United States, with untroubled ease, continued its approach toward catastrophe this week.  The Federal Reserve cut the federal funds rate 25 basis points, thus furthering its program of mass money debasement.  Yet, on the surface, all still remained in the superlative.

S&P 500 Index, weekly: serenely perched near all time highs, in permanently high plateau nirvana. [PT]

Stocks smiled down on investors from their perch upon what Irving Fischer once called “a permanently high plateau.”  As of the market close on Thursday, the Dow Jones Industrial Average held above 27,000, the S&P 500 above 3,000, and the NASDAQ above 8,000.  401k accounts, to the delight of working stiffs of all ages, origins, and orientations, are swollen beyond expectations.

Below the surface, however, the overnight funding market was subject to much weeping and gnashing of teeth.  Sometime between Monday night and Tuesday morning the overnight repurchase agreement (repo) rate hit 10 percent. Short-term liquidity markets essentially broke.

After several technical glitches, the Fed executed its first repo operation in a decade – $53 billion – to keep the interbank funding market flowing.  Zero Hedge documented the chaos real time.  

This was followed up with additional repo operations on Wednesday and Thursday – at $75 billion a pop, and both oversubscribed.  Perhaps Fed repo operations will be a daily occurrence, at least until the Fed launches QE4.

US overnight repo rate – as Fed chair Jerome Powell remarked: “Funding pressures in money markets are elevated this week”. Evidently, nothing escapes his eagle eyes. [PT]

At the same time, the effective federal funds rate – the upper range limit of the federal funds rate – continues to push above the rate the Federal Reserve pays on excess reserves (IOER).  In other words, the Fed’s primary tool for price fixing credit markets is not behaving according to plan.  Greater Fed intervention will be needed to keep things in line.

 …click on the above link to read the rest of the article…

The Weird Obsessions of Central Bankers, Part 1

The Weird Obsessions of Central Bankers, Part 1

How to Hang on to Greenland

Jim Bianco, head of the eponymous research firm, handily won the internet last Thursday with the following tweet:

Jim Bianco has an excellent idea as to how Denmark might after all be able to hang on to Greenland, a territory coveted by His Eminence, POTUS GEESG Donald Trump (GEESG= God Emperor & Exceedingly Stable Genius).

Evidently the mad Danes running the central bank of this Northern European socialist paradise were reacting to the ECB Council’s decision earlier that day to carpet-bomb the euro zone economy with another dose of monetary napalm.

The sad spectacle was the outcome of the penultimate ECB meeting chaired by Mario Draghi, who will undoubtedly enter the history books in the “what not to do” section, inter alia as the only central bank chieftain who didn’t raise interest rates even once during his entire term.

Mario Draghi, the scourge of Old World savers

The Beatings Will Continue Until Morale Improves… or Something

The following tablet engraved with decisions was handed down from the Europe’s Central Planning Olympus:

(1) The interest rate on the deposit facility will be decreased by 10 basis points to -0.50%. The interest rate on the main refinancing operations and the rate on the marginal lending facility will remain unchanged at their current levels of 0.00% and 0.25% respectively. The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

 …click on the above link to read the rest of the article…

Dead Meat in Jackson Hole

Dead Meat in Jackson Hole

The Pointlessness of Negative Yields

If there are any virtues of debt instruments with negative yields we have yet to realize them. Certainly, we understand that as bond yields fall, bond prices rise, and bond investors are rewarded with capital appreciation. But when capital is appreciating as a consequence of negative yields, we suspect there is something fundamentally wrong with the capital itself.

Not only is the stock of negative-yielding debt at a new record high of almost $17 trillion, lately there has been a big surge in corporate debt sporting negative yields-to-maturity. [PT]

Capital markets, as we have always understood them, are centered around lenders buying debt – such as a bond – at a yield that compensates for the risk of default over a contracted duration. The acceptance of negative yield is an abstraction that violates the form and function that capital markets are built on.  In fact, negative interest rates undermine the foundational business model of banking in general.

How can banks lend money if they’re not compensated for the risk that some loans will go bad?  And if banks can only lend money at a loss, why lend money at all?  If there is no profit motive, what is the point?

There is currently about $17 trillion in combined government and corporate negative yielding debt in existence.  The European Central Bank and the Bank of Japan, with policies of mass money debasement that far exceed those of the Federal Reserve, are the primary culprits.  Their fake money and fake interest rates have produced fake capital markets.

In effect, Negative Interest Rate Policy (NIRP) destroys a commercial banks ability to build capital and offset losses. In other words, NIRP destroys commercial banks.  By extension, NIRP via central banks leads to the implied nationalization of commercial banks.

 …click on the above link to read the rest of the article…

Writing on the Wall

Writing on the Wall

Not Adding Up

One of the more disagreeable discrepancies of American life in the 21st century is the world according to Washington’s economic bureaus and the world as it actually is.  In short, things don’t add up.  What’s more, the propaganda is so far off the mark, it is downright insulting.

Coming down from the mountain with the latest data tablet… [PT]

The Bureau of Labor Statistics (BLS) reports an unemployment rate of just 3.7 percent.  The BLS also reports price inflation, as measured by the consumer price index (CPI), of 1.8 percent.  Yet big city streets are lined with tents and panhandlers grumble “that’s all” when you spare them a dollar.

In addition, good people of sound mind and honest intentions are racking up debt like never before.  Mortgage debt recently topped $9.4 trillion. If you didn’t know, this eclipses the 2008 high of $9.3 trillion that was notched at the precise moment the credit market melted down.

Total American household debt, which includes mortgages and student loans, is about $14 trillion – roughly $1 trillion higher than in 2008.  Credit card debt, which is over $1 trillion, is also above the 2008 peak.  To be clear, these debt levels are not signs of economic strength; rather, they are signs of impending disaster.  Moreover, they’re signs that American workers have been given a raw deal.

US CPI, “core” CPI and total consumer credit outstanding. 

How is it that the economy has been growing for a full decade straight, but the average worker has seen no meaningful increase in his income?  Have workers really been sprinting in place this entire time?  How did they end up in this ridiculous situation?

US mortgage debt outstanding and real household wages (real hourly earnings of production and non-supervisory employees) [PT]

 …click on the above link to read the rest of the article…

Realizing the Full Implications of the Forthcoming Catastrophe

Realizing the Full Implications of the Forthcoming Catastrophe

Delivering Tomorrow’s Curses

Roman poet Virgil penned these words in his epic, The Aeneid, roughly a generation before the birth of Jesus of Nazareth.  They can be loosely translated to, “the descent to hell is easy.”  Those who’ve traversed this passage can attest to the veracity of this axiom.

Virgil reading the Aeneid to Augustus, Octavia and Livia. Contrary to what one might think at first blush, Octavia didn’t fall asleep because she was bored by it – rather, when Virgil recited Book Six, she fainted (the veracity of this account is not undisputed, but it’s a good story anyway). A little side note: Virgil caught a fever while returning from to Rome from Greece and died in Brundisium in 19 BC. It was Virgil’s wish that the poem be burned, but Augustus ordered his literary executors to preserve it and publish it with as few editorial changes as possible. Thus Augustus rescued the Aeneid for posterity. [PT]

Though not apparent in the milieu of Virgil’s poem, for our purposes today, we will extend its application to the insidious progression of currency debasement.  What short utterance more aptly characterizes the steady degradation, as currently practiced by today’s church of state?

On Thursday, for example, the House acted with untroubled ease to further America’s descent to hell.  With little resistance, federal spending was increased and the debt ceiling was suspended for two years.  Having delivered tomorrow’s curses, the nation’s Representatives can skip town without missing a moment of summer recess.

As you can see, the allure of getting something for nothing is far too enticing for even the most honest politician to pass up.  And with an endless supply of fake money behind you, why stick your neck out and get clobbered?  The public debt encumbered is already well beyond honest repayment.  But that’s a problem for tomorrow; not today.

 …click on the above link to read the rest of the article…

The Four Dimensions of the Fake Money Order

The Four Dimensions of the Fake Money Order

A Good Story with Minor Imperfections

If you don’t know where you are going, any road will get you there,” is a quote that’s oft misattributed to Lewis Carrol. The fact that there is ambiguity about who is behind this quote on ambiguity seems fitting. For our purposes today, the spirit of the quote is what we are after. We think it may help elucidate the strange and confusing world of fake money in which we all travel.

Consumer price index, y/y rate of change – the Fed is not satisfied with the speed at which monetary debasement raises everybody’s cost of living lately. And no, they don’t think said speed should be lowered. [PT]

For example, the monetary policy outlook immediately following last month’s FOMC meeting was as clear as a flawless (FL grade) diamond. The principal message, if you recall, was that inflation was muted and the Fed, after suffering an overt beating from President Trump, would soon be shaving basis points off the federal funds rate. You could darn near take it to the bank.

Wall Street took the news and acted upon it with conviction.  Investors piled into stocks and bonds without pausing to take a closer look for imperfections.  Why worry when fortune favors the bold?

From June 19 through Wednesday July 3, everything held up according to plan.  The S&P 500 rallied 2.5 percent to close at a new all-time high of 2,995. The yield on the 10-Year Treasury note, over this period, dropped 13 basis points, as mindless buyers positioned to front run the Fed.

But then, in the form of Friday’s job’s report, several feathers of imperfection were identified.  According to the Bureau of Labor Statistics, the U.S. economy added 224,000 jobs in June. This far exceeded the consensus estimates of 160,000 new jobs.  As this week began, doubt and hesitation crept into the market.  What to make of it?

 …click on the above link to read the rest of the article…

Feeling the Heat of a Civilization on the Downside

Feeling the Heat of a Civilization on the Downside

An Epic Folly for the Ages

Today we begin with a list.  A partial list.  And in no particular order…

Angela Merkel. Donald Tusk. Mario Draghi. Donald Trump. Jerome Powell.  Shinzo Abe.  Haruhiko Kuroda.  Theresa May. Boris Johnson. Mark Carney. Xi Jinping.  Emmanuel Macron.  Vladimir Putin. Justin Trudeau. Juan Trump.  And many, many more…

Politicians and bureaucrats of the modern age of statism and central planning… fighting a rearguard action doomed to fail. [PT]

These central planners – though they may not know it – are facing a no-win situation. They have extrapolated the past and are attempting to preserve the status quo into the future.  Yet their efforts to perpetuate the upward growth curve of their countries and unions are useless against the relentless turn of history.

The political, financial, economic, and social foundations that have been in place over the last 75 years – and perhaps, over the last 220 years – are breaking down.  And no policy directive, no interest rate adjustment, no trade tariff, no five year plan, no extraordinary measures, no green new deal, and no technocratic prevarication is going to stop it. Big Government doesn’t stand a chance.

The entire apparatus, from social welfare programs to a ridiculously complex capital structure, is based on perpetual growth. But growth, as we are all presently discovering, is ephemeral. The rapid creation of fake money by central planners may be able to forestall the downside that follows a mega-growth cycle. But it cannot avert it.

Still, the central planners are doing anything and everything to resist the downside. They are taking emergency actions. They are employing extreme currency debasement. They are slapping price controls across the economic landscape. They are starting wars. They are harnessing populism. They are doing all of these – and more.

 …click on the above link to read the rest of the article…

Why Fed Chair Powell is a Laughingstock

Why Fed Chair Powell is a Laughingstock

Fake Work

Clarity.  Simplicity.  Elegance.  These fundamentals are all in short supply.  But are they in high demand? As far as we can tell, hardly a soul among us gives much of a rip about any of them.  Instead, nearly everyone wants things to be more muddled, more complicated, and more crude with each passing day.  That’s where the high demand is.

One can always meet the perils of overweening bureaucracy with pretend happiness… [PT]

For example, executing and delivering work in accordance with the terms and conditions of a professional services contract these days is utterly dreadful.  The real work is secondary to fake work, trivialities, and minutia.  Superfluous paperwork and an encumbrance of mandatory web-based tools are immense time and capital sucks.

While each T & C may have been developed for one good reason or another, over time, they’ve piled up into something that’s an unworkable mess.  But like tax law, or local zoning codes, they must be followed with arduous rigor.

Crushing futility… [PT]

What’s more, many livelihoods depend on all the fake work that’s now built into what should be a simple contract.  Auditors, contract administrators, accountants, MBAs, spreadsheet jockeys, risk managers, and many other fake professionals, run about with rank importance.  What would happen to these plate spinners if the fake work disappeared?

Without all the unnecessary rigmarole, the unemployment rate would quadruple overnight.  Hence, like fake money, fake work is piled on by the boatload to stimulate the need for more fake work.  And like a handshake agreement – or sound money – the return to an era of greater clarity, simplicity, and elegance is mere wishful thinking.

Plotted Dots

 …click on the above link to read the rest of the article…

Unsolicited Advice to Fed Chair Powell

Unsolicited Advice to Fed Chair Powell

American businesses over the past decade have taken a most unsettling turn.  According to research from the Securities Industry and Financial Markets Association, as of November 2018, non-financial corporate debt has grown to more than $9.1 trillion [ed note: this number refers to securitized debt and business loans, other corporate liabilities would add an additional $11 trillion for a total of $20.5 trillion].

US non-financial corporate debt takes flight – the post 2008 crisis trajectory is breath-taking, to say the least [PT]

What is the significance of $9.1 trillion?  And what are its looming repercussions?  Here, for your edification, we’ll take a moment to properly characterize this number.

For one, non-financial corporate debt of $9.1 trillion is nearly half of real U.S. gross domestic product.  Hence, the realization of profits by private businesses has required a substantial accumulation of debt.  And this debt, like much of today’s outstanding debt, is shaping up to be reckoned with at the worst possible time.

Remember, when corporate debt is increasing faster than profits, it is like a plucked tomato sitting on a store shelf.  It goes bad with little notice.  Frank Holmes, by way of Forbes, offers the grim particulars:

This by now slightly dated chart shows the upcoming wall of maturities in junk bonds and leveraged loans as of mid 2017 – n.b., this doesn’t even include BBB-rated liabilities, which represent the by far biggest potential concern (“Titans’ debt” refers to the debt maturity profiles of the companies carrying the largest securitized debt in absolute terms, such as e.g. AT&T). [PT]

But that is not all…

Compounding Dishonesty

Whereas $9.1 trillion of non-financial corporate debt is nearly half of real U.S. GDP.  And whereas this $9.1 trillion of non-financial corporate debt is the junkiest corporate debt ever seen.  This $9.1 trillion of non-financial corporate debt is nearly double what it was just moments before the financial system exploded a decade ago.

 …click on the above link to read the rest of the article…

As the Madness Turns

As the Madness Turns

A Growing Gap

The first quarter of 2019 is over and done.  But before we say good riddance.  Some reflection is in order.  To this we offer two discrete metrics.  Gross domestic product and government debt.

US nominal GDP vs total federal debt (in millions of USD) – government debt has exceeded  total economic output for the first time in Q4 2012 and since then its relative growth trajectory has increased – and it seems the gap is set to widen further. [PT]

GDP for the quarter, as estimated by the March 29 update to the New York Fed’s GDP Nowcast, grew at an annualized rate of 1.3 percent.  For perspective, annualized GDP growth of 1.3 percent is akin to getting a 1.3 percent annual raise.  Ask any working stiff, and they’ll tell you… a 1.3 percent raise is effectively nothing.

By comparison, the U.S. budget deficit for fiscal year 2019 is estimated to hit roughly $1.1 trillion.  This amounts to an approximate 5 percent increase of the current $22.2 trillion national debt.  In other words, government debt is increasing about 3.85 times faster than nominal GDP, which is about $21 trillion.

These two metrics offer a rough perspective on the state of the economy.  Deficit spending is grossly outpacing economic growth.  Heavy treatments of fiscal stimulus are being applied.  Yet the economy’s practically running in place.  In short, the state of the economy is not well.

A case of restricted maneuverability…  [PT]

And as the economy slows and then slips into reverse later this year, and as Washington then applies more fiscal stimulus, these two metrics will move even further towards madness.  What’s more, the Fed is gearing up to promote this greater state of madness in any and every way possible…

 …click on the above link to read the rest of the article…

One Day the Volcano Will Erupt – Precious Metals Supply and Demand

One Day the Volcano Will Erupt – Precious Metals Supply and Demand

Keynesian Rot

The prices of the monetary metals rose $11 and ¢27 last week. The supply and demand fundamentals is the shortest section of this Report [ed note: we are excerpting the supply-demand section for Acting Man – readers interested in the other part of the report can find it here].

The eruption of Mt. St. Helens in 1980 – prior to the cataclysmic event, numerous small earth quakes and steam venting from fissures warned that something big was about to happen, even if no-one suspected the actual magnitude of the outbreak. The eruption was so powerful that a fairly large chunk of the mountain went missing in the proceedings. There are always accidents waiting to happen out there somewhere, and the modern-day fiat money system is clearly one of them. There will be warning signals before it keels over – in fact, the final cataclysm usually happens fairly quickly, while the period that leads up to it tends to be a drawn-out affair. [PT]

This is because the actual data can be seen in a simple chart for each metal. If central banks were really buying mass quantities of gold in anticipation of a new gold-based global monetary system, or India were really importing all marketable gold, or the mainstream American public were desperately trading its dollars for gold, or China were really buying up all the physical gold to prepare for a gold-backed yuan (while selling paper gold, natch)…

…then the data would show this.

Mount Saint Helens was quiescent for a long time, until all of a sudden in 1980 it went wild with activity. There was an earthquake, then steam venting, then the side of the mountain began to bulge, then a second earthquake triggered that side to collapse. Then the volcano finally exploded.

 …click on the above link to read the rest of the article…

Extrapolating The Recent Past Can Be Hazardous To Your Wealth

Extrapolating The Recent Past Can Be Hazardous To Your Wealth

Those who cannot remember the past are condemned to repeat it,” remarked George Santayana over 100 years ago.  These words, as strung together in this sequence, certainly sound good.  But how to render them to actionable advice is less certain.

George Santayana – purveyor of eminently quotable wise words by the wagon-load, but what shall one do with them in practice? [PT]

Aren’t some facets of the past – like the floppy disk – not worth remembering?  And aren’t others – like a first taste of romance – worth repeating… if only it were possible?

Where investing is concerned, remembering the past – and discerning what to make of it – can actually be a handicap.  Where does the past begin?  How does it influence the future?  How does one invest one’s capital accordingly?

These are today’s questions.  What follows, with purpose and intent, is an attempt to scratch out an answer.  Where to begin?

Many investment gurus in the early 1980s were predicting the future while projecting the past.  After a decade of raging price inflation, the popular dogma was to pack one’s portfolio with gold coins, fine art, and antiques.  This was the proven, surefire way to preserve hard earned wealth.

The United States, remember, was just a year or two away from going full Weimar Republic circa 1921-23.  The dollar was going to quickly turn to hyper-inflationary ash, like conifer trees in a California wildfire.  Everyone just knew it.  You could darn near count down the days.

Right On The Money

Conventional wisdom, when it comes to the economy, markets, and investing, eventually leads to trouble.  While everyone is busy watching the status quo unfold with Swiss watch like precision, the conditions that first brought this state of affairs to fruition subtly changes.  Yet almost no one takes notice.

 …click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase