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Mind Blowing

November 7, 2018

Mind Blowing

We’re in one of the longest economic expansion cycles in history and nobody’s happy. It’s mind blowing. You’d think 2018 would have people dancing in the streets. 3.7% unemployment, record stock market prices. Well the ladder until recently that is.

So let me rephrase:

What happens if you have record buybacks, record dividends, and record earnings but 89% of assets yield a negative return in US dollar terms?

No really that’s just what happened:

The short answer is: Nobody knows because it has never happened before.

According to $DB: “A whopping 89 percent of assets have handed investors losses in U.S. dollar terms, more than any previous year going back more than a century”.

Mind Blowing.

No wonder The Fed Crying has Begun. Bulls are now dependent on a big year end rally to turn the ship around. And a technical case for that can certainly be made. But they only have a few weeks left in the year and they better hurry otherwise they owe everyone a big apology and can kiss their year end bonuses goodbye.

But that’s markets in 2018. It’s not reflective of what has happened to the middle class over the last 20 years.

Summary: Utterly screwed.

How else to square headlines such as these:

America’s 1% hasn’t controlled this much wealth since before the Great Depression

1 in 3 Americans have less than $5,000 saved for retirement

65% of Americans save little or nothing—and half could end up struggling in retirement

I could post more links, but the message is clear: Wealth inequality is vast and nobody’s happy.

If you don’t think so have you looked at our political discourse lately?

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

The Fed Will Ignite The Next “Financial Crisis”

January 31, 2018

The Fed Will Ignite The Next “Financial Crisis”

There seems to be a very large consensus the markets have entered into a “permanently high plateau,” or an era in which price corrections in asset prices have been effectively eliminated through fiscal and monetary policy.

Partnering with this fairytale like mindset is an overwhelming sense of complacency. Throughout the entire monetary ecosystem, there is a rising consensus that “debt doesn’t matter” as long as interest rates remain low. Of course, the ultra-low interest rate policy administered by the Federal Reserve is responsible for the “yield chase” which has fostered a massive surge in debt in the U.S. since the “financial crisis.” 

As Ray Dalio, CEO of Bridgewater, recently noted:

“We’re in a perfect situation, inflation is not a problem, growth is good, but we have to keep in mind the part of the cycle we’re in.”

Yes, current economic growth is good, but not great. Inflation and interest rates currently remain low which creates an environment in which using debt remains opportunistic. But rising debt levels has a negative economic consequence. As shown, prior to the deregulation of the financial industry under Ronald Reagan, which led to an explosion in consumer credit issuance, it required just $1.25 of total system-wide debt to create $1.00 of economic growth. Today, it requires $3.83 to create the same $1 of economic growth. This shouldn’t be surprising, given that “debt” detracts from economic growth as the required “debt service” diverts income from savings and productive investment leading to a “diminishing rate of return” for each new dollar of debt.

However, debt levered economic cycles are a function of the ability to draw forward future consumption. But there is a finite limit to the “positive” effect of a debt-driven economic cycle.

Eventually, the “bill” must be paid.

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

Liam Fox’s Speech to the IEA on Honest Money

October 31, 2015

Liam Fox’s Speech to the IEA on Honest Money

Dr Fox gave his speech on honest money to the IEA last week. The video can also be viewed here: http://www.iea.org.uk/multimedia/video/rt-hon-liam-fox-on-honest-money

It is almost universally accepted that the first duty of government is the protection of its citizens. As a former Secretary of State for Defence I am only too aware of the external threats to the safety of our people and our country.

But there are other threats that I believe we have a right to be protected from – the debasement of our currency, the erosion of our earnings and the devaluation of our savings. I believe it is fundamentally wrong for governments to engage in structural profligacy, spending excessively across the economic cycle and passing ever larger amounts of debt onto future generations.

History is littered with examples of where economic failure led to compromised security. In my book, Rising Tides, I pointed out that by 1788, a year before the French Revolution, France was spending 62% of royal revenues on servicing its debt. The Ottoman Empire was spending 50% of its budget on debt interest payments by 1875 with the final repayment being made by the Republic of Turkey in 1954, even though the Empire had been abolished 36 years previously. The lessons from history are clear – if the destinations we wish to reach are security, prosperity, and honest money, then the road we must travel is that of fiscal restraint and monetary realism.

Today, I want to look at how close we are to those objectives, especially in the light of the great financial shock that came to the global economy following the events of 2008.

The policies of fiscal restraint imposed by the current government have seen our annual budget deficit fall from the terrifying heights of the 11.4% of GDP which we inherited from Labour in 2010, although at 5.7% of GDP it remains the third-highest in the EU.

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

We’re Flirting With Another Recession

October 20, 2015

We’re Flirting With Another Recession

Meaning, it might already be here.

Back in May, we were about to go to the printer with the June issue of Boom & Bust when I put on the brakes. My team wasn’t happy to hear it since these things take time to put together. But I didn’t have a choice. I had found compelling evidence to suggest that we were not just looking at another recession, but already possibly back in one.

So, we took a close look at how we’d been flirting with recession over the first half of the year, while economists kept spouting that we had reached escape velocity. Now, after a bit of reprieve during the summer, it looks to be happening again.

We recently got the worst nonfarm payroll jobs report in months as only 142,000 jobs were created last month, with August revised almost 40,000 jobs lower. Plus, labor force participation hit a new low at 62.4%. Overall, we’ve averaged 198,000 jobs per month in 2015, compared with 260,000 jobs in 2014.

For this reason and others, I have reason to believe we’re once again falling into a recession.

What makes the jobs report so concerning is that it’s a lagging indicator – meaning, it’s following a particular trend that’s already started. It supports the possibility that recession is already here.

But let’s also review some of the indicators I looked at back in June. The U.S. Macro Surprise Index shows when indicators beat or miss expectations. Green is when we’re dancing on rooftops because everything’s better than expected. You know what red means. And you can see that 2015 has been a total miss. It’s been negative all year, with early 2015 being the worst period since early 2009.

It might be up from earlier this year, but after the last couple months, it’s dangerously close to falling again.

US Economic Surprise Index Lowest in Four Years

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

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