Home » Posts tagged 'mn gordon'

Tag Archives: mn gordon

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Best Laid Schemes

Best Laid Schemes

A Really Neat Bridge

But, Mousie, thou art no thy-lane,
In proving foresight may be vain;
The best-laid schemes o’ mice an’ men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!

– Robert Burns, To a Mouse, on Turning Her Up in Her Nest With the Plough (in extract), 1785

Installation of the final cable support pipes on the Gerald Desmond bridge replacement. Here is a drone video of the project. [PT]

Photo by Scott Varley

The grand plans of our local officials in Long Beach have been foiled by the corona-virus bug.  After seven years of construction, at a cost of $1.5 billion, they can’t even hold a proper ribbon-cutting.

The special occasion is the grand opening of the new, yet to be named, Gerald Desmond Bridge replacement.  To prevent the spread of COVID-19, a virtual ceremony is planned for the Friday leading into the Labor Day weekend.

Virtual ceremonies, like professional baseball games with recorded fan noises, are Dumb with a capital D.  But, perhaps, this is the fitting grand opening of an edifice that was planned and constructed for a world that may never arrive.

Certainly, the new bridge structure, which has the highest vertical clearance of any cable-stayed bridge in the US, is a remarkable engineering achievement.  The cable-stayed design also has a signature aesthetic. We have watched it go up over the years; it really is extraordinary.

The two towers rise up to roughly 515 feet above mean sea level, and include 40 cables per tower. The bridge’s linear extent is approximately 8,800 feet.  The cable-stayed span alone is 2,000 feet.

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

Game Over Spending

Game Over Spending

Second quarter 2020 came and went like a California wildfire.  The economic devastation caused by the government lockdowns was swift, the destruction immense, and the damage lasting.  But, nonetheless, in Q2, the major U.S. stock market indices rallied at a record pace.

The Dow booked its best quarter in 33 years.  The S&P 500 posted its best performance since 1998.  And the NASDAQ had its biggest increase since 1999…jumping 38.85 percent in just three months.

The economy, on the other hand, was severely scorched.  Decades of debt had built up like dead wood amongst a forest understory.  Then, at the worst possible time, government lockdown orders sparked a match and set it ablaze.

The results were predictable to everyone but the experts.  Supply chain disruptions followed by retail disruptions, followed by declining sales, followed by disappearing cash flow, followed by layoffs, followed by business closures, followed by shrinking tax receipts, followed by unserviceable public and private debt, followed by mass bankruptcies, followed by riots, followed by full societal breakdown.  The economic wildfire raged through so fast most people don’t comprehend what has happened.

The interim solutions from Washington, in concert with the Federal Reserve, have been to add more fuel.  That is, the solutions have centered around mega efforts to paper over the economic depression with massive amounts of fake money.

Money Printer Go BRRR

Mass corporate bailouts were just the beginning.  Payroll Protection Program (PPP) loans were made to over 650,000 small businesses, including presidential candidate Kanye West’s clothing brand, Yeezy, and Grover Norquist’s anti-tax group, Americans for Tax Reform.

On top of that, the Fed began creating money from thin air for the purpose of buying individual corporate bonds.  As of June 28, the Fed’s bought $428 million worth of corporate bonds in 86 different companies.  These companies include Berkshire Hathaway Energy, McDonald’s, Southwest Airlines, CVS, AT&T, Boeing, Coca-Cola, Exxon Mobil, Ford, Walmart, United Health Group, Philip Morris International, and many, many more.

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

Pandemic, Economic Collapse, Full Societal Breakdown

Pandemic, Economic Collapse, Full Societal Breakdown

“And the will of Zeus was moving towards its end.” – Homer

Symbiotic Disharmony

The recline and flail of western civilization beats on.  Pandemic, economic collapse, full societal breakdown.  The sequence grooves from one to the next with the symbiotic disharmony of a minor pentatonic scale.

Peaceful protests devolved to rioting, looting, and structure fires in our own lowly hamlet last Sunday.  The Long Beach police couldn’t stop the vandals.  So the National Guard was summoned to quell the ransacking.  Some Guardsmen even stuck around to help out with the cleanup effort the following day.

The refrain – pandemic, economic collapse, full societal breakdown – has been repeated in many cities across the country.  For each: The time is now.  The place is here.

The progression from government pandemic lockdown orders to government curfew orders has been as natural as day to night and back again.  The difference between the two is subtle; like the difference between ketchup and catsup.  The main variance is the local authorities, in what must be an act of public service, now spam our mobile phone each afternoon with warnings to not venture out past curfew.

The events of the last weeks and months have been well covered.  We’ll leave the ongoing documentation tasks to those better qualified.  Instead, we’ll take a step back and look around.  Our aim today is to better understand what’s going on…so we may better anticipate – and plan for – what’s next.

Where to begin?

Human Stampedes

The mass impulse of a cattle stampede can be triggered by something as innocuous as a blowing tumbleweed.  A sudden startle, or a perceived threat, is all it takes to setoff this mass uncontrolled running.  Once the herd collectively begins charging in one direction it’ll eliminate everything in its path.

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

Destruction By Definition

Destruction By Definition

Major U.S. stock market indexes yo-yoed about all week.  On Monday, panic selling from last week turned to panic buying.  Decades of Fed intervention have conditioned stock market investors to step in front of semi-trucks to scoop up nickels.

The Dow Jones Industrial Average (DJIA) jumped 1,290 points.  This marked its biggest-ever single day gain in terms of points.  Can the economic destruction wrought by coronavirus containment really be overcome with what former New York Fed President, Benjamin Strong, once called stock market “coup de whiskey?”  We doubt it.

But we are fairly confident Fed stimulus will have the offensive consequence of widening the gap between sky high asset prices and weak economic fundamentals.  Fed Chairman Powell certainly understands this.  Nonetheless, on Tuesday, he went forward with the dirty deed.

After an early morning teleconference with various G7 poohbahs, Powell cut the federal funds rate by 50 basis points.  This took the Fed’s target range to between 1 and 1.25 percent.  As far as we can tell, Powell’s dirty deed achieved the exact opposite of its intent.

U.S. stock market indexes didn’t go up.  Rather, they went down.  In fact, they went down a lot.  The DJIA, for example, gave back 785 points.  Here’s why…

The Fed’s rate cut was an act of fear.  Investors smelled it out and circled like a pack of wild hyenas.  Powell may be able to expand the supply of money and credit.  But he can’t make up for the economic destruction of a global economy that’s grinding to a halt to stem the spread of coronavirus.  Cutting rates 50 basis points won’t cut it.

“This Sucker’s Going Down”

Bull markets, like myths and legends, die hard in America.  By Wednesday, the bulls were back at it…bidding up share prices like 17th century tulip bulbs.  The DJIA, baited by promises for fiscal stimulus, jumped 1,173 points – back above 27,000.

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

The Triumph of Madness

The Triumph of Madness

Viewing the past through the lens of history is unfair to the participants.  Missteps are too obvious.  Failures are too abundant.  Vanities are too absurd.  The benefit of hindsight often renders the participants mere imbeciles on parade.

Was George Armstrong Custer really just an arrogant Lieutenant Colonel who led his men to massacre at Little Bighorn?  Maybe.  Especially when Sitting Bull, Crazy Horse, and numbers estimated to be over ten times his cavalry appeared across the river.

Were George Donner and his brother Jacob naïve fools when they led their traveling party into the Sierra Nevada in late fall?  Perhaps.  Particularly when they resorted to munching on each other to survive the relentless blizzard.

Certainly, Custer and the Donner brothers were doing the best they could with the information available to them.  The decisions they made must have seemed reasoned and calculated at the time.  But what they couldn’t see – until it was too late to turn back – was that with each decision, they unwittingly took another step closer to their ultimate demise.

Still they were human just like we are human…no smarter, no dumber.  We’re not here to ridicule them; but rather, to learn from them.

A Good Man in a Bad Trade

Rudolf von Havenstein had been president of the Reichsbank – the German central bank – since 1908.  He knew the workings of central bank debt issuances better than anyone.  He was good at it.

Thus, when he was called upon by history to deliver a miracle for the Deutches Reich in the aftermath of WWI, he knew exactly what to do.  He’d deliver monetary stimulus.  In fact, he’d already been at it for several years.

On August 4, 1914, at the start of the war, the Goldmark – or gold-backed Reichmark – became the unbacked Papermark.  With gold out of the picture, the money supply could be expanded to meet the endless demands of war.

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

How Xi Jinping will Save the World from Coronavirus

How Xi Jinping will Save the World from Coronavirus

In 1349, when Black Death was ravaging Europe, many of the day’s best and brightest banded together in pursuit of a common cure.  They had little choice.  Black Death was rapidly spreading across the continent.  Nothing could stop it.

Boils were lanced with precision.  Blood was let with vigor.  But there was no escape from the plague’s instant death.  It was efficient.  It was relentless.  People would go to bed at night perfectly healthy; by morning, they’d wake up perfectly dead.

Then, at the exact moment of maximum death and despair, flagellants came to the rescue.  Processions marched to and fro, seeking relief through forcefully whipping themselves in public displays of self-mutilation.  According to the History Channel:

“Some upper-class men joined processions of flagellants that traveled from town to town and engaged in public displays of penance and punishment: They would beat themselves and one another with heavy leather straps studded with sharp pieces of metal while the townspeople looked on. 

“For 33 1/2 days, the flagellants repeated this ritual three times a day. Then they would move on to the next town and begin the process over again.”

This may seem strange, weird, and, quite frankly, a bit nuts.  But something miraculous happened.  The Black Death epidemic soon exhausted itself.  The flagellants saved Europe from the mid-14th century onslaught of Black Death.

Or did they?

Probably Nothing, Possibly Everything

To be clear, flagellants had no influence on the eventual relenting of Black Death.  Remember, correlation does not imply causation.  Post hoc ergo propter hoc – “after this, therefore because of this” – or simply the post hoc fallacy, recognizes that just because one event happened to follow another, doesn’t mean the initial event caused the later event to occur.

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

The Impulses of Lunar Fed Policy Under Repo Madness

The Impulses of Lunar Fed Policy Under Repo Madness

This week, while you were busy working, Jamie Dimon, CEO of JP Morgan Chase, took time out from rubbing elbows with fellow movers and shakers at the World Economic Forum in Davos, Switzerland, to share his trepidations:

“The only thing I have trepidation about is negative interest rates, QE, and the diversion between stock prices and bond prices and yield and stuff like that….  I think it’s very hard for central banks to forever make up for bad policy elsewhere, that puts them in a trap.  We’re a little bit in that trap today with rates so low around the world.”

Fair enough.  Though Dimon, in what we presume was an inadvertent omission, failed to share that his firm may have recently walked the Federal Reserve into an elaborate policy trap.  Now the Fed’s stuck.  JP Morgan’s thrown away the keys.  And Dimon’s reaped a significant windfall.

If you recall, between Monday night and Tuesday morning September 16/17 the overnight repurchase agreement (repo) rate hit 10 percent.  Short-term liquidity markets essentially broke.  The Fed had to intervene in the repo market, via overnight repo operations, to push the repo rate back below 2 percent.

Since then, overnight repo operations by the Fed have become a near daily occurrence.  What’s more, these daily operations have ballooned to the order of up to $120 billion and are being maintained indefinitely.

On Tuesday, for example, the Fed created $90.8 billion out of thin air.  Of this, $58.6 billion was added to the overnight repo.  The remaining $32.2 billion was added to the 14-day repo.  Then, on Thursday, the Fed created another $74.2 billion out of thin air.  Of this, $44.15 billion was added to the overnight repo, and the remaining $30 billion was added to the 14-day repo.

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

Every Bubble Eventually Finds its Pin

Every Bubble Eventually Finds its Pin

The transfer of wealth from workers and savers to governments and big banks continued this week with Swiss-like precision.  The process is both mechanical and subtle.  Here in the USA the automated elegance of this ongoing operation receives little attention.

NFL football.  EBT card acceptance at Del Taco.  Adam Schiff’s impeachment extravaganza.  You name it.  Bread and circuses like these – and many others – offer the American populace countless opportunities for chasing the wild goose.

All the while, and with little fanfare, debts pile up like deadwood in Sequoia National Forest.  These debts, both public and private, stand little chance of ever being honestly repaid.  According to the IMF, global debt –  both public and private – has reached an all-time high of $188 trillion.  That comes to about 230 percent of world output.

Certainly, some of the private debt will be defaulted on during the next credit crisis and depression.  But when it comes to the public debt, governments do everything they can to prevent an outright default.  Central banks crank up the printing press and attempt to inflate it away.

After Nixon temporarily suspended the Bretton Woods Agreement in 1971, the money supply could be expanded without technical limitations.  This includes issuing new debt to pay for government spending above and beyond tax receipts.  Hence, since 1971, government directed money supply inflation has been the standard operating procedure in the U.S. and much of the world.

Downright Disgraceful

Expanding the money supply has the effect of dissipating wealth from the currency.  The process allows governments, which are first in line to spend this newly created money, a back door into your bank account.  Without levying taxes, they get access to your wealth and future earnings and leave you with money of diminished value.

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

The Fed’s Answer to the Ghastly Monster of its Creation

The Fed’s Answer to the Ghastly Monster of its Creation

The launch angle of the U.S. stock market over the past decade has been steep and relentless.  The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent.  New highs continue to be reached practically every day.

Over this stretch, many investors have been conditioned to believe the stock market only goes up.  That blindly pumping money into an S&P 500 ETF is the key to investment riches.  In good time, this conditioning will be recalibrated with a rude awakening.  You can count on it.

In the interim, the bull market may continue a bit longer…or it may not.  But, to be clear, after a 370 percent run-up, buying the S&P 500 represents a speculation on price.  A gamble that the launch angle furthers its steep trajectory.  Here’s why…

Over the past decade, the U.S. economy, as measured by nominal gross domestic product (GDP), has increased about 50 percent.  This plots a GDP launch angle that is underwhelming when compared to the S&P 500.  Corporate earnings have fallen far short of share prices.

Hence, the bull market in stocks is not a function of a booming economy.  Rather, it’s a function of Fed madness.  And its existence becomes ever more perilous with each passing day.

Central planners at the Fed – like other major central banks – have taken monetary policy to a state of madness.  Zero interest rate policy, negative interest rate policy, quantitative easing, operation twist, quantitative tightening, reserve management, repo market intervention, not-QE, mass-asset purchases, and more.

These schemes have fostered massive growth in public and private debt with nothing but lackluster economic growth to show.  What’s more, these schemes have produced massive asset bubbles that have skyrocketed wealth inequality and inflamed countless variants of new populism.

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

Is the Fed Secretly Bailing Out a Major Bank?

Is the Fed Secretly Bailing Out a Major Bank?

Prettifying Toxic Waste

The promise of something for nothing is always an enticing proposition. Who doesn’t want roses without thorns, rainbows without rain, and salvation without repentance?  So, too, who doesn’t want a few extra basis points of yield above the 10-year Treasury note at no added risk?

The yield-chasing hamster wheel… [PT]

Thus, smart fellows go after it; pursuing financial innovation with unyielding devotion.  The underlying philosophy, as we understand it, is that if risk is spread thin enough it magically disappears. In other words, the solution to pollution is dilution.

With this objective, new financial products are fabricated into existence. The risk free rewards of several extra basis points are then packaged up into debt instruments and sold off to pension funds and institutional investors. The search for yield demands it.

Yet as an economic expansion progresses, especially one that has been extended and distorted with the Fed’s cheap credit, these derived financial securities are polluted with more and more toxic waste. Spreading the risk ultimately pollutes the entire pool of liquidity.

At this moment in the business cycle, after a lengthy bull market in stocks and bonds, countless manifestations of the greater fool theory have bubbled up to the surface. Bonds with negative yields epitomize this. Buyers accept a guaranteed coupon loss with the hopes of scoring capital appreciation as yields fall. But when yields rise, it is game over.

German Bund futures contract, weekly. The recent blow-off and subsequent reversal illustrates the convexity effect on bond prices… [PT]

Of course, the greater fool theory extends much deeper and wider than negative yielding debt. It also extends to the polluted world of corporate debt…

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

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…

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…

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…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase