Wharton Dean Geoffrey Garrett sees a big split in how blockchain-based digital cryptocurrencies like bitcoin are viewed on Wall Street versus in Silicon Valley. On the East Coast, the idea of a cryptocurrency replacing a fiat currency is still met with skepticism. But in the Valley, they seem “all in.” In this opinion piece he offers his views on this corner of fintech. I spent the first week of the New Year with a great group of Wharton undergraduates visiting many of our tremendous alumni in the San Francisco Bay Area. To say it felt very different from the East Coast is an understatement. And I am not talking about missing the “bomb cyclone,” which we did. I am talking about blockchain/bitcoin/cryptocurrencies, which are much more than a speculative Chinese-cum-millennial obsession. Whereas most people on Wall Street remain skeptical, playing a wait-and-see game, Silicon Valley is all in. Literally every meeting I participated in, from the biggest tech companies to the smallest startups, was rich with enthusiastic and creative crypto conversations. I used to think “fintech” meant the end of physical cash - replaced by mobile payments platforms owned by big multinational firms and currently led by China, in established currencies regulated by national governments and international agreements. I now wonder whether the ultimate fusion of technology and finance will mean “the end of money,” at least as we have known it for the last millennium. It’s no longer sci-fi to imagine the replacement of dollars and other “fiat money” with open sourced, radically decentralized, deeply encrypted and self-regulating transactions in digital units of exchange that are “mined” rather issued by central banks. A true fintech revolution. I have to admit I went west very much in the Jamie Dimon mindset. The JPMorgan CEO and voice of Wall Street since the financial crisis famously dismissed bitcoin’s virtual rise in 2017: “I could care less about bitcoin.” Strip out his typically gruff rhetorical flourishes, and Dimon was making 2 fundamental points. Dimon’s first point was that “blockchain” — a globally distributed ledger of financial transactions made secure by advanced cryptography and competition among “miners” (computers competing to execute and record transactions, and being compensated for doing so) — has massive upside. But to become central to mainstream commerce, blockchain will have to lose its unregulated open source roots, be managed by a big multinational conglomerate (think some combination of Visa/Mastercard transactions and SWIFT international transfers), and fall under the clear jurisdictions of national governments and international agreements. His second point was that the transactions that blockchain records will ultimately be in “cryptodollars”, or cryptoeuros, cryptoyuan, etc. — not bitcoin, ethereum, or any other “non-fiat,” purely “digital” currency that is not issued by central banks. This is because there is literally no underlying value to a bitcoin (“worse than tulips,” to use the oft-cited example of the Dutch “tulip bubble” in the 17th century). In contrast, there is underlying value to a dollar — guaranteed by the US Federal Reserve tied to the strength of the American economy. The more I talked with people in the Valley, the less convinced I became of these two points. This is very disconcerting to people like me, steeped in more than 200 years of macroeconomic thought. All the giants (Adam Smith, David Ricardo, John Maynard Keynes, Milton Friedman, Paul Samuelson, and others) not only assumed the centrality of currencies as we have known them. They also valorized money as literally the foundation of a well-functioning economy — both a unit of exchange and a store of value. In Silicon Valley, there is a healthy disregard for all things Washington, government, and regulation - and of course for the status quo. It’s no surprise there seem to be many more bitcoin believers on the West Coast. Source They ask powerful rhetorical questions. Don’t governments and central banks always face the temptation of printing more money? Are you really so happy with the fees credit cards and banks charge? Wouldn’t it reduce our worries about hacking and cyber security if financial transactions were better encrypted and recorded on millions of computers rather than a handful? Isn’t the genius of bitcoin that there is a finite limit to how many can be produced (by the “halving” algorithm at the center of bitcoin mining)? I tend to get lost as soon as the blockchain/bitcoin evangelists get into the real data science behind these technologies, but I do think there is real merit to their rhetorical questions. And I increasingly sense I am not alone. Consider these simple facts. We now can trade bitcoin futures on a crusty old financial exchange. There is lots of VC money pouring into crypto. Asset managers are starting to think about cryptocurrency indexes as a great diversification strategy, because bitcoin risk is likely uncorrelated with any “regular” economic risk. All are powerful indicators that the leading edge of “conventional” finance is taking very seriously the prospects for very radical financial innovation. Finance meets technology, harnessing the combined power of Wall Street and Silicon Valley. Not only the end of cash, but also the end of money. That is the prospect and potential of fintech. What will happen and when it will happen is impossible to predict — as is invariably the case with the most radical innovations. But there is little doubt that an enormous amount of capital, energy and creativity will pour into cryptocurrencies in the coming months and years — even if bitcoin proves the biggest bubble since tulips. * * * Geoffrey Garrett is Dean, Reliance Professor of Management and Private Enterprise, and Professor of Management at the Wharton School of the University of Pennsylvania. Follow Geoff on Twitter.
Известный британский финансовый аналитик Джереми Грэнтэм предсказал, что криптопузырь лопнет в течение ближайших двух лет. Крах биткоина совпадет по времени с обвалом фондового рынка Соединенных Штатов.
Leonid Bershidsky, BloombergThere is no contradiction between President Donald Trump's decision this year to visit the World Economic Forum in Davos -- that ultimate congregation of elites -- and his populist politics. Rather, everything Trump has done so far promotes a slogan JPMorgan Chase Chief Executive Officer Jamie Dimon coined half-facetiously at last year's Davos: "Make elites great again!" (#MEGA).
«Покаяние» Джейми Даймона Глава финансового холдинга JPMorgan&Chase Джейми Даймон, который долгое время играл роль главного антагониста биткоина, неожиданно для всего сообщества заявил, что сожалеет о своих комментариях в адрес первой криптовалюты. Финансист подчеркнул, что технология блокчейн действительно эффективно работает, однако биткоин его нисколько не интересует. Даймон добавил, что его отношение к первой криптовалюте отличается от позиции большинства людей, но не уточнил, чем ......
Authored by Chris Hamilton via Economica blog, Economic prognosticators (Jamie Dimon, among them) suggest that 4% GDP growth is likely and that economic good times have returned. I haven't a clue what they are smoking. I'll lay out how the US economy has grown ever more reliant on cheap debt to buy ever more intangible services creating a decelerating number of full time jobs among a population that is growing ever more slowly (the basis of a growing consumer base). And that's just scratching the surface. To provide some context, the chart below shows the Federal Funds Rate (black shaded area) versus the annual change in federal debt (red), consumption (yellow), government consumption (blue), and private investment (white). Noteworthy since the GFC is the surging annual change in consumption versus tame growth in government spending and decelerating private investment. BTW, since '81, a rising FFR % coupled with decelerating federal debt growth (as we now have) has resulted in declining private investment and imminent recession. America the Service Economy: Since 1960, consumption as a percentage of GDP has risen from 60% to nearly 70%, as of 2017. However, the make up of the three components that comprise consumption has drastically changed (chart below). Durable goods (those deemed to last 3+ years) has been steady at about 8% of GDP while non-durable goods has nearly fallen in half. Conversely, services have risen from just more than a quarter of the total economy to nearly half of total GDP! A service is a type of economic activity that is intangible, is not stored, and does not result in ownership. A service is consumed at the point of sale. So America is an economy where nearly half of all spending results in nothing tangible or durable to show for it...except more debt to be serviced?!? Looking at the year over year quarterly change in the components that make up consumption in dollar terms, the pre-eminence of growth among services is obvious (chart below). Particularly interesting is the disconnect of accelerating growth among services versus decelerating growth among durable and non-durable goods post the GFC. And it is those reliant on these services that are feeling the surging inflation in the cost of these services. Whether it be education, insurance, healthcare, or just a haircut...prices of services (47% of the economy) are skyrocketing versus fairly tame inflation among the 22% that represents "goods" (a computer, a car, a pair of pants). So what? Well, an economy that is reliant on debt (cheap debt) to purchase intangible services (an activity with no asset to show for it) is an interesting concept. Perhaps this transition to a service economy is as responsible for the breakdown in full time employment as anything? As the chart below shows, despite the significantly larger population and gross domestic product, the economy has been consistently producing a decelerating number of full time employees for decades...but the current ten year period is particularly ugly. Despite a new peak in employment and asset prices, the net creation of full time employment over the past decade is less than a third of that seen almost five decades ago. Viewed differently, the chart below shows total full time employees (stock) blue line and the year over year change in full time employees (flow) in yellow. What should be clear is the current period has seen full time job losses magnitudes greater than any previous recession but the subsequent recovery in full time employment has actually been sub-par to those of previous recoveries. Or on a percentage basis, the decelerating growth in full time employment is easier to see. Lower highs and lower lows (chart below). How GDP can supposedly grow at 4% while the growth of the quantity of those capable of consuming more is growing at less than a third of previous periods and the quality of real wages are stubbornly flat...truly a mystery? But asset prices are amazing and the market must be telling us all is well? Perhaps but if gauging the Wilshire 5000 (representing all publicly traded US equities) against the annual net change in full time jobs against...(chart below), something is amiss. When looking at the same full time employment growth as above but on a percentage change basis...decidedly not good (chart below). Lower highs and lower lows for full time employment growth...however, quite the opposite for asset appreciation as the current equity market is equivalent to the '00 and '07 bubbles... combined. Not to mention the now declining 15-64yr/old US population, surging debt to GDP, and Federal Funds rate still barely off the zero bound (chart below). Lastly, as total US population growth has slowed nearly 2/3rd's (as a percentage) from peak '50's growth...and as noted above, the portion of the population growing is now primarily or possibly solely among the 65+yr/old cadre (those that earn and spend about only 2/3rds those in the working population)...the best barometer for what a bubble we are in is the household net worth as a percentage of disposable income...moving off the charts (below). Conclusion: So, a nation growing ever more slowly, an economy growing ever more reliant on utilizing debt to buy intangible services that creates fewer full time jobs is the stuff of the greatest bull market in history. Phewwww, nothing to worry about here!!! Plus, those concerned that inflation may be just around the corner...you can rest easy... outlined HERE. Nothing to worry about but more central bank created stagflation, surging service related expenses, and the further expansion of the greatest asset bubble in human history.
JPMorgan CEO Jamie Dimon discusses the importance of passing infrastructure reform and why Democrats won’t have a chance in 2020.
Москва, 12 января - "Вести.Экономика". J.P.Morgan Chase & Co., крупнейший банк США по размеру активов, отчитался о более высокой, чем ожидалось, прибыли за IV квартал благодаря росту чистого процентного дохода, пишет Reuters.
JPMorgan CEO Jamie Dimon finally got what he wanted: a $2.4 billion tax charge that was about $400 million more than expected. Rival Goldman Sachs may take an even bigger $5 billion hit when it reports earnings next week. These expenses stem from the US tax cuts that were signed into law late last year.…
On the surface (i.e. non-GAAP), JPM's Q4 results came in stronger than expected, with adjusted EPS of $1.76 (or $6.7BN in net income) beating expectations of $1.69, while "managed revenue" of $25.45BN was in line with the $25.51BN expected. GAAP EPS was far lower, or $1.07, as a result of a substantial $2.446 billion after-tax charge for the republican tax cut. JPM also reported that average core loans were up 6% YoY and 2% QoQ, while the bank's provision for credit losses was $1.31BN, below the $1.48BN expected. However going forward, in a detailed breakdown of how the TCJA will impact operations, JPM said that it expects the effective tax rate to be ~19% in 2018 and ~20% in the near-term. The company also stated that it expects "tax reform to be a catalyst for economic activity and growth" JPM also had some comments on how tax reform will affect its business: Will JPM actually repatriate cash and if so how will it be used? No significant remittance of cash expected – we have capital and liquidity requirements in foreign entities – it is a deemed repatriation Why does a reduction of 14% in the federal tax rate translate into a lower reduction in the JPM effective tax rate? Difference driven by the geographic mix of taxable income, nondeductibility of FDIC fees and the impact of a lower tax rate on other deductions What is JPM doing to share the benefit with its employees, customers and communities? In addition to programs already in place, we are planning a broad set of strategic and sustainable benefits for our employees, customers and communities When asked what will be the impact on JPM’s businesses, the bank had this to say: IB fees – positive for M&A and ECM, negative for DCM – overall net positive Corporate Lending – supportive to corporate loan demand over time Home Lending – small negative (home price appreciation slightly lower) but de minimis overall impact to demand Commenting on the results, Jamie Dimon said: U.S. companies will be more competitive globally, which will ultimately benefit all Americans. The cumulative effect of retained and reinvested capital in the U.S. will help grow the economy, ultimately growing jobs and wages. We have always invested, even in difficult times, in our employees, customers and communities, and as a result of the tax plan we will be increasing and accelerating some of these investments.” While all of this was boilerplate, what was more interesting was the ongoing collapse in the company's trading revenues, which while expected to decline, tumbled in Q4 with total markets revenue down 26% to $3.4 Billion in Q4. Of note, Fixed Income Markets revenue of $2.2B, was down a whopping 34% YoY, although the number would have been -27% excluding tax impact. Once again, JPM blamed the record low volatility and the credit bubble, explaining that the decline was "driven by low volatility and tighter credit spreads against a strong prior year quarter." What was even more interesting however, is JPM's explanation that while Q4 Equity Sales and Trading revenue was flat at $1.148BN, the number included "a $143 million loss on a margin loan to a single client." JPM also said that it was subject to credit costs of $130mm driven by a reserve build for the same single client. It is unclear who the client, or what the nature of the loan is, and we expect this to be a hot topic on the conference call today. That and bitcoin of course. This is what the company said in the press release: Markets & Investor Services revenue was $4.4 billion, down 22%, driven by lower Markets revenue, down 26%. Fixed Income Markets revenue was down 34% against a strong prior year, driven by continued low volatility, tighter credit spreads, and the impact from the TCJA on tax-oriented investments of $259 million. Excluding the TCJA impact, Fixed Income Markets revenue was down 27%. Equity Markets revenue was flat compared to a strong prior year and included the impact of a mark-to-market loss of $143 million on a margin loan to a single client. Excluding the mark-to-market loss, Equity Markets revenue was up 12%, driven by strength in Prime Services, Cash Equities and corporate derivatives. Securities Services revenue was $1.0 billion, up 14%, driven by higher interest rates and deposit growth, as well as higher asset-based fees driven by improving market levels. Rounding up the segment, Investment Banking revenue of $1.64BN was a $150MM improvement from a year ago, if below the $1.66BN expected. The good news for JPM traders: "Expense of $4.5B, up 8% YoY, driven by higher compensation expense." Translation: bonuses are going up. What about JPM's loan book? Well, 4Q average core loans were up 6% y/y, 2% q/q as noted above, with the following detail: In CCB, Consumer & Business Banking net rev. rose 16%, on higher deposit margins, strong deposit growth Home lending net rev. fell 15%, driven by lower net servicing revenue, loan spread compression Card, Merchant Services & Auto net rev. up 11%, driven by higher auto lease volumes, net interest income on higher card loan balances and margins, and lower card new account origination costs Noninterest expense $6.7b, up 6% on higher auto lease depreciation, business growth Provision for credit losses $1.2b, up $282m, driven by net reserve build of $15m, including $200m in card driven by loan growth, offset by reserve releases of $15m in home lending due to continued improvement in home prices, delinquencies and $35m in auto Credit card sales volume, merchant processing volume each up 13% In CIB, provision for credit losses was expense of $130m, driven by a reserve build for single client In CB, provision for credit losses was benefit of $62m, largely driven by reserve releases in oil, gas portfolio * * * Finally, looking forward JPM gave the following outlook: As a result of the change in tax rate due to TCJA, expect a reduction in tax-equivalent adjustments, decreasing both managed revenue and managed tax expense by ~$1.2B on an annual run-rate basis New revenue recognition accounting rule expected to increase both FY2018 revenue and expense by ~$1.2B, with the vast majority of the impact in AWM Expect FY2018 effective tax rate to be ~19% Expect 1Q18 net interest income to be modestly lower QoQ due to the impact of TCJA and day count We said finally because this quarter's presentation was surprisingly thin, with little discussion of either credit trends, the company's NIM, or pretty much any other deep dive into the bank's balance sheet, something JPM has traditionally done in prior quarters. How did the market respond to all that? JPM stock first dropped, then rose, and is now unchanged. Full JPM Q4 presentaiton below (link).
2017 has been a banner year for the world’s richest individuals. Pumped by a tidal wave of central-bank driven liquidity and corporate buybacks, equity indexes around the world climbed to all-time highs this year – a phenomenon that has disproportionately benefited the world’s wealthiest, particularly the 500 individuals included in Bloomberg’s billionaires index. By the end of trading Tuesday, Dec. 26, the 500 billionaires controlled an aggregate $5.3 trillion, a $1.1 trillion increase from their holdings on Dec. 27 2016. Unsurprisingly, the biggest beneficiary of this Federal Reserve inspired rally was Amazon.com Inc. founder Jeff Bezos, who added a staggering $34.2 billion to his net worth in 2017 as Amazon shares soared above $1,000. After announcing in October that his family office had given $18 billion to his Open Society Foundations over the past several years (Masking an elaborate tax dodge under the guise of altruism), Soros slipped to No. 195 on Bloomberg’s ranking, with a net worth of $8 billion. Bezos notably knocked Microsoft Corp. co-founder Bill Gates out of his spot as the world’s richest person in October – a position that Gates had held since May 2013. Notably, Gates has been donating much of his fortune to charity, including a $4.6 billion pledge he made the Bill & Melinda Gates Foundation in August. Bezos, whose net worth topped $100 billion at the end of November, currently has a net worth of $99.6 billion compared with $91.3 billion for Gates. While China topped the US in terms of the number of billionaires last year, the tax bill that Trump signed into law last week will certainly go a long way toward helping the US reclaim the top spot. As the chart below shows, the wealthiest Americans will receive an overwhelming share of the benefits from the Trump tax cut plan. Meanwhile, corporations, which received a massive tax cut, will have even more money to continue buying back their shares, driving benchmark indexes ever higher and minting even more billionaires and millionaires in the process. It's also worth noting that, while the rich are getting richer, the average life expectancy in the US declined in 2016 for the second straight year, largely a result of a spike in drug overdose deaths even as the overall rate of deaths declined. And while it's entirely possible that the flood of free corporate cash flow unleashed by the tax cuts could buoy stocks for years to come (JP Morgan's Jamie Dimon fittingly compared the cuts to the Federal Reserve's QE program), such sharp declines in life expectancy have historically been an ominous indicator for equity returns.
**Should-Read**: BitCoin has no good endgame: **Charlie Stross**: [Unforeseen Consequences and that 1929 vibe](http://www.antipope.org/charlie/blog-static/2017/11/unforseen-consequences-and-tha.html): "We're going to run out of new BTC to mine... [then] the incentive for mining (a process essential for reconciling the public ledgers) will disappear... >...and the currency will... will what? The people most heavily invested in it will do their best to patch it up and keep it going, because what BTC most resembles (to my eye, and that of Jamie Dimon, CEO of JP Morgan Chase) is a distributed Ponzi scheme. But when a Ponzi scheme blows out, it's the people at the bottom who lose. The longer BTC persists, the worse the eventual blowout—and the more angry people there are going to be. Angry people who are currently being recruited and radicalized by neo-Nazis...
2017-й стал годом биткоина. За последние двенадцать месяцев его курс по отношению к доллару увеличился в шестнадцать раз. Между тем, будущее самой популярной криптовалюты в мире остается туманным.
Authored by Dave Collum via PeakProsperity.com, A downloadable pdf of the full article is available here, for those who prefer to do their power-reading offline. Introduction “He is funnier than you are.” ~David Einhorn, Greenlight Capital, on Dave Barry’s Year in Review Every December, I write a survey trying to capture the year’s prevailing themes. I appear to have stiff competition - the likes of Dave Barry on one extreme and on the other, Pornhub’s marvelous annual climax that probes deeply personal preferences in the world’s favorite pastime. (I know when I’m licked.) My efforts began as a few paragraphs discussing the markets on Doug Noland’s bear chat board and monotonically expanded to a tome covering the orb we call Earth. It posts at Peak Prosperity, reposts at ZeroHedge, and then fans out from there. Bearishness and right-leaning libertarianism shine through as I spelunk the Internet for human folly to couch in snarky prose while trying to avoid the “expensive laugh” (too much setup). I rely on quotes to let others do the intellectual heavy lifting. “Consider adding more of your own thinking and judgment to the mix . . . most folks are familiar with general facts but are unable to process them into a coherent and actionable framework.” ~Tony Deden, founder of Edelweiss Holdings, on his second read through my 2016 Year in Review “Just the facts, ma’am.” ~Joe Friday By October, I have usually accrued 500 single-spaced pages of notes, quotes, and anecdotes. Fresh ideas occasionally emerge, but most of my distillation is an intellectual recycling program relying heavily on fair use laws.4 I often suffer from pareidolia—random images or sounds perceived as significant. Regarding the extent that self-serving men and women of wealth do sneaky crap, I am an out-of-the-closet conspiracy theorist. If you think conspiracies do not exist, then you are a card-carrying idiot. Currently, locating the increasingly fuzzy fact–fiction interfaces is nearly impossible thanks to the post-election bewitching of 50 percent of the populace. “The best ideas come as jokes. Make your thinking as funny as possible.” ~David Ogilvy, marketing expert You might be asking, “What’s with the title, Dave? My 401K is doing great, and I own a few Bitcoin!” Yes, indeed: your 401K fiddled its way to new highs day after day, but this too shall pass—it always does—and not without some turbulence. This year was indeed a tough one to survey. As many peer through beer goggles at intoxicatingly rising markets, I kept seeing dead people (Figure 1). “We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping: I admit to not understanding it.” ~Richard Thaler, winner of the 2017 Nobel Prize in Economics Figure 1. An original by CNBC's Jeff Macke, chartist and artist extraordinaire. A poem for Dave's Year In Review The bubble in everything grew This nut from Cornell Say's we're heading for hell As I look at the data…#MeToo [email protected] Some will notice that in decidedly political sections, the term “progressives” is used pejoratively. Their behavior has become nearly incomprehensible to me. My almost complete neglect of the right wing loonies may reflect some bias, but politically, they have taken a knee. They have become irrelevant. Free speech is a recurring theme, introducing interesting paradoxes for employee–employer relationships. Some say I have no filter. They obviously have no clue what I want to say. In case my hints are too subtle, I offer the following: Sources I sit in front of a computer 16 hours a day, at least three of which are dedicated to non-chemistry pursuits. I’m a huge fan of Adam Taggart and Chris Martenson (Peak Prosperity), Tony Greer (TG Macro), Doug Noland (Credit Bubble Bulletin), Grant Williams (Real Vision and TTMYGH), Raoul Pal (Real Vision), Bill Fleckenstein (Fleckenstein Capital), James Grant (Grant’s Interest Rate Observer), and Campus Reform—but there are so many more. ZeroHedge is by far my preferred consolidator of news. Twitter is a window to the world if managed correctly. Good luck with that. And don’t forget it’s public! Everything needs an open mind, discerning eye, and a coarse-frit filter. “You are given a ticket to the freak show. When you’re born in America, you are given a front row seat, and some of us get to sit there with notebooks.” ~George Carlin, comedian Contents Footnotes appear as superscripts with hyperlinks in the “Links” section. The whole beast can be downloaded as a single PDF xxhere or viewed in parts—the sections are reasonably self-contained—via the linked contents as follows: Part 1 Introduction Sources Contents My Personal Year in Review Investing Economy Broken Markets Market Valuations Market Sentiment Volatility Stock Buybacks Indexing and Exchange-Traded Funds Miscellaneous Market Absurdities Long-Term Real Returns and Risk Premia Gold Bitcoin Housing and Real Estate Pensions Inflation versus Deflation Bonds Banks Corporate Scandals The Fed Europe Venezuela North Korea China Middle East Links in Part 1 Part 2 Natural Disasters Price Gouging The Biosphere and Price Gouging Sports Civil Liberties Antifa Harvey Weinstein and Hollywood Political Correctness–Adult Division Political Correctness–Youth Division Campus Politics Unionization: Collum versus the American Federation of Teachers Political Scandals Clintons Russiagate Media Trump Las Vegas Conclusion Books Acknowledgements Links in Part 2 My Personal Year in Review Who cares what an academic organic chemist thinks? I’m still groping for that narrative. In the meantime, let me offer a few personal milestones that serve as a résumé while feeding my inner narcissist. I remain linked into the podcast circuit, having had chats with Max Keiser and Stacy Herbert (Russia Today aka RT),5 Chris Martenson,6 Jim Kunstler (The KunstlerCast),7 Lior Gantz (Wealth Research Group),8 Anthony Crudele (Futures Radio Show),9 Susan Lustick (News-Talk 870 WHCU),10 Jason Burack (Wall St. for Main St.),11 Dale Pinkert (FXStreet),12 Lance Roberts (Lance Roberts Show),13 and Jason Hartman (Hartman Media Company).14 I also spoke at Lance Roberts’s Economic and Investment Summit discussing campus politics15 and the Stansberry Conference (Figure 2) arguing the merits of price gouging.16 I got into a big spat with the American Federation of Teachers and some local social justice warriors that made it to the national press (see “Unions”) and dropped 30 pounds unaided by disease. “And, before anyone should doubt what a chemistry professor would know about unions and what effect they would have, it should be noted that Collum has amassed a following for his annual 100-page papers on the state of business and politics. Turns out, he knows a thing or two about economics and politics as well.” ~Joe Cunningham, RedState Figure 2. The lovely Grant Williams, brainy Danielle DiMartino Booth, and one of the Paddock brothers in Las Vegas. On the professional side, I had a great year: I finished my stint as department chair; started a sabbatical leave; broke my single-year total publication record; and broke my single-year record for papers in the elite Journal of the American Chemical Society. I attempted to extend a contiguous string of 20 federal grants without a rejection by submitting two NIH grants and subsequently got totally blown out of the water. (OK. I’m still walking that one off. I think the panel finally noticed that I am deranged.) I was accepted into an organization called the Heterodoxy Academy, whose membership includes hundreds of tenured professors standing up for free speech on college campuses.17 “My job is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think I am repeating myself.” ~Jason Zweig, Wall Street Journal columnist Investing “I dig your indefatigable bearishness, my friend.” ~Paul Kedrosky, one of the earliest bloggers I’m sensing a tinge of Paul's sarcasm. My net worth from January 1, 2000, has compounded at a ballpark annualized rate of 7 percent. That’s not so bad, but the path has been rather screwy. From mid ’99 through early ’03, I carried cash, gold, silver, and a small short position. I kept buying gold through about 2005 (up to $700 an ounce), resumed in 2015, and bought several multiples of my annual salary’s worth in 2016. I’m done now. Gold is up 8 percent, and silver is down –2 percent in 2017 thanks to a minor end-of-year sell off. The spanking from ’11 to ’15 seems to have subsided. Precious metals, etc.: 29% Energy: 0% Cash equivalent (short term): 62% Standard equities: 9% “Most people invest and then sit around worrying what the next blowup will be. I do the opposite. I wait for the blowup, then invest.” ~Richard Rainwater I was totally blindsided by the downturn in gold starting in ’11 and energy in ’13. (Energy peaked in ’08 but was on the mend until ’13.) I bought energy steadily starting in ’01 with broadly based energy funds and a special emphasis on natural gas. The timing of entry was impeccable and all was going swimmingly—I was a genius!—until the Saudi oil minister attempted to talk oil down from $110 to $80 per barrel18 in '13. He thought he could blow the frackers out of the game fast, but it was a hold-my-beer moment for our credit system. The frackers kept fracking, the oil price overshot the Sheik's target by $50 per barrel, and I got whacked for 30–45% losses over four years starting in '14.19 It is impossible to know when you’re being a highly disciplined buy-and-hold investor—a Microsoft and Apple gazillionaire refusing to sell—or just an idiot. I sensed that the rotten debt had been purged and we were through the worst of the energy downturn. I worried that a recession could do a number on me, but it took years to get to my position through incremental buying. I’m holding on, goddammit! We seem to be running out of downside. Unbeknownst to me until October, however, my employer had liquidated my energy funds—every last one of them—and put me in a life-cycle fund in April. Sell ’em after they plummet? Thanks guys. A rational investor, if committed to hold them, would undo the general equity fund restrictions—I did—and buy the energy funds right back—I didn’t. Friends in high places all said to wait. About a week later, the Middle East erupted in what looked like a sand-to-glass phase transition (see “Middle East”), and energy started to move in sympathy. Peachy. Fidelity actually saved me a little money, but I am still white-knuckling the cash, growing a long wishlist, waiting for a generalized sell-off/recession to offer some serious sub-historical-mean bargains (see “Broken Markets”). The correction in ’09 at the very bottom brought us to the historical mean, but not through it. For this reason, I have largely skipped this equity cycle. The current expansion is long in the tooth and founded on poor fundamentals. I hope that the wait won’t be too long. Until then . . . “Remember, when Mr. Market shows up at your door, you don’t have to answer.” ~Meb Faber, co-founder and CIO of Cambria Investment Management Economy “A decade after the biggest crisis since the Depression, a broad synchronized recovery is under way.” ~The Economist, March 2016 Whoa! Fantastic! Goldilocks survived another bear. There is just one hitch: that was a total load of crap in 2016, and it’s a colossal load now. Let’s take a peek at a few gray rhinos—“large and visible problems in the economy that are ignored until they start moving fast.” GDP growth rates from 1930–39 and 2007–16 were as follows:20 GDP growth in the 1930’s 1930: –8.5% 1935: 8.9%1931: –6.4% 1936: 12.9%1932: –12.9% 1937: 5.1%1933: –1.3% 1938: –3.3%1934: 10.8% 1939: 8.0% GDP growth in the new millennium 2007: 1.8% 2012: 2.2%2008: –0.3% 2013: 1.7%2009: –2.8% 2014: 2.4%2010: 2.5% 2015: 2.6%2011: 1.6% 2016: 1.6% Whether you use the arithmetic or geometric mean, both gave us 1.3 percent annualized growth. Let’s spell this out: during the recent era in which markets soared, the economy tracked the Great Depression. It is instructive to look at the economy with a little more granularity than the writers at The Economist-Lite. According to John Mauldin, total domestic corporate profits have grown at an annualized rate of just 0.1 percent over the last five years.21,22 Goldman’s Abby Joseph Cohen says R&D spending is down to 2.5 percent of GDP from 4.5 percent and is a drag on the economy.23 Economic bellwether General Electric saw revenue drop 12 percent and earnings fall 50 percent year-over-year,24 and these numbers are aided by the company’s legendary creative accounting schemes.25 Meanwhile, corporate America witnessed a 71 percent rise in business debt since 2008. According to economist Lacy Hunt, “It’s the investment, the real investment, which grows the economy,” prompting the legendary market maven @RudyHavenstein to state dryly, “I like Hunt.” Where are they spending all that borrowed money? Hold that thought. Long-term demographic problems—“quantitative aging” (Figure 3)—exacerbated by dropping sperm counts26 suggests the economy will continue to shoot blanks. Figure 3. Demographics looking sketchy. Putative job gains affiliated with this low growth are fragile if not dubious as hell and are being boosted by the “Dusenberry effect”—consumers’ reluctance to stop spending even after their income drops—which will cause the next recession to be a real Dusey. (Sorry.) Eventually, common sense prevails as companies run out of credit and savings-deficient consumers reassume the fetal position. According to extensive work by Ned Davis Research, cash levels among households are near their lowest levels of all time; consumer resiliency is always temporary. “When it is all said and done, there are approximately 94 million full-time workers in private industry paying taxes to support 102 million non-workers and 21 million government workers. In what world does this represent a strong job market?” ~Jim Quinn, The Burning Platform blog The Bureau of Labor Statistics has turned to Common Core math. How can we have 100 million working-age adults—40 percent of the working-age population—not working, 4 percent unemployment, and employers claiming the labor market is tight? Are 90 percent of those without jobs professional couch potatoes? Let’s first look at employment in some detail and then address that whole “tight” part. Googles of pixels have been dedicated to the obligatory labor force participation rate (Figure 4), a critical component of any economic debunking. Of those employed, 26 million people are in low-wage, part-time jobs (Figure 5), 8 million hold multiple jobs, and 10 million are “self-employed.”27 Another 21 million work for the government, which means they are a tax on the free market. In 2016, 40 percent of new jobs were fabricated through the specious “birth and death model.”28 2017 will presumably post similar numbers. Occasional reports of large job growth are deceptive. July, for example, witnessed 393,000 benefit-free, part-time, low-skill jobs offset by a drop of 54,000 full-time workers. Payroll numbers keep coming in lower than expected, which economists invariably blame on some big, yet unseen effect they are paid to notice. Nine out of 10 millennials living on their parents’ couches a year ago are still clutching TV remotes.29 There are now 45–50 million Americans on food stamps, up from 14 million in December 2007,30 when the last recession was already underway. Figure 4. Labor force participation. I am going to let Jeff Snyder take a crack at explaining the tight labor market:31 “The economy is tight, not favourably tight as in no slack in the labour market, but more so tight in that there is little margin for addition. . . . The reality in the markets is this: executives are reluctant to pay wages at a market-clearing rate.” ~Jeff Snyder, Alhambra Investments Figure 5. Low-paying service jobs versus manufacturing jobs. Poor economic numbers are pervasive. Auto sales are canaries in the coal mine and getting crushed despite aggressive incentives.32 Ford is already suffering and predicting a multi-year slowdown.33 A car industry crunch analogous to that in ’09 may appear in ’18 as expiring leases leave consumers underwater owing to dropping used car prices, and decreasing profits in the auto industry may “then turn from secular to structural problems.”34 Morgan Stanley predicts a 50 percent drop in used car prices over the next 4–5 years,35 which will gut the new car business. The auto downturn has already begun. Wells Fargo is reporting large drops in auto loans after a long stretch during which subprime car loans flourished yet again.36 That should put a fork in the new car market. Yield-starved investors are chasing cash- and income-starved car buyers. Subprime auto-asset-backed securities will take yet another beating. Chrysler is teaming up with Santander Consumer USA to push out “unverified income” subprime auto loans using “automated decision making.” Santander seems to have nine lives, and they’ll need all of them. The hyperdeveloped loan market for used cars, however, is already faltering (Figure 6); delinquency rates are rising. Goldman expects “challenging consumer affordability” and has downgraded General Motors to “sell.”37 Those cars y’all bought on cheap credit yesterday will not be bought tomorrow. Claims that the hurricanes cleared out auto inventory38 are grotesquely underestimating the magnitude of the overhang and will be paid for by reduced consumption in other sectors. Any consumption pulled forward with debt has a deferred cost. Figure 6. Some key auto industry stats (a) loans and leases, (b) loan delinquencies. We’ll take a crack at the housing market in its own section and simply note here that the cost of renting or buying normalized to income has never been higher. Approximately half of tenants spend more than 30 percent of their income on rent, doubling from a decade ago.39 A survey of 20 cities showed that housing costs are growing at a 6 percent annualized pace. Our paychecks are not. Housing is a bubblette and likely to offer fire-sale bargains again. What many fail to grasp is that the reduced cost of borrowing owing to low rates is offset by higher prices. When interest rates were 15 percent, houses were cheap. Austrian business cycle theory says easy money policies generate overdevelopment and other malinvestment. The day of reckoning appears to be here. (I say that every year…channeling Gail Dudek.) Familiar brands like Toys “R” Us (my keyboard has no backwards R), JCPenny, Abercrombie & Fitch, Sears, Bon-Ton, and Nordstrom are gasping their last gasps before drowning in debt with no customers to save them. Total retail revenues and sales (including online) are up only 28 percent from the 2007 high.40 The management of Ascena Retail referred to an “unprecedented secular change.”41 More than 100,000 retail jobs have vaporized since October 2016.42 Credit Suisse estimates that more than 8,000 retail outlets closed this year.43 Consumer goods companies have held up better because consumers generally put off starving or freezing to death until all options are exhausted. Restaurants are extending the longest stretch of year-over-year declines for 16 consecutive months (last I looked).44 Business Insider blames millennials because they are “more attracted than their elders to cooking at home” (particularly when it’s their parents’ home.) Manhattan retail bankruptcies are called “horrifying.”45 Chapter 11s and company reorganizations in foreign courts increased sevenfold.46 Mall owners are using jingle mail—a term from the ’08–’09 crisis referring to leaving keys to creditors. Commercial retail will be coming into its own refinancing wave in 2018. Bears are sniffing around commercial-mortgage-backed securities as malls around the country begin to die.47 The next downturn will finish many of them off. Exchange-traded funds (ETFs) are positioning to short the brick-and-mortar retail. (Quick: somebody grab the ticker symbol “MAUL.”) Some suggest the Rout in Retail is merely a secular shift to online. Sounds logical except online sales represent only 8.5 percent of total retail sales.48 This argument might be masking a huge downturn in retail corresponding to the bursting of yet another Fed-sponsored bubble. As Amazon encroaches on every nook and cranny of retail sales, what began as a murmur has turned into a chorus: “This isn’t fair; somebody must do something!” Walmart knows this plotline. Market dominance does not connote “monopoly,” but Amazon has an image problem. Amazon gets a $1.46 subsidy (discount) per box from the USPS, well below its cost.49 Seems cheesy. Congress is showing concern out of self-interest. A monopoly is when a company uses its power to blow its competitors out of the water garishly. Who decides what is garish and when enough is enough? A judge under political pressure. A detailed summary of the breadth of Amazon’s market share and its anti-competitive pricing suggests that we are getting close.50 There’s nothing like a protracted anti-trust suit to mute the growth of a large conglomerate. Just ask the Microsoft high command. If our problems are not Amazon, what are they? Austrian business cycle theory says that our debt-driven, consumer-based economy endorsed by sell-side economists and analysts worldwide is unsustainable. Wealth is made, mined, grown, or coded, only then do you get to consume it. Wealth is extinguished by consumption, depreciation, and destruction. Central bankers seem to believe you can will wealth into existence by generating animal spirits. The next recession will start unnoticeably. Economists seem to miss every single one, often declaring telltale indicators irrelevant. Then you will hear phrases like “technical recession,” “growth recession,” or “earnings recession,” all eventually giving way to somebody opening the Lost Arc. If the next recession flushes the waste products (malinvestment) left behind by the central-bank-truncated ’08-’09 recession, it will reveal the central bankers to be charlatans. Even a typical recession witnesses near 40 percent losses in equity portfolios, which will leave already immunocompromised consumers vegetative. Banks will constrict lending to preserve capital, further slowing the economy. Weak businesses living off easy credit will become pink mist. An accelerating vicious cycle downward will take with it formerly viable businesses that could have survived a less arrogant monetary policy. This collateral damage was avoidable at least in its magnitude, but it can’t be avoided now. Are we on the cusp of the next recession? Citigroup “clients” say not even close (Figure 7). I think we are staring into the abyss. Figure 7. June 2017 Citigroup client survey of recession odds. Will this expansion continue because it has been pathetic or die because it is old? I cast my vote for the latter. The Fed and its central bank brethren, whether to retrieve residual credibility—they have precious little—or out of the deep-seated, albeit misguided belief that they are in charge of the economy, have decided it is time to “normalize rates” and undo quantitative easing. (We are now forced to accept the equally silly term “quantitative tightening.”) You can blame the ensuing problems on the tightening if you wish, but the huge mistakes were made long before this tightening cycle commenced. Every postwar recession until now was been preceded by a tightening cycle (although not all tightening cycles lead to recessions). Why not simply refuse to tighten? It won’t work, but the Fed governors are probably entertaining this possibility. “The central banks did their job. Unfortunately, almost nobody else has done theirs.” ~Martin Wolf, Financial Times “As has come to be commonplace, almost everything Mr. Wolf suggests is incorrect.” ~Tim F. Price, Cerberus Capital and author of Investing Through the Looking Glass (see “Books”) I’ll close this discussion with a brief mention of “creative destruction,” the process by which the new (and improved) ushers out the decrepit and out-of-date. It is a central tenet of capitalism—survival of the fittest—but has a disruptive dark side. McDonald’s (and every other service industry) is turning to kiosks to replace more costly human labor. Driverless cars will be awesome but also force car-based workers—potentially millions of them—to find new work. The financialization of the economy by central bankers has tipped the capital–labor balance profoundly toward capital. We will produce goods better and more efficiently, but the Darwinian adjustments will rock the system. Accelerated product cycles facilitated by excess capital can also be highly inefficient. The Erie Canal was completed in 1825 and faced its own black swan—railroads—that same year. Blockbuster was offed by Netflix as fast as it appeared. Can creative destruction happen too fast? Have product cycles become too short? Bulldoze your house every five years to build a better one and tell me how that works. Loose credit accelerates creative destruction, but not without a price. “A high initial saving rate has been associated with subsequently stronger economic growth, while a low saving rate produces a lower growth pattern.” ~Lacy Hunt, economist, noting soaring consumer debt Broken Markets “I think we have fake markets. . . . Everything is so tight, it is hard to pick a winner from a group that is fake.” ~Bill Gross, Janus "One word characterizes why the bull market can go on for years…'Goldilocks'" ~Sam Ro, Yahoo Finance “I’m not worried about the economy so much; what I’m concerned about is valuation.” ~David Swensen, Yale University’s longtime CIO "I think the bull market could continue forever." ~Jim Paulsen, Wells Fargo Regression to the mean is a force of nature. It is also a mathematical truism that markets reside below the mean for half of their price-weighted existence. The failure to go through the mean in ’09 is an anomaly caused by global central bankers that remains as an IOU on investors’ balance sheets and foreshadows trouble to come. Our system is constantly being overtly displaced from equilibrium by central bankers who view displacement as their mandate. Physical scientists know that any system displaced from equilibrium tends to return to equilibrium. The French physicist Carnot, often called the father of modern thermodynamics, showed that the round trip necessarily comes at a cost no matter how efficient the process: it’s a law of physics. Any chemist will tell you that a system massively displaced often returns with a considerable cost: you blow up your laboratory. Geologists? Volcanoes and earthquakes. Ski bums? Avalanches. How far are asset markets from equilibrium? The pros have some opinions: “Asset valuations historically aren’t way out of line, but elevated I would say, relative to historical averages.” ~Lael Brainard, Federal Reserve governor “Measured against interest rates, stocks actually are on the cheap side compared to historic valuations.” ~Warren Buffett, Berkshire Hathaway, channeling the Fed model “Compared to the Dutch Tulip Mania of 1637, stocks still look undervalued.” ~Rudy Havenstein (@RudyHavenstein), Funniest Tweeter of the Millennium Case closed. Let’s get a six-pack and watch football. The problem is that Brainard is a Fed governor, Havenstein is nuts, and Buffett is known for spewing some serious bullshit. Buffett’s favorite indicator—market cap to GDP—is double the historical mean (vide infra)—what market analyst John Hussman calls “historically offensive valuations.” Buffett also wrote an article in 1999 stating without qualification that returns are not about the economy at all.51 Secular bull markets are powered by falling interest rates and secular bear markets by rising rates. With interest rates at multi-century lows, it seems likely the old codger knows that his implicit reliance on the Fed’s valuation model is lunacy. As an aside, Berkshire has the largest cash hoard in its history—$100 billion—and it’s not being used to buy stocks that are “on the cheap side.” Others, only partially impeded by cognitive dissonance and the task of selling assets at any cost, seem to have neurons firing spasmotically (sense something): “We think the market still has the potential to move higher as investors capitulate into equities.” ~Merrill Lynch “Folks, I have been in this business for over 46 years, and observing markets with my father for 54 years, and I have never experienced anything like what is currently happening. . . . There are years left to run in this one.” ~Jeff Saut, Raymond James “It seems like uncertainty is the new norm, so you just learn to live with it.” ~Ethan Harris, global economist at Bank of America Merrill Lynch The fear of missing out (FOMO) is driving the markets way out over their skis. Markets could get much crazier, of course, but as any serious blackjack card counter will tell you, when the deck is stacked against you, size your bets accordingly. "If you pay well above the historical mean for assets, you will get returns well below the historical mean." ~Paraphrased John Hussman This Hussman quote is a recycle from last year but well worth repeating to make sure you understand it. He goes on to channel Ben Graham by noting that the devastating losses come from purchasing low-quality securities when times are good. The Hussman quote also pairs well with ideas about valuation I cobbled together from a well-known maxim about savings: “Overvaluation is appreciation pulled forward.” “Undervaluation is deferred appreciation.” ~David Collum This one passed the Google test for originality. I don’t know about you, but I want my appreciation in the future, or as James Grant (channeling Joe Robillard) likes to say, “I want everybody to agree with me . . . only later.” Valuations are meaningless as long as market participants are determined to buy stocks, but that mood will change at some point. Once markets are overvalued, however, you will give back those and any further gains during the next irrepressible regression to the mean, more so as you linger below the mean. I hasten to add that slight overvaluation is not a problem: the regression will be embedded within the noise. If, however, markets are way overvalued, an unknowable but inevitable combination of price drop and time—a retrenchment that could last decades—will usher invested boomers to the Gates of Hell. What do current valuations tell us about future returns assuming the laws of thermodynamics have not been repealed? Market Valuations “The median stock in the S&P has never been valued higher than it is today.” ~Jesse Felder, The Felder Report “There’s just no other way to say it: the market is insanely overvalued right now. It’s the longest recovery in history. It’s also the weakest. But you’d never know it from the stock market.” ~ David Stockman, former Reagan economic advisor and former Blackstone group partner “We are observing an episode that will make future investors wince. Just like the two closest analogs, the 1929 high and the tech bubble, I expect that future investors will shake their heads in wonder at the stark raving madness of it all, and ask what Wall Street could possibly have been thinking.” ~John Hussman, Hussman Funds “The gap between the S&P 500 and economic fundamentals can now be measured in light years.” ~Eric Pomboy, president of Meridian Macro Research "I believe fragilities today are much more systemic on a global basis than back in 2007. Where’s the Bubble? Virtually everywhere… The scope of today’s global Bubble goes so far beyond 2007." ~Doug Noland, McAlvaney Wealth Management It took a few years to blow up yet another equity bubble—referred to fondly by Jesse Felder and others as the “everything bubble”—but determined central bankers are not in short supply. A host of metrics point to a very mean regression cited below. As I rattle off a few stats, bear in mind the serious yet unknowable losses possible if regression rips through the mean. “Russell 2000 with a 75 p/e is just astronomical.” ~Jesse Felder Starting simple: McDonald’s saw zero revenue growth between 2008 and 2016 but had a 154 percent growth in debt. Its share price is up more than 200 percent. This is not an outlier. Additional examples assembled by Mike Lebowitz of 720Global are shown in Figure 8. I know it’s a table, but look at the contrasting revenue growth versus share price gains! Figure 8. Revenue growth versus price change. “And please don’t claim corporate profits are soaring, so the valuations are justified. . . . Corporate profits are unchanged since 2014—no growth at all.” ~Charles Hugh Smith, Of Two Minds blog The S&P 500 resides 70 percent above its ’07 high even though nominal GDP and total sales rose 10 percent during the same period. Price-to-revenue ratios are sharing the nosebleed seats with 1929 and 2000 (Figure 9).52 Buffett’s market cap–to-GDP indicator is no better, prompting Felder to guesstimate prospective 10-year returns—returns going to somebody else, apparently—at -2.6% annualized.53 In case you suck at math, you will be 10 years older, 33 percent poorer, and in need of a 50 percent gain to stumble your way back to even. Ever the optimist, John Hussman and his relatively complex valuation model, which shows high correlations when back-tested, predicts 60–70 percent losses over the next 10 years.54 To help the value-driven bottom-feeders, Hussman broke down the markets by valuation “deciles” and found that even the deep-value guys are looking at a >50 percent haircut—“haircut” sounds better than “castration” or “blood eagle”—at the end of the current market cycle.55 “Given the performance of certain stocks, we wonder if the market has adopted an alternative paradigm for calculating equity value. . . . What if equity value has nothing to do with current or future profits and instead is derived from a company’s ability to be disruptive, to provide social change, or to advance new beneficial technologies, even when doing so results in current and future economic loss? . . . After years of running into the wind, we are left with no sense stronger than, ‘it will turn when it turns.’ . . . Just because AMZN can disrupt somebody else’s profit stream, it doesn’t mean that AMZN earns that profit stream. For the moment, the market doesn’t agree. Perhaps, simply being disruptive is enough.” ~David Einhorn with tongue in cheek The legendary Howard Marks, using non-GAAP earnings (with a 25 percent fictional fudge factor)56 to calculate trailing P/E ratios, sees a 40 percent regression to the mean. The Case-Shiller weighted P/E ratio—far superior to the non-GAAP alternatives—is in the top 3 percent of historical readings,57 prompting Bob Shiller to dryly note that the markets are “at unusual highs.” (By the way, it was Shiller who slipped Greenspan the phrase “irrational exuberance.”) Dividend yields have flopped around over the centuries. A 56 percent equity decline is required to attain the 150-year historical average of 4.4 percent—assuming reduced cash flows owing to the price collapse don’t lead to dividend cuts.58 Tobin’s Q—essentially price-to-book value ratio and the favorite of Mark Spitznagle—is at all-time highs. The Economist sounds dismissive by suggesting that “a high Tobin’s Q signals that an industry is earning a lot from its assets,"59 which suggests that The Economist is underutilizing its intellectual assets. Figure 9. Valuation metrics from Grant Williams’s World of Pure Imagination.60 Consistency aside, how can these predictions possibly be correct? The reported P/Es are not that bad. The high-growth QQQ index, for instance, is sporting a P/E of only 22, and the Russell 2000—the small-cap engine of economic growth—is in the same neighborhood. Alas, Steve Bregman of Horizon Kinetics notes that the P/E of the QQQ is calculated by rounding all P/Es above 40 down to 40 and assigning a P/E of 40 to all negative P/Es—companies losing money, aka Money Pits.61 For some of the largest companies in the QQQ—think Amazon—with almost no GAAP earnings, these little fudge factors are not just rounding errors. In the scientific community, we call such adjustments “fraud.” Bregman pools the market caps and earnings to give a more honest analysis, which gently nudges the QQQ P/E to 87. In short, Wall Street is “making shit up.” Mark Hulbert, noting that more than 30 percent of the Russell 2000 companies are losing money, concurs with Bregman and suggests that the rascals at the parent company would get a P/E of 80 if they weren’t fibbing like teenagers.62 Market Sentiment Which FANG Stock Will Be The First To Break Out? ~Headline, Investor’s Business Daily (September) I couldn’t care less about market sentiment except to understand how we got to such lofty valuations and how investors have become drooling idiots babbling incoherently about their riches. Nothing scares these markets. Previous bubbles always had a great story, something that investors could legitimately hang their enthusiasm on. The 1929 and 2000 bubbles were floated by dreams of truly fabulous technological revolutions. The current bubble is based on a combination of religious faith in central bankers and, as always, investors’ deluded confidence in their own omnipotence as market timers. Oh gag me with a spoon, really? Unfortunately, some group of prospective toe-tagged investors with silver dollars on their eyes are going to own these investments to the bottom. For now, though, we have nothing to fear but fear itself. Veni vidi vici. “This is not an earnings-driven market; it is a momentum, liquidity, and multiple-driven market, pure and simple.” ~David “Rosie” Rosenberg, economist at Gluskin Sheff The FOMO model is not restricted to Joe and Jane Six-pack. Norway’s parliament ordered the $970 billion sovereign wealth fund to crank up its stock holdings from 60 percent to 70 percent.63 Queuing off an analysis I did last year, a collective (market-wide) allocation shift of such magnitude would cause a 55 percent gain in equities.64 The percentage of U.S. household wealth in equities is in its 94th percentile and above the 2007 numbers.65 A survey of wealthy folks shows they expect an annualized 8.5 percent return after inflation.66 Good luck with that if you wish to stay wealthy. At current bond yields, a 60:40 portfolio would need more than 12 percent each year on the equities. Venture capitalists think they can get 20 percent returns (despite data showing this to be nuts.)67 Maybe they can set up an ETF to track the 29-year-old high school dropout and avid video gamer who professed to love volatility and got himself a 295 percent gain in one year trading some crazy asset (probably Tesla or “vol”).68 He actually ordered a Tesla and proclaimed, “I will soon get my license!” Better get that Tesla ordered soon, young Jedi Knight, given the company’s annualized $2+ billion burn rate and stumbling production numbers. Meanwhile, the legendary Paul Tudor Jones' fund saw 50 percent redemptions.69 (Boomers: Insert Tudor Turtle joke here.) Prudence disappoints investors in the final stages of a market cycle. Unsurprisingly, the complacency index is at an all-time high.70 The oft-cited Fear and Greed Index (explained here71) is pegging the needle on extreme greed (Figure 10). A survey by the National Association of Active Investment Managers found investment managers to be more than 90 percent long the market.72 An American Association of Individual Investors survey showed that retail portfolios were at their lowest cash levels in almost two decades.71 High “delta,” which supposedly reflects investors’ willingness to use levered calls to catch this rally,72 suggests that investors perceive that risk has been eradicated in these central-bank-supervised markets. The few investors retaining a modicum of circumspection are “suffering extreme mental exhaustion” (PTSD) watching the consequences of the “deadweight of [the] US$400 trillion ‘cloud’ of financial instruments . . . supported by ongoing financialization” levitate anything with a price tag on it.73 Booyah Skidaddy. Let’s not forget, however, that traders make tops and investors make bottoms. In the next bloodletting, we may see bonds and stocks compete in synchronized diving. While traders run with the Pamplona bulls, investors sit in the shadows waiting for their day in the sun. Figure 10. Fear and Greed Index. Volatility Market pundits hurl around several definitions of volatility, and both have gotten huge press this year. A narrow dispersion of prices has arisen from the collusion of sentiment, $3 trillion of quantitative easing this year alone,74 trading algos, and programmed contributions to index investments that have created markets that seem very tame (not volatile). Headlines reported all sorts of records such as days without a 1 percent drop,75 consecutive S&P 500 closes within 0.5 percent of previous closing price,76 longest streak of green closes on the S&P, consecutive months without a loss,77 index advances accompanied by new 52-week lows,78 and days without a 3 percent draw down.79 Often the records were kept intact thanks to late-day panic-buying by the FOMO crowd. For the short sellers, it has been the Bataan Death March, particularly in February, when a leveraged fund was forced to liquidate billions of dollars of short positions.80 Even the treasury market shows an “implied volatility” at its lowest level in more than 30 years,81 which highlights historic investor complacency. Some say it is a new era; others see a calm before the storm. A second definition of volatility is explained in Investopedia:82 Volatility: A variable in option pricing formulas showing the extent to which the return of the underlying asset will fluctuate between now and the option’s expiration. Volatility, as expressed as a percentage coefficient within option-pricing formulas, arises from daily trading activities. How volatility is measured will affect the value of the coefficient used. Glad to have cleared that up. It’s no surprise the market players found a way to turn an arcane market indicator into a trading device: you can buy and sell vol through various indices such as the “VIX,” XIV, and “SVXY.” What’s more, the buying and selling of vol influences the markets (10× leveraged according to Peter Tchir). As the vol indices go down, the markets go up, and if I have this right, there is causality in both directions. Vol has been plumbing record lows. Indeed, those shorting vol (driving it down) are making fortunes—a one-decision trade—at least until buying vol becomes the new-and-improved one-decision trade. Billions have flooded into vol short funds each week.83 It is estimated to be a $2 trillion market. Barron’s called shorting the VIX “the nearest thing to free money.”84 References to exceptionally high “risk-adjusted returns” leave me wondering: How do you adjust for risk on the vol trade? Maybe we should consult the logistics manager at a Target store who made a cool $12 million in five years by shorting the VIX.85 He reminds me of those Icelandic fishermen-turned-bankers. They did quite well for a while, but they returned to fishing the hard way. In an incisive analysis of the risks of the vol trade,86 Eric Peters notes that “to sell implied volatility at current levels, investors must imagine tomorrow will be virtually identical to today.” Seems like a reach given that such an assumption has no precedent in the recorded history of anything. The fact that 97 percent of VIX shares are sold short also seems a wee bit lopsided (Figure 11).87 The VIX even had a flash crash88: how ironic is that? JPM’s Marko Kolanovic—reputed to be one of the best technical traders in the known universe—says that a regression of the VIX to the historical norm could cause “catastrophic losses” because of all the shorts.89 Given that volatility begets volatility, forcing an epic short squeeze on $2 trillion of vol shorts at some point, one wonders what comes after “catastrophic”? Figure 11. Volatility (VIX) short positions. Stock Buybacks “Companies might have to start rotating out of the debt that they incurred to buy back their stock and start issuing stock.” ~Chris Whalen, The Institutional Risk Analyst In 2016, I referred to Whalen’s vision of stock buybacks as “buying high–selling low.”90 Peter Lynch’s original enthusiasm for buybacks was that clever management sneakily buys back undervalued shares, not overvalued shares. This buyback ploy began to turn into a scam in 1982, when buybacks were excluded from rules prohibiting price manipulation.91 Buybacks are so large now that they correlate with and quite likely cause large market moves (Figure 12). Since 2009, U.S. companies have bought back 18 percent of the market cap, often using debt—lots of debt.92 The 30 Dow companies have 12.7 billion fewer shares today than in ’08: “the biggest debt-funded buyback spree in history.” An estimated 70 percent of the per-share earnings—24 percent versus only a 7 percent earnings gain since 2012—is traced to a share count reduction from buybacks.93 Pumping the share prices at the cost of rotting the balance sheet (which gullible investors ignore) achieves two imperatives: it prolongs executive employment and optimizes executive compensation. Contrast this with paying dividends to enrich shareholders to the detriment of option holders. The rank-and-file employees might be comforted if companies plugged the yawning pension gaps instead (vide infra), but such contributions would have to be expensed, lowering earnings and, stay with me here, reducing executive compensation. Figure 12. (a) S&P real returns versus margin debt. (b) S&P nominal returns versus share buybacks, and (c) buybacks versus corporate debt. In one hilarious case, Restoration Hardware, a loser by any standard except maybe Wall Street’s, used all available cash and even accumulated debt to buy back 50 percent of its outstanding shares to trigger a greater than 40 percent squeezing of the short sellers who, mysteriously, think the company is poorly run.94 In the “eating the seed corn” meme, the 18 biggest pharmaceutical companies’ buybacks and dividends exceed their R&D budgets.95 Market narrowing—the scenario in which a decreasing number of stocks are lifting the indices—is acute and ominous to those paying attention.96 The so-called FAANGs + M (Facebook, Apple, Amazon, Netflix, Google, and Microsoft) have witnessed a 50 percent spike in their P/E ratios in less than 3 years.97 The FAANGs compose 42 percent of the Nasdaq and 13 percent of the S&P. An astonishing 0.2 percent of the companies in the Nasdaq have accounted for 45 percent of the gains.98 This is a wilding. The average stock, by contrast, is still more than 20 percent off its all-time high. What is going on? Indexing and Exchange-Traded Funds “When a measure becomes an outcome, it ceases to be a good measure.” ~Goodhart’s Law Charles Goodhart focused on measuring money supply,99 but his law loosely applies to any cute idea that becomes widely adopted (such as share buybacks). This is total blasphemy, but market indexing may be a colossal illustration of Goodhart’s Law. John Bogle was the first to articulate the merits of indexing in his undergraduate thesis at Princeton.100 Columbia University professor Burt Malkiel provided a theoretical framework for the notion that you cannot beat the market, which was translated into the best-selling book A Random Walk Down Wall Street. Even Warren Buffett endorses the merits of indexing, although once again, his words belie his actions. Bogle’s seminal S&P tracking fund now contains 10% of the market cap of the S&P 500 after quadrupling its share since ’08. (Behaviorist Peter Atwater attributes the recent enthusiasm to investors who are PO’d at active managers.)101 “When the world decides that there is no need for fundamental research and investors can just blindly purchase index funds and ETFs without any regard to valuation, we say the time to be fearful is now.” ~FPA Capital Then there are the massively popular ETFs that allow you to index while picking your favorite basket of stocks (have your cake and eat it too). Is there anybody who disagrees with the merits of indexing? Didn’t think so. Do ya see the problem here? Goodhart might. Maybe I was oblivious, but acute concerns about indexing seem to have emerged only in the last year or so. Let’s ponder some of them, but only after a brief digression. “There is no such thing as price discovery in index investing.” ~Eric Peters, CIO of One River Asset Management In his must-read book The Wisdom of Crowds, James Surowiecki posits that a large sample size of non-experts, when asked to wager a guess about something—the number of jelly beans in a jar, for example—will generate a distribution centered on the correct answer. Compared with experts, a crowd of clueless people offers more wisdom. I submit that this collective wisdom extends to democracies and markets alike. A critical requirement, however, is that the voting must be uncorrelated. Each player must vote or guess independently. As correlation appears, the wisdom is lost, and the outcome is ruled by a single-minded mob. Thus, when everybody is buying baskets of stocks using the same, wholly thoughtless protocol (indexing), the correlation is quite high. Investors are no longer even taking their own best guesses. The influence of correlation is amplified by a flow of money (votes) putting natural bids under any stock in an index, even such treasures as Restoration Hardware. What percentage of your life’s savings should you invest without a clue? Cluelessness has been paying handsome rewards. A big problem is that index funds and ETFs allocate resources weighted according to market cap and are float-adjusted, reflecting the market cap only of available shares not held by insiders. You certainly want more money in Intel and Apple than in Blue Apron, but indexing imposes a non-linearity that drives the most overpriced stocks to become even more overpriced. That is precisely why the lofty valuations on the FAANGs just keep getting loftier. The virtuous cycle is the antithesis of value investing. The float adjustment drives money away from shares with high insider ownership. Curiously, an emerging strategy that is not yet broadly based (recall Goodhart’s Law) is to find investments that are not represented in popular indices or ETFs on the notion that they have not been bid up by indexers. “With $160-odd trillion global equity market capitalization, we have much more opportunities for ETFs to grow, not just on equities, but in fixed income. And I believe this is just the beginning.” ~Larry Fink, CEO of Blackrock, the largest provider of ETFs The indexed subset of the investing world could be at the heart of the next liquidity crisis. In managed accounts, redemptions can be met with a stash of cash at least for the first portion of a sell-off. This is why air pockets (big drops) often don’t appear early in the downdraft. By contrast, ETFs trade shares robotically—quite literally by formulas and algos (the robots)—with zero cash buffer. The first hint of trouble causes cash inflows to dry up and buying to stop. Redemptions by nervous investors cause instantaneous selling. Passive buying will give way to active selling. The unwind should also be the mirror image of the ramp: FAANGs will lead the way down owing to their high market caps. Once again, selling begets selling, and the virtuous cycle quickly turns vicious. Investors will get ETF’d right up the...well, you get the idea. “You’re better off knowing which ETFs hold this stock than what this company even does. . . . That’s scary to me. . . . The market needs to have a major crash.” ~Danny Moses, co-worker of Steve Eisman “Throw them out the window.” ~Jeff Gundlach, CIO of DoubleLine Capital, on index funds I would be remiss if I failed to note that there are also some really wretched ETFs. What are the odds, eh? I’m not sure I even believe this, but it has been claimed that a 3×-levered long gold mining ETF lost –86 percent while a 3×-levered short gold mining ETF lost –98 percent, both over the same time frame that the GDX returned zero percent. You wouldn’t want to pair-trade those bad boys. It is also rumored that the SEC has approved 4×-levered equity ETFs. Investors are going to be seeing the inside of a wood chipper at some point. A 3×-levered Brazilian ETF (BRZU) lost 50 percent in a single day. Apparently none of these investors ever saw The Deer Hunter. We might as well set up ETFs in which investors choose the leverage multiple. One quick click, and it's gone. “ETFs are the new Investment Trusts (similar vehicles in 1920’s) that led to the Great Crash and will lead to the next crash.” ~Mark Yusko, CEO and CIO of Morgan Creek Capital Management “Passive investing is in danger of devouring capitalism. . . . What may have been a clever idea in its infancy has grown into a blob which is destructive to the growth-creating and consensus-building prospects of free market capitalism.” ~Paul Singer, founder and president of Elliott Management Corporation Miscellaneous Market Absurdities “Last time this mood took over, it ended very badly. Look at your investments with 2009 eyes. Did you tail hedge then? Should you risk up now?” ~Jeff Gundlach Recent initial public offerings (IPOs) get routinely flogged. SNAP’s 33 percent drop has become onomatopoetic. What would you expect for a company whose customer demographic is 12- to 18-year-olds with no income? GoPro (GPRO) has lost 95 percent in two years. A few more show precipitous drops from post-IPO highs: FIT, TWLO, FUEL, TWTR, ZNGA, and LC. Blue Apron (APRN) dropped 45 percent from its highs in the 36 days after its IPO. The company also cut 1,200 of a total of 5,000 jobs, prompting one veteran to ponder: “Seriously, how is that not illegal?” This is a new era, dude. The froth creeps into the screwiest places. The hard asset purchase of the year was the da Vinci painting of Salvatore Mundi that sold for $450 million. It was the only known da Vinci in private hands. A Modigliani nude sold for $170 million. A Basquiat painting purchased in 1984 for $19,000 moved across the auction block at a snot-bubble-blowing $111 million (23% compounded annualized return). The fabulously creative modern artwork, The Unmade Bed (Figure 13), sold for a cool $4 million.102 (I have one of those in my bedroom that I got for a lot less.) According to CBS News, a Harambe-shaped Cheeto sold for almost $100K on eBay.103 An obscure Danish penny stock company (Victoria Properties) surged nearly 1,000 percent in a few days, prompting management to remind investors that “there has been no change in Victoria Properties’ economic conditions. . . . The company’s equity is therefore still equal to about zero kroner.”104 Ford is valued at around $7,000 per car produced. Tesla is valued at $800,000 per car produced—they are literally making one model by hand on a Potemkin assembly line.105 A company called Switch has a “chief awesomeness officer.106 Ding! Ding! Ding! Figure 13. A $4 million masterpiece of modern art. Long-Term Real Returns and Risk Premia “Maybe it’s time to quietly exit. Take the cash, hide it in the mattress, and wait for the next/coming storm to pass.” ~Bill Blain, Mint Partners “People have just gotten so immune to any pain and anguish in any of these markets that when it happens it is going be very psychologically painful.” ~Marilyn Cohen, Envision Capital Management If the next correction is only 20–30 percent, I was simply wrong. Mete out a 50 percent or larger thwacking, and I am declaring victory (in a twisted sort of way). When the pain finally arrives, the precious few positioned to take advantage of the closeout sales will include idiots sitting in cash through the current equity binge buying (me). In theory, the short sellers would be in great shape too, but they all reside in shallow graves behind the Eccles Building. Some wise folks, like Paul Singer, have had the capacity and foresight to be raising billions of dollars for the day when monkey-chucking darts can find a target.107 "We think that there has never been a larger (and more undeserved) spirit of financial market complacency in our experience.” ~Paul Singer after raising $5 billion to buy distressed assets in the future There will be few victory laps, however, because boomers will be living on Kibbles ’n Bits. How painful will it be? Figure 14 from James Stack shows the fractions of the last 100 years’ bull markets that were given back.108 On only one occasion were investors lucky enough to hang onto three-fourths of their bull market gains. One-third of the bulls were given back entirely. Two-thirds of the bulls gave half back. The results are oddly quantized. How much will the next bear take back? It depends on how much the reasoning above is out of whack. Do ya feel lucky? Figure 14. Fraction of the bull taken by the bear.108 “The vanquished cry, but the victor doesn’t laugh.” ~Roman proverb Ethereal gains bring up an interesting point, more so than I first thought. In a brief exchange with Barry Ritholtz, I asserted that the “risk premia” on equities—the higher returns because of underlying risk—will be arbitraged away in the long run because occasionally risk turns into reality, and you get your ass kicked. I’m not talking inefficient high-frequency noise but rather the long term—call it a century if you will. With his characteristically delicate touch, Barry noted that I was full of hooey. Refusing to take any of his guff, I dug in. Certainly a free market would price equities much the way junk bonds are priced relative to treasuries to account for mishaps. Look back at Figure 14 in case it didn’t sink in. There is also the problem with interpreting index gains owing to survivor bias. Economist David Rosenberg claims that if the eight companies who left the Dow in April 2004 had remained, the Dow would still be below 13,000.109 Of course, presumably investors swapped them out as well if they were indexing (although somebody ate those losses). “I will get back to you next week with the answer to your singular investment question. Should you have further easy questions such as: is there a God and what gender he/she may be, that will necessarily be part of a separate email chain.” ~Brian Murdoch, former CEO of TD Asset Management on bonds versus stocks Start with the inflation-adjusted principle gains on the Dow (Figure 15), which returns less than 2 percent annualized. Think that’s too low? Take a look at my all-time favorite chart—the Dow in the first half of the 20th century, when inflation corrections weren’t needed (Figure 16). Now throw in some dividends (4 percent on average) and some wild-ass guesses on fees and taxes (including those on the inflated part of the gains). I get a real return on the Dow in the 20th century—a pretty credible century to boot—of only 4–5 percent annualized. Let’s adjust recent returns using the Big Mac inflation metric.110 Big Macs have appreciated sixfold since 1972 (4–5 percent compounded) with little change in quality. Over the same period, the capital gains on the Dow rose twentyfold. Adjusted for Big Mac–measured inflation, the Dow averaged less than 3 percent compounded (ex-dividends). An eightfold rise in the price of extra-large pizzas since 1970 (cited in my now-extinct blog for Elizabeth Warren) paints an even bleaker picture of inflation-adjusted S&P returns. Figure 15. Inflation-adjusted DOW. Figure 16. Non-inflation-adjusted Dow: 1900–1940. Those 4–5 percent inflation-adjusted equity gains do not account for the fourfold increase in the U.S. population, which should be included because the wealth of the nation was shared by four times as many carbon-based life-forms. The returns are also not in the same zip code as the 7–8 percent assumed by many pensioners. Back to the debate, the 4–5 percent inflation-adjusted equity gains contrast with 30-year treasuries returning about 4–5 percent nominally. Hmm...Seems like equities still won, and that Ritholtz appears to have been right. I consulted both digital and human sources (Brian Murdoch, Benn Steil, and Mark Gilbert), and everybody agreed: that punk Ritholtz was right. Even more disturbing, is it possible that Jeremy Siegel is not being a total meathead by asserting that you should buy equities at all times (BTFD)? The explanations for why markets fail to arbitrage the risk premia are said to be rather “mysterious.” According to Brian Murdoch, “academics have been remarkably unsuccessful in modeling it. . . . Despite three decades of attempts, the puzzle remains essentially intact.” Benn Steil concurred. Academic studies (warning!) claim that bonds do not keep up with stocks even over profoundly long periods, and no amount of fudging (fees, taxes, disasters, or survivor bias) accounts for the failure to arbitrage the marginal advantage of stocks to zero. Schlomo Benartzi and Richard Thaler suggest that short-term losses obscuring long-term gains—“myopic loss aversion”—is the culprit.111 (Ironically, I read this paper a week before the Nobel committee told me to read this paper.) Elroy Dimson et al. dismiss all the possible errors that could be root causes and put the sustainable risk premium on stocks at 3–5 percent.112 Let’s flip the argument: Why would you ever own a bond? There are rational answers. To the extent that you do not buy and hold equities for 100 years (unless you are Jack Bogle), you also pay a premium for the liquidity—the ability to liquidate without a huge loss because you were forced to sell into a swoon. You also forfeit the ability to sell into a rally, however, and certainly wouldn't want to sell into a bond bear market either. Of course, the role of financial repression—sovereign states’ ability to force bond yields well below prices set by free markets—could explain it all. Governments like cheap money and have the wherewithal to demand it. Maybe the message is to never lend to governments. I remain in an enlightened state of confusion. Gold “Gold is no more of an investment than Beanie Babies.” ~Gary Smith, economist “If you don’t have 5–10% of your assets in gold as a hedge, we’d suggest you relook at this. . . . [I]f you do have an excellent analysis of why you shouldn’t have such an allocation to gold, we’d appreciate you [sic] sharing it with us. ~Ray Dalio, Bridgewater Associates Ray is rumored to have ramped Bridgewater’s gold position fivefold this fall. He cites geopolitical risk as a reason to own the barbecued relic. “If we actually see missiles in the air, gold could go higher.” ~CNBC trader on thermonuclear war Since the early 1970s, gold has had an annual return of 8 percent (nominal). Gold bears are quick to point out it doesn’t pay interest. Nor does my bank, and by the way, what part of 8 percent don’t they understand? By that standard, the 8 percent gain in 2017 was good but not statistically unusual. Coin sales are down,113 which suggests that either retail buyers are not in the game or the bug-out plans of hedge fund managers—I’m told they all have them—are complete. Sprott Asset Management made a hostile move on the Central Fund of Canada, a gold–silver holding company, in a move that might portend promising future returns.114 “Significant increases in inflation will ultimately increase the price of gold. . . . [I]nvestment in gold now is insurance. It’s not for short-term gain, but for long-term protection. . . . We would never have reached this position of extreme indebtedness were we on the gold standard. . . . It wasn’t the gold standard that failed; it was politics. . . . Today, going back on to the gold standard would be perceived as an act of desperation.” ~Alan Greenspan, 2017, still babbling On the global geopolitical front, Deutsche Bundesbank completed repatriation of 700 tons of gold earlier than originally planned.115 The urgency may be bullish, but a possible source of demand is now gone. Chinese gold companies have been actively searching for domestic deposits and international acquisitions as they push to quadruple their reserves to 14,000 tons by 2020.116 (The U.S. sovereign stash is less than 9,000 tons.) The gold acquisitions of China (Figure 17) show a curious abrupt and sustained increase in activity in 2011. When did gold begin its major correction? Right: 2011. Makes you wonder if geopolitics somehow preempted the supply–demand curve. Because gold can leave Shanghai but not China, it’s a one-way trip. The Shanghai Gold Exchange must get its bullion from other sources. Russia continues to push its reserves up too. Rumors swirl that China and Russia are colluding for something grand, possibly a new global reserve currency based on the petro-yuan and gold. This would change the global landscape way beyond generic goldbuggery. Figure 17. Abrupt changes in Chinese gold acquisitions through Hong Kong in 2011. “Bringing back the gold standard would be very hard to do, but boy would it be wonderful. We’d have a standard on which to base our money.” ~Donald Trump, 2016 The gold market continues to be dominated by gold futures rather than physical gold. The bugs think this will end. I can only hope. In this paper market, gaming is the norm. On a seemingly monthly basis, gold takes swan dives as somebody decides to sell several billion-dollar equivalents (20,000–30,000 futures contracts) when the market is least liquid (thinly traded). Stories of fat-fingered trades abound, but I suspect these are just traders molesting the market for fun and profit, unconcerned that a regulator would ever call them on it. The silver market looked even creepier for 17 days in a row (Figure 18). I never trust that kind of linearity. Figure 18. Silver acting odd over 5 minutes and 17 days. Price changes often appear proximate to geopolitical events, but everything is proximate to a geopolitical event somewhere. India’s success at destroying its cash economy—the only economy it had—via the fiat removal of high-denomination bills117 was akin to announcing that only electric cars are legal starting next week. Some suggested that the move was also an attempt to flush gold out of households and into the banking system.118 Gold inched toward currency status at a more local level as Idaho, Arizona, and Louisiana voted to remove state capital gains taxes on gold—baby steps toward an emergent gold standard.119 The Brits are going the other way by banning salary payments in gold.120 Finishing with some fun anecdotes, a massive gold coin worth millions was stolen from a German museum.121 Some guy restoring a World War II tank found $2.5 million in gold bullion tucked in a fake fuel tank.122 A piano repairman discovered 13 pounds of gold in an old piano.123 According to British law, the repairman gets half, and the folks who donated the piano get squat. Beyond that, the gold market has been quiet for almost five years (Figure 19). Some wonder whether Bitcoin is sucking oxygen away from gold. Which way is gold gonna break if Bitcoin or the dollar tanks? Inquiring minds want to know. Figure 19. Five years of gold price discovery. Bitcoin “Worse than tulip bulbs. It won't end. Someone is going to get killed. . . . [A]ny [JPM] trader trading Bitcoin will be fired for being stupid. . . . [T]he currency isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think the people buying it are really smart. It’s worse than tulip bulbs." ~Jamie Dimon, CEO of JPM Unbeknownst to Dimon, his daughter was trading Bitcoin: “It went up and she thinks she is a genius.” More to the point, traders at JPM were already firing up crypto exchanges (while Goldman and the CFTC seemed to be positioning to enter the game). Dimon decided it was a prudent time to STFU (shut up) by declaring, “I'm not going to talk about Bitcoin anymore.” The joke was on us, however; nobody seemed to notice that Dimon slipped in an earnings warning the same day his Bitcoin quotes hit the media.124 Well played, Jamie. “Bitcoin owners should appeal to the IRS for tax-exempt status as a faith-based organization.” ~Andy Kessler, former hedge fund manager I wish I had a Bitcoin for every time somebody asked me about it. Cryptos and goldbugs share a common interest in escaping the gaze of the authorities. My ignorance of blockchain technology is profound, but I suspect that is true for many who talk the talk. I wonder if somehow blockchain might play a role in bypassing the SWIFT check-clearing system used by Western powers to shake down opposition (Russia).125 I also wonder, however, if the miracles of blockchain should not be confused with those of Bitcoin. Any mention of price or gains below should be followed with an implicit "last time I checked" or even “as of two minutes ago.” My failure to jump on Bitcoin leaves no remorse: (a) I never take a position that risks a you-knew-better moment, and (b) I would have been flushed out, and then I really would have kicked myself. Recall the legendary founding shares in Apple that were sold for $800 and are now estimated to be worth maybe $100 billion?126 There’s rumor of a guy who lost his Bitcoin “codes” that are now estimated at more than $100 million. That’s real pain. I offer my current view of cryptos from a position of total technical ignorance guided by an only slightly more refined understanding of history and markets. Please forgive me, crypto friends. I know you are tired of hearing the counter arguments and the cat calling. I am restrained by the words of a famous philosopher: “Only God is an expert. We’re just guys paid to give our opinion.” ~Charles Barkley, former NBA star What would have flushed me out of a Bitcoin long position? Let’s take it to the hoop: The price action. Exponential gains, even wildly bent on a semi-log plot, have few analogs in history, all of which led to legendary busts (Figure 20). The South Sea bubble, Tulipmania, Beanie Baby, and Mentos-in-a-Coke analogies are legion. They all had a story that convinced many. Figure 20. One-year price chart of Bitcoin (as of 2 minutes ago). The participants. I have a friend—a very smart former Wall Street guy—who swears by it and is up 100,000 percent. You do not need to size your position correctly with that kind of gain. But then there is the clutch of camp followers emblematic of all manias. We have grad students speculating in Bitcoin. A 12-year-old bought his first Bitcoin in May 2011 with a gift from his grandmother.126a At more than $17,000 per coin, his stash is more than $5 million. On MarketWatch, he declared he had a price target of $1 million. “I’m obviously very bullish, but I expect to make a couple million dollars off very little money. This is the opportunity of a lifetime. Finance is getting its Internet.” ~Bitcoin investor Competitors. A Bitcoin competitor issued by Stratis soared to more than 100,000 percent since its initial coin offering (ICO) this past summer. As of December 1, there were 1,326 cryptocurrencies with a total market cap of >$400 billion.127 Paris Hilton has a cryptocurrency.128 The market is saturated more than the dot-com market ever was. It is a certainty that more than 99 percent will die much like most of the 270 auto companies in the ’20s and dot-coms in the ’90s. A site called Deadcoins shows that some already have.129 The debate is whether 100 percent is the final number. Volatility. Massive corrections followed by ferocious rallies akin to a teenager on driving on black ice would have convinced me it was too crazy for my style. Corrections last seconds to hours, with wildly enthusiastic buyers poised to BTFD. Isaac Newton got into the South Sea bubble, was smart enough to get out, and then reentered in time to go bankrupt. I am decidedly dumber than Isaac. Figure 21. Bitcoin photo bomber (acquiring $15K of Bitcoin via crowdsourcing). For Bitcoin to become a currency in its current form, out of reach of sovereigns, seems to require a society-upheaving revolution, which is a rare event that usually gives way to new, equally ham-fisted regimes. The chances seem slim to none for several reasons. “No government will ever support a virtual currency that goes around borders and doesn’t have the same controls. It’s not going to happen.” ~Jamie Dimon (again) The competition. I am doubtless that central banks and sovereign states will never endorse Bitcoin in its current form. They have their own digital currencies and a monopoly on the power to create more, and they commandeer our assets through taxation. Existential risk will bring on the power of the State. When sovereigns decide to do battle, the cryptos will be brought to heel or forced underground. Instabilities. Digital currencies are showing digital instabilities that could just be growing pains or evidence of more systemic problems. How software buffs who know that software is duct tape and bailing wire could think that a software-dependent currency is invincible is beyond me. Ethereum dropped 20 percent in a heartbeat when a hacker theft was reported.130 It dropped 96 percent after the Status ICO clogged the network.131 One user put a stop-loss on Ethereum at $316 on GDAX, which executed at $0.10 during a flash crash.132 So-called “wallets” have been freezing up, although there is some debate as to whether the owners lost the Bitcoins.133 This stuff happens with all risk assets now but not with usable currencies. Volatility. Nobody will use a currency to pay for groceries if prices move 10 percent a day or even 5 percent as you move from the frozen food to the vegetable aisle. This, by the way, is the same explanation for why I don’t consider gold “money” or a “currency.” As long as there exists a Bitcoin–dollar conversion, a sovereign wishing to keep Bitcoin in the realm of a speculative plaything could use its unlimited liquidity to trigger price swings with a little day trading. Legality. If up against the wall, sovereigns will use arguments about fighting crime, stemming ransomware, or controlling monetary policy and declare a War on Cryptos akin to the potential War on Cash. China has already blown shots across the Bitcoin bow by shutting down exchanges as well as ICOs as they struggle with excessive sovereign debt and capital outflows.134 Britain has also done some sabre rattling.135 The IRS has declared gains taxable (akin to gold) and is paying companies to locate digital wallets.136 The fans of BTC declare invincibility—freedom! The average blokes may smoke pot and drive too fast, but they seem less likely to risk a spat with the State on this stuff. “Right now the trust is good—with Bitcoin people are buying and selling it, they think it’s a reasonable market—but there will come a day when government crackdowns come in and you begin to see the currency come down.” ~Mark Mobius, executive director at Franklin Templeton Investments Others have unshakeable faith even in the more obscure cryptocurrencies. I’m unsure what I’m hoping for on this bet (Figure 22): Figure 22. John McAfee, technology pioneer, chief of cybersecurity, visionary of MGT Capital Investments, going all in on cryptocurrencies. Housing and Real Estate “We bailed out the financial system so that financiers with access to cheap credit can buy up all of America’s real estate so that they can then rent it back to you later.” ~Mike Krieger, Liberty Blitzkrieg blog Greenspan claimed those who predicted the housing bubble were “statistical illusions” (as were those who saw Greenspan as a charlatan). There are, once again, housing bubbles littered across the globe at various stages of expansion and contraction owing to central banks providing in excess of $3 trillion dollars of QE this year. Credit is fungible, so the flood of capital can come from anywhere and migrate to anywhere it finds an inflating asset. Hong Kong’s spiking prices are rising by dozens of basis points per day. Attempts by authorities to cool the market only fanned the flames, resulting in “a sea of madness.”137 Australian authorities tried to cap the dreaded interest-only loans at 30% of the total pool, prompting one hedge fund to return money to investors and declare that “Mortgage fraud is endemic; it’s systemic; it’s just terrible what’s going on. When you’ve got 30-year-olds, who have never seen a property downturn before, borrowing up to 80% to buy three and four apartments, it’s a bubble.”138 Prices in London are now collapsing.139 Why would anything collapse with so much global credit? Simple: top-heavy structures tend to collapse from even small shocks. I will focus, however, on only two countries—the U.S. because it is my home turf and Canada because it is the most interesting of the markets. The U.S. appears to be in a bubblette, an overvalued market that does not approach the insanity of 2007 (detected by statistical illusions as early as 2002).140 Twenty percent down payments have become passé again. A survey of 20 cities reveals 5.9 percent annualized price rises.141 The median sale price of an existing home has set an all-time high and is up 40 percent since the start of 2014141 despite what seems to be muted demand (Figure 23). Thus, home ownership has dropped by 8 percent since ’09 because soaring prices have rendered them unaffordable. More than 40 percent of 25-34 year olds, a group historically en route to home ownership, have nothing set aside for a down payment.141 Those who scream about the need for affordable housing don’t notice that we have plenty of low-quality houses. We lack low-cost houses. And the Fed says inflation is good. Figure 23. Median new home sales price in the U.S. versus number sold and versus home ownership rate. In 1960, California had a median home price of $15,000—three times the salary of an elementary school teacher.142 The median home price in San Francisco is now $1.5 million,143 which is unlikely to be three times a teacher’s salary. A couple earning $138,000 will soon qualify for subsidized housing in San Francisco. California housing seems to be interminably overvalued, possibly owing to the draw of droughts, mudslides, crowds, and, fires. Despite modest 6 percent population growth since 2010, housing units have shown an only 2.9 percent increase. There could be a supply–demand problem, especially when the fires subside. Florida is rumored to have eager post-hurricane sellers—those with something left to sell, that is.144 Condo flippers drove prices skyward in Miami, but they are heading earthward with a glut of units scheduled to come online in 2018. It’s not just the sand states starting to see softness. In New York City, rising rates seem to be nudging commercial and residential real estate down and foreclosures up to levels not seen since the 2009 crisis (79 percent year-over-year in Q3).145 Sam Zell is, once again, a seller and claims "it is getting hard."146 Recall that Zell nailed the real estate top by selling $38 billion in real estate in ’07.147 “The condo market at the high-end [in Manhattan] . . . is a catastrophe and will get worse.” ~Barry Sternlicht, Starwood Property Trust Those who already own houses can once again “extract equity” from their homes using home equity lines of credit (HELOCs).148 They then wake up with more debt on the same house. Pundits claim consumers’ willingness to mortgage their future is “a healthy confidence in the economy.” Fannie Mae and Freddie Mac have also entered phase II of the catch-and-release program. Their regulators have authorized them to once again engage in unchecked, reckless lending, prompting some to begin estimating the cost of the next bailout.149 What happened to all that inventory from the colossal boom leading to the Great Recession? Some fell into the foundations, but a lot found its way into private equity firms. Mind you, single-family rentals are a low- or no-profit-margin business under normal circumstances. As long as rates stay low—Where have I heard that one before?—inherently thin profits can be amplified to a significant transitory revenue stream through leverage. A proposed merger of Invitation Homes (owned by Blackstone Group) and Starwood Waypoint Homes (owned by Starwood Capital) would spawn the largest owner of single-family homes in the United States with a portfolio worth over $20 billion.150 Of course, rates will rise again, and these sliced-and-diced tranches of mortgage-backed securities must be offloaded to greater fools. Private equity guys are already frantically boxing and shipping.151 To avoid costly and time-consuming appraisals, market players are using “broker price opinions,” which can be had by simply driving by the house and taking a guess (or just taking a guess). In ’09, the legendary “Linda Green” signed off on thousands using dozens of different signatures.152 U.S. securities regulators are investigating whether bonds backed by single-family rental homes and sold by Wall Street’s biggest residential landlords used overvalued property assessments.153 Let me help you guys out: yes. “The main risk on the domestic side is a sharp correction in the housing market that impairs bank balance sheets, triggers negative feedback loops in the economy, and increases contingent claims on the government.” ~IMF, on the Canadian housing market Heading north, we find that Canada’s real estate market never collapsed in ’09 (Figure 24), an outcome often ascribed to the virtues of the country’s banking system. An estimated 7 percent of Canadians work in housing construction,154 and Canadians are using HELOCs like crazy.155 After Vancouver tried to burst a huge bubble in 2016 with a 15 percent buyers’ tax,156 Chinese buyers chased Toronto houses instead. Annualized gains of 33 percent with average prices of $1.5 million are pushing even the one-percentile crowd to remote ’burbs.157 Toronto authorities have now imposed the Vancouver-like 15 percent foreign buyers tax,158 causing a single-month 26 percent drop in sales and ultimately chasing the hot money to Montreal,159 Guelph, and even Barrie.160 “Make no mistake, the Toronto real estate market is in a bubble of historic proportions.” ~David Rosenberg Figure 24. Canadian versus U.S. median home prices and what they buy ($700,000 for that little gem). The most interesting plotline and a smoking gun in Canada’s bursting bubble was failing subprime lender Home Capital Group (HCG). Marc Cahodes, referred to as a “free-range short seller” and “the scourge of Wall Street,” spotted criminality and shorted HCG for a handsome profit.161 HCG was so bad it was vilified by its auditor, KPMG.162 Imagine that. HCG dropped 60 percent in one day when news hit of an emergency $2 billion credit line at 22.5 percent interest by the Healthcare of Ontario Pension Plan.163 (The CEO of the pension plan sits on Home Capital’s board and is also a shareholder.) Cahodes was printing money and ranting about jail sentences when, without warning, the legendary stockjobber Warren Buffett took a highly visible 20 percent stake in HCG at “mob rates” (38 percent discount).164 The short squeeze was vicious, and Cahodes was PO’d. As Paul Harvey would say, “now for the rest of the story.” HCG is, by all reckoning, the piece of crap Cahodes claims it is. Buffett couldn’t care less about HCG’s assets—Berkshire can swallow the losses for eternity. Warren may have bought this loser as a legal entry to the Canadian banking system, which is loaded with hundreds of billions of “self-securitized” mortgages. The plot thickened as a story leaked that Buffett met with Justin Trudeau (on a tarmac).165 When the Canadian real estate bust begins in earnest, Buffett will have the machinery of HCG and the political capital to feed on the carcasses of the big-five Canadian banks. Pensions “This massive financial bubble is a ticking time bomb, and when it finally goes off, it is going to wipe out virtually every pension fund in the United States.” ~Michael Snyder, DollarCollapse.com blog The impending pension crisis is global and monumental with no obvious way out. The World Economic Forum estimates the pension gap—unfunded pension liabilities—at $70 trillion and headed for $250 trillion by 2050.166 Conservative but still conventional assumptions about prospective investment returns and spending patterns in old age suggest that retiring into the American dream in your mid 60s requires you bank 20–25 multiples of your annual salary (or a defined benefit plan that is the functional equivalent) to avoid the risk of running out of money. A friend—a corporate executive no less—retired with 10 multiples; he could be broke within a decade (much sooner if markets regress to historical means). Of course, you can defiantly declare you will work ’till you drop, but then there are those unexpected aneurysms, bypass surgeries, layoffs, and ailing spouses needing care. I’ve seen claims that more than 50 percent of retirees do not fully control their retirement age. “Companies are doing everything they can to get rid of pension plans, and they will succeed.” ~Ben Stein, political commentator The problem began as worker compensation became reliant on future promises—IOUs planted in pension plans—often assuming the future was far, far away. However, a small cadre of demographers in the ’70s smelled the risk of the boomer retirements and began swapping defined-benefit plans for defined-contribution plans.167 (A hybrid of the two traces back to 18th century Scottish clergy.168) The process was enabled by the corporate-friendly Tax Reform Act of ’86.169 Employees were unknowingly handed all the risk and became their own human resource specialists. Retirement risk depends on the source of your retirement funds. Federal employees are backstopped by the printing press, although defaults cannot be ruled out if you read the fine print.170 States and municipalities could get bailed out, but there are no guarantees. Defined-benefit corporate plans can be topped off by digging into cash flows provided that the cash flows and even the corporation exist. The depletion of corporate earnings to top off the deficits, however, will erode equity performance, which will wash back on all pension funds. The multitude of defined-contribution plans such as 401(k)s and IRAs managed by individuals are totally on their own and suffer from a profound lack of savings. Corporate and municipal defined-benefit plans assumed added risks by falling behind in pension contributions motivated by efforts to balance the books and, in the corporate world, create the illusion of profits. The moment organizations began reducing the requisite payments by applying flawed assumptions about prospective returns, pensions shifted to Ponzi finance. My uncanny ability to oversimplify anything is illustrated by the imitation semi-log plot in Figure 25. The red line reflects the assumed average compounded balance sheet from both contributions and market gains. The blue squiggle reflects the vicissitudes of the market wobbling above and below the projection. If the projections are too optimistic—the commonly reported 7–8 percent market returns certainly are—the slope is too high, and the plan will fall short. If the projected returns are reasonable but management stops contributing during good times—embezzling the returns above the norm to boost profits—the plan will fall below projection again. Of course, once the plan falls behind, nobody wants to dump precious capital into making up the difference when you can simply goose projected returns with new and improved assumptions. In a rational world, pensions would be overfunded during booms and underfunded during busts. Assuming we can agree that we are deep into both equity and bond bull markets and possibly near their ends, pensions should be bloated with excess reserves (near a maximum on the blue curve), and bean counters should keep their dirty little paws off those assets and keep contributing because we won’t stay there. Figure 25. Childish construct of pension assets. That’s a good segue to drill down into the contemporaneous details. Public pensions are more than 30 percent underfunded ($2 trillion).171 A buzzkiller at the Hoover Institution says that the government disclosures are wrong and puts the deficit at $3.8 trillion.172 Bloomberg says that “if honest math was being used . . . the real number would actually be closer to 6 trillion dollars.”173 What is honest math? Using prevailing treasury yields for starters. Bill Gross—the former Bond King—says that if we get only 4.0 percent total nominal return rather than the presumed 7.5 percent, pensions are $5 trillion underfunded.174 Assuming 100 million taxpayers, that’s $50,000 we all have to pony up. California’s CalPERS fund dropped its assumption to a 6.2 percent return—still seriously optimistic in my opinion—leaving a $170 billion shortfall.175 The Illinois retirement system is towing a liability of $208 billion with $78 billion in assets ($130 billion unfunded).176 Connecticut is heading for a “Greece-style debt crisis” with $6,500 in debt per capita (every man, woman, and child?).177 The capital, Hartford, is heading for bankruptcy.178 South Carolina’s government pension plan is $24 billion in the hole. Kentucky’s attempt to fill a gigantic hole in its pension fund (31 percent funded) was felled by politics.179 A detailed survey of municipal pension obligations shows funding ranging from 23 percent (Chicago) to 98 percent (Suffolk).180 My eyeball average says about 70 percent overall. Notice that despite being at the peak of an investment cycle, none are overfunded (Figure 26.) Large and quite unpopular 30 percent hikes in employee contributions are suggested. The alternative of taking on more municipal debt to top off pension funds is a common stop-gap measure of little merit long term; somebody still has to pay. Figure 26. State pension deficits. The 100 largest U.S. corporate defined-benefit plans have dropped to 85 percent funded from almost 110 percent in 2007. During the recent market cycle that burned bright on just fumes, the companies gained only 6 percent above the 80 percent funding at the end of 2008. Of the top 200 corporate pensions in the S&P, 186 are underfunded to the tune of $382 billion (Figure 27). General Electric, for example, is $31 billion in the hole while using $45 billion for share buybacks. Figure 27. Underfunding of 20 S&P pension funds. When are serious problems supposed to start, and what will they look like? Jim Bianco says “slowly and then suddenly.” Some would argue “now.” The Dallas Police and Firemen Pension Fund is experiencing a run on the bank.181 They are suing a real estate fund who slimed them out of more than $300 million182 and are said to be looking at $1 billion in “clawbacks” from those who got out early trying to avoid the pain.183 The Teamsters Central States and the United Mineworkers of America plans are failing.184 The New York Teamsters have spent their last penny of pension reserves.185 The Pension Benefit Guaranty Corporation has paid out nearly $6 billion in benefits to participants of failed pension plans (albeit at less than 50 cents on the dollar), increasing its deficit to $76 billion. CalPERS intends to cut payouts owing to low returns and inadequate contributions (during a boom, I remind you). “The middle 40% [of 50- to 64-year olds] earn $97,000 and have saved $121,000, while the top 10% make $251,000 and have $450,000 socked away.” ~Wall Street Journal Looks like those self-directed IRAs aren’t working out so well either. Two-thirds of Americans don’t contribute anything to retirement. Only 4 percent of those earning below $50,000 a year maxes out their 401(k)s at the current limits.186 They are so screwed, but I get it: they are struggling to pay their bills. However, only 32 percent of the $100,000+ crowd maxes out the contribution. When the top 10 percent of the younger boomers have two multiples of their annual salary stashed away, you’ve got a problem.186 If they retired today, how long would their money last? That’s not a trick question: two years according to my math. Half the boomers have no money set aside for retirement. A survey shows that a significant majority of boomers are finding their adult children to be a financial hardship.187 Indeed, the young punks aren’t doing well in all financial categories; retirement planning is no exception. Almost half of Gen Xers agreed with this statement: “I prefer not to think about or concern myself with retirement investing until I get closer to my retirement date.” Moody’s actuarial math concluded that a modest draw down would cause pension fund liabilities to soar owing to a depletion of reserves.188 There is a bill going through Congress to allow public pensions to borrow from the treasury; they are bracing for something.189 This is a tacit bailout being structured. The Fed cowers at the thought of a recession with good reason: Can the system endure 50% equity and bond corrections—regressions to the historical mean valuation? What happens when monumental claims to wealth—$200 trillion in unfunded liabilities—far exceed our wealth? Laurence Kotlikoff warned us; we are about to find out.190 Beware of any thinly veiled claim that the redivision of an existing pie will create more pie. My sense is that we are on the cusp of a phase change. Stresses are too large to ignore and are beginning to cause failures and welched promises. Runs on pension funds akin to runs on banks would be deadly: people would quit working to get their pensions. At this late stage in the cycle, you simply cannot make it up with higher returns. Enormous appreciation has been pulled forward; somebody is going to get hosed. It’s only fourth grade math. Bankruptcy laws exist to bring order to the division of limited assets. We got into this mess one flawed assumption at a time. On a final note, there is a move afoot to massively reduce contributions to sheltered retirement accounts. This seems precisely wrong. (I have routinely sheltered 25–30 percent of my gross income as a point of reference.) Congress is also pondering new contributions be forced into Roth-like accounts rather than regular IRAs. I have put a bat to the Roth IRA both in print191 and in a half-hour talk.192 Here is the bumper sticker version: Roth IRAs pull revenue forward, leaving future generations to fend for themselves; Fourth grade math shows that Roth and regular IRAs, if compounded at the same rate and taxed at the same rate, provide the same cash for retirement. Roth IRAs are taxed at the highest tax bracket—the marginal rate—whereas regular IRAs are taxed integrated over all brackets—the effective tax rate. If you read a comparison of Roth versus regular IRAs without reference to the “effective” versus “marginal” rate, the author is either ignorant or trying to scam you. Phrases like “it depends on your personal circumstances” are double-talk. This synopsis of a Harvard study has two fundamental errors: Can you find them? “If a worker saves $5,000 a year in a 401(k) for 40 years and earns 5% return a year, the final balance will be more than $600,000. If the 401(k) is a Roth, the full balance is available for retirement spending. If the 401(k) is a traditional one, taxes are due on the balance. Let’s say the person’s tax rate is 20% in retirement. That makes for a difference of $120,000 in spending power, which a life annuity will translate into about $700 a month in extra spending.” ~John Beshears, lead author of a Harvard study Inflation versus Deflation “Deflation does not destroy these resources physically. It merely diminishes their monetary value, which is why their present owners go bankrupt. Thus, deflation by and large boils down to a redistribution of productive assets from old owners to new owners. The net impact on production is likely to be zero.” ~Guido Hülsmann. Mises Institute “My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target.” ~Lael Brainard “Inflation is a tax and those least able to afford it generally suffer the most.” ~Esther George, president and CEO of the Federal Reserve Bank of Kansas City “Barring major swings in value of the dollar, inflation is likely to move up to 2 percent over the next couple of years.” ~Janet Yellen, Federal Open Market Committee chair Barring major swings in the value of the dollar? What kind of circular reasoning is that? The Fed tells us inflation is too low relative to their arbitrary 2 percent target. I say they are lying—through their teeth—and I have company. John Williams of ShadowStats has been ringing the alarm for decades, currently putting inflation at 6 percent compared with official numbers of less than 2 percent (Figure 28).193 A study by the Devonshire Group concurs with Williams.194 The most notable support for the official consumer price index (CPI) inflation numbers comes from MIT’s Billion Prices Project (BPP).
We Told You First- Bitcoin is Going to Be made To Heel per its Banking - Government Overlords. Written by Soren K., Bon Scott, and Fay Dress for the Soren K.Group There is no Bretton Woods agreement to repeal here. Therefore, just control the upstart before if gains traction is all that needs to be done. And it is being done right now. Bitcoin as a potential alternative to sovereign fiat is being strangled in the crib right now via futures listing in the US and banning in the Asian markets. We were warned. Yes it will continue to go up and down i nmassive vilatile moves, but now longs getting in using futures will lose money because of the volatility adn the leverage they cannot afford. This is a tax on the ignorant common man feeling the anxiety of missing out unfolding in real time. From a Previous Post on How Bitcoin will be made to "Heel" Technology that removes the banks' clearing risk while keeping the client captive in their system. Technology is disruptive, yes. But market structure, regulatory agencies , and marketers that lobby and shill for the Banks and Government will win. Technology has no protective moat by nature. It is that quality which will allow Bitcoin to be owned by the powers that be. As the cash in India is being replaced by Visa cards, so shall the Bitcoins be replaced by bank or nation state branded versions of themselves. [EDIT- Futures Do Nicely as well- Soren k .] Are you ready to exchange more freedom for convenience? Bloomberg today saw no possible correlation between trading desks opening up to arb bitcoin futures and its drop off a cliff. Bitcoin plunged as much as 21 percent, briefly dropping below $13,000 in overnight trading. There seems to have been no particular catalyst for the selloff, with extreme volatility remaining a hallmark of the digital token. By 5:40 a.m. Eastern Time bitcoin had recovered some of losses to trade at $14,539.60. In a sign that cryptocurrencies are becoming more mainstream, yesterday we learned that Goldman Sachs Group Inc. is setting up a trading desk to make markets in digital currencies. In other words, buy the dip because it is becoming mainstream. Pay no attention to the prop arbitrage desk that will destroy futures longs even while the bank clients are hedging their BTC longs through them. You know, like when miners hedge production through bullion banks? Mainstream is code to a flow trader (i.e. one who has no original idea in his head and front runs client flow and hammer smaller participants) as for "there is enough stupid money in it for us to arb the shit out of it. After we do that, we will destroy the public longs We find this fascinating as headlines like: “Gold Rallies $50.00: ‘It is overbought’ says analyst” In unrelated news: Russia declares war on US or “Gold plummets $3.00 as people realize its a worthless pet rock, may cause cancer” pervade the financial MSM whose sponsors have nothing to do with gold by and large. Enter BTC which has not yet cemented its potential in the public mind as a replacement for fiat, and must be strangled in the crib. Incensed? You Bet We Are We were compelled (incensed) to bang this post out despite being on vacation. Written from the road hastily but accurately. Seriously. How many times can you be warned? Here are some links to previous posts on the concepts of market structure as tool of control, an interview with Vince Lanci actually saying “Sell Bitcoin futures and buy Gold on a dollar for dollar basis” last week in an interview with Daniela Cambone when asked about the relationship between the two. Some articles on bitcoin's market structure and as a futures product . Why Bitcoin Can't Replace Gold - Economic Freedom - Marketslant Futures as a form of regulation in Bitcoin Bitcoin will be co-opted by Banks We have said this several times in the past. Bitcoin is not your savior from Banking Oligarchs. It is electronic. It is not physical and therefore can be co-opted by the banks themselves. Banks are not going to give up their franchises. If they cannot beat Bitcoin, they will create their own. The CME has embraced Blockchain technology. Banks are starting their own crypto currencies. Believe us when we say, either the government, or the Banking industry will shut it down. If they cannot, then they will buy or control it. This is a war between Mice and Cats. Every time the Mice (people) find a new way to avoid the Cats (Banks) monopolistic ways, the cats do something to throttle the Mice. Sometimes it is by developing their own Tech. Sometimes it is by using the government regulatory agencies to help them. Sometimes it is via a fear campaign. Usually, it is all three. Banks are developing their own proprietary Blockchain products. Governments are restricting ways to use Bitcoin. And finally it is done under the cover of "stop the crime" Interview: If You Don’t Own Bitcoin and Hold Gold, Read This Recco Read: Doug Casey Measures Bitcoin’s Moneyness on the Gold Scale A Real Gold Guy's View Of Crypto, Bitcoin, and Blockchain and other Soren K. Posts on Bitcoin HERE As stated in several posts by the Soren K. Group, and Vince, who is a bonafide rockstar in areas governing market structure, subjective probability, and commodity investment and trading in general. [Edit-And the only one of us crazy enough to put his real name on these articles.-Fay Dress] Bitcoin lies at the intersection of all 3 areas. In the aggregate we said the following: Bitcoin futures will be sold to you as your only safe reliable regulated way to get bitcoin. This means if you buy bitcoin futures, you are buying a cardboard cutout of the product. You are buying a tracking stock that settles in cash and MUST, when all is said and done trade at a lower less than “physical” bitcoin. You traded freedom for convenience again. Good Fido! Here's a lesson from people who understand this as it happened to Gold. Ways to demoralize, control, or co-opt a grass roots movement into a product that threatens sovereign “debt- money”and restore some economic freedom. If you can’t control it outside your nation’s borders bit there is pent up demand in your nation, you can make it illegal and/ or implement draconian measures to impede its use on your country. This is the China way. News flash! China is a newbie when it comes to manipulating its people. And frankly it doesn’t have to be subtle as their people are under no pretense of being in a democracy. But in “democratic” countries one must protect its citizens from evil doers, give them “free markets” and get the public to swap freedom for convenience. Manipulation , Manufactured consent, and controlled opposition are the tools. So guys like Jamie Dimon, talking sock puppets who in an attempt to protect government fiat vilify Bitcoin one day; and who apparently didn’t get the note that the tactic of demonizing bitcoin had been replaced by “co-opting” it flips his script in a week. JPMORGAN promptly after being reminded there will be a futures market and money to be made; they actually imply it is a store of value, a new gold. Are you serious? When bitcoin does become a store of value, it will be as a result of its potential for price appreciation being killed. Price appreciation , by the way, that was a reflection of what would happen to gold if they took their foot off its throat. Bitcoin needed to be controlled; for it showed the vulnerability to government issues fiat as trustworthy. Is it not obvious? Where corporate and government interests can intersect, they do- and the public gets killed at the crossroads. 1- increase accessibility and stoke public grass roots movement retail demand 2- eventually trade at a discount to Bitcoin itself because it is settled in cash- a bank arbitrageurs dream! 3- This de-facto regulation of bitcoin combined with tail-wagging dog price transparency will make the product “come to Daddy”.. daddy being the government which has no interest in Btc succeeding in its original form, it’s other daddy being the banks who will make a sitload of money raving “physical” bitcoin to cash settled futures, and destroy its status as money without borders.. at least in the USA. We circled back to Vince for a comment: If you bought bitcoin futures as an investment, you are going to get fleeced. Or better said, your profits, if they come, will have a “little off the top” when you cash in. This is the expense of swapping convenience , “safety” and taxation, for OTC “exchange” counter party risk. He continues that it’s not bad if you know what you are getting into: This is not a negative on the product. It does give you transparent access to a market with “wild west” issues. You may very well make money on a 5 year hold, but not as much as if there were no futures, not as much as owning BTC itself. On investing vs trading: Bitcoin is now a trading vehicle. It will be relentlessly arbed by bank prop traders, which is all fair to me. But it is the selling of it to a public that is woefully under capitalized, undereducated, and in search of a financial messiah to solve their fear of missing out anxiety. So what price should futures trade at compared to spot? I don’t know. (Laughs) And to just say that in this age is itself a “no-no”. But anyone who knows and is in the markets will not tell you unless they are talking their position. What I can offer is the differential will become a product of cost of production, cost of storage, opportunity cost of money, and taxation. plus anything I haven't thought of yet He goes on seeming to work out the potential arb in his head as we chat. I have to wonder: if bitcoin is a medium of exchange and in spot form may be difficult to tax properly, but profits on BTC futures are taxed at capital gains.. couldn’t that imply a discount in some instances as high as 20%? I don’t know, but those using BTC to dodge taxes in expatriating money criminally would certainly have that as a possible differential. But how that arb works, I haven’t figured yet. Look, at its basic level, the futures settle cash, they are not fungible with BTC, they cannot be. There is no above ground fungible unified supply in exchange vaults yet. Therefore it must trade at a discount to the real thing. The other factors that need to be considered are cost of mining and storage in energy terms. Maybe there is an arb between BYC, Futures and electricity.. it certainly is going to be a huge profit center for smart proposals desks like Goldman. Don’t short Goldman in the year after they get their arb up and running. It will be free money to them. Come to think of it, if you are not in a position to sell BTC futures and buy Gold as a risk arb like i recently said in a Kitco intrview, just buy GS stock. They will certainty profit being long, short and sideways in Bitcoin futures. Don't dig for gold, but the company that sells the shovels here. We told you it would happen. Bitcoin in futures form is now getting a taste of what it is to be a pariah wrapped in a pretty bow to the public while being demonized by the govt implicitly. This is market structure sponsored by a corporatised government that will do any thing to protect its most precious franchise its debt as money schematic that has hi jacked the fiscal lifeblood of our financial system with a heroin addicted contaminant. Will botcoin (not a typo- the algos are coming)rally again? Of course it will. But now we can all watch in real time as over the nextb5 Years Bitcoin “physical” will succumb to bitcoin futures due to its higher volume and more liquid markets. It will undermine the pseudo crypto exchanges which do actually need regulation. But make no mistake about : every broker and bank will be pitching cryptos now to you the public. And it is a tax on you. Bigger forces are now being put in place to make bitcoin less volatile, lower in price, and a sleepier asset. Hence it will become in their pitch “a store of value”. This is a joke. Remember all the gold nuts complaining that paper gold isn’t physical gold? Well he’d we go again. Forward Guidance Government shutdown avoided, Spanish regional vote solves nothing, and bitcoin tumbles. Staying open Congress passed a bill to keep the U.S. government funded until Jan. 19. The bare minimum needed to avoid a shutdown, the legislation means lawmakers can head home for the holiday break, but makes for a difficult start to 2018 as a wide range of divisive fiscal and social issues have to be faced. Measures contained in the bill will allow President Donald Trump to sign the tax plan as early as today. Catalan headache The election in Catalonia saw separatist parties win a small majority of seats in the Barcelona assembly. The result keeps intact the uneasy status quo that’s endured since October, rather than take the Spanish region closer to independence. With ousted Regional President Carles Puigdemont still facing arrest if he returns from his self-imposed exile in Brussels, and Spanish Prime Minister Mariano Rajoy’s People Party losing almost all of its seats in the assembly, an easy way forward seems elusive. This uncertainty is being reflected in markets this morning, with Spain’s IBEX 35 Index dropping as much as 1.6 percent after the open. Markets ready for a holiday Overnight, the MSCI Asia Pacific Index rose 0.3 percent, while Japan’s Topix index closed 0.2 percent higher as the avoidance of a U.S. shutdown helped lift sentiment. In Europe, the Stoxx 600 Index edged 0.1 percent lower at 5:40 a.m., with the results of the Catalan election making Spanish stocks by far the worst performer in the region. S&P 500 futures added 0.1 percent, the 10-year Treasury yield was at 2.485 percent and gold was slightly higher. Data due The core PCE deflator for November, the inflation gauge favored by the Federal Reserve, is due at 8:30 a.m., with consensus seeing a pickup to 1.5 percent. At the same time, personal income and spending numbers will be published, with durable goods orders for November also at 8:30. At 10:00 a.m. we get the latest reading from the University of Michigan sentiment gauge and new homes sales data. At 1:00 p.m. the Baker Hughes rig count will be the last piece of significant data in what has been a good week for oil.
In light of the recent "blockchain" naming craze, this morning we said that the inevitable next round of corporate name changes would involve "JP Blockchain" and "Blockchain Sachs". Round 2: JP Blockchain vs Blockchain Sachs — zerohedge (@zerohedge) December 21, 2017 While this was supposed to be a joke, as so often happens, it ended up predicting the shape of things to come because as Bloomberg reports, Goldman Sachs - using its pre-blockchain name for the time being - is in the process of setting up a trading desk to make markets in digital currencies such as bitcoin. The bank aims to get the business running by the end of June, if not earlier, two sources said. A third said Goldman is still trying to work out security issues as well as how it would hold, or custody, the assets. Why the rush to have the world's first dedicated institutional desk? For the same reason that while Jamie Dimon was mocking bitcoin, Lloyd Blankfein saw an opportunity: unlike equities which retail investors have largely given up on realizing that equity capital markets are rigged and manipulated by central banks, retail investors are ever more fascinated with crypto - the price trends don't hurt - so much so that Coinbase now has more users than Charles Schwab. To Lloyd and Goldman this spells one thing: opportunity. As Bloomberg notes, the move positions Goldman Sachs to become the first large Wall Street firm to make markets in cryptocurrencies, "whose wild price swings and surging values have captured the public’s imagination but given pause to established institutions." Already, the bank is among just a few mainstream firms clearing a new breed of bitcoin futures offered by Cboe Global Markets Inc. and CME Group Inc. Citigroup Inc. and Bank of America Corp., for example, have been taking a wait-and-see approach. Which brings us to the next evolutionary step for cryptos: direct prop and flow trading by the world's most important bank. Goldman Sachs is now assembling a team in New York, one of the people said. While the bank hasn’t made a decision where to house the desk, one possibility is that it will operate within the fixed-income, currencies and commodities unit’s systematic trading function, which conducts transactions electronically, two people said. Darren Cohen, in the firm’s principal strategic investments group, is also looking at opportunities, another person said. “In response to client interest in digital currencies, we are exploring how best to serve them,” Michael DuVally, a spokesman, said in a statement. And since Goldman will be seeking to hook investors in during the inaugural period, guess which way the price of cryptos will move at least in the near future. (hint: not down). Ironically, in public CEO Lloyd Blankfein has been circumspect. After tweeting two months ago that Goldman was looking at how to deal with bitcoin, in a Bloomberg Television interview just a few weeks ago, he said his bank didn’t need a bitcoin strategy yet because the digital currency is still just developing and volatile. Surprisingly, it turns out Lloyd was lying.
First part of a series. By @Sellputs, this post first appeard on the Hedge Accordingly.com All the world is a stage—for the Bitcoin Bubble. Never mind that stocks have soared up 30% in the full year since Donald Trump stunned even himself by winning the presidential election—everybody would rather talk about bitcoin and its brethren. The other day I got this text from a friend: “What’s up bud long time , u know anything about litecoin”? This, from my gardener. JPMorgan Chase’s CEO, Jamie Dimon, calls bitcoin a “fraud” used mostly by “murderers, drug dealers and other miscreants,” as the FT put it. Fed Chairwoman Janet Yellen just called out bitcoin as a “highly speculative asset” that “doesn’t constitute legal tender,” nor is it “a stable store of value.” After which the price of bitcoin (BTC) rose another $3,000 or 18% in the next four days, to approach the $20,000 mark. Nobody puts Bitcoin Baby in the corner. The boldest risk-loving investors out there view bitcoin as a panacea for the digital millennium: a soaring store of value propped up by insanely great encryption, untraceable origins and the urgent need for a post-dollar currency that can survive global catastrophe. Similar enthusiasm adorns “altcoins” that came in bitcoin’s wake: Litecoin (LTC), Ethereum (ETH), Zcash (ZEC), Dash (DASH), Ripple (XRP), Monero (XMR) and some 800 more rival forms of digital currency. A soaring store of value: yes, indeed. If you were ballsy enough to buy a bit of bitcoin at the end of 2013, investing, say, $1,000, you got in at a low of $600 per coin; today that $1,000 stake would be worth roughly $15,000. That is up 24-fold—2,400%!—in four years. And if you were ballsy enough to bet on bitcoin, it may be time to get out now, because other people view the cryptocurrency as the Next Great Meltdown, a malignant mash-up of P.T. Barnum (“There’s a sucker born every minute”) and Charles Ponzi, the circa-1920 swindler who popularized the kind of scheme that made Bernie Madoff famous. The truth may lie somewhere in-between—and, either way, it’s good to know a few things about bitcoin and all that it entails. This is the first part of a series on my Bitcoin Breakdown—read it and reap! First, some breaking thoughts: · Bitcoin just got more real. The legitimate, old-guard world of Wall Street and finance now figures this crypto-currency is worth betting on (that’s high praise from these guys.) On the Chicago Board Options Exchange, futures for betting on bitcoin price swings began trading on December 10. A week later, TD Ameritrade began letting holders of its 11 million accounts trade those futures, just as Cboe’s crosstown rival, the Chicago Mercantile Exchange, launched its own bitcoin futures exchange (although with no TD Ameritrade support, as yet). · Bitcoin futures contracts, essentially, are electronic bets on the future prices of bitcoin (just as other futures let you bet on and hedge prices in pork bellies, soy beans, orange juice, ad to-infinity-and-beyond). You buy or sell a futures contract based on whether you think bitcoin prices are headed up or down. Eventually, I expect the CME to create options on futures contracts: traders will be able to buy and sell “puts and calls,” the right to buy (a “call” option) or sell (a “put” option) a bitcoin futures contract at a particular price by a particular date. · So when a pro someday will trade options on bitcoin futures, he’s using a kind of triple-synthetic. Bitcoin itself doesn’t exist the way, say, bacon from pork bellies exists, so that is one synthetic layer; a Cboe option is a second synthetic layer; and on the CME traders may one day bet on the future-price-of-bitcoin-futures, not just on the price of bitcoin—a third synthetic layer. A triple-synthetic. Bitcoin’s fans are anything but fazed by this. · Coming soon: Bitcoin ETFs. ProShares and VanEck have filed applications for new ETFs (Exchange Traded Funds) based on bitcoin futures. (Come to think of it, that’s a triple-synthetic, too.) Look for SEC approval by the end of the first quarter of next year, some reports say. New ETFs would push bitcoin even more into the mainstream for mom-and-pop investors. All of this increases already manic investor demand for an “asset” that no one even can see. · A bitcoin supply-squeeze could fuel more price gains. Supposedly, only 21 million bitcoins are in existence (however invisible, digital and intangible that may be). It is said that a thousand early buyers of the digital coin own fully 40% of the world’s supply. (And I bet ya dozens of these bitcoin billionaires are drug smugglers, given that’s how bitcoin got its start.) · Typically, ETFs are required to own the underlying assets on which the ETFs are based—an ETF representing a “basket” of energy stocks requires the ETF’s issuer to go out and buy those stocks and keep them on hand. Given the short supply, if enough bitcoin-based ETFs enter the market, each one required to hold a store of bitcoins commensurate with its total value, the law of supply and demand dictates what happens next: the price of bitcoin could rise higher still. Though, I mean, who knows, right? Bitcoins are, in truth, little more than a contrivance, a non-existent thing derived from some horribly complex, secret formula cum algorithm invented by some guy (or gal or people) whose authenticity remains masked and uncertain. What’s to stop him (or her or them) from tapping a few buttons on the keyboard to make 21 million more bitcoins? Suddenly, supply doubles, each coin is worth only half what it was just days before. Or what’s to stop the same anonymous forces from inventing a “New! Improved!” version of bitcoin that obviates the original? If you do get involved in the bitcoin rush-to-riches, you would do well to discard any notion of yourself as an investor; view yourself as an ice-in-the-veins speculator, a gambler with gonads (or ovaries) the size of boulders. Next up: Should you buy into the bitcoin bubble? Evan McDaniel, aka @sellputs, is a derivatives trader, algorithm wizard and advisor to hedge funds. You can reach him at [email protected]
Дональд Трамп объявил имя будущего министра финансов США: им станет Стивен Тёрнер Мнучин (Steven Terner Mnuchin). Для кого-то это явилось неожиданностью. Ведь среди претендентов на высокий пост называли исполнительного директора банка JPMorgan Джейми Даймона, члена палаты представителей Джеба Хенсарлинга... У Стивена Мнучина, однако, было важное преимущество: в предвыборной кампании Трампа он работал финансовым менеджером. Кроме того, что самое важное, Мнучин вышел из недр банка Голдман Сакс. Родился Тёрнер Мнучин в состоятельной еврейской семье. Окончил Йель и сразу пошел трудиться в Голдман Сакс, где большую часть своей жизни провёл его отец Роберт Мнучин, сделавший в банке карьеру (стал партнёром) и сколотивший хорошее состояние. Мнучин-младший провёл в стенах Голдман Сакс 17 лет – с 1985 по 2002 год. Работал на направлениях, обеспечивающих основную деятельность банка (контроль, надзор за операциями на рынках муниципальных облигаций, ипотечных бумаг, других рынках и т.п.). В 90-е годы получил статус партнёра банка, что считается большим достижением. Затем стал топ-менеджером Голдман Сакс по вопросам информационного обеспечения.
Напомню, что я - аналитик и подборка информации идет соответственно- аналитическая, предполагающее самостоятельное изучение материалов.сначала с вами вспомним как звучит официально:Википедия:9:32: Диспетчеры аэропорта Даллеса в Виргинии наблюдают «цель на первичном обзорном радаре, двигающуюся с высокой скоростью в восточном направлении», относя это к рейсу 77.9:33 до 9:34: Руководитель башни аэропорта Рейган сообщает центру Секретной Службы Белого дома, что «в вашу сторону летит самолёт, который не выходит с нами на связь.» имея в виду рейс 77. Белый дом готовится к эвакуации, когда башня сообщает, что рейс 77 повернул, и заходит на посадку в аэропорт Рейган.9:34: Командный центр ФАА передает штаб-квартире ФАА имеющуюся информацию о рейсе 93.9:37: Вице-президент Чейни направляется в подземный бункер по туннелю.9:37:46: Рейс 77 врезается в западное крыло здания Пентагона, отчего начинается сильный пожар. Это крыло Пентагона находится на ремонте, и большинство офисов в нём не заняты. Погибают все 64 человека на борту и 125 человек в здании.1 канал, Россия:В 8:46 первый самолет врезался в северную башню Всемирного торгового центра в Нью-Йорке. Мэр города и руководитель службы спасения немедленно выехали к башням-близнецам. "Подъехав к торговому центру, мы убедились, что все намного хуже, чем мы думали, - рассказывает мэр Нью-Йорка в 2001 году Рудольф Джулиани. - Мы пытались дозвониться до начальника полиции, начальника пожарного департамента, даже до Белого дома. Но сотовая связь почти не работала".В 9:03 в южную башню Всемирного торгового центра врезался второй самолет. После этого первым лицам США стало понятно, что это нападение на страну. Президенту Бушу доложили о втором самолете.В этот момент новость о втором самолете получили журналисты президентского пула. Встреча со школьниками подошла к концуПервый звонок Буша – вице-президенту Дику Чейни. Они обсудили, с какими словами президент должен обратиться к нации. Оба понимали, что это террористический акт и они обязаны об этом сказать.В то время как президент завершал свое обращение к нации, в Центре управления ПВО возникла новая кризисная ситуация. Был замечен самолет в 10 километрах к востоку от Белого дома. При угрозе нападения на Вашингтон Белый дом должен быть немедленно эвакуирован. "Я работал за своим столом, когда в кабинет ворвался один из руководителей охраны. Он приказал следовать за ним без каких-либо объяснений. Потом одной рукой схватил меня за ремень, а другой за плечо и буквально вынес меня из кабинета сначала в коридор, а потом в туннель, ведущий в подземный оперативный центр", - вспоминает Дик Чейни.Оперативный центр находится в бункере. Он предназначен для управления страной в случае начала ядерной войны. Отсюда Чейни мог руководить организацией обороны страны и подготовкой ответного удара. Задача №1 – нейтрализация рейса 77 American Airlines, взявшего курс на Вашингтон.В 9:37 третий угнанный самолет врезался в здание Пентагона. В это время министр обороны Дональд Рамсфелд находился в своем рабочем кабинете. Выйдя на улицу, чтобы оценить ситуацию, он увидел пламя, дым и раненых и бросился помогать пострадавшим. Почти полчаса его не могли найти. Но затем он вернулся в свой кабинет, чтобы связаться с президентом и вице-президентомА теперь обращаемся к всежим американским источникам, коим является ранее мною упоминаемая согласительная комиссия по альтернативному (официальной точке зрения) расследованию этой трагедии. Ранее она находила свидетелей, которые утверждали,что черные ящики от врезавшихся самолетов в ВТЦ, были найдены: Новые доказательства отрицают,что не были найдены черные ящики самолетов.Пожарные, работающие в Граунд Зеро, утверждают,что были найдены три из четырех черных ящиков, так как они находятся в коробках, которые практически не поддаются разрушению. Эта информация была предоставлена согласительной комиссии из 24 членов по 9/11.Сейчас эта же комиссия утверждает,что слова Дика Чейни расходятся с показаниями свидетелей:Point MC-3: The Claim about the Time of Dick Cheney’s Entry into the White House Bunker Поставим точку в MC-3: заявление относительно того времени, когда Дик Чейни находился в подземном бункере.The Official Account Официально:Vice President Dick Cheney took charge of the government’s response to the 9/11 attacks after he entered the PEOC (the Presidential Emergency Operations Center), a.k.a. “the bunker”. 9/11 Commission Report said1that Cheney did not enter the PEOC until almost 10:00 AM, which was at least 20 minutes after the violent event at the Pentagon that killed more than 100 people.Вице-президент США Дик Чейни взял на себя управление государством после того,как вошел в правительственный бункер и это произошло по его словам около 10:00 утра, через 20 минут после того, как в Пентагоне погибло более 100 человек.(1)The Best Evidence Лучшее доказательство:Secretary of Transportation Norman Mineta told the 9/11 Commission that, after he joined Cheney and others in the bunker at approximately 9:20 AM, he listened to an ongoing conversation between Cheney and a young man, which took place when “the airplane was coming into the Pentagon.”2After the young man, having reported for the third time that the plane was coming closer, asked whether “the orders still stand,” Cheney emphatically said they did.However, testimony that Cheney was in the PEOC by 9:20 was reported not only by Mineta but also by Richard Clarke3 and White House photographer David Bohrer.4 Cheney himself, speaking on “Meet the Press” five days after 9/11, reported that he had entered the PEOC before the Pentagon was damaged.5The 9/11 Commission’s attempt to bury the exchange between Cheney and the young man confirms the importance of Mineta’s report of this conversation.Министр транспорта Норман Минета сообщил комиссии 9/11,что он присоединился к Чейни и к остальным в бункере уже в 9:20 и услышал разговор между ним и молодым человеком, когда "самолет направлялся в сторону Пентагона".(2)Когда молодой человек в третий раз запросил Чейни, так как самолет приближается и "все ждут приказа", Чейни решительно ответил, что "он обдумывает".Норман Минета не единственный свидетель, кто подтверждает нахождение Чейни в бункере уже в 9:20. Помимо него об этом говорят Ричард Кларк (3) и фотограф Белого дома Дэвид Борер (4)Сам же Чейни утверждает,что он вошел в бункер после того,как был атакован Пентагон.(5)References for Point MC-31. 9/11 Commission Report (2004), note 213, p. 464.2. “911 Commission: Trans. Sec. Norman Mineta Testimony.”3. Richard Clarke, Against all Enemies (New York: Free Press, 2004), pp. 2-5.4. See “9/11: Interviews by Peter Jennings,” ABC News, September 11, 2002.5. “The Vice President Appears on Meet the Press with Tim Russert,” MSNBC, September 16, 2001.Казалось бы- ну и что? Какое это имеет отношение к экономике? А самое прямое. Напомню,что во время 9/11 были объявлены банковские каникулы, после которых в течении недели рынок потерял более 1 триллиона капитализации:Эти атаки оказали значительное экономическое воздействие на американский и мировой рынки. ФРС временно сократил контакты с банками из-за нарушений коммуникационного оборудования в финансовом районе Нижнего Манхэттена. Обратная связь и контроль над денежной массой, включая мгновенную ликвидность банков, была восстановлена в течение нескольких часов. Нью-Йоркская фондовая биржа (NYSE), Американская фондовая биржа и NASDAQ не открылись 11 сентября и оставались закрытыми до 17 сентября. Объекты NYSE и её центры обработки данных не пострадали, но члены биржи, клиенты и другие биржи потеряли с ней связь из-за разрушений телефонного узла около ВТЦ. Когда 17 сентября биржи открылись, после самого долгого периода бездействия со времён Великой депрессии в 1929 году, Индекс Доу-Джонса («DJIA») потерял 684 пункта, или 7,1 %, до 8920, это было самым большим его падением в течение одного дня. К концу недели DJIA упал на 1369,7 пунктов (14,3 %), это было самым большим недельным падением в истории. Американские акции потеряли 1,2 триллиона долл. в течение недели.Стоит обратить внимание на слова Билла Гросса "The Good Times Are Over, The Time For Risk Taking Has Passed" о том, что :"институциональные инвесторы финансовой экономики такие как, фонды денежного рынка, страховые, пенсионные, банковские и даже потребительские балансы больше не могут обеспечить уровень доходности, необходимых для оправдания своих будущих обязательств и их стало невозможно достичь. Доход по депозитам слишкам мал,чтобы покрыть обязательства. В связи с чем доход по многим классам активов станет отрицательным. По мере снижения ливидности можно будет наблюдать, как ряды рискованных активов будут пополняться , напоминая всем известную игру с музыкальными стульями. И то, что 2015 год или ближайшие 12 месяцев- это время принятия рисков, можно судить по тому,что активов с положительным денежным потоком становится все меньше".Далее мы с вами наблюдаем любопытные вещи, происходящие в крупнейших финансовых учреждениях США.Зерохедж. Is Citi The Next AIG? Citi - это новый AIG? Напомню, что в Сити работает Саммерс. Тот самый, который организовал в свое время провалившийся фонд Гарварда в России, планировавшийся для того,чтобы организовать то,что сейчас происходит на Украине. Стоит вспомнить о том,что война довольно затратное, а зачастую убыточное мероприятие. И не исключено,что пополнение баланса деривативами как-то связано с тем,что происходит на Украине- Украина банкрот, но , например, Обама подписал закон о поддержке Укрианы на 400 миллионов, к тому же он(Обама) довольно плотно работал с Саммерсом и только общественность заставила отклонить его кандидатуру на пост председателя ФРС, удовольствовашись кандидатурой Фишера на "вторых ролях", хотя Фишер от этого не испытывает никаких страданий.Мы обнаружили,что Citigroup, ранее пролоббировавшая деривативы за счет FDIC, увеличили деривативы на своем балансе в третьем квартале до $70.2 трлн, опередив в этом даже JPM!Ну раз завели дело о JPM, то давайте поговорим о нем. Этот мегабанк уже довольно давно испытывает давление от регуляторов в том плане, что у них Джейми Даймон одновременно является и генеральным директором и председателем совета директоров. Но, как нам сообщает Зерохедж, основная опасность исходит от конкурента гиганта- Голдман Сакс, чьи люди как раз и работают в регуляторе. Кого заинтересовало, могут подробнее прочитать в оригинале:Зерохедж Goldman's Modest Proposal: It May Be Time To Break Up JPMorgan Скромное предложение от Голдмана: может, пришло время разбить JPMorganЕще в 2008 году, после падения фондовых рынков, Голдман избавился от двух своих конкурентов: от Bear и Lehman, когда ФРС отказалась спасать эти банки. Теперь, волне возможно, пришла очередь и для JPM.Голдман: недавно было озвучено ФРС,что капитал JPM необходимо поднять до 11,5%,что на 100%-200% выше, чем у всех остальных, то, может быть имеет смысл говорить о целесообразности разделения акционерного капитала, учитывая,что он сейчас является отрицательным. Распад может создать стоимость ниже на 20% и его можно разделить на: (1) трастовый банк, инвестиционный банк и бизнес по управлению активами и (2) все остальное (то есть более традиционный банковский бизнес). Разделение банка будет способствовать росту акционерного капитала.Вы мне скажете: а при чем тут Дик Чейни? Прямое отношение, конечно, он уже не имеет, просто надо иметь в виду,что США действуют всегда шаблонно, поэтому, например, не исключен вот какой вариант:прогнозирует Байрон Уин из Blackstone Group LP:По словам Уина, в этом году по настоящему проявят себя киберпреступники, которые становятся более ловкими, чем полиция.«Хакеры захватят частные и корпоративные счета одного крупнейшего банка, а Федеральная резервная система закроет это учреждение на пять дней для проверки его счетов»А хакеры- ,понятно, кто- Федеральное бюро расследований США расследует кражу данных из американского банка JP Morgan Chase. Она произошла в середине августа, сообщило агентство Bloomberg со ссылкой на двух сотрудников, имеющих отношение к следствию. По данным агентства, под подозрение попали российские хакеры. Они украли петабайты закрытой информации настолько умело, что эксперты подозревают — хакеры действуют при поддержке российских властей. ФБР расследует, является ли взлом JP Morgan местью российских властей за санкции США из-за конфликта вокруг Украины.или :Блумберг:"элитные российские хакеры взломали биржу Nasdaq и заложили туда цифровую бомбу".Я , надеюсь, что понятно. В условиях, когда ставки находятся на нуле и практически все активы показывают отрицательное значение, то есть идут убытки по причине невозможности капитал воспроизводить, происходит органический рост - за счет поглощения конкурентов. В США давно поглощены мелкие банки, настала очередь крупного финансового капитала выяснять, кто будет сидеть на стуле. В свою очередь, Россия только вступила в данный этап , когда крупные банки выживают за счет разорения мелких, в чем немало способствует ЦБ РФ. Во всяком случае, мы наблюдаем назревание явно революционной ситуации:"верхи не могут, низы не хотят". Вернее: верхи разбираются, для кого стул лишний, а когда разберутся, то назначат мальчика для битья, коим,скорее всего, будет российская элита,этакий хакерский Бен Ладен. Хотя проблемы финансового капитала США должны решаться несколько иными решениями, но американская элита иначе не может- виноват в их проблемах всегда кто-то другой, вот они и решают их, как могут- за чужой счет. И если это кто-то другой согласен его оплачивать- то тем более.
Глава банка JP Morgan Джейми Даймон благодарит конгресс за принятие бюджета. "Этим утром я собираюсь отправить Полу Райану и Патти Мюррей сообщение по электронной почте со словами "Спасибо вам, спасибо вам, спасибо вам, и пусть Господь благословит вас", – заявил Даймон в среду, обращаясь к республиканским конгрессменам и сенаторам из Демократической партии, которым удалось прийти к бюджетному соглашению. По его мнению, бюджетное соглашение - это "большой прорыв", так как повторной временной приостановки работы правительства не произойдет. Напомним, что Конгресс США, не дожидаясь крайнего срока, принял бюджет и предотвратил еще одну временную приостановку работы американского правительства. После продолжительных дебатов демократы и республиканцы все же достигли договоренности и приняли бюджет на 2014 финансовый год. Соглашение предусматривает сокращение госрасходов в течение двух лет на $63 млрд. Причем большая часть секвестра придется на текущий 2014 финансовый год, который в Америке начинается 1 октября.