Category Archives: Economics

He Said That? 6/15/18

From Adam Smith (1723-1790),  Scottish-born economist and philosopher, widely considered the father of modern economics, The Wealth of Nations (1776):

It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expence, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.

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Elon Needs More Money (Again), by Eric Peters

SLL has no particular animus towards either Elon Musk or his company, Tesla. We just think they are the perfect symbols for crony socialism in our era, so we post a lot of articles about them. From Eric Peters at theburningplatform.com:

Last month, I wrote about Tesla CEO Elon Musk’s contemptuous and breezy dismissal of questions asked by financial analysts about the cashflow situation at Tesla. Would the company need yet another infusion of money to remain afloat? Lame! Next question.

That was Musk’s response.

As it turns out, it’s Tesla that’s lame.  The company – Musk – just laid off several thousand employees, about 9 percent of its workforce – which is one way to raise cash (by not spending it on worker salaries) when you don’t want to admit you need another infusion from investors – or realize you might not be able to get one because those investors are becoming gun-shy about giving money to Elon.

I’ve been pointing out for years that Tesla is a net money-losing operation, despite all the crony capitalist advantages – including electric car quotas in states like California, which force other car companies to either build EVs they can’t sell (or sell at a loss) or buy “credits” from an electric car manufacturer (Tesla) which the electric car company then uses to offset its losses.

Even so, Tesla has lost something on the order of $5.4 billion dollars so far, according to most estimates. Yet – until quite recently – most media coverage of Tesla has focused on what amounts to financial Fake News of the most egregious kind, such as the hype-driven value of Tesla stock. It’s true the stock price zoomed upward like a bottle rocket on the 4th of July. But what was driving this?

Not anything of value.

Analysts refused to analyze the fact that Tesla loses money on every car it sells. That it remains in business only because of investor infusions and deposits given on cars that never seem to materialize.

Well, the electric chickens may finally be coming home to roost.

At some point, you either make money – or you don’t. If you don’t, you have to find people willing to give you more of it. When you can’t do that anymore, you are forced to scale back. You let people go in order to husband what resources you’ve still got, in the hope that maybe you’ll be able to ride it out.

Elon is running out of money. His operations aren’t sustainable.

To continue reading: Elon Needs More Money (Again)

The stock market’s biggest bear unloads on the ‘economic Ponzi scheme’ he says will cause the next crash — and explains why this meltdown feels different, by Joe Ciolli

There are a number of troubling signs of underlying economic weakness that could make the next downturn one of the worst ever. From Joe Ciolli at msn.com:

When it comes to predicting a stock market crash, all roads lead back to the economy.

That’s why it’s so jarring to hear someone claim that today’s economic system is “dysfunctional,” which is what the world-renowned market skeptic John Hussman just did.

Hussman, a former economics professor who is now the president of the Hussman Investment Trust, is no stranger to such bearish proclamations, having made a name for himself by repeatedly predicting a stock market decline exceeding 60% and forecasting a full decade of negative equity returns. He has now turned his sights on the economy, which he says is setting the market up for unprecedented failure.

In a recent blog post, Hussman paints a grim economic picture, lamenting labor-market slack that has kept wages low, massive deficits being run by the market, and lopsided corporate profits he says favor high-income people.

To drive this point home, Hussman uses the chart below to show that wage and salary compensation are near an all-time low relative to gross domestic product. He notes that while it appeared to be rebounding, it has since faded.

a screenshot of a social media post© Hussman Funds

But perhaps Hussman’s biggest worry is how indebted consumers and companies have become as they’ve attempted to navigate a difficult economic landscape. In his experience, this instability can only end one way: with mass defaults and copious investor tears.

“The hallmark of an economic Ponzi scheme is that the operation of the economy relies on the constant creation of low-grade debt in order to finance consumption and income shortfalls among some members of the economy, using the massive surpluses earned by other members of the economy,” Hussman wrote in a recent blog post. “The debt burdens, speculation, and skewed valuations most responsible for today’s lopsided prosperity are exactly the seeds from which the next crisis will spring.”

Add this to past arguments from Hussman that investors are too complacent, and that adverse valuation and sentiment conditions are brewing ahead of a meltdown, and you get an increasingly well-rounded view of the hurdles facing the nine-year bull market.

‘This time feels different’

Even though investors have two relatively recent market crashes to which they can refer, Hussman says they’re largely ignoring that helpful historical precedent. They’re instead telling themselves that the same excesses and glaring issues that destroyed the market last time around don’t apply now.

His take can be summarized simply as: “Nobody learned anything from the global financial crisis.”

To continue reading: The stock market’s biggest bear unloads on the ‘economic Ponzi scheme’ he says will cause the next crash — and explains why this meltdown feels different

Facing The (Horrible) Future, by Chris Martenson

How do we change what appears to be a bleak future? From Chris Martenson, with a thought-provoking article, at peakprosperity.com:

Our fate directly depends on our courage to change it

I’d like to tell you a short story based on a movie that has had a profound impact on me.

I’ll get to the story in a moment, but first, a little background on the movie…

It’s called Griefwalker (by Tim Wilson) and it focuses on the life and wisdom of Stephen Jenkinson, a theologian and philosopher who worked as an end-of-life specialist for many years.  Because we all must face death in our lives, inevitably our own someday, I highly recommend this movie and Stephen’s work to everyone.

After sitting at the death beds of a thousand individuals, Stephen has accumulated a wisdom regarding the process of dying that is perhaps unmatched in our modern times. His views and insights are extraordinarily powerful and extremely well-delivered in the movie.

Stephen is a blunt yet thoughtful man, and my own interview with him (Living with Meaning) remains one of my all-time favorites.

At one point in Griefwalker, Stephen was lobbed what I’m sure the interviewer thought was a soft-ball question.  From memory, and I last watched the movie a few years ago so I’m certain to have this inexactly recalled, it was along the lines of “So, Stephen, you’ve learned how to ease people through the process of dying. How is that done?”  I guess the idea was that after being so steeped and skilled at shepherding people through the process of dying, Stephen had arrived at some tidy formula for making it as gentle as possible.

Without blinking Stephen said, “Oh no. Dying for most people these days is horrible.”  After a few shocked fumbly moments by the interviewer, and I confess to having been shocked too, Stephen continued, explaining that the physical process of dying can certainly be managed easily and well with palliative care, but the emotional journey can be quite terrifying (at first).

The reason why is because most people spend their entire lives pretending as if death is somehow avoidable. So when they find themselves dying, they suddenly have to confront the fact that they may have forgotten to fully ‘live’ during their one and only shot at life.

To continue reading: Facing The (Horrible) Future

Trade-War Drums: Is Mexico Ready to Fire at the US Corn Belt? by Don Quijones

If you levy penalties on another nation’s exports into your nation, they can levy penalties on your exports into their nation. For Mexico, the nuclear option would be penalties on US corn exports. From Don Quijones at wolfstreet.com:

Various groups are clamoring for it in the third largest market for US food exports.

Mexico, the birthplace of maize, is dangerously hooked on U.S. imports of largely transgenic strains of the crop. In 2017 it was the third biggest importer of corn in the world, behind the EU and Japan, purchasing 15.2 million tonnes of the foodstuff, most of it from U.S. farmers and agribusinesses. But that could soon change.

Following the U.S. government’s decision to impose steep duties of imports on steel and aluminum from Mexico, Canada and the EU, Mexico, a net importer of US steel, has hit back with tariffs on US products including whisky, cheese, steel, bourbon, and pork. The move has upset U.S. businesses, including pork producers, who now face a 20% tariff on exporting leg and shoulder to Mexico. Mexico is the largest market for US pork exporters. It’s also the third largest market in the world for U.S. agricultural exports as a whole, pipped to the post by China and Canada.

For the moment the Mexican government has ruled outimposing duties on U.S. imports of staple foods such as corn, beans and soy, largely out of fear that it could further fuel food inflation, especially with the Mexican peso once again slumping against the dollar. But calls for such action are rising.

If Trump doubles down on his tariffs while continuing to insist on separate bilateral talks with Canada and Mexico, the Mexican government could end up taking the nuclear option of restricting U.S. imports of corn. Given that the biggest corn-producing states in the U.S. were also among the supporters of Trump in the last election, Mexico’s government has a clear strategic motive for doing so.

“If we want to stop this [trade war] and hit the U.S. government where it really hurts, we should target America’s corn belt by imposing a tariff on imports of U.S. transgenic corn,” said Angel Contreras Carrera, the president of the State Agricultural Union of Corn Producers.

To continue reading: Trade-War Drums: Is Mexico Ready to Fire at the US Corn Belt?

Larry Kudlow: A Horseman Of Economic Apocalypse? by Brandon Smith

Larry Kudlow is one of those Wall Street economists who misses every big trend change and is so consistently wrong that it’s only fitting he’s advising the president. From Brandon Smith at alt-market.com:

In the world of alternative economics we often focus on the schemes and machinations of central banks as well as international banks as their closely tied partners in crime. But it is easy to forget that these institutions are merely composites and proxies made up of specific people.  The institutions themselves are no more invincible than the very mortal criminals that make up their memberships.

As a writer for the liberty movement I often hear the demand that we should “name names” when referring to groups like “globalists” in our analysis. These demands usually come from people who are too naive to understand how long such an article would be if we had to make a list of said globalists and their trespasses every time we sat down to make a point or convey a piece of information. That said, I’m happy to start a new series of articles which I will be publishing intermittently that will focus on “naming names,” one name at a time.

Some of these names will belong to people you rarely if ever hear about. These are the men behind the curtain of power, those that have much greater influence than is apparent at first glance.

In my last article I outlined the unfortunate propensity of Donald Trump to invite such “swamp creatures” into his cabinet and into the White House. Some of these people are rather notorious and well-known, like Council on Foreign Relations warmonger John Bolton.  However, others have gone under the radar.

The name of Larry Kudlow has been making the rounds lately, at least in mainstream economic circles, largely because of his role in Trump’s accelerating global trade war efforts. Kudlow is the Director of the National Economic Council and adviser to the Trump administration, recently replacing Goldman Sachs alumni Gary Cohn. As such, he is perhaps the greatest influence in the White House in terms of U.S. economic policy when applied in international relations. A powerful position indeed.

To continue reading: Larry Kudlow: A Horseman Of Economic Apocalypse?

The Problem With Phony Prosperity Is That It’s Phony, by Peter Schiff

Debt-funded prosperity isn’t prosperity. From Peter Schiff at schiffgold.com:

A lot of seemingly positive economic data came out last week, but in his most recent podcast, Peter Schiff said it is just feeding into a delusional economic narrative that ignores the most fundamental storyline – debt. Everybody is talking about a new era of prosperity, but Peter said it’s a phony prosperity and it isn’t going to last.

The May jobs report came out Friday, sending another ripple of optimism through the investment world. According to the Department of Labor, the US economy added 223,000 jobs in May. The unemployment number fell to an 18-year low of just 3.8%. Average hourly earnings rose by 8 cents. Average wage growth came in at 2.7% over the past year. Pundits and prognosticators on the major financial networks were giddy at the news.

But the good economic news wasn’t limited to jobs. Analysts were also excited about the personal income and spending data – particularly spending, which rose 0.6% in April. Meanwhile, income was up 0.3%. Peter put this into some perspective.

Consumers are spending money twice as fast as they’re earning it for the month of April — six-tenths up on spending, three-tenths up on earnings. So, what does this tell you? People are tapping into already a pretty shallow savings pool, or they are running up more credit card debt to buy stuff.”

Of course, everybody likes this. In the short-run, this is great because spending feeds into GDP. It can make everybody feel good about this false narrative about the US economy. Despite all of the fundamental issues facing the economy – namely the massive levels of debt – most of the mainstream is exuberant.

America is a sea of prosperity. Our economy is immune. We’re just going to keep on growing, even though we’ve got a rising cost of living, even though we’ve got increasing interest rates, massive debt on all levels, all these big-picture problems that we’ve got, but everybody assumes there’s nothing to worry about. In fact, you look at CNBC, I was watching them, today after the jobs numbers … and they are so excited – to a man. I mean, they’re just giddy, like little schoolgirls, about the stock market. Everything is perfect. Nothing can go wrong. Keep on buying.”

To continue reading: The Problem With Phony Prosperity Is That It’s Phony