Category Archives: Economy

The Return Of The Bond Vigilantes, by Doug Kass

The bond vigilantes can’t prevent governments from borrowing, but they can make it more painful for them. From Doug Kass at Seabreeze Partners via zerohedge.com:

  • With mounting private and public debt, the U.S. economy is poorly positioned to reach consensus economic growth expectations
  • The Bond Vigilantes are saddled up and ready to make a comeback – and it’s market unfriendly

“I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.” 
– James Carville

In “The Great Bond Massacre” from late 1993 to late 1994, the yield on the US ten year note rose from 5.2% to 8.0% as investors grew fearful about the implications of large federal spending increases.

For the first time in years the bond vigilantes, “a self-appointed group of citizens – the bond vigilantes – who undertake law enforcement in their community without legal authority, typically because the legal agencies are thought to be inadequate” have surfaced – with the ten year U.S. note yield now approaching three percent.

This morning the yield on the ten year U.S. note has hit a new four year high of 2.99%.

As I see, though rates still appear low by historic standards – the sizable climb in debt loads (in both the private and public sectors) and the continued fiscal profligacy – will likely exacerbate the impact on the recent rise in yields by providing a governor to economic growth and by stirring a number of other adverse outcomes:

Ballooning Deficits and A Large Supply of Treasuries Loom: A $1.2 trillion 2018 U.S. deficit (and borrowing requirement) coupled with $600 billion of the Fed’s Quantitative Tightening means that there will be, according to David Stockman’s most visual phrase, “the bond pits will be flooded with $1.8 trillion of ‘homeless’ government paper.” Never in the history of modern finance has a near decade old domestic economic recovery faced a financing hurdle that represents almost nine percent of GDP. How large is this hurdle relative to history? At the top of the last U.S. economic expansion, the Federal Deficit was 87% lower (at $160 billion) – which represented only one percent of U.S. GDP at a time that the Fed was still buying Treasuries (in 2007 the Fed purchased $15 billion of Treasuries) and not selling them (or letting them rollover without replacing). So, this time around, the flow of Treasuries will represent supply that is nine times larger (relative to GDP) than was the case in 2007.

To continue reading: The Return Of The Bond Vigilantes

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The Pension Crisis Gets A Catchy Name: “Silver Tsunami”, by John Rubino

Promises, promises. Inadequate contributions, ever-escalating benefits, and an aging baby boomer population are behind a pension crisis that’s becoming more apparent by the day. From John Rubino at dollarcollapse.com:

Pensions really are in crisis, but the story is so full of large numbers, obscure projections, and dry terms like “unfunded liabilities” that not many people are paying attention.

The same is true for a lot of other big trends out there, which is why those sounding the alarm eventually settle on pithy/scary (if not always accurate) terms to get people’s attention. Global warming, for instance, or nuclear winter.

Now the pension crisis may have found its hook:

‘Silver Tsunami’ hits as pension costs devour California school budgets

(San Francisco Chronicle) – What happens when state funding improves, but local school budgets get worse? And how did we get into this situation in the first place?

It’s simple. School systems are getting hammered by the rising costs of pension and health care commitments. Meanwhile, they are being pinched by external factors including declining student enrollment, increased competition and frozen federal funding.

California is not an anomaly. Districts throughout the nation are facing the same squeeze.

So why isn’t anyone paying attention? Three main reasons:

Money is boring: And only boring people like chief financial officers talk about money and use phrases like “unfunded liabilities.” Interesting, cutting-edge people talk about “disruptive innovations” like personalized learning, or anything with the word “maker” in it.

Money is politically messy. Everyone wants funding for their favorite education project. In this zero-sum world, no one wants to talk about making tough choices. Even fewer want to discuss sensitive topics such as pension and health care liabilities.

Education finance has never been part of our nation’s education wars. Most of the opinion makers in education are like the Great Houses of Westeros in the HBO series “Game of Thrones.” They are much happier fighting each other to the death about issues like unions and charter schools than focusing on the more powerful forces that could destroy them all.

In “Game of Thrones,” that force is the White Walkers. In education, it’s the “Silver Tsunami” — the tens of billions of dollars in pension and other post-retirement benefits guaranteed to retirees.

To continue reading: The Pension Crisis Gets A Catchy Name: “Silver Tsunami”

Stop and Assess, by James Howard Kunstler

Contraction is coming. From James Howard Kunstler at kunstler.com:

America has become Alzheimer Nation. Nothing is remembered for more than a few minutes. The news media, which used to function as a sort of collective brain, is a memory hole that events are shoved down and extinguished in. An attack in Syria, you ask? What was that about? Facebook stole your…what? Four lives snuffed out in a… a what? Something about waffles? Trump said… what? Let’s pause today and make an assessment of where things stand in this country as Winter finally coils into Spring.

As you might expect, a nation overrun with lawyers has litigated itself into a cul-de-sac of charges, arrests, suits, countersuits, and allegations that will rack up billable hours until the Rockies tumble. The best outcome may be that half the lawyers in this land will put the other half in jail, and then, finally, there will be space for the rest of us to re-connect with reality.

What does that reality consist of? Troublingly, an economy that can’t go on as we would like it to: a machine that spews out ever more stuff for ever more people. We really have reached limits for an industrial economy based on cheap, potent energy supplies. The energy, oil especially, isn’t cheap anymore. The fantasy that we can easily replace it with wind turbines, solar panels, and as-yet-unseen science projects is going to leave a lot of people not just disappointed but bereft, floundering, and probably dead, unless we make some pretty severe readjustments in daily life.

We’ve been papering this problem over by borrowing so much money from the future to cover costs today that eventually it will lose its meaning as money — that is, faith that it is worth anything. That’s what happens when money is just a representation of debt that can’t be paid back. This habit of heedless borrowing has enabled the country to pretend that it is functioning effectively. Lately, this game of pretend has sent the financial corps into a rapture of jubilation. The market speed bumps of February are behind us and the road ahead looks like the highway to Vegas at dawn on a summer’s day.

To continue reading: Stop and Assess

This is Not a Market, by Raúl Ilargi Meijer

A supposed market in which the government intervenes to suppress price discovery is not a market. From Raúl Ilargi Meijer at theautomaticearth.com:


René Magritte La trahison des images 1929“[Price discovery] is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers”, says Wikipedia. Perhaps not a perfect definition, but it’ll do. They add: “The futures and options market serve all important functions of price discovery.”

What follows from this is that markets need price discovery as much as price discovery needs markets. They are two sides of the same coin. Markets are the mechanism that makes price discovery possible, and vice versa. Functioning markets, that is.

Given the interdependence between the two, we must conclude that when there is no price discovery, there are no functioning markets. And a market that doesn’t function is not a market at all. Also, if you don’t have functioning markets, you have no investors. Who’s going to spend money purchasing things they can’t determine the value of? (I know: oh, wait..)

Ergo: we must wonder why everyone in the financial world, and the media, is still talking about ‘the markets’ (stocks, bonds et al) as if they still existed. Is it because they think there still is price discovery? Or do they think that even without price discovery, you can still have functioning markets? Or is their idea that a market is still a market even if it doesn’t function?

Or is it because they once started out as ‘investors’ or finance journalists, bankers or politicians, and wouldn’t know what to call themselves now, or simply can’t be bothered to think about such trivial matters?

Doesn’t a little warning voice pop up, somewhere in the back of their minds, in the middle of a sweaty sleepless night, that says perhaps they shouldn’t get this one wrong? Because if you think about, and treat, a ‘thing’, as something that it’s not at all, don’t you run the risk of getting it awfully wrong?

To continue reading: This is Not a Market

The Regulated States of America: Occupational Licensing Gone Wild, by Robert Patrick Shanahan

Most occupational licensing, done ostensibly to protect the public, does nothing more than legally sanction occupational cartels. From Robert Patrick Shanahan at investmentwatchblog.com:

The United States is far from the land of the free these days. The governments in state capitols and Washington DC have confiscated our rights and are selling them back to us. American culture has shifted in a frightening way that has expanded the number of professions and industries that now require an occupational license to legally provide a service or start a business. This stifles business creation in many states and disproportionally affects low and middle income individuals the most.

Executive Vice President at the Goldwater Institute, Christina Sandefur, came on the Armstrong & Getty radio show earlier this week to discuss this alarming trend.

Governments have overreached yet again in requiring a license to perform work that is not in the realm of public safety for consumers. Sandefur stated how it started and what it has become today, “Okay, yeah you gotta get licensing to do something that might be really risky to public health and safety and we accept little by little and eventually we have this growing trend where people are not allowed to work or start a business at all without first getting government permission.” Our insistence on government telling us what to do has hopefully peaked, but recent examples around the country might suggest otherwise.

Over the last 50 years, Sandefur pointed out, 1 in 20 Americans were required to get permission from the government to work by obtaining a license. This included obvious professions in the medical or educational fields. However, today, this number has exploded to 1 in 5 Americans being required to obtain an occupational license, essentially a permission slip from the government, to do their job. Other figures peg the number at closer to 1 in 4.

Is there any reason to believe this grotesque trajectory won’t continue?

To continue reading: The Regulated States of America: Occupational Licensing Gone Wild

Doug Casey on the Demise of Nation States, Part 2

The second part of Doug Casey’s thesis that nation-states will fail, from caseyresearch.com:

Justin’s note: Yesterday, Doug Casey and I talked about the decline of nation states. Today, we continue our discussion… and look at what could ultimately replace them…


Justin: Will politicians allow this to happen? Or will they use the next crisis as an opportunity to seize more power and wealth from everyday people?

Doug: There’s no question about that. The prime directive of every living entity—including governments—is to survive. They’ll try to do so at any cost. They’re like giant dinosaurs in their death throes, thrashing around wildly. They’re very dangerous. You’re going to have to be a very smart little mammal that hides in a hole to not get crushed by them.

The best template for how this is probably going to evolve was laid out in Neal Stephenson’s book, The Diamond Age. In that book, which is a work of genius, Stephenson explains how the world is likely to reorient itself. He expects most nation states will dry up and blow away.

Sure, some will still exist, but most will be replaced by what he calls “phyles.” These are support groups based on whatever you value most. These phyles will provide services like defense and insurance. So, they’ll offer all the benefits that nation states offer today but they’ll necessarily do a much better job, because they’re private, voluntary, and cohesive.

More and more people will discover who their real countrymen are. You’ll find out who you really want to associate and ally yourself with. And it won’t be people who just so happened to have been born in the same area as them, many of whom you have nothing in common with except proximity or government ID. Some may even be enemies or parasites…

Justin: And he thinks these phyles will replace governments completely?

Doug: There will still be governments that control certain geographical areas. After all, governments have lots of force. And most people are like chimpanzees; they crave, or at least accept, leadership by the biggest and most aggressive monkey. But I expect many will eventually be replaced by phyles. This will be technology driven.

And with migration unfolding the way it is, Africa is going to have hundreds of millions of Han Chinese changing the situation on that continent. They’re basically going to take over that continent. At the same time, scores of millions of African migrants will take over Europe.

Those are two big trends that I feel certain about. Who knows what other side shows will happen? But the nation state in its present form is a dead duck. And good riddance to it.

To continue reading: Doug Casey on the Demise of Nation States, Part 2

Winter Is Coming (Part Three), by Jim Quinn

Part Three of Jim Quinn’s series on the Fourth Turning, at theburningplatform.com:

“The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.” – Strauss & Howe The Fourth Turning 

Image result for swirling fog game of thrones

In Part One of this article I laid out the reasons for Gray Champions arising to meet challenges during crisis periods in history. In Part Two of this article I assessed the configuration of Gray Champions throughout the world and the potential impact on the course of this Fourth Turning.

The swirling fog of confusion enveloping the globe as the high lords of the universe play their game of thrones has even the most critical thinking individuals baffled by the course of events. The desperation and blatant lawlessness of the Deep State players in their endeavor to preserve their hegemony over the course of global affairs is palpable with every attack, false flag, accusation, and ratcheting up of their propaganda media machine.

Like Game of Thrones, the behind the scenes machinations, subterfuge, and deceptions taking place outside the purview of the common folk are designed to only benefit the rich and powerful players undertaking these traitorous actions. Open warfare will not happen until it is thought to be in the best interests of those manipulating the levers of society and the narrative produced by their perpetual propaganda media machine. But, in the end, it will be the innocent common people who will suffer the consequences, while the lords reap the riches, glory and power.

“Why is it always the innocents who suffer most, when you high lords play your game of thrones?”Lord Varys – George R.R. Martin, Game of Thrones

The common people have always been blind to the next turning until after it fully arrives. Even now, the average person has no idea we are in the midst of a crisis period which will change the course of history. The overwhelming majority of the 325 million Americans, and billions around the globe, go about their daily lives oblivious to the intrigues, conspiracies, and treachery playing out at the highest levels of government and in smoky backrooms, where deals are made, wars plotted, and billions dispersed to the oligarchical lords running our world.

To continue reading: Winter Is Coming (Part Three)