Category Archives: Investing

The Battle of the ‘Flations has Begun, by Tom Luongo

Can central banks stop a deflationary tsunami? From Tom Luongo at tomluongo.me:

Inflation? Deflation? Stagflation? Consecutively? Concurrently?… or from a great height (apologies to Tom Stoppard).

We’ve reached a pivotal moment where all of the narratives of what is actually happening have come together. And it feels confusing. But it really isn’t.

The central banks have run out of room to battle deflation. QE, ZIRP, NIRP, OMT, TARGET2, QT, ZOMG, BBQSauce! It all amounts to the same thing.

How can we stuff fake money onto more fake balance sheets to maintain the illusion of price stability?

The consequences of this coordinated policy to save the banking system from itself has resulted in massive populist uprisings around the world thanks to a hollowing out of the middle class to pay for it all.

The central banks’ only move here is to inflate to the high heavens, because the civil unrest from a massive deflation would sweep them from power quicker.

For all of their faults leaders like Donald Trump, Matteo Salvini and even Boris Johnson understand that to regain the confidence of the people they will have to wrest control of their governments from the central banks and the technocratic institutions that back them.

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The $6 Trillion Pension Bailout Is Coming, by Lance Roberts

Pension funds are one bear market away from Armageddon. From Lance Roberts at realinvestmentadvice.com:

Fiscal responsibility is dead.

This past week, Trump announced he had reached an agreement with Congress to pass a continuing resolution which will suspend the debt ceiling until July 2021.

The good news is that it will ONLY increase spending by just $320 billion. 

What a bargain, right?

It’s a lie.

That is just the “starting point” of proposed spending. Without a “debt ceiling” to constrain spending, the actual spending will be substantially higher.

However, the $320 billion is also deceiving because that is on top of the spending we have already committed. As I noted just recently:

“In 2018, the Federal Government spent $4.48 Trillion, which was equivalent to 22% of the nation’s entire nominal GDP. Of that total spending, ONLY $3.5 Trillion was financed by Federal revenues, and $986 billion was financed through debt.

In other words, if 75% of all expenditures is social welfare and interest on the debt, those payments required $3.36 Trillion of the $3.5 Trillion (or 96%) of revenue coming in.” 

Do some math here.

The U.S. spent $986 billion more than it received in revenue in 2018, which is the overall “deficit.” If you just add the $320 billion to that number you are now running a $1.3 Trillion deficit.

Sure enough, this is precisely where I forecast we would be in December of 2017.

“Of course, the real question is how are you going to ‘pay for it?’ On the ‘fiscal’ side of the tax reform bill, without achieving accelerated rates of economic growth – ‘the debt will balloon.’

The reality, of course, is that is what will happen because there is absolutely NO historical evidence that cutting taxes, without offsetting cuts to spending, leads to stronger economic growth.”

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Europe is Dying on a Cross of Gold, by Tom Luongo

Are investors and speculators edging towards the exits on Europe? From Tom Luongo at tomluongo.me:

Gold is calling out the insanity of the European Union. It is also calling out the insanity of the global economy. But really it’s all about the euro at this point.

Since breaking through the post-Brexit high of $1375 per ounce, gold has pushed higher. Yes, it’s been volatile. Yes, the forces of control keep trying to stuff gold back inside the box, as it were.

And they keep failing.

Last week’s price action was impressive, even if the close was less than stellar. In the world of financial commentary everyone is looking for proximate causes for spikes and dips.

But most of that is simply noise. I don’t care why gold touched $1450 last week, only that it did.

Because a bull market that shakes off a number of big intra-week corrections to then blast to a new near-term high is a healthy one; one climbing the proverbial wall of worry.

And what’s important here is that this is not an anti-dollar trade. It is an anti-euro one. The U.S. Dollar Index has fully shaken off all attempts by the Fed to talk it down, trading at 97.6, and threatening a back-to-back monthly reversal at 97.8.

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Congress courageously sticks US taxpayers with a $6 trillion liability, by Simon Black

It’s an odds on favorite bet that if Congress decides to “fix” the US’s looming pension problem, it will make that problem worse. From Simon Black at sovereignman.com:

There seems to be an unwritten rule with lawmakers that, every time they create a terrible piece of legislation, they give it the most noble-sounding name.

The USA PATRIOT Act from 2001 was a great example. It sounds great. Who wouldn’t love a law named for Patriots?

And yet that was easily among the most freedom-killing laws ever passed in US history, giving the federal government nearly unlimited authority to wage war and spy on its own people.

There are so many other examples– the USA FREEDOM Act from 2015 (which renewed many of the worst provisions of the PATRIOT Act).

Or the HIRE Act from 2010, which created some of the most heinous tax rules of the last fifty years.

The names of these laws all sounded wonderful. But their effects were absolutely terrible.

The new SECURE Act will likely be no different.

If you haven’t heard of SECURE, it’s a new piece of legislation aimed at ‘fixing’ the US retirement system.

SECURE stands for “Setting Every Community Up for Retirement Enhancement”, which is pretty clever when you think about it.

People want to associate their retirement with a word like ‘secure’. So even without knowing anything about the law, most people will probably have good feelings about it based solely on the name.

But if you actually read the legislation, SECURE contains a number of predictably terrible consequences.

For starters, SECURE is a basically a gigantic tax increase. And it’s a tax increase that will particularly affect your children when you pass away.

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Free Money Socialism, by Sven Henrich

The world’s central banks keep spiking the punch bowl. From Sven Henrich at northmantrader.com:

In lieu of my weekly technical update this opinion piece instead: The free money whores are back again. Harsh? Perhaps. Untrue? Not really. As I’ve stated before our market system is broken, central banks, originally created to save economies from disasters have now become the prime movers in preventing so much as a cold propagating free money socialism for the top 1%. Indeed after a series of financial panics (particularly the panic of 1907) the Fed was created in 1913 for central control of the monetary system in order to alleviate financial crises. Now they are in the business of managing markets full time, all the time and have become the primary focal point of price discovery.

It is self evident:

According to Jay Powell the Fed’s primary mission is now to “sustain the economic expansion.” I’ve never used the term “manipulation” before, but let’s just be clear what “sustain the economic expansion” really means: To prevent natural market forces from taking hold. That’s manipulation.

Business cycles are natural. They serve a purpose, they lay the foundation for new growth, they weed out the excess, they permit for a reset of an aging expansion, for a renewed flourishing of innovation, new solutions, creativity, and yes growth.

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Yikes! Japan has more people over the age of 80 than under the age of 10, by Simon Black

There is no way Japan will be able to continue to fund the present level of old-age benefits. From Simon Black at sovereignman.com:

Earlier this week the United Nation’s Department of Economic and Social Affairs released its 2019 world population report… and there were a number of very interesting findings:

1) World population continues to grow slightly, but the rate of global population growth is at the lowest level since at least 1950.

 2) Global population growth rates are unevenly distributed. Developed nations (including the US, Japan, Western Europe) suffer from alarming declines in fertility rates, while developing countries are experiencing rapid population growth.

The 47 least developed countries in the world (mostly in Africa) are the fastest growing, and just NINE countries are expected to make up HALF of global population growth over the next three decades.

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Complain But Remain, by Jeff Thomas

Only a small percentage of people will do anything before the super-crisis headed our way finally hits. From Jeff Thomas at internationalman.com:

economic crisis

All countries have a “shelf-life” of sorts. Generally, they begin when an old, top-heavy government collapses from its own weight. The end of the old regime is characterized by civil unrest, revolution, secession, economic collapse or some combination of these conditions.

The new country generally has minimal government and little or nothing in the way of entitlements. It’s “sink or swim” for the people, and the recovery generally begins when a portion of the population rolls up its sleeves and creates an economy based upon production.

Over time, often a century or more, the population gets better at production and the country becomes wealthier. Along the way, whatever limited government existed has done all it could to expand itself. Governments, by their very nature, are parasites, living off the productive class, and eventually that parasite has the power to dominate those who produce, by promising largesse to those on the lower levels – who are in every society, the majority of voters.

This pattern has been followed for millennia. A nation establishes its freedom; it begins a productive economy; it develops wealth; it is taken over by a parasitical government; it goes into decline; it collapses, and the cycle begins anew.

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