Post Hoc Fallacy
On Tuesday, at the precise moment Federal Reserve Chairman Jay Powell commenced delivering his semiannual monetary policy report to the House Financial Services Committee, something unpleasant happened. The Dow Jones Industrial Average (DJIA) didn’t go up. Rather, it went down.
The Fed chair and His Magnificence, God Emperor, Field Marshall & Stable Genius, POTUS Donald J. Trump: a complicated relationship. [PT]
Were the DJIA operating within the framework of a free capital market it would be normal for the index to go both up and down. But remember, the U.S. stock market is hardly a free market. Not when it is under the influence of extreme Fed intervention.
When the Fed speaks, the DJIA should go up. At least, that is the opinion of President Trump. And as Powell spoke, the Real Donald Trump took to Twitter and delivered his play-by-play assessment:
“When Jerome Powell started his testimony today, the Dow was up 125, & heading higher. As he spoke it drifted steadily downward, as usual, and is now at -15 […]”
President Trump, no doubt, was falling for the post hoc fallacy by linking correlation with causation. Was this intentional? Was it ignorance? You decide.
Regardless, the Fed is culpable in its own right for creating the condition where the stock market only goes up. Still, the Fed’s influence is not without limits. Certainly, the stock market will one day slip through its grip. But when?
Cheap and Yummy
The DJIA has gone up and to the right for nearly 11 years. During this time there have been several moderate corrections. Yet nothing to set off a serious panic.
After this extended bull market run, many investors have swallowed the belief – hook, line, and sinker – that the Fed has erected safety bumpers along the stock market’s path. That, somehow, the Fed has fabricated a market free of risk. That Fed Chair Powell, or his successor, will always save the day with more liquidity.
The Joy of Printing (Jerome Ross-Powell paints the tape). Nothing untoward can ever happen in the markets again. Occasionally we may get happy little accidents such as this recent one, which has become a happy little money tree. [PT]
Thus, bad news is good news. A slowing economy, rising unemployment rate, earnings recession, trade war, global pandemic, drone strikes, presidential impeachment trial, melting glaciers… you name it. The worse the news is, the better.
Because bad news means more Fed liquidity. And more Fed liquidity means higher stock prices. And higher stock prices means the nirvana of inflated stock portfolios. And the nirvana of inflated stock portfolios means an enlightened and purpose driven life. And an enlightened and purpose driven life means he who dies with the most toys wins.
What to make of it?
Winning by toy count at the time of one’s passing: how to get there and other important details. [PT]
Years ago a friend of ours had grand plans of opening a restaurant called, Cheap and Yummy. His firm belief was that it would be a no fail proposition, so …read more
A Review of Murray N. Rothbard’s Conceived in Liberty, Vol. 5
The posthumous release of Murray Rothbard’s fifth volume of his early American history series, Conceived in Liberty, is a cause of celebration not only for those interested in the country’s constitutional period, but also for the present day as the nation is faced with acute social, economic, and political crises.
Murray Rothbard, the foremost representative of the “American branch” of the Austrian School of Economics was not only an accomplished economic theorist, but also a great historian and political philosopher, who provided us with highly valuable insights and critical rebuttals of what is considered established and “acceptable” opinion these days. [PT]
The fifth volume, The New Republic: 1784-1791, stands with Boston T. Party’s 1997 release, Hologram of Liberty, as a grand rebuttal of the cherished notion held by most contemporary scholars, pundits on the Right, and surprisingly, many libertarians, who believe that the US Constitution is some great bulwark in defense of individual liberty and a promoter of economic success.
Rothbard’s narrative highlights the crucial years after the American Revolution, focusing on the events and personalities that led to the calling for, drafting, and eventual promulgation of the Constitution in 1789.
Not only does he describe the key factors that led to the creation of the American nation-state, but he gives an insightful account of the machinations which took place in Philadelphia and a trenchant analysis of the document itself, which in the eyes of most conservatives is on a par with Holy Writ.
Murray Rothbard, Conceived in Liberty, The New Republic: 1784 – 1791 (download link to PDF version) [PT]
What Might Have Been
While Rothbard writes in a lively and engaging manner, the eventual outcome and triumph of the nationalist forces leaves the reader wistful. Despite the fears expressed by the anti-federalists that the new government was too powerful and would lead to tyranny, the Constitution came into being through coercion, threats, lies, bribery, and arm twisting by the politically astute Federalists. Yet, what if it had been the other way around and the forces against it had prevailed?
It is safe to assume that America would have been a far more prosperous and less war-like place. The common held notion that the Constitution was needed to keep peace among the contending states is countered by Rothbard, who points out a number of instances where states settled their differences, most notably Maryland and Virginia as they came to an agreement on the navigation of the Chesapeake Bay. [129-30]
Without a powerful central state to extract resources and manpower, overseas intervention by the country would have been difficult to undertake. Thus, the disastrous participation of the US in the two world wars would have been avoided. Furthermore, it would have been extremely unlikely for a Confederation Congress to impose an income tax as the federal government successfully did through a constitutional amendment in 1913.
Nor would the horrific and misnamed “Civil War” with its immense loss of life and the destruction of the once flourishing Southern civilization ever have taken place. The …read more
An Example of Strong Single Stock Seasonality
Many individual stocks exhibits phases of seasonal strength. Being invested in these phases is therefore an especially promising strategy.
Danish drug company Novo Nordisk
Today I want to introduce you to a stock that tends to advance particularly strongly at this time of the year: Novo Nordisk. The Danish pharmaceutical group supplies a broad range of products and is a global market leader in diabetes drugs.
Novo Nordisk exhibits a brief, but very strong seasonal phase
Take a look at the seasonal chart of Novo Nordisk below. This is not a standard price chart showing prices moves over a specific time period. Rather, the seasonal chart depicts the average price pattern of Novo Nordisk in the course of a calendar year over the past 10 years.
Novo Nordisk, seasonal pattern over the past 10 years. The stock typically rallies particularly strongly in mid February
I have highlighted the especially strong seasonal phase from February 11 to February 22 in blue. In this time period Novo Nordisk displays a particularly strong seasonal advance.
A gain of 495.78 percent annualized!
Over the past 10 years Novo Nordisk rose in every single year in this phase. In other words, the pattern had a hit rate of 100 percent. The average gain achieved in these mere eight trading days amounted to 5.01 percent. This corresponds to an extremely strong annualized gain of 495.78 percent!
The following bar chart shows the pattern return for the time period February 11 to February 22 in every single year since 2010.
Novo Nordisk, percentage return of the seasonal rally between Feb. 11 and Feb. 22 in every year since 2010. The stock rallied in every year under review.
As this chart confirms, in the past ten years prices indeed rose over these eight trading days in every single year. The largest gain achieved in 2015 amounted to 11.46 percent!
In my opinion such large seasonal gains in such a short time period represent a phenomenal opportunity. The appeal of investing in particularly strong seasonal phases and thus significantly increasing the chance of generating extraordinary returns should be obvious.
Take advantage of single stock seasonality!
As you can see, individual stocks exhibit their very own seasonal patterns which often include very attractive phases of strength. On our web page www.app.seasonax.com or alternatively on the Seasonax app at Bloomberg or Thomson-Reuters Eikon, promising seasonal patterns of thousands of individual shares are waiting to be discovered!
Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com, which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia …read more
Historic Misjudgments in Hindsight
Viewing the past through the lens of history is unfair to the participants. Missteps are too obvious. Failures are too abundant. Vanities are too absurd. The benefit of hindsight often renders the participants mere imbeciles on parade.
The moment Custer realized things were not going exactly as planned. [PT]
Was George Armstrong Custer really just an arrogant Lieutenant Colonel who led his men to massacre at Little Bighorn? Maybe. Especially when Sitting Bull, Crazy Horse, and numbers estimated to be over ten times his cavalry appeared across the river.
Were George Donner and his brother Jacob naïve fools when they led their traveling party into the Sierra Nevada in late fall? Perhaps. Particularly when they resorted to munching on each other to survive the relentless blizzard.
Certainly, Custer and the Donner brothers were doing the best they could with the information available to them. The decisions they made must have seemed reasoned and calculated at the time. But what they couldn’t see – until it was too late to turn back – was that with each decision, they unwittingly took another step closer to their ultimate demise.
The Donner party inadvertently runs into exceedingly inclement weather. In order to survive several members of the trek were soon forced to consult their inner cannibal. [PT]
Still they were human just like we are human… no smarter, no dumber. We are not here to ridicule them; but rather, to learn from them.
A Good Man in a Bad Trade
Rudolf von Havenstein had been president of the Reichsbank – the German central bank – since 1908. He knew the workings of central bank debt issuance better than anyone. He was good at it.
Thus, when he was called upon by history to deliver a miracle for the Deutches Reich in the aftermath of WWI, he knew exactly what to do. He would deliver monetary stimulus. In fact, he had already been at it for several years.
German Reichsbank president Rudolf von Havenstein. The things he didn’t see coming eventually filled entire libraries. [PT]
On August 4, 1914, at the start of the war, the gold mark – or gold-backed Reichmark – became the unbacked paper mark. With gold out of the picture, the money supply could be expanded to meet the endless demands of war.
To this end, von Havenstein took public debt from 5.2 billion marks in 1914 to 105.3 billion marks in 1918. Over this time, he increased the quantity of marks from 5.9 billion to 32.9 billion. German wholesale prices rose 115 percent.
By the war’s end, Germany’s economy was in shambles. Industrial production in 1920 had slipped to just 61 percent of the level seen in 1913. With a weak economy, and under the crushing weight of debt, it was time for von Havenstein to really get to work.
In truth, he didn’t have much of a choice. The limits of fiscal and monetary prudence had been crossed when the gold-mark was replaced with the paper-mark. Reversing course now would have …read more
In the 18 December 2019 issue of Seasonal Insights I discussed the strong seasonal advance in precious metals around the turn of the year. In silver it begins in mid December and continues until the end of February. A roughly similar pattern can be observed in platinum and palladium, while seasonal buoyancy is at least to some degree evident in gold as well.
Long-term silver and platinum seasonal charts from the late 2019 issue of Seasonal Insights : the seasonally strongest phase lasts from mid December until late February. [PT]
You may well wonder: what is the trend in precious metal stocks? Are they typically advancing around the same time of the year?
Mining Stocks Track Precious Metals Seasonality
Take a look at the seasonal chart of the HUI gold mining index below. This is not a standard chart depicting price moves over a specific time period. Rather, the seasonal chart shows the moves in the HUI in the course of a calendar year averaged over the past 25 years.
HUI seasonal pattern over the past 25 years: the HUI typically rallies strongly in February
As the chart illustrates, gold & silver mining stocks typically begin to rally in mid December. In January they continue to gain ground in a choppy and somewhat muted advance. Then prices rise very steeply until the end of February. Thereafter the seasonal average declines again.
In short, the strongest seasonal advance in precious metals mining stocks lies directly ahead.
Seasonal Strength is Driven by Fundamentals
Thus gold and silver mining stocks track the seasonal pattern in precious metals. The seasonal advance in precious metals in turn is very likely mainly driven by purchases of industrial users (fabrication demand). Many industrial processors place large buy orders at the beginning of the financial year, once planning for the new year has been completed and new orders to replenish inventory can be booked.
Industrial silver processors in medias res. Clockwise from the top left: silver strip coiling machine, continuous cast LBMA ingot shape, silver billet extrusion, induction vacuum casting machine, gold strip for coins, silver strip, silver dore casting machine. [PT]
By extension the seasonal rally in precious metals mining stocks is therefore underpinned by fundamentals as well.
An Annualized Gain of Almost 100 Percent
The strongest part of the seasonal rally takes place between 28 January and 18 February. The average return achieved in this time period over the past 25 years was 4.03 percent. This is equivalent to an annualized gain of 98.75 percent, which represents an extraordinarily strong seasonal advance.
The following bar chart shows the returns generated between 28 January and 18 February in every single year since 1994. Green bars indicate years in which gains were posted, red bars indicate losses.
HUI: return between 28 Jan and 18 Feb in every single year since 1994 in percent. Prices often rise very strongly.
As the chart illustrates, the distribution of returns is not exactly uniform. The reasons: the gold mining …read more
The recent outbreak of a dangerous respiratory illness caused by a new Corona virus in China was widely blamed for the stock market sell-off on Monday last week. It is undoubtedly true that the epidemic has the potential to severely disrupt economic activity, although it is too early to come to a definitive conclusion about that. Be that as it may, the event actually serves as an excellent example illustrating that the news of the day are incidental to market action rather than causing it.
S&P 500 Index, 10-minute chart. A fairly strong sell-off on Monday last week, a vigorous rebound on Tuesday.
Consider the vigorous market rebound on Tuesday depicted above. Did news about the epidemic get better? Quite the contrary, news on the spread and deadliness of the illness actually worsened substantially. Granted, the rebound failed to completely make up for Monday’s losses, but at this stage the market is certainly not “discounting” the potential economic impact of the epidemic.
We would actually argue that the market was ripe for a setback regardless of the news accompanying it – and it certainly remains vulnerable. After the sell-off on Monday a headline at Zerohedge informed us that Morgan Stanley analysts immediately concluded that “The Correction Has Begun, But The Fed Will Keep It To 5%“. It is heartwarming to see that the superstitious belief in the magical powers of “potent directors” to prevent market downturns remains alive and well.
We would suggest that if risk aversion actually makes a comeback, there is precisely zero the Fed or anyone else can do about it. Mind, we are not asserting that money printing does not affect interest rates and asset prices, but no-one can control the time lags involved, or which assets will be the beneficiaries. Naturally we concede that the Fed’s policy bias u-turn in late 2018/early 2019 and the sizable jump in the money supply since last September have helped the recent blow-off type rally in the stock market along.
However, this was predicated on the fact there was genuine fear in the market at the late 2018 correction low and that risk appetites have gradually, but steadily increased again ever since. Furthermore, although some evidence of deteriorating economic conditions has emerged, a recession has to date remained out of sight. As the monthly Merrill Lynch fund manager survey revealed, the combination of renewed central bank largesse and a weak – but not too weak – economy has emboldened previously cautious fund managers to venture back into the market with great gusto.
All these conditions remain in place, but two things have changed: for one thing, stock markets around the world are now trading at far higher levels and multiples – the valuation of the US stock market in particular is extremely stretched by historical standards. Valuation is of course a long term concern and has no bearing on market action in the near term.
For another thing, there is the current positioning and sentiment backdrop, which may indeed …read more
This week, while you were busy working, Jamie Dimon, CEO of JP Morgan Chase, took time out from rubbing elbows with fellow movers and shakers at the World Economic Forum in Davos, Switzerland, to share his trepidations:
“The only thing I have trepidation about is negative interest rates, QE, and the diversion between stock prices and bond prices and yield and stuff like that… I think it’s very hard for central banks to forever make up for bad policy elsewhere, that puts them in a trap. We’re a little bit in that trap today with rates so low around the world.”
Jamie Dimon having nightmares in his money bunker [PT]
Fair enough. Though Dimon, in what we presume was an inadvertent omission, failed to share that his firm may have recently walked the Federal Reserve into an elaborate policy trap. Now the Fed is stuck. JP Morgan has thrown away the keys. And Dimon has reaped a significant windfall.
If you recall, between Monday night and Tuesday morning September 16/17 the overnight repurchase agreement (repo) rate hit 10 percent. Short-term liquidity markets essentially broke. The Fed had to intervene in the repo market, via overnight repo operations, to push the repo rate back below 2 percent.
Since then, overnight repo operations by the Fed have become a near daily occurrence. What is more, these daily operations have ballooned to the order of up to $120 billion and are being maintained indefinitely.
Outstanding Fed repos – from a peak of $255 billion at the turn of the year they have now decreased to $189 billion – which still dwarfs anything seen during the 2008 crisis. [PT]
On Tuesday, for example, the Fed created $90.8 billion out of thin air. Of this, $58.6 billion was added to the overnight repo. The remaining $32.2 billion was added to the 14-day repo. Then, on Thursday, the Fed created another $74.2 billion out of thin air. Of this, $44.15 billion was added to the overnight repo, and the remaining $30 billion was added to the 14-day repo.
What exactly triggered the September 16/17 repo rate spike is unclear. Did a large bank or hedge fund not have sufficient high quality collateral, which then froze them out of the repo market?
One theory is that JP Morgan had a hand in it. Here CCN shares the abstract thinking of DataDash founder Nicholas Merten:
“According to Merten, JP Morgan ‘predominantly caused’ the repo market surge in September. The financial giant pulled out $130 billion from the overnight lending market. The sudden drop in reserves drove the overnight lending rate to soar to 10 percent.
“At this point, the Fed had a choice. They could have stay away from the repo market and watch interest rates skyrocket while stocks crash. Or they could step in, supply liquidity and keep things humming. We know how it panned out.
“JP Morgan wins twice in this situation. First, they have the liquidity to initiate a large buyback scheme. While pumping shares, they could dole out handsome dividends to attract more …read more
An Unloved Sector
We rarely discuss individual stocks in these pages, but we make an exception now and then when we spot exceptional opportunities. This time the reason is actually more mundane: the vast majority of gold exploration stocks failed to benefit from the rally in precious metals prices last year. As a result many of them came under even greater pressure in the tax loss selling season at the end of the year. We made a list of such stocks late last year – a download link to the PDF document is provided below this post. Here is an example of such a stock:
ATAC (ATADF), one of many exploration stocks that came under selling pressure in last year’s tax loss selling period.
ATAC is actually a fairly solid company as exploration companies go – it has a large land package in the Yukon territory, a PEA-supported high grade resource, a second fairly large high grade resource (which unfortunately consists of hard-to-treat refractory ore, which puts grade into perspective) and numerous scout drill holes suggest there is potential for more discoveries.
And yet, the stock has been in a downtrend for several years. As the weekly chart shows, it traded above 70 cents both in 2016 and 2017. If one goes even further back, it traded actually as high as $4.40 in late 2011 when gold peaked. Naturally the share count has increased since then, but on the other hand, the drill programs that were funded by share issuance have been reasonably successful.
ATAC, weekly – in 2016 and 2017 the stock briefly traded above 70 cents.
If this were the case with just one exploration stock, we would suspect that there is a problem at the company we don’t know about. However, the vast majority of small exploration stocks has fared extraordinarily poorly in recent years. Only a handful of stocks with exceptional news flow have managed to deliver a half-way decent performance in line with the rally in gold.
A Long List of Caveats
Right now may actually not be the best time to make our list available, since net speculative positioning in gold futures is quite stretched (and has been for a while). We believe that positioning extremes in gold futures have shifted upward, as this has happened in numerous other futures markets as well in recent years (most notably in crude oil, where the extreme in net speculative length has grown from around 120,000 contracts to 850,000 contracts over the past decade).
Still, as a percentage of open interest the net speculative long position in gold futures is clearly at the upper end of its long term range, although it remains below its highs of 2016 and 2019. It is therefore possible that it will expand further, but there is undoubtedly a limit to this process:
Net position of hedgers according to the legacy CoT report, and the net position of large speculators as a percentage of …read more
Involuntary Early Retirement of a Middle Eastern General
The procession of news through the week – namely that chronicling the aftermath of the targeted drone strike and killing of Iranian General Qasem Soleimani – advanced with an agreeable flow. The reports at the start of the week were that Orange Man Bad had spun up a Middle Eastern mob of whirling dervishes beyond recall. World War III was imminent.
The recently expired general, when he was still among the quick – and seemingly in a good mood. [PT]
Photo via harpy.ir
But after Iran’s token missile launch on Tuesday, with no American causalities, President Trump Tweeted: “All is well!” Then, on Wednesday, major U.S. stock indices gave the “all clear” signal. By Thursday, the Dow Jones Industrial Average (DJIA), the S&P 500, and the NASDAQ were all marching to record highs. The DJIA even came within a horse’s hair from taking out 29,000.
What’s more, the price of crude oil fell below where it was before Soleimani was killed. No harm, no foul. What to make of it?
According to traders, everything is awesome. Still, we have some reservations. Our best guess is that this week’s agreeable flow of news will be followed by a disagreeable ebb. Conceivably, it marks the first paragraph of a new chapter in America’s forever war in the Middle East.
The stock market barely flinched (Qasem who?) and crude oil quickly gave back its gains again. Evidently, upheaval in the Middle East isn’t what it used to be. [PT]
In the interim, however, we will consider the events of the last 10 days an experiment. Here, with little consequence (at least for now), we have been gifted a sampling of how financial markets behave when a burgeoning geopolitical crisis hits.
We posit that during the initial fog of a geopolitical crisis financial markets don’t have the faintest inkling of potential risk.
Financial risk, for our purposes today, is not a quantified statistical measurement. We are not concerned with the risk differential between high beta and low beta stocks. Rather, at the commencement of a major conflict, risk is specific to the probability that a foundational change results which wipes away capital permanently.
Author Fred Sheehan wrote a piece titled, “War of the Nerds,” for the December, 2006, edition of Marc Faber’s Gloom, Boom & Doom Report. Several years ago the article was still posted at Sheehan’s now defunct Au-Contrarian website. By chance, before the site vanished, we preserved the following excerpt:
“Every generation suffers its particular fantasies. So it was a century ago. Investors had grown so immune to the consequences of war that bond markets from London to Vienna didn’t flinch after the assassination that provoked World War I.
“Three weeks later, in the summer of 1914, the fear premium amounted to a total of one basis point. Then, in quick order, European markets ceased to function. A notable feature of this paralysis is that nothing of substance had changed – war had not been declared by any …read more
Fiat Currency Rankings – From Bad to Worse
Today, as we step into the New Year, we reach down to turn over a new leaf. We want to make a fresh start. We want to leave 2019’s bugaboos behind. But, alas, lying beneath the fallen leaf, like rotting food waste, is last year’s fake money. We can’t escape it. But we refuse to believe in its permanence.
This is what “monetary stability in the Fed-administered fiat money regime looks like: in the year the Fed was established it took $3.80 to buy what $100 buy today – provided the government’s CPI data are actually a valid gauge of the dollar’s purchasing power. [PT]
Victorian economist William Stanley Jevons, in his 1875 work, Money and the Mechanism of Exchange, stated that money has four functions. It is a medium of exchange, a common measure of value, a standard of value, and a store of value.
No doubt, today’s fake money, including the U.S. dollar, falls well short of Jevons’ four functions of money. Certainly, it comes up short in its function as a store of value.
Hence, today’s money is not real money. Rather, it is fake money. And this fake money has heinous implications on how people earn, save, invest, and pay their way in the world we live in. Practically all aspects of everything have been distorted and disfigured by it.
Take the dollar, for instance. Over the last 100 years, it has lost over 96 percent of its value. Yet, even with this poor performance, the dollar has one of the better track records going. In fact, many currencies that were around just a short century ago have vanished from the face of the earth. They have been debased to bird cage liner.
This graphic is slightly dated by now (we downloaded it almost 20 years ago), i.e., a few more fiat currencies have joined the expired contingent by now. It also excludes a number of historical paper currency experiments in China, which failed without exception. Still, it can be estimated that no more than 20% of the paper currencies created so far still exist – and the strongest one of them has lost “only” 96% of its value! [PT]
Who Will Buy All this Debt?
The failings of today’s dollar are complex and multifaceted. But they generally stem from the unsatisfactory fact that the dollar is debt based fiat that is issued at will by the Federal Reserve. How can money function as a store of value when a committee of unelected bureaucrats can conjure it from thin air?
After President Nixon “temporarily” suspended the Bretton Woods Agreement in 1971, the future was written. The money supply has expanded without technical limitations. This includes expanding the Fed’s balance sheet to buy Treasury debt. In a practical sense, Fed purchases of U.S. Treasury notes are now needed to fund government spending above and beyond tax receipts (i.e., fiscal deficits).
As an aside, the Fed’s charter prohibits it from directly purchasing bills …read more
GDP – A Poor Measure of “Growth”
Last week the prices of the metals rose $35 and $0.82. But, then, the price of a basket of the 500 biggest stocks rose 62. The price of a barrel of oil rose $1.63. Even the euro went up a smidgen. One thing that did not go up was bitcoin. Another was the much-hated asset in the longest bull market. We refer to the US Treasury.
BofA Merrill Lynch high yield master II option-adjusted spread: on Dec. 23 it tightened to the lowest level of 2019, fairly close to its post-crisis low established in 2018. This seemingly signals that risk is very small – in reality, risk is probably extremely high. [PT]
The spread between Treasury bonds and junk bonds narrowed this week. It is now close to its post-crisis low. While many would cheer this cheapening of the cost of credit to below-investment-grade issuers, we note two things.
One, this enables them to borrow more to spend more and thus add to GDP. Two, this is not a recommendation of forcing down the cost of credit to marginal borrowers. It is a damning indictment of GDP as a measure.
Whatever the word is, when there is an increase of borrowing to consume wealth, “growth” is not that word. Yet this is our world. This is held up as proof of a strong economy.
I had a bizarre encounter on social media. I said that when the government borrows, it adds to GDP. An otherwise-free-market economist chimed in to say that it does not, and said that transfer payments are not included in GDP.
Indeed, but if the government doles out $1,000 to Joe Six-pack, and Joe buys $1,000 worth of beer, that adds to GDP. Next, this otherwise-free-marketer quibbled that well Mark Millionaire spends less. It went round and round.
And then it suddenly became clear. They cannot admit that borrowing to consume adds to GDP. For if they do, they concede the case against Fed GDP targeting. So to head that off at the pass, they have to deny this fact.
How many of the companies rated below investment grade are zombies — which the Bank for International Settlements defines as profits < interest expense? It is not sustainable to borrow more to pay some of the interest expense. Not even if the interest rate keeps falling.
The land of zombies and cronies… there is a growing supply of both. [PT]
This is just another mechanism of capital destruction. Though new capital is being produced by productive enterprises, capital is finite. No one can say when this process will blow up. But we can be certain that it will.
We have been periodically checking on a marketing page, which keeps putting a date on it. And revising the date every six months, when Armageddon does not arrive on schedule. Today it says December 31. But check back in January to see it revised …read more
World Class Entertainer in the Cross-Hairs
Christmas is no time to be given the old heave-ho. This is a time of celebration, redemption, and excess libation. A time to shop ‘til you drop; the economy depends on it. Don’t get us wrong. There really is no best time to receive the dreaded pink slip. But Christmas is the absolute worst. Has this ever happened to you?
The verdict: Orange man bad! [PT]
Well, believe it or not, this is precisely what House Speaker Nancy Pelosi and her Democrat degenerates in the House did this week with their partisan impeachment of President Trump. Not even Ebenezer Scrooge had a cold enough heart to fire Bob Cratchit on Christmas. In fact, Scrooge gave Cratchit Christmas day off – with pay.
For the record, Trump is a repulsive fellow. He chows Big Macs in bed and bloviates sulfurous gas back at the boob tube. After that, he feeds his resentments over a phone call with Sean Hannity. Then he uncorks on twitter. The sequence repeats every night and rolls into the morning like clockwork.
Perhaps this sort of behavior is beneath the stature of an esteemable President. But so what? It’s remarkably entertaining.
His eminence, God Emperor, Field Marshal & Stable Genius, Donald “Real” Trump, POTUS, fount of endless high quality entertainment and greatest troll in the world. [PT]
All the while, the Democrats – and Anderson Cooper – say The Donald is below the salt. The real question, though, is: Does he deserve to be impeached? To this day, no one – including Adam Schiff – actually knows.
House Democrats may have voted yes on their two articles of impeachment. But they failed to prove Trump guilty of these high crimes and misdemeanors. They bypassed American traditions of due process and a fair trial. In other words, Nancy Pelosi reduced the legislative branch of government to a kangaroo court.
Make no mistake: Trump will come out of this fake impeachment in better shape than he started. He will be acquitted by the Senate. However, this assumes Pelosi transmits the articles of impeachment to the Senate; if she doesn’t, Trump isn’t technically impeached.
Regardless, House Democrats have gifted thousands of rounds of live ammo to Trump that he can fire back at his presidential challengers. What’s more, the most enduring political target of all time may be about to step into the clearing.
God may have created all creatures great and small. And who are we to second guess the lord’s handiwork? But there are certain creatures that improve the world with their absence.
Hillary Clinton, the political class’ incarnation of ringworm jock itch, is now scratching at another uncomfortable flare up. Year after year, decade after decade, she refuses to go away. Still, we’ve learned to make the best of it.
For instance, rather than getting agitated when seeing Clinton’s smug mug on the nightly news we marvel at what a fright her face has become. We can’t quite tell what in the world has happened. But whatever it is… the ugliness is cockadoodle awful.