Month: February 2016

Mexico’s Oil Giant Posts Record $32 Billion Loss, Cuts Crude Price Forecast To $25

For a long time, the impact of the collapsing Petrodollar was concentrated almost entirely on African and Mid-east oil exporting nations, of which none has been impacted more perhaps that ground zero itself, Saudi Arabia, which has seen a record surge in its budget deficit as a result of collapsing oil revenue – the result of its ongoing war with the U.S. oil and gas sector and low cost “marginal” producers around the globe. Then slowly, the commodity woes spread to supposedly unshakable, developet nations, such as Norway and Canada, both of which are currently troubled by the impact of plunging crude prices on state revenues and downstream budgets.

Today, another country exposed just how troubled its energy sector has become when Mexico’s largest, state-owned company, Petroleos Mexicanos also known as Pemex, announced not only its 13th consecutive quarterly loss amounting to $9.3 billion, 44% bigger than the previous year, as revenue tumbled by 28% to $15.8 billion, but also a gargantuan $32 billion annual loss and at the same time announced it would slash capex spending to preserve cash and optionality for a future which suddenly looks very bleak.

In a budget report issued today, Pemex also pledged to meet the government’s request that it trim its 2016 budget by 100 billion pesos ($5.5 billion). Pemex will cut as much as $3.6 billion in spending by delaying projects, including expensive offshore wells, Jose Antonio Gonzalez Anaya, the company’s CEO, said in a conference call with investors. Pemex will pursue partners for any future deepwater development, Gonzalez Anaya said.

The report follows an announcement by the state of Mexico to cut back on its lifeline to the troubled oil giant when on February 17 it said it plans to cut 100 billion pesos ($5.5 billion) from the oil giant’s budget in a move aimed at stemming the depreciation of the peso and limiting inflation in Latin America’s second-largest economy amid the slump in international crude prices.

As Bloomberg reports, Pemex lost about $32 billion in all of 2015 as oil prices plunged and the company’s crude output fell for an 11th straight year, according to a financial report released Monday. Pemex hasn’t recorded a profit since 2012. The company had more than $87 billion in debt at the conclusion of the third quarter and owes an estimated $7 billion to service providers.

“These adjustments do not weaken Pemex, they strengthen it,” Gonzalez Anaya said on the call, but that promise sounded hollow especially after the CEO also said on the call that while the company is not facing a solvency crisis, it is facing short-term financial difficulties, prompting some to wonder just what skeleton will come out of the closet if the oil price remains as low as it has been. He also added that the company is now looking for alternative ways to fund refining operations. It is unclear what the non-alternative way is but we assume it has to do with issuing more debt, an avenue which may be closed for the time being.

But the scariest news not only for Mexico’s largest company, but for the energy sector in general, was Pemex’ announcement that it was slashing its oil price forecast by 50% from $50 to $25/bbl…

… a price which if realized will mean that all those who have been buying energy ETFs in hopes ot timing the oil bottom will end up with another round of big, fat, oily donuts, because unlike Pemex no U.S. shale company has the explicit backing of the US government. At least not yet.


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“The GOP Is On The Verge Of A Meltdown”: Senior Republicans Threaten To Vote For Hillary

With Donald Trump set for a yuuge victory in tomorrow's Super Tuesday slugfest – oddsmakers see 80% chance of Trump being the nominee – tensions are mounting dramatically within the Republican establishment. As The FT reports, many mainstream Republicans believe Mr Trump would struggle to beat Hillary Clinton and are urgently rallying around their man Rubio with some senior Republicans saying privately that they might consider voting for Mrs Clinton if Mr Trump were to end up as their party nominee as one conservative commentator exclaimed "we are on the verge of a real meltdown in the Republican party."

Trump's lead in the polls over his GOP nominee 'peers' continues to grow…

Source: RealClearPolitics

As The FT reports, while Mr Rubio and Mr Trump ramp up their attacks on each other ahead of the March 1 primaries, Republican grandees and lawmakers are turning to the Florida senator as they become increasingly worried that the property tycoon could lock up the GOP presidential nomination within three weeks.

They fear that a victory for Mr Trump could fatally fracture the party and prevent them from winning the White House in November.

 

Many mainstream Republicans believe Mr Trump would struggle to beat Hillary Clinton, the clear Democratic frontrunner after her resounding victory over Bernie Sanders in South Carolina on Saturday, given the comments he has made about Hispanics, Muslims, women, disabled people and people who have criticised his campaign.

But, as the following chart shows, it's far too close to call…

Source: RealClearPolitics

The FT goes on to note that Mr Trump on Sunday issued a thinly-veiled warning that he would consider running as an independent.

“The Republican Establishment has been pushing for lightweight Senator Marco Rubio to say anything to “hit” Trump. I signed the pledge-careful,” he tweeted, a reference to a pledge that all candidates signed to back the party’s eventual nominee.

As panic is setting in within The GOP…

“We are on the verge of a real meltdown in the Republican party,” Hugh Hewitt, the influential conservative radio talk-show host told ABC television on Sunday.

 

Some senior Republicans have said privately that they might consider voting for Mrs Clinton if Mr Trump were to end up as their party nominee. “You’ll see a lot of Republicans do that,” Christine Whitman, the former New Jersey governor who previously compared Mr Trump to Hitler, told the New Jersey Star-Ledger.

 

“We don’t want to. But I know I won’t vote for Trump.”

But none other than Rupert Murdoch chimed in at the craziness and infighting…

And now the neocons are declaring war on Trump (as The Intercept notes)…

Donald Trump’s runaway success in the GOP primaries so far is setting off alarm bells among neoconservatives who are worried he will not pursue the same bellicose foreign policy that has dominated Republican thinking for decades.

 

Neoconservative historian Robert Kagan — one of the prime intellectual backers of the Iraq war and an advocate for Syrian intervention —  announced in the Washington Post last week that if Trump secures the nomination “the only choice will be to vote for Hillary Clinton.”

 

Max Boot, an unrepentant supporter of the Iraq war, wrote in the Weekly Standard that a “Trump presidency would represent the death knell of America as a great power,” citing, among other things, Trump’s objection to a large American troop presence in South Korea.

 

Trump has done much to trigger the scorn of neocon pundits. He denounced the Iraq war as a mistake based on Bush administration lies, just prior to scoring a sizable victory in the South Carolina GOP primary. In last week’s contentious GOP presidential debate, he defended the concept of neutrality in the Israeli-Palestinian conflict, which is utterly taboo on the neocon right. “It serves no purpose to say you have a good guy and a bad guy,” he said, pledging to take a neutral position in negotiating peace.

With Trump’s ascendancy, it’s possible that the parties will re-orient their views on war and peace, with Trump moving the GOP to a more dovish direction and Clinton moving the Democrats towards greater support for war.


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Where the puck will be

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

“My interest is in the future because I am going to spend the rest of my life there.” – Charles Kettering.

Perhaps the most extraordinary and important presentation you will ever see can be found on YouTube, here. Dr Albert A Bartlett, Professor Emeritus at the Department of Physics at the University of Colorado at Boulder, shares his observations about the power of the exponential function – what happens when the supply of anything grows, and compounds, at a fixed rate over time. As Dr Bartlett warns,

“The greatest shortcoming of the human race is our inability to understand the exponential function.”

Here is an example from the world of bacteria.

“Bacteria grow by division so that 1 bacterium becomes 2, the 2 divide to give 4, the 4 divide to give 8, etc. Consider a hypothetical strain of bacteria for which this division time is 1 minute. The number of bacteria thus grows exponentially with a doubling time of 1 minute. One bacterium is put in a bottle at 11:00 a.m. and it is observed that the bottle is full of bacteria at 12:00 noon. Here is a simple example of exponential growth in a finite environment. This is mathematically identical to the case of the exponentially growing consumption of our finite resources of fossil fuels. Keep this in mind as you ponder three questions about the bacteria:

  1. 1)  When was the bottle half full? Answer: 11:59 a.m.
  2. 2)  If you were an average bacterium in the bottle, at what time would you first realize that you were running out of space? Answer: There is no unique answer to this question, so let’s ask, “At 11:55 a.m., when the bottle is only 3% filled and is 97% open space, would you perceive that there was a problem? Some years ago someone wrote a letter to a Boulder newspaper to say that there was no problem with population growth in Boulder Valley. The reason given was that there was 15 times as much open space as had already been developed. When one thinks of the bacteria in the bottle one sees that the time in Boulder Valley is 4 minutes before noon!Suppose that at 11:58 a.m. some farsighted bacteria realize that they are running out of space and consequently, with a great expenditure of effort and funds, they launch a search for new bottles. They look offshore on the outer continental shelf and in the Arctic, and at 11:59 a.m. they discover three new empty bottles. Great sighs of relief come from all the worried bacteria, because this magnificent discovery is three times the number of bottles that had hitherto been known. The discovery quadruples the total space resource known to the bacteria. Surely this will solve the

problem so that the bacteria can be self-sufficient in space. The bacterial “Project Independence” must now have achieved its goal.

3) How long can the bacterial growth continue if the total space resources are quadrupled? Answer: Two more minutes.”

As Dr. Bartlett also observes,

“We must realize that growth is but an adolescent phase of life which stops when physical maturity is reached. If growth continues in the period of maturity it is called obesity or cancer..”

Satyajit Das, in his latest book ‘The Age of Stagnation’, goes on to develop the thesis that our economic obsession, perpetual growth, is now an unattainable goal. One reason it is unattainable is because for the last several decades, economic activity and growth have been increasingly driven by financialization and borrowing to finance consumption and investment. By 2007, $5 of new debt was necessary to create an additional $1 of American economic activity – a fivefold increase from the 1950s. We are now drowning in debt.

There can only be three outcomes by way of resolving the debt crisis. One is for government to engineer sufficient economic growth to service the debt. In the euro zone, that outcome may be unachievable. One is to repudiate, restructure or ‘jubilee’ the debt – not easy, given that one government’s liability is another investor’s asset. The third way is the time-honoured governmental solution: official, state sanctioned inflationism – which is presumably what the (failed) policy of QE has always been about. Now that over $5 trillion of sovereign debt (with credit risk rising, not falling) trades with a negative yield, we can fairly overlook bonds as an investible asset class.

But we have to invest in something. We are also, courtesy of QE, now drowning in money and, as Josh Brown nicely points out, much else besides. In his book ‘Tomorrow’s Gold’, Marc Faber uses the analogy of a large, flat bowl perched on top of the earth. At its base, investors surround the bowl. A continuous supply of fresh water (money) flows into the bowl, controlled by the world’s central bankers. The bowl will lean whichever way investors tilt it. “..The direction of the overflow will depend on the bias of investors, which in turn can be manipulated by opinion leaders, the media, analysts, strategists, politicians and economists.” If we can anticipate where the “water” will flow, we can try to emulate as investors the sporting success of Wayne Gretzky – we can skate to where the puck will be, not to where it has been (which is what investors do by benchmarking themselves to equity indices, which reflect yesterday’s winners rather than tomorrow’s).

The map below, courtesy of the OECD, shows plausibly where the puck might be headed.

Growth of the Asian middle class; forecast: next 20 years

Screen Shot 2016-02-29 at 15.41.29

(Source: OECD)

The US middle class population is expected to be largely static – reasonably so, since it represents a mature economy. Ditto that of Europe. The middle class populations of South America and Africa are forecast to grow somewhat, albeit from a very low base.

But if the OECD is correct, the middle class population of Asia is forecast to explode – from roughly 500 million people today to something like 3 billion people over the next two decades. If this comes to pass it will constitute the greatest creation of wealth in human history.

So owning the shares of businesses catering to that emerging middle class is a plausible investment thesis – especially if the shares of those businesses can be bought at attractive prices.

The good news is that they can.

The chart below shows the respective price / book ratios for the S&P 500 Equity Index (in red) and for the MSCI Asia Pacific Index (in blue) over the last eight years.

Price / book ratio for the S&P 500 Index (red) and the MSCI Asia Pacific Index (blue), 2007-2015

Screen Shot 2016-02-29 at 15.44.16

(Source: Bloomberg LLP)

Whereas the US equity market has seen its price / book ratio virtually double since the Global Financial Crisis, the price / book ratio for Asia remains at close to its post-Lehman lows. Given the anticipated growth in wealth there over the longer term, that looks like an opportunity.

So it should come as no surprise that within our globally unconstrained ‘value’ equity fund, Asia accounts for roughly 60% of its holdings (other than China, where we currently have no exposure). And our single largest (pan-Asian) fund holding has the following metrics:

Average price / earnings: 8 Price / book: 0.8x
Historic return on equity: 17% Average yield: 4.4%

You can either buy an expensive market like that of the US (where the Shiller p/e stands at 25 times versus a long run average of 16) and where future growth may well disappoint, or you can buy high quality businesses in an inexpensive market – like that of Asia – with realistic expectations of high growth over the medium term, allied with the sort of compelling ‘value’ metrics shown above. But it’s hardly a fair fight.

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Previewing The Winners And Losers From Today’s MSCI Rebalance

As MSCI reported on February 11, today is the day when the previously announced quarterly rebalancing will take place, one which Credit Suisse estimates will see approximately $7.8bn gross trading in DM and $1.2bn in Emerging Markets.

As a reminder, this is how MSCI previewed today’s torrid end of today activity:

  • MSCI Global Standard Indexes: Thirteen securities will be added to and ten securities will be deleted from the MSCI ACWI Index. In the MSCI World Index, the three largest additions measured by full company market capitalization will be Jardine Matheson (Hong Kong), Worldpay Group (United Kingdom), and Waste Connections (USA). The two additions to the MSCI Emerging Markets Index will be Axis Bank (India) and Sibanye Gold (South Africa).
     
  • MSCI Global Small Cap Indexes: There will be eight additions to and 35 deletions from the MSCI ACWI Small Cap Index.
  • MSCI Global Investable Market Indexes: There will be three additions to and 27 deletions from the MSCI ACWI IMI.
  • MSCI Global All Cap Indexes: There will be two additions to and five deletions from the MSCI World All Cap Index.
  • MSCI Global Value and Growth Indexes: The three largest additions to the MSCI ACWI Value Index measured by full company market capitalization will be Jardine Matheson (Hong Kong), Axis Bank (India) and Mid-America Apartment (USA), while the three largest additions to the MSCI ACWI Growth Index measured by full company market capitalization will be Worldpay Group (United Kingdom), Waste Connections (USA) and Genmab (Denmark).
  • MSCI Frontier Markets Indexes: There will be one addition to and no deletions from the MSCI Frontier Markets Index.
  • MSCI Global Islamic Indexes: Twenty-eight securities will be added to and 32 securities will be deleted from the MSCI ACWI Islamic Index. The three largest additions to the MSCI ACWI Islamic Index measured by full company market capitalization will be Tencent Holdings Li (CN), Kraft Heinz Co (USA) and Innuit (USA). There will be three additions to and two deletions from the MSCI Gulf Cooperation Council (GCC) Countries ex Saudi Arabia IMI Islamic Index.
  • MSCI US Equity Indexes: There will be no securities added to and four securities deleted from the MSCI US Large Cap 300 Index. The three largest deletions from the MSCI US Large Cap 300 Index will be Continental Resources, Marathon Oil Corp. and Freeport McMoRan B.
    • Four securities will be added to and 14 securities will be deleted from the MSCI US Mid Cap 450 Index. The three largest additions to the MSCI US Mid Cap 450 Index will be Continental Resources, Marathon Oil Corp. and Freeport McMoRan B.
    • Fourteen securities will be added to and no securities will be deleted from the MSCI US Small Cap 1750 Index. The three largest additions to the MSCI US Small Cap 1750 Index will be Diamond Offshore Drill, Pandora Media and Huntsman Corp.
  • MSCI China A Indexes: There will be thirteen additions to and nine deletions from the MSCI China A Index. The largest additions to the MSCI China A Index will be Jiangsu Shagang Co A, Beijing Xinwei Telecom A and Jiangsu Sanyou Group A. There will be nine additions to and twelve deletions from the MSCI China A Small Cap Index.

To make it simpler for US traders, here courtesy of Credit Suisse is the list of the top North American buys:

 

And the biggest North American sales:


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Trump vs. Clinton – Two Tweets That Say It All

Screen Shot 2016-02-25 at 10.00.07 AM

So the Democrats in all their idiocy are about to nominate Hillary Clinton, which all but guarantees a Trump Presidency.

I came across two tweets today that summarize the mood perfectly. If you think Trump is going to destroy the GOP, Hillary is just as likely to destroy the Democratic Party by losing to Trump. Enjoy:

continue reading

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Why This Was The Worst February For Hedge Funds Since 2007

It’s been a rough stretch for the 2 and 20 crowd.

Everyone from Bill Ackman to David Einhorn to (gasp) the zen master himself, Ray Dalio has been seemingly unable to cope with markets that are increasingly volatile, correlated, and impossible to explain.

Indeed many of the industry’s “rock stars” have massively underperformed of late. As it turns out, “hedge” funds aren’t so good at “hedging” after all. Rather, they’re simply adept at riding the CB put with massive leverage. But when everything fell apart in August, in a harrowing bout of flash crashing madness on Black Monday, no one was safe, not even risk parity. Subsequent idiosyncratic shocks (e.g. Valeant for Ackman) only added to the malaise and before you knew it, the rout was on. 

The apparent lesson: just buy the SPY for 11 bps. 

In any event, the trend continued in February, a month in which hedge funds saw their biggest underperformance relative to the market since 2007.

What happened to make February so bad you ask? Well, according to Credit Suisse, “short-covering in Materials, Industrials and Energy, hurt both their longs AND shorts.”

Worse, they apparently missed the bounce. “Long/Short funds have not re-risked despite this rally, with gross exposure pinned at 2011 lows.”

In other words: 


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London Bubble Trouble – Visas Issued to Wealthy Foreigners Plunge 84%

Screen Shot 2015-12-14 at 11.09.07 AM

It appears the music may have finally stopped for one of the world’s largest luxury real estate bubbles: London.

It’s well known that foreign oligarchs love London real estate as a means to launder funds, typically “earned” by soaking their host countries dry via corruption and fraud. This has caused absurd and irrational spikes in high-end residential real estate in the English capital, as well as a flood of new construction.

With emerging markets now completely collapsing, the seemingly endless flood of foreign money is drying up, and with it, London real estate.

So has the London real estate bubble popped? Probably.

– From the September 9, 2015 article: Luxury London Home Sales Plunge 26% – Has this Mega Real Estate Bubble Finally Burst?

London’s luxury property bubble seems to have popped sometime during the second half of last year, something I’ve written about repeatedly over the past several months.

One of the primary drivers behind the weakness in this “asset class” is a sharp reduction in the numbers of foreign criminals laundering money via London real estate. Just in case you still harbored any doubts about high-end London property being little more than bank accounts for shady foreign oligarchs, we learn the following from Bloomberg:

continue reading

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Leonardo DiCaprio’s Oscar Climate Change Grandstand

DiCaprioOscarActor Leonardo DiCaprio won the Oscar for best actor for his role in the snow hell movie, The Revenant. A long-time and vocal environmental activist, DiCaprio took the opportunity to spotlight his concern over man-made global warming in his acceptance speech. His foundation has committed to spending $15 million on environmental causes including on climate change activism. Citing surface temperature data, DiCaprio declared that humanity had “collectively felt in 2015 as the hottest year in recorded history.” On the other hand, satellite temperature data from climatologists at the University of Alabama in Huntsville suggest that 2015 was third warmest year since 1979 when satellite measurements began. The past year was particularly warm because of a large El Nino in the Pacific Ocean in which a massive amount of warm water sloshes toward South America from Asia. The phenomenon warms the atmosphere, but now appears to be fading which suggests that 2016 will be cooler than last year. 

DiCaprio further asserted that climate change “is the most urgent threat facing our entire species, and we need to work collectively together and stop procrastinating.” DiCaprio is right that global average temperatures have been rising in recent years, but, as an article in Nature Climate Change just last week acknowledged, temperature has been rising much less rapidly than projected by most computer climate models. If this lower rate were sustained, it would substantially undercut claims that the world faces an urgent and impending climate catastrophe.

DiCaprio also stated, “Our production needed to move to the southern tip of this planet just to be able to find snow.” Apparently the original plan was to shot the entire movie in Canada, but a persistent high pressure ridge over the Pacific Coast of North America produced an unseasonably warm winter in the Western U.S. and Canada. On the other hand, the Eastern U.S. and Canada suffered through a “polar vortex” winter with plenty of snow. Perhaps the producers should have moved the filming from British Columbia and Alberta to Quebec and upstate New York.

In any case, the producers used southern Argentina as a snowy location. Originally the filming was reportedly supposed to wrap by March, 2015, but did not finish up until August, 2015 when it just so happens to be winter in Argentina and summer in Canada. Citing warmer than average temperatures in western North America for one specfic year as dispositive evidence for global warming makes as much sense as citing colder than average temperatures in eastern North America in the same year as evidence for global cooling.

DiCaprio expressed his concern for how climate change will deleteriously affect “indigenous people of the world, for the billions and billions of underprivileged people.” First, the good news is that the World Bank reports that absolute poverty (defined as living on less than $1.90 per day) has now fallen below 10 percent of the world’s population. The global rate of absolute poverty was 37 percent as recently as 1990. In large measure this amazing improvement in poverty rates stems from hundreds of millions of poor people gaining access to modern energy supplies. Total electric generating capacity has more than doubled since 1990 and most of that energy is produced by burning fossil fuels. DiCaprio would be better advised to direct his aid toward connecting the 1.2 billion underprivileged people who are still without electricity to modern power plants.

Finally, DiCaprio decried “big polluters” and the “politics of greed.” It is true that private energy production companies are guilty of trying to make profits for their shareholders. But DiCaprio should keep in mind that governments control over 90 percent of the world’s oil reserves and 50 percent of the world’s coal reserves.

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Was Middle-Class Retirement Just A Credit Bubble Fantasy?

Submitted by John Rubino via DollarCollapse.com,

One of the jarring — and until recently underreported — aspects of those seemingly-positive recent US jobs reports is the increasing skew towards older workers. Most new jobs have gone to people who in better times would be leaving to live off their savings. Now they’re coming back, frequently taking jobs they wouldn’t consider if money wasn’t so tight.

And it’s apparently a lot worse for older women:

How Older Women Are Reshaping U.S. Job Market

 

(Wall Street Journal) – More female workers delay retirement, a shift that’s helping to transform America’s economy.

 

Connie Blanchette, age 72, is a relative newcomer at the county social-services agency where she works part time, so her retirement plans differ from most longtime government workers. “I will work as long as I can,” she said.

 

Ms. Blanchette, who lost her job, home and savings after the financial crisis, is among a wave of older American women who are working or seeking work longer than any previous generation as they look ahead to more years of life than men their age and with less accumulated wealth.

 

Since the start of the most recent recession in December 2007, the share of older working women has grown while the percentage of every other category of U.S. worker—by gender and age—has declined or is flat.

 

In 1992, one in 12 women worked past age 65. That number is now around one in seven. By 2024, it will grow to almost one in five, or about 6.3 million workers, according to Labor Department projections.

 

“It’s really one of the most stunning developments that we’ve seen in the labor market over the last 50 years,” said Richard Johnson, director of the Urban Institute’s program on retirement policy.

 

While many Americans continue working late in life because they find their jobs rewarding, others, including Ms. Blanchette, find themselves approaching old age with more debt, less savings and with fewer of them receiving pensions than workers of previous generations.

Jobs Feb 16

 

From the end of World War II to the 1980s, the share of older Americans in the workforce fell every year. That reversed by the mid-1990s, as companies shifted from traditional pension plans—which paid fixed benefits at specific retirement ages—to 401(k) savings plans, which transferred the responsibility of funding retirement to employees.

 

The past recession made things worse, forcing many workers out of jobs before they could afford to retire. While older workers were less likely to lose their jobs in the recession than younger workers, the older workers who did, particularly women, were hit hardest, according to researchers at the Federal Reserve Bank of St. Louis.

 

As older workers keep a tight grip on their jobs, the proportion of Americans ages 25 to 54 who are working or looking for work has slipped to the lowest level in three decades. Many of these younger Americans fell out of the labor force in the recession: Some retired or enrolled in school. Others weren’t able to work or had to care for relatives at home. Many gave up looking.

 

The behavior of older workers are pieces of a puzzle that policy makers are examining to answer questions about sluggish wage growth. Wages are determined largely by the amount of idle capacity—known as slack—in the economy. When there are many more people than available jobs—lots of slack—wages stagnate. When employers face a shortage of workers, wages rise.

 

The U.S. unemployment rate fell below 5% last month, a level not seen since early 2008. That drop, which happened faster than many economists had expected, should trigger employers to offer higher wages as they chase fewer potential hires. But the textbook case is muddled by the shifting demographics of the U.S. workforce.

 

Older men and women are leaving the workforce more slowly than in the past, suggesting a greater potential labor supply—and more slack—than an unemployment rate below 5% would typically imply. Such economic slack must be cinched—by finding jobs for discouraged younger workers, for example—before wages can rise more broadly.

Some thoughts

 Defined-benefit pension plans are both an artifact and a victim of the credit bubble that began when the US left the gold standard in 1971. Freed from monetary restraints, government spending soared and — as a result — interest rates were kept artificially low, encouraging the private sector to over-borrow as well.

All this leverage created a false sense of prosperity that led businesses and governments to offer pension plans designed to buy labor peace in return for huge future payouts — premised on the expectation that investment returns would stay high forever.

But since returns were artificially inflated by easy money, the end of the latter made the former unsustainable. So pensions are being shut down and/or scaled back everywhere, kicking one leg out from under the concept of long, comfortable, broad-based retirement.

Add in continuously-falling interest rates (as governments try to keep the charade of solvency going long enough for current leaders to retire), globalization that shifts factory jobs overseas, and technology that is now automating virtually everything from warehouses to finance (see The Robots Are Coming For Wall Street) and the result is a society where only two groups can reasonably expect to retire: the already-rich and those with skills that haven’t yet been automated.

Meanwhile, seniors taking jobs on pretty much any terms are pushing down wages for younger people, making it harder for them to simultaneously pay off student loans and save — thus putting their retirement even further out of reach.

In rich countries, this is a return to the way things were for the first 10,000 years of human history, when the idea of an able-bodied non-aristocrat just sitting around and relaxing in old age was absurd to the point of being inconceivable. It’s also a transition to the way things have always been for the rest of today’s world.


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St. Mark’s is Dead: “A Cycle of Bohemians Hating Each Other” (New at Reason)

“The hippies didn’t much like the Beatniks and they really hated the punks. The punks didn’t much like the hippies and they really hated the hardcore kids. So it’s been this cycle of bohemians hating each other,” says Ada Calhoun, author of the acclaimed book St. Mark’s is Dead: The Many Lives of America’s Hippest Street.

A native of the four-block-stretch in Manhattan’s East Village which has served as the nation’s capital of the counterculture for more than a hundred years, Calhoun spoke with Reason TV about her book which lovingly details the endless creative destruction that has kept St. Mark’s Place a vibrant home for everyone from early 20th century anarchists to Andy Warhol and the Velvet Underground, to the punk rockers of the CBGBs era, to the hardcore kids and skaters of the 80s, to the lamented NYU students of today.  

It just so happens that one of St. Mark’s Place better-known institutions, the punk rock clothing store Trash and Vaudeville, closed up shop yesterday (temporarily, they’re moving two blocks away). Calhoun was quoted by the New York Times in a piece about the store’s last day on the street:

“The punk St. Marks Place?” she said. “I’m trying to think of what’s left. Not much. I think a couple of people with safety pins on stoops” — teenagers re-enacting the past.

In an area where the only constant is upheaval, Calhoun thinks it’s “sweet” that every generation of cultural iconoclasts that have set up shop on St. Mark’s is certain their time was the only “authentic” time, and that the area is still a “magical” place for young people even today. 

Watch above, or click the link below for the full text, associated links, and downloadable versions of this video. Subscribe to Reason TV’s YouTube channel for daily content like this.

View this article.

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