Month: December 2018

Authored by Doug Kass,

Do we want to be Japan?

“I need the Fed to shut up. I don’t trust the Fed at all. I don’t trust Jay Powell at all. Jay said everything that caused a tremendous selloff. You have got to start recognizing how powerful his words are.”
— Jim “El Capitan” Cramer, CNBC, on Thursday

I am in respectful disagreement with the condemnation of Fed policy by Jim Cramer and others.

To begin with, before criticizing the Jerome Powell-led Federal Reserve, market participants would be wise to look at where the stock market has come from and how equities are still valued.

The hue and cry about the recent market downdraft and the Fed are particularly revealing in light of the fact that even after the most recent downturn the market is up 13% since 2017, 23% since 2016, 34% since 2014, and 111% since 2010.

Powell only recently has brought rates to a neutral level (in real terms, adjusted for inflation), causing investors to freak out. That says a lot about both market participants and the underlying fragility of the domestic and global economies, as they, too, have become addicted to low rates. (Europe is nearing recession even though interest rates are near zero.) 

Powell should continue doing the right thing, but slowly and carefully. A garden-variety recession is fine. A move down in equities is fine. Those things are normal and part of a functioning capitalistic economy. It is amazing and unhealthy that market participants seem to forget this cleansing role. 

The challenge to the Fed chairman is how exactly to do the right thing, to thread the needle. This is not his fault. But any patient addicted to drugs must be weaned off of them slowly and methodically. Cold turkey will just kill the patient. 

In this case the patient won’t die — a recession is normal and far from death — but the big risk is someone comes in after Powell and reverses it all by putting the market on a massive dose of stimulus of all sorts, which will have the wealth-robbing consequences (such as inflation and default) that those who are a little more thoughtful and long-term oriented have feared all along. Powell therefore needs to tread carefully and methodically. 

The president’s jawboning is also far from helpful in this regard. This is partly his fault as well. Unleashing huge amounts of stimulus via his tax policy at the point in the cycle where it was done, with the government deficit where it was, is incredibly stupid and naïve. In addition to bloating the deficit, his tax policy simply turned into more inflated equity prices as the benefit of the tax cuts went to earnings and stock buybacks as opposed to back into the real economy in terms of hiring and capital expenditures.

Here are some observations on the pickle the Federal Reserve has gotten itself into. This is not Powell’s fault. It is the fault of his predecessors at the Fed, and in the government. It started with Alan Greenspan and the Greenspan put, and continued with Ben Bernanke and Janet Yellen, who did not rein in stimulus fast enough. At the same time, the fiscal and policy side of things has left a lot to be desired as it has “trickled up” and not down.

The only thing for which Powell is to blame is taking the job in the first place. Armed with a law degree from Georgetown, Powell was a businessman and investment banker. In 2012 he joined the Federal Reserve’s Board of Governors and became a central banker. Given that background — and just as a judge wants to be on the Supreme Court — a central banker wants to preside over the Fed’s leadership. But in reality, it may be a no-win situation for Powell, unless you want to be another person kicking the can down the road, setting things up for a bigger disaster at some point.

The Fed has never embarked on an easing cycle from levels as low as they are today. The prior worst may have been about 3.5% in the 1950s — still post-World War II and trying to get out of the aftereffects of the Depression. In the last cycle, the fed funds rate was already up to 5.25% before easing began. Now we can’t even get back to half that level?

Bottom Line

Over time, the U.S. economy has become horribly addicted to lower rates. There is really no place left to go now. It is a function of policy mistakes, both monetary and fiscal over a protracted period of time.

Recessions are a normal part of a business cycle in a capitalistic economy. Fighting them too much and too hard all the time might lessen volatility, but it also lessens mid- to longer- term economic growth potential.

The proof is in the pudding. This has been about the worst expansion on record. After massive stimulus we get about one quarter of 4% GDP growth, and then a decent chance of rolling right back over with rates at all of 2.5% and not much in the way of monetary or fiscal dry powder.

Contrary to the view of many, this is not Fed Chairman Powell’s fault. There is about 30 years of blame to lay at the feet of a lot of people, both sides of the aisle, and at the Fed as well.

Relying upon more Fed easing, as I mentioned in a recent Fox Business interview, is the acme of fragility and vulnerability. Cleansing may deliver short-term pain, but it provides long term gain.

We do not want to be like Japan!

Here is a Bloomberg chart of the last half-century of federal funds rates; it underscores the point made in this morning’s opening missive:

via RSS http://bit.ly/2EUrXW4 Tyler Durden

In the latest attempt by Russia to offer an olive branch to the US, on Sunday Russian President Vladimir Putin told his U.S. counterpart Donald Trump in a New Year letter that Moscow was ready for dialogue on “the most extensive agenda”, the Kremlin said following a series of failed attempts to hold a new summit, most recently in November, when Trump abruptly canceled a planned meeting with Putin on the sidelines of a G20 summit in Argentina, citing tensions about Russian forces opening fire on Ukrainian navy boats and then seizing them.

Trump and Putin also failed to hold a full-fledged meeting in Paris on the sidelines of the centenary commemoration of the Armistice. The two leaders held their one and only summit in Helsinki in July.

An official statement by the Kremlin said that “Vladimir Putin stressed that Russia-US relations are the most important factor behind ensuring strategic stability and international security, and reaffirmed that Russia is open to dialogue with the United States on the most extensive agenda.”

Moscow also said one of the key issues it wanted to discuss with the United States is Washington’s plans to withdraw from a Cold War era nuclear arms pact.

In a separate letter to Syrian President Bashar al-Assad, Putin pledged continuation of aid to the Syrian government and people in the “fight against terrorism, in defense of state sovereignty and territorial integrity”.

Putin also sent New Year greetings to other world leaders including prime ministers Theresa May of Britain, wishing “well-being and prosperity to the British people”, the Kremlin said in a year that saw a dramatic deterioration in relations between the two nations; according to Reuters, Russia’s embassy in London said on Friday that Moscow and London had agreed to return some staff to their respective embassies after they expelled dozens of diplomats early this year. Diplomatic relations ground to a halt after Britain expelled 23 Russian diplomats over accusations the Kremlin was behind a nerve toxin attack in March on former double agent Sergei Skripal and his daughter in the English city of Salisbury.

The Russian president also sent his a letter to Chinese President Xi Jinping, saying “The relations of comprehensive trust-based partnership and strategic interaction between the Russian Federation and the People’s Republic of China have reached an unprecedented level.”

Putin sent similar letter to numerous other heads of state including to President of the French Republic Emmanuel Macron, in which he stated that “Russian-French relations have great potential, which was confirmed by our recent meetings and talks,” the Russian President said in his message. “I count on our continued joint work to promote mutually beneficial cooperation between our countries in various spheres, as well as to resolve important issues on the regional and global agenda.”

In his message to Federal President of Germany Frank-Walter Steinmeier and Federal Chancellor of Germany Angela Merkel, the President of Russia noted the significant experience of cooperation between the two countries in various spheres and expressed hope for continued joint work on the bilateral and international agendas next year, in particular, the successful implementation of major joint projects in the economy, culture, science and education. Vladimir Putin stressed that Russian-German cooperation is of great importance not only for the peoples of the two countries, but for the rest of Europe as well.

Among the many other similar letters sent out by Putin, he also addressed one to Pope Francis, UN Secretary-General Antonio Guterres, Managing Director of the International Monetary Fund Christine Lagarde, and to FIFA President Gianni Infantino, thanking him for his assistance in preparing and hosting the World Cup in Russia.

The Kremlin statement can be found here.

via RSS http://bit.ly/2Q91sOE Tyler Durden

Submitted by Chris Martenson of PeakProsperity.com

Here in the brief period between Christmas and New year’s, as a writer I am obligated to say happy, wishful things. I have to confess, I’m just not feeling it this year, so I’ll just do the minimum here and return to being a curmudgeon, because that’s what the times call for.

So, happy new year. I hope everything works out well for you in 2019.

There, with that behind us we can now return our attention to the true state of the world, which is deteriorating and getting worse.

For most people things will be decidedly worse, not better, as things progress along their current trajectories. The only planet we’ve got to live on is being killed by human activity and gross inattention, while economically the greatest and most ill-advised credit bubble in all of human history flirts with the sort of sudden disaster that follows shortly after the failure of one’s reserve parachute.

As I’ve often repeated, I truly wish this weren’t the case.  I don’t have a “bummer gene” that relishes bad news nor do I enjoy being “that guy” who says what no one wants to hear. 

Many of you reading this know exactly what I’m talking about.  You, too, had to keep your lips zipped over the holidays lest the strained family small talk and opening of cheaply-made forgettable gifts be ruined by any talk of ‘reality’.  Sure, everyone can inwardly wince at uncle Jack’s sixth bourbon and tolerate the buffoonery and social awkwardness sure to follow because  “it’s only once a year.”

But collapsing insect populations, species loss, shrinking aquifers, and the utter betrayal of the younger generations by the “olders” running the fiscal and monetary policies of the world are not as easily dismissed. There’s no relief at the end of the day when the problem drives itself home. 

Instead, these many predicaments lurk and fester, as stubbornly as a rotted beam in the basement.  An adult with a problem beam in the basement deals with it.  But the immature person pretends the problem doesn’t exist, and then scolds and shames anyone who brings it up.

Well, for those of us in the mature reality-based camp, we can point out not one but many dozens of rotten beams in the basement, and the walls, and the roof.  So, holidays are quite often more a burden to us than a comfort.  “Why, yes, Aunt Karen, that is a nice set of coasters you gave to John” as you think to yourself “I wonder if those are made from pressed microplastics or virgin rainforest?”

To be completely clear, I deplore the decisions that got us to this point in history. But here we are.

I wish the Federal Reserve, the ECB and the rest of the world’s major central banks had not printed up $16 trillion of thin-air money and caused the greatest collection of asset price bubbles in all of history. I wish that the US had heeded Jimmy Carter back in the 1970s and developed a workable long-term energy strategy that made sense.  I wish that disappearing insect population were not relegated to the back pages of major newspapers, and instead were front and center each and every day until responsible actions were undertaken.  I wish that savers, pensioners and the young hadn’t been sacrificed upon the altar of bank profits so that the obscenely wealthy could become even more so.

But, that’s not how things turned out. So now we’ve just got to make the best of it individually, whatever may come.

Two Questions

Back in November of 2018, I participated in a superb evening event put on by modern Poet-Historian Stephen Jenkinson where he posed the following to the audience, which mostly consisted of people with grey hair.  He said that every older person needs to be ready for the day when a younger person walks up to them and asks them two questions:

1. When did you know, and
2. What did you do about it?

When did you know about the many problems and predicaments facing our world today?  When did you find out about species loss, and peak oil, the generationally destructive policies of your peers, and the unsustainability of our entire economic model? 

And what did you do about any of it?  Did you make any changes at all to your behavior, or did you close your eyes and slip into a strategy of false hope? Hope that ‘somebody’ would do ‘something’?  Did you fight at all for the things in which you once believed?

These aren’t easy questions to face, because they cut right to the heart of the matter. They put our integrity into question and threaten to expose whether we have any at all.

Not easy stuff, to be sure.

So, by way of preparation for what’s coming, let me act as a stand-in for that future young person and be the one to ask you:

When did you know?

And what did you do about it?

Psychological Projection

Psychological projection is a defense mechanism in which the human ego defends itself against unconscious impulses or qualities (both positive and negative) by denying their existence in themselves while attributing them to others.

(Source)

In the US, the older generation, the Baby Boomers, have a lot to answer for.  I’m among them, so I’m pointing my accusing fingers right back at myself, too.  It’s incumbent on every group to be its own best critic (a credo the FBI, many police departments, large corporations, and political parties seem to be woefully ignorant of).

Instead of being appropriately self-critical, 2018 was the year the entire mainstream establishment decided to engage in a mass act of psychological projection instead. With Millennials as the hapless targets.

In the US, after spending $trillions on unnecessary wars and neglecting to invest for the future (adequately funding pensions, maintaining vital infrastructure, etc), the establishment decided 2018 would be a good year to wag its collective finger at the Millennial generation, going so far as to blame its low home ownership rate on eating too much avocado toast:

But it didn’t stop there. The establishment went on an absolute tear of a blaming spree. It accused Millennials of so many vices that long lists had to be created. As those lists became exhaustively long, Millennials were branded “mass murderers”:

The reason that so many Millennials are turning away from the blindly-consumptive patterns of their parents is because they got locked out of that game long enough to peer back in. As they did, many decided that their parents’ material pursuits and life choices weren’t worth repeating.

A lifetime of paying off mortgage and other debts to bankers or…spending their money instead on valued experiences while still young and vigorous?  Hmmmm.  Not exactly a tough choice, is it?

The Boomers and their journalistic lackeys decry Millennials’ opting-out as “killing” valued institutions like for-profit colleges and the housing market, but the reality is if you give people a bit of breathing room to assess their options, few will willingly choose a lifetime of debt servitude. Most prefer financial freedom and a life well-lived.

I know that my own children (all young adults now) have opted not go into debt. Or overspend on college. Or purchase cars until absolutely forced to (and even then they bought beaters). 

I like to think that they got some of that frugality from me but, truthfully, after about the age of 13 parents’ influence on their children hovers between 0 and -3.  From the age of 13 on their peers shape their outlook. And many of my children’s peers are making similar purchasing and life decisions, so that sets the direction of their age cohort.

For the journalists making a show out of struggling to understand why the Millennials are making different choices than the Boomers did, I offer up this quote:

“It is difficult to get a man to understand something, when his salary depends upon his not understanding it.”

           ~ Upton Sinclair

It’s important to note that the mainstream press has a couple of important jobs: keeping everyone firmly seated in the consumer mind-rut, and deflecting any criticism away from the wealthy and their corporate masters (should any distinction between those groups exist).

If I sound harsh on the mainstream press, that’s because far too many in that profession have settled into being little more than scribes for the powerful; doing little more than repeating scripted talking points, inaccurate “facts,” and overt corporate and political propaganda.

In other words: the criticism is entirely deserved. Especially when one asks, “When did you know? And what did you do about it?”

2019: The Beginning Of The End

2018 has been the year that things began to unravel, as the accumulated mistakes of the prior decades finally settled in.

2019 will see the repercussions of that unraveling. It’s going to be a very hard year as reality starts to settle in.

As far as the financial markets go, which are the preferred self-enrichment and public signaling devices of the powers that be, our operating model is contained in the phrase: Until and unless.

Until and unless the world’s central banks reverse course and once again undertake more Quantitative Easing, or “QE,” financial asset prices will continue to fall throughout 2019.  Stocks, bonds, real estate.  You name it.

For all the investors out there now habituated to ever-rising asset prices, this will be a very unpleasant and painful period.  

But beyond just our portfolios, the imbalances facing us are extraordinary and they’re spread all across the world’s stage — economically, politically, ecologically, demographically — and there simply are not sufficient resources to ever again return to the reliable and fast pace of economic growth experienced in the 20th century.

It’s time for each of us to focus on preparing financially, emotionally, and physically.  Things are changing, quickly, and pretending that they aren’t isn’t a winning strategy.

Few are ready to hear these messages.  More will be ready over the coming year, but still the numbers will be surprisingly small.

This makes it even more important that we stick together and offer each other support and encouragement as we navigate increasingly difficult waters over the coming months and years.

For those who’d benefit from specific guidance and support in developing a personal preparation plan, be sure to consider joining Peak Prosperity’s annual seminar in April. (more details here)

Look, I wish I could join the untold millions in looking past all of these predicaments and cheerily wish everyone a Happy New Year and leave it at that.  But I cannot.  We don’t pick the times in which we live, But we can control how we respond, as well as how we decide to meet the challenges we face.

via RSS http://bit.ly/2BSFzOm Tyler Durden

Companies around the world have scrapped a record number of large crude tankers in 2018.

About 100 vessels of the industry’s main crude carriers have been sent to India and Bangladesh for demolition, according to data from Clarkson Research Services Ltd., the statistical and research service arm of the world’s largest shipbroker.

Bloomberg said the shipping bust is no surprise, as of September the vessels, which transport 40% of the world’s crude, were on course for the worst charter rates in three decades.

In an August report, Bloomberg specified the implosion of charter rates was due to a two-year reduction of OPEC cargoes and environmental regulations. As we have said before, the global growth slowdown has certainly not helped.

Morgan Stanley estimates the global fleet of large crude carriers could lack 100 million barrels of transportation capacity in the first half of 2020.

“It prolongs the period of profitability after the turnaround,” said Fotis Giannakoulis, a New York-based shipping analyst at the bank.

“The more you scrap, the more you bring the recovery forward and accelerate its speed. The market will strengthen with high scrapping even with smallest growth in demand.”

In other words, today’s scrapping of vessels is seen as a deleveraging period to clear excess and rebalance the industry.

Average earnings for 2 million barrel-hauling VLCCs crashed by 65% to $6,159 a day in 2018, the lowest since the financial crash according to data from Clarkson. They were $17,794 for all of last year, $41,488 for 2016 and $64,846 in 2015.

For companies who did not scrap, rates recently moved higher more threefold from late September to mid-December, according to Clarkson figures.

“What those demoralized owners perhaps failed to foresee was a sudden surge in cargoes. With the U.S. poised to impose sanctions on Iran earlier this year, producers including Saudi Arabia and Russia began adding barrels to the market.

Between May and November, the world’s largest and second-largest exporters lifted their combined output by about 1.5 million barrels a day. American shipments are also soaring. As well as adding demand for vessels, the increased oil supply also drove down fuel prices — the industry’s single biggest expense.

Up in the North Sea, ships that move 600,000-barrel cargoes earlier this week were earning $72,664 a day, the highest in 3 1/2 years, according to data from the Baltic Exchange in London. At the start of December, giant 2 million-barrel carrying vessels were making $58,000 from delivering Middle East oil to China, the most since at least the start of 2017. West African rates also surged,”  said Bloomberg.

Regarding transportation capacity, this year has been the most substantial scrapping period of crude vessels since 1985. The end of year surge in charter rates does not mean owners were wrong to demolish; it is quite normal to clear the excess vessels to rebalance the industry. 

via RSS http://bit.ly/2Tbo3fe Tyler Durden

“Your cash is not wanted here”, a growing number of retailers and restaurants throughout the US and UK are telling customers. But are reasons being given by companies for the new “cashless” approach — speed, efficiency, and the safety of store employees — valid enough to require something as utterly and downright unAmerican as rejecting cash? 

We think not, and unfortunately the trend of “cash not welcome here” establishments is growing, to the point that lawmakers are beginning to take note and could introduce legislation barring the practice, as Massachusetts has done already, and as the New Jersey State House could be set to do next. According to a Federal Reserve survey conducted in 2017 cited in The Wall Street Journal, cash represented 30% of all transactions in America, with 55% of those being under $10.

Regardless of Americans’ longtime preference for plastic in most transactions, many of which take place online, research by the Federal Reserve found that cash is still king in terms of Americans’ daily lives and usage, and as the study concluded further, this remains true across all income levels:

Not only is cash used frequently for small value and in-person purchases, it is also used by a wide array of consumers. The data on cash use by household income provides two main insights. First, consumers make—on average—14 cash transactions per month, regardless of household income. It is also noteworthy that cash was the most, or second most, used payment instrument regardless of household income, indicating that its value to consumers as a payment instrument was not limited to lower income households that may be less likely to have access to an account at a financial institution.

But this reality is now pushing up against the new trend of the cashless restaurant, bar and retailer, and creating awkward and frustrating situations for consumers, as a new Wall Street Journal piece chronicles. In one scenario, a customer had to intervene on another’s behalf and play personal bank for a “card only” salon, even though there was plenty of cash on hand offered by the woman who couldn’t pay. Ironically, as the WSJ story notes, this created an “emergency”:

Sam Schreiber was mid-shampoo at a Drybar blow-dry salon in Los Angeles when someone from the front desk approached her stylist with an emergency: a woman was trying to pay for her blow-out with cash.

“There was this beat of silence,” says Ms. Schreiber, 33 years old. “She literally brought $40.”

More and more businesses like Drybar don’t want your money—the paper kind at least. It’s making things awkward for those who come ill prepared. After all, you can’t give back a hairdo, an already dressed salad or the two beers you already drank.

And in another situation where someone simply wanted to order a salad, but was refused upon presenting $20 cash, the rejected customer slammed the policy that created the whole awkward situation as elitist. The customer recounted for the WSJ:

Jaclyn Benton, 30, visited a Sweetgreen near her office in Reston, Va., last summer with $20 cash, but no credit or debit card because she had forgotten her wallet at home. When her order was ready and she went to pay, the cashier explained that the restaurant doesn’t take bills.

“It’s almost like when your credit card gets declined for silly reasons,” says Ms. Benton, who works as an event planner. “It makes you feel like you can’t afford it even though I had the money right there.”

Ms. Benton has no plans to go back: “It feels very elitist,” she says.

A Sweetgreen spokeswoman said its decision makes its team members safer amid the risk of robbery and improves the cleanliness and efficiency of the restaurants.

Another anecdote involved a 51-year old women left feeling humiliated at a Manhattan restaurant. Though the eatery proudly advertises that its food comes from “from farmers and partners as close to home as possible,” it apparently rejects your local cash.

Again, another customer had to intervene as essentially an impromptu bank after a deeply “awkward” situation, per the WSJ:

“We went into one of those stores where they sell Lotto tickets and I got change and I gave her the money,” says Ms. Linbourne, who lives in Hasbrouck Heights, N.J., and works for a construction-management company. “I was so embarrassed.”

A Dig Inn spokeswoman responded by saying the credit/debit card only policy “makes for a faster experience for customers and for employees, who don’t have to count cash or make runs to the bank.” Though we should note this only puts the burden on the customers themselves, as their “options” are then extremely limited. 

And as the WSJ report points out, consider that on every US bill the following words appear: “This note is legal tender for all debts, public and private.” However, currently there’s no federal law stipulating that business have to accept cash when offered, though likely no body of lawmakers prior to the modern advent of payment by plastic could have ever envisioned such a dilemma as cash being banned by stores. 

But this is getting noticed by local and state governments: “New York City Councilman Ritchie Torres of the Bronx recently proposed legislation that would prohibit retailers and restaurants from refusing cash, and city council members in Washington, D.C., and Philadelphia have proposed similar legislation,” according to the WSJ. Councilman Torres said “I refuse to patronize businesses that reject cash payments, even though I primarily use debit or credit.” He explained the practice is “discriminatory against the undocumented, people without bank accounts and credit cards, and those who wish to have their transactions be more private” — all of which can create an unnecessary and “humiliating situation.”

Increasingly, it creates situations where a patron simply can’t complete the transaction or make a purchase. This could most impact the young and lower income homes which are limited in terms of local bank and checking/debit card account access:

Another demographic that often only has cash? Minors. Connie Young, who lives in Walnut Creek, Calif., says that in February, her 17-year-old son got excited when he learned a book he wanted was in stock at the local Amazon Books.

But her son returned home empty handed. When he told her the store didn’t take cash, she assumed there must have been a power outage and that the register was down, before he explained it was the policy. “I laughed. I was, like, you’re kidding,” says Ms. Young, 57. “I was just stunned.”

Though we are unlikely to ever reach a totally cashless society, the disturbing trend does bring up interesting questions of privacy and transacting “off the grid”… likely those advocating for a “no cash” future will be the same ones pushing for greater surveillance power of the state, as is quickly happening right now in places like China, where its Orwellian ‘Social Credit System’ seeks to abolish any and all private transactions altogether. 

via RSS http://bit.ly/2TcZwGK Tyler Durden

Submitted by Brendan Brown, the Head of Economic Research at Mitsubishi UFJ Securities International via Mises.org

The profound question which transcends all this day-to-day market drama over the holidays is the nature of the economic slowdown now occurring globally. This slowdown can be seen both inside and outside the US. In reviewing the laboratory of history — especially those experiments featuring severe asset inflation, unaccompanied by high official estimates of consumer price inflation — three possible “echoes” deserve attention in coming weeks and months. (History echoes rather than repeats!)

Will We Learn from History — And What Will Soon Be History?

The behavioral finance theorists tell us that which echo sounds and which outcome occurs is more obvious in hindsight than to anyone in real time. As Daniel Kahneman writes (in Thinking Fast and Slow):

The core of hindsight bias is that we believe we understand the past, which implies the future should also be knowable; but in fact we understand the past less than we believe we do – compelling narratives foster an illusion of inevitability; but no such story can include the myriad of events that would have caused a different outcome .

Whichever historical echo turns out to be loudest as the Great Monetary Inflation of 2011-18 enters its late dangerous phase.  Whether we’re looking at 1927-9, 1930-3, or 1937-8, the story will seem obvious in retrospect, at least according to skilled narrators. There may be competing narratives about these events — even decades into the future, just as there still are today about each of the above mentioned episodes. Even today, the Austrian School, the Keynesians, and the monetarists, all tell very different historical narratives and the weight of evidence has not knocked out any of these competitors in the popular imagination.

The Stories We Tell Ourselves Are Important

And while on the subject of behavioral finance’s perspectives on potential historical echoes and actual market outcomes, we should consider Robert Shiller’s insights into story-telling (in “Irrational Exuberance”):

Speculative feedback loops that are in effect naturally occurring Ponzi schemes do arise from time to time without the contrivance of a fraudulent manager. Even if there is no manipulator fabricating false stories and deliberately deceiving investors in the aggregate stock market, tales about the market are everywhere….. The path of a naturally occurring Ponzi scheme – if we may call speculative bubbles that – will be more irregular and less dramatic since there is no direct manipulation but the path may sometimes resemble that of a Ponzi scheme when it is supported by naturally occurring stories.

Bottom line: great asset inflations (although the term “inflation” remains foreign to Shiller!) are populated by “naturally occurring Ponzi schemes,” with the most extreme and blatant including Dutch tulips, Tokyo golf clubs, Iceland credits, and Bitcoins; the less extreme but much more economically important episodes in recent history include financial equities in 2003-6 or the FANMGs in 2015-18; and perhaps the biggest in this cycle could yet be private equity.

Echoes of Past Crises

via RSS http://bit.ly/2Smnhfw Tyler Durden

How much worse can America’s eighteen year long “forever war” in Afghanistan get? This is not The Onion, but Pakistan’s major English language daily, The Dawn citing Pentagon reports: “Eager to persuade Taliban to join the Afghan peace process, the United States is offering them a safety network that includes creating job opportunities for the insurgents.” 

This is part of a new Pentagon peace process plan to “rehabilitate the rebels” and directly engage the notorious jihadist group. In a statement which exposes the utter futility and hypocrisy of the whole “war on terror” post-9/11 narrative, the Pentagon proposal submitted to Congress this week attempts to defend the offer by noting the Taliban will only lay down its weapons “if they have an opportunity to earn enough money to provide for their families.”

According to the Pentagon draft plan cited in The Dawn:

Although some members of the Taliban may be weary of fighting and ready to lay down their weapons, they will only rejoin society if they believe their safety and the safety of their families are guaranteed, and if they have an opportunity to earn enough money to provide for their families.

This comes after over 2,372 American troops have died in the war in Afghanistan, with more than 20,000 wounded, and at a cost to the American taxpayer of $1.07 trillion, according to one recent study. 

Since the summer the US State Department has been engaged in direct and indirect talks with Taliban officials. Last month the U.S. special envoy to Afghanistan indicated he hopes to strike a final peace deal with the Taliban by April of 2019, according to Reuters citing local media reports. Khalilzad told reporters at the time that he hopes “a peace deal is reached before April 20 next year,” when Afghanistan is planning to hold a presidential election. While six months is ambitious and a tad optimistic, it appears more about creating the conditions for the now ongoing face-saving American exit from the approaching two decade long quagmire. 

President Trump recently announced a draw down of 7,000 US troops leading to an eventual full pullout. 

However, conservative media is thrashing the latest Pentagon proposal to give Taliban members “job opportunities” in what sounds like some kind of prison-release halfway house work program. For example, Breitbart comments:

The U.S. is offering Taliban narco-jihadists — the killers behind most American military fatalities during the ongoing Afghan war — safety and job opportunities as part of a peace deal…

For its part, reports suggest the Taliban could agree to a residual U.S. military presence in an advisory capacity as a bulwark against the Islamic State and other terror groups, which could actually involve training and advising former Taliban jihadists(!).

But regarding Trump’s latest shock announcement of a massive draw down of forces, chairman of the Joint Cheifs Gen. Joseph Dunford dismissed any current “orders” of withdrawal as “rumors”. 

“There’s all kinds of rumors swirling around,” Dunford told U.S. forces, according to Stars and Stripes. “The mission you have today is the same as the mission you had yesterday.” Pentagon officials have elsewhere repeated they’ve received “no orders” to withdraw American forces from Afghanistan yet.

However, with the latest Pentagon proposal for what we could essentially call taxpayer sponsored “jihadi rehab,” US trainers in Afghanistan could find themselves in an interesting situation indeed… perhaps even a full-circle return to when the CIA funded and trained Afghan mujahideen and Talib insurgents during the Afghan-Soviet war of the 1980’s in the first place.

via RSS http://bit.ly/2StNPM6 Tyler Durden

Foreign hackers infiltrated computer systems shared by several major US newspapers, “crippling” newspaper production and delivery systems across the country on Saturday, according to the Los Angeles Times, citing a source with knowledge of the situation. 

The attacks, which began alte Thursday night, appear “to have originated from outside the United States,” according to the Times, and resulted in distribution delays in the Saturday edition of The Times, the San Diego Union-Tribune, the Chicago Tribune, Baltimore Sun and several other major newspapers which share the same production platform. 

West coast editions of the Wall Street Journal and New York Times were also affected, as they are all printed at the LA Times’ Olympic printing plant in downtown Los Angeles. 

The hackers were able to disable several crucial software systems which store news stories, photographs and administrative information – which complicated efforts to make the physical plates used to print the papers at The Times’ downtown plant. 

“We believe the intention of the attack was to disable infrastructure, more specifically servers, as opposed to looking to steal information,” according to the source who wishes to remain anonymous. 

All papers within The Times’ former parent company, Tribune Publishing, experienced glitches with the production of papers. Tribune Publishing sold The Times and the San Diego Union-Tribune to Los Angeles businessman Dr. Patrick Soon-Shiong in June, but the companies continue to share various systems, including software.

“Every market across the company was impacted,” said Marisa Kollias, spokeswoman for Tribune Publishing. She declined to provide specifics on the disruptions, but the company properties include the Chicago Tribune, Baltimore Sun, Annapolis Capital-Gazette, Hartford Courant, New York Daily News, Orlando Sentinel and Fort Lauderdale Sun-Sentinel.

Tribune Publishing said in a statement Saturday that “the personal data of our subscribers, online users, and advertising clients has not been compromised. We apologize for any inconvenience and thank our readers and advertising partners for their patience as we investigate the situation. News and all of our regular features are available online.” –LA Times

“We are trying to do work-arounds so we can get pages out. It’s all in production. We need the plates to start the presses. That’s the bottleneck,” said Director of Distribution, Joe Robidoux. 

The problem was first detected Friday, however technology teams were unable to completely fix all systems before press time. It is unknown whether the company has contacted law enforcement regarding the incident.

South Florida readers of the Sun-Sentinel were told that it had been “crippled this weekend by a computer virus that shut down production and hampered phone lines,” according to its website. The New York Times and Palm Beach Post readers in South Florida also failed to receive their Saturday papers since they use the Sun-Sentinel’s printing facility. 

“Usually when someone tries to disrupt a significant digital resource like a newspaper, you’re looking at an experienced and sophisticated hacker,” said Pam Dixon, executive director of nonprofit public interest research group the World Privacy Forum. 

Dixon added that malware has become more sophisticated and coordinated over time, involving more planning by hacking networks who work together to infiltrate a system over time. 

“Modern malware is all about the long game,” she said. “It’s serious attacks, not small stuff anymore. When people think of malware, the impression may be, ‘It’s a little program that runs on my computer,’” added Dixon. 

With modern hacking, “malware can root into the deepest systems and disrupt very significant aspects of those systems.” 

via RSS http://bit.ly/2LFyuFv Tyler Durden

Submitted by The Visual Capitalist

If you walk down the streets in the United States, the odds are that one in every four people you’ll see is an immigrant, or was born to immigrant parents.

While those odds might seem high, the truth is nearly everyone in the U.S. hails from someplace else if you look far back enough.

Visualizing US Immigration

Today’s intriguing visualization was created by professors Pedro M. Cruz and John Wihbey from Northeastern University, and it depicts U.S. immigration from 1830 until 2015, as rings in a growing tree trunk.

The researchers turned registered U.S. Census data into an estimate for the total number of immigrants arriving each decade, and then the yearly figures in the visualization. One caveat is that it does not account for the populations of slaves, or indigenous communities.

From The Old To The New World

The pattern of U.S. immigration can be explained in four major waves overall:

The origins of U.S. immigrant populations transform from era to era. Which events influenced each wave?

FRONTIER EXPANSION: 1830-1880

• Cheap farmland and the promise of economic growth in the first Industrial Revolution spurred large-scale immigration from Britain, Germany, and other parts of Central Europe.
• The Irish Potato Famine from 1845 to 1849 drove many immigrants from Ireland over to the U.S.
• The 1848 Treaty of Guadalupe ended the Mexican-American war, and extended U.S. citizenship to over 70,000 Mexican residents.

INDUSTRIALIZATION: 1880-1915

• Immigrant mobility increased with the introduction of large steam-powered ships. The expansion of railroads in Europe also made it easier for people to reach oceanic ports.
• On the other hand, the Chinese Exclusion act in 1882 prohibited Chinese laborers from entry.
• In 1892, the famous Ellis Island opened; the first federal immigration station provided a gateway for over 12 million people.

THE GREAT PAUSE: 1915-1965

• The Immigration Act of 1924 enacted quotas on immigrant numbers, restricting groups from countries in Southern and Eastern Europe, and virtually all immigrants of Asian origin.
• The Great Depression, and subsequent World Wars also complicated immigration matters as many came to seek refuge in the United States.

POST-1965 IMMIGRATION: 1965-Present

• The Hart-Cellber (Immigration and Naturalization Act) of 1965 overturned all previous quotas based on national origin. Family unification and an increase in skilled labor were two major aims of this act.
• This decision significantly impacted the U.S. demographic makeup in the following decades, as more immigrants of Latin, Asian, and African descent entered the country.

While others have mapped two centuries of immigration before, few have captured its sheer scale and impact quite as strikingly. The researchers explain their reasoning behind this metaphor of tree rings:

This idea lends itself to the representation of history itself, as it shows a sequence of events that have left a mark and shaped the present. If cells leave a mark in the tree, so can incoming immigrants be seen as natural contributors to the growth of a trunk that is the United States.

via RSS http://bit.ly/2CGqJfF Tyler Durden

Even after an expedited IMF bailout finally helped stabilize the Argentinian peso after a historic plunge, Argentina’s bonds have continued to languish as investors continue to brace for an inflationary tidal wave, while political instability has remained a factor as embattled former socialist leader Cristina Fernández de Kirchner (i.e. CFK) could return to power after next year’s election, dealing a major blow to international investors who predicated their bullish case on the business-friendly rule of President Mauricio Macri.

Mauricio Macri

But all of this instability hasn’t stopped some of the world’s largest bond funds from hanging on to the country’s debt, which is paying the highest interest in the world (assuming the buyer hedged out that currency risk).

Case in point, Bloomberg reports that PIMCO and its parent company, Allianz, are holding an Argentinian note that pays a floating coupon equal to the country’s benchmark interest rate, which remains just below 60% after briefly climbing above 70% during the turmoil seen in Q3 and Q4.

While that payout is huge, in nominal terms, after shedding some 50% of its value earlier this year (it has since rebounded 7%), and adjusting for inflation, the peso’s decline would have eroded most of the return. Furthermore, consumer prices are on track to climb 50% in 2018, more than triple the Argentine Central Bank’s forecast for a 15% rise. The future remains just as bleak, with Argentina’s economy, which entered a recession this year, likely won’t pull out of it until the second half of 2019 according to analysts.

Fortunately for PIMCO, it’s EM desk had the good sense to hedge out at least some of that currency exposure.

Pimco hedged some of its currency exposure to the Argentine notes, according to a person with direct knowledge of the matter, who asked not to be identified because the information is private.

Because of this volatility, betting on Argentina takes “discipline”, and that buying these bonds should be a “long term play,” said PIMCO’s head of EM, which of course is what any PM says who is currently underwater on their investment.

“Emerging markets remain subject to both internal and external sources of volatility,” Mike Gomez, Pimco’s head of emerging market portfolio management, said in an email. “A disciplined and highly differentiating approach to the asset class provides opportunities for patient investors to benefit from dislocations that create compelling value.”

PIMCO owns roughly half of the notes in circulation. But it’s not the only major US-based investor with a significant stake. AllianceBernstein is the second-largest holder of the bonds, with 6.5% outstanding, and Goldman Sachs is No. 3 with 4.4%.

Slightly lower on the list is Franklin Templeton, with a 2.1% stake. Michael Hasenstab, who has been repeatedly bailed out by central banks on his hail mary bond investments in Europe during the financial crisis, and  whose $35 billion Templeton Global Bond Fund eked out a market-beating 2.1% gain this year, said he’s bullish on Argentina. “The peso already had its big selloff in late summer and early fall,” he said.

“We increased our exposure to capture the depreciated currency and significant increase in interest rates. The necessary adjustment measures were underway to stabilize the economy. The worst is behind us.”

Whether these bets pan out over the next year will ultimately depend – as all global markets do – on what happens in the US. If stocks continue to sell off and Treasury yields continue their move off the highs from October, the world could see the “carry is king” theme  reemerge.

If that happens, lagging Argentine bonds could finally get their moment in the sun, and PIMCO may be looking at the world’s highest (inflation-adjusted) return too.

via RSS http://bit.ly/2EVpivp Tyler Durden