‘Smoking Gun’ Link To Tehran In Aramco Attacks? Forensics Team Examines Weapons GPS
In what should be taken as perhaps the greatest indicator thus far that the US and Saudis don’t actually have proof Iran was behind the Sept. 14 drone and missile attacks on Saudi Aramco facilities, the WSJ reports investigators are still searching for “smoking gun” evidence backing the allegations.
Per the WSJ, the focus of weapons experts leading the investigation remains the GPS systems on the projectiles themselves, some of which may or may not be in varying degrees of being intact, if photos of the debris displayed at a Saudi Defense Ministry briefing last week are any indicator.
As to just how “certain” American intelligence agencies are regarding the continuing who dunnit? saga, this line from the report is deeply revealing: “They say they can’t galvanize world support for their view unless they can draw a clear link back to Tehran, which has denied any role in the attacks.”
Again, it’s the clearest indicator yet that the very early – within 48 hours of the attacks – finger pointing at Tehran especially by Pompeo was fundamentally politically driven, (as we’ve commented before) was but a continuation of the ‘maximum pressure’ campaign on Tehran.
Meanwhile Yemen’s Houthis haven’t changed their tune, insistently sticking by their claim of responsibility for the sophisticated twin attacks; however, days ago offering a ceasefire and potential peace deal.
Concerning the examination of projectiles involved, which temporarily knocked out up to half of the kingdom’s daily oil production within the days after, the WSJ reports:
The GPS systems could allow investigators to trace the drones and missiles back to their runways and launchers, which Saudi and American officials believe were in Iran. Inspectors from around the world — including the U.S., France and the United Nations — are scrutinizing pieces of the weapons from the attacks, which temporarily knocked out half of Saudi oil production and rattled the global economy.
There’s also the possibility of retaining serial numbers from the weapons systems used in the Aramco attacks, the report continues, though concerning the possibility of tracing them straight back to the IRGC, we doubt the Iranians would be quite that sloppy.
The GPS examination is part of a more expansive investigation that includes efforts to trace serial numbers of the weapons used in the attacks back to their origin. The probe is going forward as Washington and Riyadh weigh a response to the attack.
Hedge Fund CIO: “Generational Conflict Will Be The Top Theme Of The Coming Decades: Enter MMT”
Submitted by Eric Peters, CIO of One River Asset Management
While our ageing central bankers gradually come to terms with the fact they do not understand the complexity of the system that they themselves created, our global youth are forming a new vision of their future. And while it’s notoriously difficult to predict the behavior of such complex systems, it seems a fair bet to expect a global green new deal, funded by bonds, bought by bankers.
* * * *
Climate change and generational conflict are the most important themes that will unfold in coming years/decades, he thought.
Of course, central bank impotence is a critical theme too, and the growing admission by our monetary magicians that they need politicians to pull the fiscal levers signals its arrival. But the intersection of climate and youth is something truly new. Climate issues concern global youth far more than matters of money. And for decades, the adult obsession has been on GDP, debt, productivity, interest rates, profit margins, taxes.
Japan’s bubble burst in 1989 and its adults chose economic stability over creative destruction. The cost was endless stagnation. Parents got the deflation they wanted. Kids forfeited hopes for a dynamic future. And now we fear the same fate for Europe, China, the US.
But as the global youth organizes around a plan to address a changing climate that their parents seem content to mostly ignore, they will find they have more economic and political issues in common with one another than with their parents. And they will reject the Japanese bargain.
One thing certain in a fiat currency system is that money’s value diminishes over time, he thought. Japan is the exception proving the rule, but even there, stability will pass.
And so, if the youth care more for the environment than they do about money, and if ageing parents care about their money more than they do about their children, then generational looms. However, one possible way to defer this clash involves the oldest trick in the book. And that is more money for everyone; for the GND, for Medicare, Medicaid, Soc Sec, tax cuts. Enter MMT.
Hong Kong Protesters Ratchet Up Violence; Mall Captured, Subway Stations Attacked
Violent factions of the mostly peaceful Pro-democracy movement in Hong Kong took to the streets this once again this weekend – attacking two subway stations, igniting street fires and desecrating Chinese flags – one of which was set on fire before it was dropped into a dumpster and pushed into a river, according to the Associated Pressand SCMP.
(Photos via SCMP, AP)
A group of protesters in the centre of Sha Tin’s New Town Plaza have taken a Chinese flag and are walking over it and dragging it across the bottom floor of the mall, as a procession follows a leader to chants of “add oil”.
On Sunday, protesters ransacked a shopping mall in Sha Tin – targeting businesses with ties to mainland china, or otherwise seen as pro-government or pro-police. This drew a response from riot police, who deployed tear gas and beanbag rounds.
Demonstrators had vowed to disrupt airport operations by blocking access roads, but a heavy police deployment along road and rail links prevented travel chaos. The action shifted from Sha Tin to Tsing Yi and Kwai Fong, as protesters heckled police and damaged MTR facilities, before ending up at Prince Edward, a flashpoint for demonstrations as officers opened fire with beanbag rounds outside Mong Kok Police Station. –SCMP
According to Reuters, a man who admonished the protesters was reportedly beaten for 20 minutes before escaping.
The protests – now in their 16th week – were sparked by a now-withdrawn extradition bill, and have since morphed into a general pro-democracy / anti-government movement.
In what appears to be the latest attempt to salvage the farce that is the WeWork IPO (and the massive hole it will leave in Masayoshi Son’s balance sheet and credibility), The Wall Street Journal reports that a group of WeWork board members, with ties to Softbank officials, is pushing for the ouster of Adam Neumann as chief executive.
Citing the eponymous ‘people familiar with the matter’, The Journal writes that the board is expected to meet as soon as this week and potentially consider a proposal for Mr. Neumann to become We’s non-executive chairman, blaming another recent WSJ article that exposed Mr. Neumann’s eccentric behavior and drug use (Neumann had taken marijuana on a flight from New York to Israel, prompting the jet’s owner to recall the plane).
As WSJ notes, any attempted coup is a gamble: Mr. Neumann still has allies among the directors and the ability to fire the entire board thanks to shares he controls that carry extra votes. But SoftBank, which has invested more than $9 billion into the company and is represented on the board, has considerable influence too, and We needs the Japanese conglomerate to continue pumping in cash.
There are seven We directors (including Mr. Neumann) and while the Journal discusses the ‘bloc’ above, it is unaware of the number aligned with, or against, the ‘eccentric’ trillionaire-to-be.
Still, while Son may hope the ouster of We’s CEO will allow them to ‘pull an Uber’ – IPOing after the ouster of CEO Travis Kalanick was blame-scaped for all that was wrong with the company, we suspect We has bigger problems…
Marijuana Vape Sales Plunge In Massachusetts Amid Mysterious Outbreak
With the national media alerting the public that vaping could be causing mysterious lung illnesses – which amazingly nobody could predict in advance – hitting the wires over the last month, those who have been vaping marijuana, especially in the state of Massachusetts, have been ditching their vape pens at a fast clip.
The Boston Globe said weekly sales of oil-filled vaporizer cartridges plunged from a recent peak of $919,776 for the seven days ended Aug. 11 to $689,924 last week.
The 25% drop in sales mostly reflects other sales data from states where cannabis is sold legally.
State and federal authorities have warned the public about a mysterious outbreak of lung ailments from vaping that have killed seven people and sickened more than 530 people in 38 states.
As of Thursday, the Department of Public Health in Massachusetts said an investigation had been launched into 45 cases of vaping-related illnesses.
The Globe interviewed pot smoker Horace Small, who is also a member of the state’s Cannabis Advisory Board told family and friends to stop vaping pot, and or vaping in general.
“I just completely stopped,” Small said.
“I had this vaporizer that got me through [a vacation], but I had enough people who love me say, ‘Put the vape down’ — so I did. Folks are scared half to death. All my friends are encouraging each other not to vape and just err on the side of caution until there’s more knowledge on what the hell is going on.”
The Food and Drug Administration announced Thursday that a criminal probe would be launched into companies that manufacture vaporizers.
“State and federal officials have said they suspect Vitamin E acetate, an additive found in some illicit marijuana vape cartridges, could be one culprit and urged consumers to avoid such products,” The Globe said.
Others have said it could be additives in regulated marijuana cartridges, such as propylene glycol, leading to the vape crisis.
Brandon Pollock, chief executive of the marijuana company Theory Wellness, said vape cartridges at his stores in Great Barrington had plunged 20% since the crisis first went viral on social media and mainstream news last month.
Pollock predicts vaporizer sales will rebound because the public health crisis surrounds black market vape cartridges.
“I’m not surprised there’s an initial contraction,” he said. “I actually expect an increase in sales as people really exit the black market. I think people right now are just digesting the news — in the long run, this is good for the regulated cannabis industry.”
And cancer-care expert Dr. Diana Martins-Welch has told her medical marijuana patients in NYC to immediately quite vaping pot and pick up a joint instead.
“The Mother Of All Party Crashers Took A Dump In The We IPO Punch Bowl”
A month ago, Scott Galloway, the best-selling author, well-known tech-industry pundit, and professor of marketing at New York University’s Stern School of Business, unleashed his special kind of wit and financial weaponry on WeWork’s recent S-1 filing. Writing on his “No Mercy / No Malice” blog, Galloway said any Wall Street analyst who believes WeWork’s worth over $10 billion is “lying, stupid, or both.”
So, the mother of all party crashers took a dump in the We IPO punch bowl. The crasher? Math. The autopsy will show the shelving of this IPO was death by S-1.
This was a case of immunities kicking in after the requisite SEC disclosure. As the greater fool theory has hit a wall, We will now need additional capital from the private markets, who are no longer under the influence. The firm will be forced to sell equity/issue debt at a price substantially lower than they had anticipated. A price unimaginable just 30 days ago.
We has gone from unicorn to distressed asset in 30 days. In just seven days, We lost more value than the three biggest losers in the S&P 500 have lost in the last year combined: Macy’s, Nektar Therapeutics, and Kraft Heinz.
So, as a distressed asset, the playbook is fairly clear:
• Bring in new management. What got We here, isn’t going to get it where it needs to go. Each layer that comes off the We onion stinks more and more. The media has turned its attention to the Neumanns, and it’s as if the lights have been turned on at a cocaine-fueled party that ended several hours too late. Everyone and everything suddenly looks bad, scary even.
• The firm needs to bust a move to break even pronto. The new CEO should be from a REIT, ideally a hospitality or commercial real estate REIT. My vote is Adam Markman, CFO of Equity Commonwealth — Sam Zell’s firm.
• Shed/close all non-core businesses. WeGrow and WeLive are vanity projects. As someone close to the firm told me yesterday, they distract Mr. Neumann from the core business, where he was wreaking havoc. A $13 million investment in a firm that makes wave pools to indulge Adam’s passion for surfing. Really? Really?
• Raise money after an adult conversation with SoftBank (“You f*cked up, you trusted us. Do you want to participate in the next round or get washed out?”)
• Focus on margin expansion vs. growth. We has a differentiated product in the marketplace, and should command a premium.
• Lay off all employees not directly tied to managing the core business. Reprice options for remaining employees, as the current options are now worthless and most execs will begin looking for other jobs. The most talented (the ones with the most options) will be the first to leave if they aren’t given substantial economics for staying in Saigon as the North Vietnamese roll into town.
• 3-5 new independent directors. Boards have their own dynamic, irrespective of the qualities of the individuals. The members of this board have formidable experience/CVs. Lew Frankfort (Director) is a first-ballot Hall of Fame retail exec, and he doesn’t strike me as the type of guy who’d be bullied by the CEO, or anybody else for that matter. Again, I just can’t figure out what the f*ck happened here. Who is the head of the audit committee, and was he (they were all dudes until last week) the one passing out MDMA before each audit meeting? Or, as a private firm, did they even have audit committee meetings? This is a board that approved a $13 million acquisition of a wave pool company. Or did they?
The directors enabled an information pyramid scheme and indulged Adam, in exchange for hoping they could create enough valuation momentum, via nine rounds, to carry their shares to an exit in the public markets.
• SoftBank was reportedly considering propping up the IPO with $750 million in share purchases at the offering price. If that’s the case, shouldn’t they want to invest billions more at the now low-low 80%-off price? Or were they simply looking to pump and dump?
The above likely won’t happen. Why? As I said two weeks ago, the lines between vision, bullsh*t, and fraud are pretty narrow. I can’t wrap my head around what’s gone on here. Something is wrong. Something stinks. Something … Just. Doesn’t. Add. Up.
It’s beginning to smell like malfeasance at We. The lines between vision, bullsh*t, and fraud have been crossed here. To be clear, I’m not a journalist, nor a forensic accountant. This is pure speculation based on my experience as a CEO, investor, and director. Something is very, very wrong here. In no specific order:
• The board’s willingness to sell shares at 75% off (after seven days) says insiders knew the firm desperately needed money, and the price they advertised seven days before was not a real number (see above: malfeasance).
• Cult of personality firms seem especially vulnerable to massive declines in value or fraud. If you had to pick an analog for Adam Neumann (young, charismatic, visionary, with an outsized view of himself and a delusional view of the firm’s role in society), surrounded by gravitas/old white guys, who/what is more fitting than Elizabeth Holmes/Theranos?
• At the most recent all-hands (after the shelving of the IPO), Adam refused to take questions. Mr. Neumann is a narcissist, and to not indulge in a chance to spread more Adam means he’s now being advised by lawyers (“stick to your talking points, don’t say anything else, don’t take questions”). A bad sign.
If you liked the Theranos documentary The Inventor: Out for Blood in Silicon Valley, you’ll love Community-Based EBITDA: The Story of We, coming soon to Hulu.
At some point, tech’s gestalt of overpromise and underdeliver can paint founders into a corner where they begin massaging numbers (Earnings Before Gluten). I can relate to this. In ’99 I raised money from Howard Schultz (SBUX), Goldman Sachs, JPM, and a bevy of high-profile business people for an e-commerce incubator, Brand Farm. The company made no sense. But it was ’99, and a guy with some success, a good rap, and a shaved head could raise tens, if not hundreds of millions. My investors were nothing but supportive.
Bottom line, I didn’t have the courage/stomach to try to raise a B round, and I shut Brand Farm down. I was going to need to go “large” and spin our way to a $100 million round, and there was interest. But I was having trouble sleeping. When I get stressed, I stop eating. The correct diagnosis of my ailment was common sense mixed with a conscience. We’s mission to “elevate our consciousness” is sounding more apt with each WSJ story (some great reporting).
In sum, I can see how one gets in too deep and begins believing his or her own bullsh*t, almost as a defense/coping mechanism. I speak from experience: if you tell a thirty-something dude he’s Jesus Christ, he’s inclined to believe you.
We has consistently been so far off on any forecasts in their original pitch deck that it appears numbers are more of a nuisance than reporting metrics. Their forecasted profits: $14 million for 2014, $64 million for 2015, $237 million for 2016, $542 million for 2017, and (wait for it) $1 billion for 2018.
Except in 2018 the firm lost $1.6 billion, which is likely understated. SoftBank is the only investor since 2016, a rookie move in the world of investing. The lack of external, third-party validation can lead to everyone smoking their own supply, and more poor governance. Henry Hawksberry (pen name I think) wrote a blistering piece on Medium alleging, among other things, We was paying brokers 100% commissions, then figuring out how to turn expenses into revenues and pulling forward billables. If half of this is true, it’s fraud.
Ok, the wolves are closing in. What to do? I know, we’ll provide an exclusive to a network that throws us softball questions and provides a veneer of legitimacy. CNBC, that’s the ticket. We’ll distract from the boring stuff, like numbers, and bring with us early tech investor Ashton Kutcher. The third and and a half man is masterful and, sitting next to Adam, raptures:
“I realised it was a technology company. I also realised that this company, through its technology, has greater capacity than any other company in the entire world to bring people together.” Really, Ashton, really? Aren’t misleading metrics and nomenclature just non-carbonated fraud?
Why. Would. They. Leave?
The two most senior corporate communications exes, Jennifer Skyler and Dominic McMullan, both left recently, right before the IPO. Ok, so think about that. You are the belles of the ball of a firm about to IPO at $50 billion, and (in the case of Dominic) you announce, weeks before the IPO, “After becoming a dad (twice) in recent years, I’ve decided to take time off to spend with family in Brooklyn for now.” Yep, that makes sense. You know us men, always leaving right before the IPO to spend more time with our families.
The head of comms, Jennifer Skyler, left a few weeks ago for AMEX. Uh huh, that makes even more sense. Who wouldn’t want to bolt from the second-most-anticipated IPO of the year to go flack about the new American Express Marriott Bonvoy Brilliant Card. What’s worse than spending all day every day at home with two baby boys or downtown at AMEX? Engaging in fraud.
How did this happen?
A frothy market coupled with our gross idolatry of innovators creates an ecosystem that enables incremental disingenuous acts such that, if We had gotten public and managed to spend their way out of this hole, they might be lauded as “visionary.” What if Ms. Holmes had been able to raise another $2 billion and the technology had begun to show promise? Wouldn’t she be on Oprah and CNBC, instead of HBO?
We’ve witnessed a halving of journalists since 2008, while the number of corporate communications execs has tripled. In sum, the ratio of bullshit/spin to watchdogs has increased sixfold. In the last 24 hours, I’ve been contacted by the BBC, WSJ, and WaPo to comment on We. But before any press outlet contacted me, I heard from a senior comms person at We, after I mentioned on Pivot in January that WeWork will be in the news a lot in 2019, for all the wrong reasons. Below is an email exchange I had with them in May. The subject was “Whipping Boy.”
As a general rule, I return the call of every journalist and refuse to meet with any corporate communications exec.
The halcyon of the markets coupled with feckless regulatory bodies and the decimation of investigative journalism has made the markets ripe for fraud. We is falling off the tree.
In the next 30 days, a series of explosive investigative journalism pieces will document breathtaking malfeasance at We.
In the next 60 days, a state attorney general, SEC, or other regulatory body will launch a formal investigations into We.
Over the next 12 months, SoftBank’s Vision Fund will be shuttered.
Last week, we started our discussion by itemizing the list of all the things going “right” for the bullish narrative.
Trump easing up on tariffs and trade negotiations
The ECB (European Central Bank) went “all-in” on cutting rates and launching more Q.E.
The economy is showing some signs of life as data is “less bad” than it was previously, and as we concluded:
“All the bulls need now is the Fed to ‘cut’ rates at the meeting next week.”
On Wednesday, the Fed did just that by cutting rates the expected 0.25% which aligned with our previous analysis:
“With markets hovering at all-time highs, the unemployment rate near record lows, and inflationary pressures near their target levels, there is little reason to be cutting rates now.
For the bulls, the good news is, they will cut rates anyway.”
What the markets focused on, however, was The Fed suggesting they are open to “allowing the balance sheet to grow.” While this isn’t anything more than just stopping Q.T. entirely, the markets took this as a sign that Q.E. is just around the corner.
To illustrate this point, the chart below shows excess reserves, required deposits, and currency in circulation. As you can see, everything went “pear-shaped” in 2008.
However, let’s zoom in a bit and add the Federal Reserves balance sheet. Prior to 2008, notice the Fed’s balance sheet was growing directly proportionate to the growth rate of the currency in circulation (which follows the growth rate of the economy.)
Therefore, what the Fed is suggesting is NOT more Q.E. but rather, just the normal “organic” expansion of the balance sheet in relation to the growth of the economy and the currency in circulation.
It was this realization that ultimately disappointed the bulls late last week.
Bulls Remain In Charge
However, despite the short-term disappointment, the bulls remain in charge for the time being as markets cling near all-time highs. The question we posed last week was:
“Is it all priced in?”
The risk/reward does not favor the bulls short term. The market is back to very overbought conditions, the upside to the top of the bullish trend channel is about 1.9%. The downside risk is about 5.5%.
(Chart updated through Friday. Shows the overbought condition as been slightly reduced.)
However, on an intermediate-term basis, all of our primary indicators are beginning to reach levels which have typically denoted short-term market peaks.
This analysis keeps our portfolios weightings on the long-side, but we remain hedged currently which we slightly increased last week, along with additions to our intermediate-term bond holdings and gold. Cash also remains a slight overweight in model allocations and equities slightly underweight..
We added a starter position of VXX to portfolios yesterday to hedge against a pickup in volatility. We are likely a bit early, and volatility will likely drift lower in the days ahead, but as noted by the red box, volatility is extremely suppressed.
While our portfolios remain bullishly biased for the time being, that will NOT always be the case.
As discussed many times in the past, the point of risk management is NOT trying to win “short-term battles” by chasing asset prices, but the winning of the “war” by not losing a large chunk of investment capital during a market decline.
The Moment You Know
David Bowie once said:
“The moment you know you know, you know.”
Unfortunately, for the vast majority of investors, they often come to this realization far too late to do anything about it.
The point he was making is by investing money in markets, and not worrying about drawdowns, it will grow over time. The math certainly supports his argument.
Why hire a “financial adviser?” Just buy a cheap index fund, sit on it, and you will be fine. It is a great concept for the purveyors of ETF and index-based products, just not necessarily good for you.
Let me explain.
Ben, who graduated from college in 2005, didn’t have money invested, or manage assets for others, during the 2008 financial crisis. (That’s not a criticism, I wish I were that young.)
The reality is that experience is a hard teacher.
The concepts of “buy and hold” investing, “dollar-cost averaging,” etc. become mainstream commentary at the end of bull market cycles. It was the same in 1999, and in 2007, when I was managing money for clients.
I can tell you this with absolute certainty.
“When the bear market sets in, all the investing complacency goes flying out the window. Clients no longer care about low cost, indexing, or ‘time in’ the market, as their losses mount. Conversations are no longer about buying dips, but rather ‘get me the f*** out.’”
It is just a function of where your pain point is as losses mount. While investors may stay the course during a 10-20% decline, it is an entirely different matter when personal wealth is dropping 30, 40, or 50%.
If you were invested in 2008, you know what I mean.
It is just human nature.
However, what Ben’s analysis misses is the “time value” of money during those periods. Yes, a “buy and hold” portfolio will grow in the financial markets over time, but it DOES NOT compound.
Read this carefully: “Compound returns assume no principal loss, ever.”
To visualize the importance of this statement, look at the chart below of $100,000, adjusted for inflation, invested in 1990 versus a 6% annual compound rate of return. The shaded areas show whether the portfolio value exceeds the required rate of return to reach retirement goals.
If your financial plan required 6% “compounded” annually to meet your retirement goals; you didn’t make it.
This is the single most important thing to understand about investing.
“Investing is not about just growing capital. The actual GOAL is growing SAVINGS to a future target which will provide a required livable income in retirement adjusted for inflation.”
If you f*** that up by not saving enough, taking on too much risk, and losing a chunk of your capital by speculating in the financial markets, you are going to have a tough time when you retire.
Two bear markets should have taught “financial advisers” this by now.
It is why 80% of Americans are almost entirely dependent on social security for retirement needs despite the longest bull market run in history. ($100,000 in savings, or less, isn’t going to cut it)
Time is the most valuable commodity there is. It is also the one commodity you can not get more of.
You Don’t Want To Hear That
I know, I know. That’s being “bearish,” and that is “no fun.”
As Bob Farrell once quipped: “Bull markets are more fun than bear markets.”
Here is what you really want to me to write:
“If you just put all your money into this ETF portfolio, it will compound at 8-10% a year, and you can spend all your time at the beach.”
“Here are the six stocks you can buy today, and retire on tomorrow.”
Or, just in case you haven’t started investing yet:
“If you can just save $100 a month, buy an S&P index fund, and dollar cost average into it every month in a Roth, it will grow at 12% a year and you will have $1 million in 30-years.”
These types of articles sell products, get advisers clients who lure them in with promises of above-average returns for a small annual fee, and attract advertisers. This is why the media is full of “optimistic” articles touting exactly those issues.
(We wrote a complete series on the many investing myths of the market and how to do better.)
Think about it this way.
“IF investing actually worked as advertised, wouldn’t “everyone” be rich?”
But they aren’t, because two major bear markets either wiped them out financially, or destroyed their confidence in investing in the markets.
Most of the people in the mainstream media, and most people writing articles on investing, like Ben, have never actually been through a “bear market.”They may have witnessed it, but watching the “war” from the safety of your living room is very different than dodging bullets on the front line.
Of course, after a decade long bull market, it is certainly understandable that many investors, advisers, and planners have been lured into the belief that a “financial crisis” can never happen again.
Another crisis will happen. They have happened all throughout financial history going back to the 1600s, and Central Banks won’t be able to bail the markets out next time.
There is simply TOO. MUCH. DEBT.
However, it is these “beliefs,” “investment strategies,” and “complacency” which tend to mark the peaks of market cycles.
“The golden rule of investing is to buy low, and sell high.” – said every great investor in history
Here is what you DON’T SEE at market bottoms. (The point when you should be mortgaging the house to buy stocks.)
Companies like $TSLA and #WeWork which are cash burning machines, and potentially fraudulent companies, going public.
Investors chasing the highest risk assets like junk bonds, levered loans, and structured products.
Advisors who promote “Buy and Hold” and “Dollar Cost Averaging” investment programs. (More than likely they have never seen a bear market.)
Wall Street hitting the markets with investment products which carry increasingly higher levels of risk to meet investor appetites. (Wall Street is a sales organization that creates products for consumers)
Untried and unproven products and investment programs like “Robo-Advisors”
And….Bowie Bonds, are back!
A good example by my colleague Michael Lebowitz:
“In 1997 musician David Bowie, and in particular his revenues, supported an asset-backed security. In a first of its kind, Ziggy Stardust, Starman, and many other popular songs were securitized, raising $55 million for the artist. Investors received a stream of cash flows based on the sales of his 25 albums. In return for the lump sum of cash, Bowie forfeited any revenue from those albums until the bonds matured.
Bowie bonds attracted investors for several reasons. Some investors found value in the bonds, thinking music sales would skyrocket. Clearly these investors did not see the coming digitization of music and the revenue implications. Other investors were simply fans and wanted to own a piece of the rock legend. The bonds also attracted speculators. Risk-taking was in vogue in the later ’90s. It seemed like the object of many investors was to find the latest and greatest investment with the possibility to make them rich. Unlike Pets.com and e Toys, Bowie bonds did not default and in 2007 paid off its investors.”
Note: note the year the bonds were issued – 1997. So, here we are nearly two decades after the dot com crash and a decade after the financial crisis, and risk-taking and speculation are back in style. Mike continues:
“From negative interest rates to excessive valuations along with a rash of non-profitable IPOS, signs of risk fever surround us. Like Bowie bonds signaled in the late ‘90s, another omen is warning that a top is near.
Spencer Dinwiddie, a guard for the NBA’s Brooklyn Nets, recently announced that he would follow in Bowie’s shoes and issue a security backed by his basketball contract. Like Bowie, Dinwiddie will receive a lump sum cash payment today instead of income spread out over the life of his contract. Dinwiddie’s wants the cash today so he can invest and assumingly earn more than investors in his bonds. His basketball bonds will be issued in digital tokens.
It seems like Dinwiddie is not only trying to take advantage of liquidity chasing digital assets as well as the demands of investors seeking investments with extra yield but he, in turn, wants to speculate with the money as well. Said differently, speculators are feeding the behavior of speculators.
In the late 1990s, investors chased any company that was thought to have been in involved in the World Wide Web. Bowie bonds made more sense than many dot com companies but nonetheless revealed the rampant speculation of the day. In the mid-2000s, investors were enamored with mortgage debt backed by subprime debt that could “never default.” Today speculators are chasing traditional and digital assets in what may be the broadest instance of overvaluations in at least 75 years.”
It is from this point, given valuations are once again pushing 30x earnings, that we review the expectations that individuals facing retirement should consider.
Expectations for future returns and withdrawal rates should be downwardly adjusted due to current valuation levels.
The potential for front-loaded returns going forward is unlikely.
Your personal life expectancy plays a huge role in future outcomes.
The impact of taxation must be considered.
Future inflation expectations must be carefully considered.
Drawdowns from portfolios during declining market environments accelerates the principal bleed. Plans should be made during up years to harbor capital for reduced portfolio withdrawals during adverse market conditions.
The yield chase over the last 10-years, and low interest rate environment, has created an extremely risky environment for investors. Caution is advised.
Expectations for compounded annual rates of returns should be dismissed in lieu of variable rates of return based on current valuation levels.
Importantly, chasing an arbitrary index that is 100% invested in the equity market requires you to take on far more risk that you most likely realize.
For the majority of individuals today facing, or in, retirement the two previous bear markets have left many further away from retirement than they ever imagined.
The next one will destroy those goals entirely.
Investing for retirement, should be done conservatively, and cautiously, with the goal of outpacing inflation, not the market, over time. Trying to beat some random, arbitrary index that has nothing in common with your financial goals, objectives, and most importantly, your life span, has tended to end badly for individuals.
As Michael concludes:
“We do not know, but we do know what we know, and we know that current investor behavior is unsustainable.”
Democrats Panic Over Biden-Ukraine Scandal As MSM Hits Full Spin Cycle
As Joe Biden plummets in the popularity, Democratic lawmakers and the MSM have gone into panic mode after a whistleblower report of political malfeasance during a July phone call between President Trump and Ukrainian President Volodymyr Zelensky about the Biden family’s dealings turned out to be fake news.
Since the initial report, the Trump-Zelensky call has been downgraded to remove implications of a quid pro quo – and attention is now turning to what the Bidens actually did.
“The real story involves Hunter Biden going around the world and collecting large payments from foreign governments and foreign oligarchs.” Peter Schweizer Laura Ingraham Hunter made a fortune in Ukraine and in China. He knew nothing about Energy, or anything else.
And to protect Biden – who is still the Democratic 2020 frontrunner (barely), the media is simply ignoring the facts in order to peddle an election interference narrative.
“They want to bypass the fact that Joe Biden, in his own words, in multiple interviews, said that he threw the straw and had to go to the Ukraine and have a conversation and tell them to fire the individual that was doing the investigation into his son…,” former Trump campaign manager Corey Lewandowski told Breitbart Newson Saturday – adding that the new narrative is “Oh, my God, Donald Trump might have had a conversation, asking if there was anything done” related to the Hunter Biden investigation while they hyperventilate about Trump talking to Zelensky.”
On Sunday, President Trump told reporters before departing for events in Texas and Ohio that his call with Zelensky was “largely congratulatory, was largely corruption, all of the corruption taking place.”
“It was largely the fact that we don’t want our people, like Vice President Biden and his son, creating to the corruption already in the Ukraine,” he added – insisting that an anonymous intelligence whistleblower had raised “false alarms” over his conversations with a foreign leader – and he would have no problem with his attorney Rudy Giuliani testifying to Congress about the whole thing, according to Bloomberg.
“You can’t have people doing false alarms like this,” said Trump.
In a July 25 phone call with Zelenskiy, Trump asked the Ukrainian leader to investigate Biden’s son Hunter, according to a person familiar with the call. Trump defended the call on Sunday.
“I said nothing wrong, it was perfect. I assume many people are on the line. I know that before I make the call,” Trump told reporters as he departed for events ahead of the United Nations General Assembly next week. “What wasn’t perfect was the horrible thing Joe Biden said.”
The Washington Post has reported that the whistle-blower’s complaint concerns Trump’s interactions with Zelenskiy. Ukrainian Foreign Minister Vadym Prystaiko said in an interview with a Ukrainian news outlet, Hromadske, on Saturday that “Trump did not pressure Zelenskiy.” –Bloomberg
The whistleblower didn’t actually hear the call
Buried in a recent CNN article noted by the Daily Wire‘s Ashe Schow, “The whistleblower didn’t have direct knowledge of the communications,” adding “Instead, the whistleblower’s concerns came in part from learning information that was not obtained during the course of their work.”
Ukraine’s Foreign Minister Vadym Prystaiko, meanwhile, said Trump didn’t pressure Ukraine.
“President Trump is interested, his advisor, [Rudolph] Giuliani, newspapers, Democrats, Republicans are interested in whether pressure had been put on Ukraine. I want to say that we are an independent state, we have our own secrets,” said Prystaiko.
“I know what the conversation was about and I think there was no pressure. There was talk, conversations are different, leaders have the right to discuss any problems that exist. This conversation was long, friendly, and it touched on a lot of questions, including those requiring serious answers.”
Three Democratic-led house committees, meanwhile, have launched a “large-scale investigation” into whether Trump pressured Ukraine – while as noted above, their only go-to now is that Trump attempted to interfere in the 2020 US election – while absurdly glossing over the fact that Biden openly bragged, on camera, about pressuring Ukraine to fire the guy investigating his son!
The latest media-manufactured faux scandal is that Trump needs to be impeached because he a told a foreign leader to rein in corruption. Oh, and Joe Biden, who *bragged on camera* about bribing Ukraine to fire a prosecutor investigating his son’s company, should be president.
The United States, with untroubled ease, continued its approach toward catastrophe this week. The Federal Reserve cut the federal funds rate 25 basis points, thus furthering its program of mass money debasement. Yet, on the surface, all still remained in the superlative.
S&P 500 Index, weekly: serenely perched near all time highs, in permanently high plateau nirvana. [PT]
Stocks smiled down on investors from their perch upon what Irving Fischer once called “a permanently high plateau.” As of the market close on Thursday, the Dow Jones Industrial Average held above 27,000, the S&P 500 above 3,000, and the NASDAQ above 8,000. 401k accounts, to the delight of working stiffs of all ages, origins, and orientations, are swollen beyond expectations.
Below the surface, however, the overnight funding market was subject to much weeping and gnashing of teeth. Sometime between Monday night and Tuesday morning the overnight repurchase agreement (repo) rate hit 10 percent. Short-term liquidity markets essentially broke.
After several technical glitches, the Fed executed its first repo operation in a decade – $53 billion – to keep the interbank funding market flowing. Zero Hedge documented the chaos real time.
This was followed up with additional repo operations on Wednesday and Thursday – at $75 billion a pop, and both oversubscribed. Perhaps Fed repo operations will be a daily occurrence, at least until the Fed launches QE4.
US overnight repo rate – as Fed chair Jerome Powell remarked: “Funding pressures in money markets are elevated this week”. Evidently, nothing escapes his eagle eyes. [PT]
At the same time, the effective federal funds rate – the upper range limit of the federal funds rate – continues to push above the rate the Federal Reserve pays on excess reserves (IOER). In other words, the Fed’s primary tool for price fixing credit markets is not behaving according to plan. Greater Fed intervention will be needed to keep things in line.
The fate of Fed projections… this may explain why the Fed was apparently surprised by the recent developments in overnight funding markets. [PT]
Centrally Planned Credit Markets
No doubt, these are the sorts of pickles that central planners invariably find themselves in. At the heart of the matter is lack of cooperation. The planners push credit markets one way and the credit markets react in unanticipated and unexpected ways.
Remember, in centrally planned economies, supply and demand are not allowed to naturally adjust and equilibrate. This often results in supply shortages and strange phenomena like store shelves with potato peelers and no potatoes. Centrally planned credit markets are no different.
Through its interest rate price control policies the Fed creates an environment for liquidity mismatches (i.e. supply and demand disparities). Then the Fed must intervene with even greater price controls to arbiter them. This in turn compounds the mistakes; layering and levering them up to the extreme.
Somehow the clever fellows, as they devise plans upon plans from cushy chairs within the climate controlled Eccles Building, are unaware they are chasing the wild goose. For example, here is an excerpt from the Fed’s recent implementation note:
“Effective September 19, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-3/4 to 2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.70 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day.”
What to make of it?
First, the central planners are winging it. Second, there is no happy end to this madness. Third, there will be hell to pay – and you will get to pay for it.
Central planners, confidently forging ahead… [PT]
Fiat Money Cannibalization in America
While in office, former vice president Dick Cheney once commented that “deficits don’t matter”. To be fair, politics – not fiscal policy – was the context of Cheney’s remark. His implication was that ‘deficits don’t matter to voters.’ He was right then, and he is right now.
Most voters don’t give a rip about deficits. So, too, most members of Congress don’t care about deficits. If you recall, there was no real resistance to the recent suspension of the debt ceiling and federal spending increases. Voters demanded it. Congress obliged with little deliberation. The fact is all pretense of fiscal restraint at the national level disappeared with the Tea Party movement over the last decade.
The population at large has come to believe it can get something for nothing – including free food, free drugs, free retirement, and free money – via the ‘power of the purse’. People believe the government can spend without limits and indefinitely kick the debt can down the road. They believe there will be no consequences for this complete failure of discretion.
Dick Cheney… the mythical creature that “exists neither in the executive branch nor the legislative, yet simultaneously in both. He is neither man nor beast, yet has elements of the twain. He is at once everything and nothing, substance without form, shape without motion, time without reason…he is the Highlander” (according to John Oliver). In this image he seems to be telling someone off. His remark on the importance of deficits, or rather the lack thereof, is destined to haunt him forever. [PT]
Voters couldn’t be more wrong. Contrary to what Cheney said, deficits do matter. And voters should care about them.
The U.S. budget deficit has already topped $1 trillion for the first time since 2012, and there is still one month in the fiscal year to go. When the economy slips into reverse deficits could easily jump to $2 trillion. Interest rates could also slip and slide even lower, perhaps into negative, like in much of Europe and Japan.
Of course, the Fed will keep pushing the limits of what it can and cannot control in a futile attempt to hold things together. It will supply a continuous flood of liquidity to credit markets with no reservation. What choice does it have?
Failure of the debt based fiat money system is at stake. The Fed will do everything it can to keep it alive. It will keep at it, debasing the dollar around the clock, until the precise moment it cannibalizes itself.
Holding some gold – or silver – at this juncture is of supreme importance.
She was completely right to take this tack with Trump here. And Trump was completely right, for once, to ignore a challenge to his authority and persona. Because had he done so, he would have boosted Gabbard as a real challenger to him in 2020. Trump knows that in politics you never attack down unless there is no down side.
Gabbard’s uncompromising honesty and principles on these important foreign policy positions give her the moral high ground.
Trump can’t respond to that without betraying his entire Presidential aura.
She is correct that US citizens who sign up for the military take an oath to protect and defend the constitution and the people of the United States. They did not take an oath to protect foreign dictators incapable of basic defense of their most precious and valuable real estate.
This is especially true when said dictators are the aggressors in a war of conquest against their neighbors. After more than four years of fighting, using weapons produced by the United States, with assistance by US military advisers, the Saudi Arabians have completely botched their war in Yemen, committing dozens, if not hundreds, of despicable attacks on civilian targets without anything to show for it but animosity and, now, wholly insecure infrastructure.
That this infrastructure is vital to the global economy should be irrelevant to Trump’s calculus as to where to send US troops and war materiel. That was something Saudi Arabia’s Clown Prince, Mohammed bin Salman should have considered before starting this war back in 2015.
The Houthi rebels in Northern Yemen claimed responsibility for the attack on the Abqaiq gas processing facility as a direct consequence of Saudi aggression. Of course, they are backed by Iran and Iranian technology.
It’s nearly a week after the event and we still don’t know for sure what happened. We have vague assurances from anonymous sources with the US and Saudi governments but no concrete details other than what was hit and how.
That Trump ultimately decided against going to war with Iran over this incident doesn’t negate Gabbard’s attack on him. It was cogent given the moment and is principled in how US troops should be used.
In all of this discussion about a potential war with Iran no one in the Trump administration or anywhere else have made a credible argument as to what actual threat Iran poses to the people of the United States.
Vague proclamations by Iranian politicians of “death to America” are, ultimately far less threatening or interesting than the parade of US Senators and Congresscritters saying that Iran is a “rogue regime” and it should be wiped off the face of the earth.
Are our sensibilities so fragile that we can’t handle a little criticism from people we have waged war by proxy with for over 70 years?
How is this any different than the average tweet by Lindsay Graham (R-AIPAC)?
We have senior officials, like the Secretary of State and the erstwhile National Security Adviser calling Iran ‘evil’ and we have officially lumped their army in with the same lot of terrorists as Al-Qaeda and ISIS. We have sanctioned their government and individuals within it.
Never forget that you reap what you sow in this life. And any animosity Iran and Iranians bear towards the US and Americans is richly deserved. The reverse, however, is difficult to make a case for.
Because, little factoid, Iran hasn’t attacked anyone in a span of time that is longer than the US has been a country.
Iran threatens Israel in the same way that Israel threatens it. Saudi Arabia threatens Iran as an oil competitor and religious one.
And the idea that the President of the United States should entertain even a mere thought of going to war with Iran over an attack on Saudi oil production should be anathema to anyone with two brain cells to rub together and make a spark.
Because at the end of the day this is not our fight. This is a fight between enemies made rich by oil in some cases (Saudi, Iran), political clout in high places in the US and U.K. in others (Israel) and friends in other high places and cultural integrity (Iran).
This is a cultural and religious conflict we barely understand and cannot change the dynamics of by blundering in with weapons of mass destruction. It is precisely because we take sides in this conflict that this conflict never ends.
And it is a conflict that dovetails with prevailing ‘wisdom’ in the West about how to maintain control over the planet that dates back more than 150 years. And that is why we do what we do. But it is time for that worldview to end.
It’s time bury Mackinder’s ideas alongside his corpse.
To Trump’s credit he seems to have realized that this incident was another like the events which led up to the US Global Hawk drone getting shot down in June. It was designed to get him to over-commit to a policy which would engulf the world in a war that only a very few powerful and highly placed want.
Even the tweet that Gabbard called him out on was carefully worded to cool things down and hint that he wasn’t prepared to respond militarily to this incident. As Gabbard climbs in the polls and is treated worse than Bernie Sanders in 2016 and Ron Paul by the Republicans in 2008 and 2012, she will hold Trump to account on foreign policy with an ever-growing clout and moral clarity which bodes well for the future of US involvement overseas.
And, like Nigel Farage in the U.K. offering the Tories a non-aggression pact to get a real Brexit over the finish line, Gabbard should put country before career and applaud Trump when he doesn’t act like Saudi Arabia’s “Bitch.” That will win her even more votes and more respect among the silent majority who are not in the throes of Trump Derangement Syndrome on both the Left and the Right.
Along with this, the likely end of Netanyahu’s political career should mark a sea change in US policy. While AIPAC’s pull is still very strong in the US, Israel’s commitment to an aggressive foreign policy with an uncommitted President should falter under a new government without its Agitator-in-Chief.
And without that animus propelling events along eventually cooler heads will prevail, and the present dynamic will change.
Trump made an enormous mistake pulling out of the JCPOA. That genie cannot be put back in the bottle. The question now is does he have the sense and the humility to realize his board position has materially weakened to the point where the probability of a rout is rising?
2020 for him has to be about making good on his promises to end the Empire building and improving relations with Russia. With Putin openly trolling him and the Saudis recently over weapon sales the odds of the latter happening are low.
But he can still make good on the former. Trump has lost so much of his goodwill with the people he’s ‘negotiating with’ that there is little to no wiggle room left. He has no leverage and he’s got no goodwill.
I saw this coming the day he bombed the Al-Shairat airbase in April 2017. I said then that it was one of the biggest geopolitical mistakes ever. It set the stage for all the others because it showed us just how out of his depth Trump was on foreign affairs. It set him back with both Putin and Chinese Premier Xi and it also showed how easily he could be manipulated by his staff and their rotten information.
It’s a deep hole he’s dug for himself. But there are still people who want to help him climb out of it. Gabbard’s ‘bitch slap’ is an example of the kind of tough love he needs to right his Presidency’s ship.
His base needs to do that a little more often and then maybe, just maybe, we’d get somewhere.